DISCUSSION AND ANALYSIS BY TRECORA’S RESOURCES DEPARTMENT OF THE FINANCIAL POSITION AND OPERATING RESULTS. (form 10-Q)

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FORWARD LOOKING AND CAUTIONARY STATEMENTS
Some of the statements and information contained in this Quarterly Report on
Form 10-Q may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements regarding the
Company's financial position, business strategy and plans and objectives of the
Company's management for future operations and other statements that are not
historical facts, are forward-looking statements. Forward-looking statements are
often characterized by the use of words such as "outlook," "may," "will," "can,"
"shall," "should," "could," "expects," "plans," "anticipates," "contemplates,"
"proposes," "believes," "estimates," "predicts," "projects," "potential,"
"continue," "intend," or the negative of such terms and other comparable
terminology, or by discussions of strategy, plans or intentions.
Forward-looking statements involve known and unknown risks, uncertainties,
assumptions, and other important factors that could cause the actual results,
performance or our achievements, or industry results, to differ materially from
historical results, any future results, or performance or achievements expressed
or implied by such forward-looking statements. Such risks, uncertainties and
factors include, but are not limited to the impacts of the COVID-19 pandemic on
our business, financial results and financial condition and that of our
customers, suppliers, and other counterparties; general economic and financial
conditions domestically and internationally; insufficient cash flows from
operating activities; our ability to attract and retain key employees; feedstock
and product prices; feedstock availability and our ability to access third party
transportation; competition; industry cycles; natural disasters or other severe
weather events (such as the Texas freeze event), health epidemics and pandemics
(including the COVID-19 pandemic) and terrorist attacks; our ability to
consummate, and the costs associated with, extraordinary transactions, including
acquisitions, dispositions and other strategic initiatives, and realize the
financial and strategic goals of such transactions; technological developments
and our ability to maintain, expand and upgrade our facilities; regulatory
changes; environmental matters; lawsuits; outstanding debt and other financial
and legal obligations (including having to return the amounts borrowed under the
PPP Loans or failing to qualify for forgiveness of such loans, in whole or in
part); difficulties in obtaining additional financing on favorable conditions,
or at all; local business risks in foreign countries, including civil unrest and
military or political conflict, local regulatory and legal environments and
foreign currency fluctuations; and other risks detailed in our latest Annual
Report on Form 10-K, including, but not limited to, "Part I, Item 1A. Risk
Factors" and "Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" therein, under similar headings in this
Quarterly Report on Form 10-Q and in our other filings with the Securities and
Exchange Commission (the "SEC"). Many of these risks and uncertainties are
currently amplified by and will continue to be amplified by, or in the future
may be amplified by, the COVID-19 pandemic and other natural disasters such as
severe weather events.
There may be other factors of which we are currently unaware or deem immaterial
that may cause our actual results to differ materially from the forward-looking
statements. In addition, to the extent any inconsistency or conflict exists
between the information included in this report and the information included in
our prior releases, reports and other filings with the SEC, the information
contained in this report updates and supersedes such information.
Forward-looking statements are based on current plans, estimates, assumptions
and projections, and, therefore, you should not place undue reliance on them.
Forward-looking statements speak only as of the date they are made, and we
undertake no obligation to update them in light of new information or future
events.
Overview
The following discussion and analysis of our financial results, as well as the
accompanying unaudited condensed consolidated financial statements and related
notes to consolidated financial statements to which they refer, are the
responsibility of our management. Our accounting and financial reporting fairly
reflect our business model which is based on the manufacturing and marketing of
specialty petrochemical products and waxes and providing custom manufacturing
services.
The discussion and analysis of financial condition and the results of operations
which appears below should be read in conjunction with "Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our Annual Report on Form 10-K for the year ended December 31,
2020. These discussions of results reflect the continuing operations of the
Company unless otherwise noted.
Our preferred supplier position into the specialty petrochemicals market is
derived from the combination of our reputation as a reliable supplier
established over many years, the very high purity of our products, and a focused
approach to customer service. In specialty waxes, we are able to deliver to our
customers a product performance and price point that is unique to our market;
while the diversity of our custom processing assets and capabilities offers
solutions to our customers that we believe are uncommon along the U.S. Gulf
Coast.
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Enabling our success in these businesses is a commitment to operational
excellence which establishes a culture that prioritizes the safety of our
employees and communities in which we operate, the integrity of our assets and
regulatory compliance. This commitment drives a change to an emphasis on
forward-looking, leading-indicators of our results and proactive steps to
continuously improve our performance. We bring the same commitment to excellence
to our commercial activities where we focus on the value proposition to our
customers while understanding opportunities to maximize our value capture
through service and product differentiation, supply chain and operating cost
efficiencies and diversified supply options. We believe our focus on execution,
meeting the needs of our customers, and growing our business while maintaining
prudent control of our costs, will significantly contribute to enhanced
shareholder value.
Review of Third Quarter 2021 Results
We reported third quarter 2021 net income from continuing operations of
approximately $1.9 million, an increase from net income from continuing
operations of $1.1 million in the third quarter of 2020. Sales volume of our
Specialty Petrochemicals products increased 16.8% in the third quarter of 2021
as compared to the third quarter of 2020. Specialty Waxes sales revenue was up
41.6% compared to the third quarter 2020. Third quarter 2021 results continued
to improve due to the ongoing economic recovery and stronger demand from our
end-use markets. However, our third quarter 2021 results include the negative
impacts of higher natural gas and transportation costs, as well as continued
supply-chain disruptions. Third quarter 2020 results were generally weaker due
to the impact of the COVID-19 pandemic on end-use markets and our customers.
Adjusted EBITDA from continuing operations was $7.5 million for the third
quarter of 2021, compared with Adjusted EBITDA from continuing operations of
$7.1 million in the third quarter of 2020. Adjusted EBITDA from continuing
operations increased due to increased sales volumes and selling prices. The
third quarter of 2020 was impacted by the COVID-19 pandemic. See below for
additional information about this measure and a reconciliation to the most
directly comparable GAAP financial measure.
COVID-19 Pandemic
The continued global impact of COVID-19 has resulted in various emergency
measures to combat the spread of the virus. With the development of variants and
increased vaccination rates, the status of ongoing measures varies widely
depending on the country and locality. We continue to monitor the progression of
the COVID-19 pandemic on a daily basis. Our guiding principle is, and has always
been, the protection of our people and the communities in which we work, as well
as maintaining the overall integrity of our assets. We are continuing to follow
the orders and guidance of federal, state, and local governmental agencies, as
we maintain our own stringent protocols in an effort to mitigate the spread of
the virus and protect the health of our employees, customers, and suppliers as
well as the communities in which we work. As an organization, we adopted social
distancing behaviors early, executed the necessary changes to enable all
possible job duties to be performed remotely and rapidly identified and executed
the necessary adjustments to support optimal productivity for all remote
workers.
To date, our plants have continued to operate normally with regard to COVID-19,
and our supply chain has generally remained intact, with adequate availability
of raw materials. Importantly, under the U.S. Department of Homeland Security
guidance issued on April 17, 2020 as updated through August 18, 2020, as well as
many related state and local governmental orders, chemical manufacturing sites
are considered essential critical infrastructure, and as such, have not been
subject to closure in the locations where we operate. However, there have been
widespread disruption in global logistics channels and we have experienced some
delays in fulfillment of export customer orders.
As an organization, since the start of 2021, we have encouraged our workforce to
receive vaccinations against COVID-19 through various means including incentive
programs and an on-site vaccination event. However, new variants, particularly
the Delta variant, have engendered a resurgence of the virus in many regions. In
the midst of changing conditions, we have nevertheless been able to continue to
manage our business with minimal impact as we have throughout the COVID-19
pandemic. With improving vaccination rates, we have also recently reopened some
of our offices to flex schedule staffing for administrative employees.
Through the third quarter of 2021, we have seen a continued resurgence of demand
due to the ongoing recovery of our business and the economy as a whole from the
COVID-19 pandemic, which we expect to continue through year end and into 2022.
However, numerous uncertainties remain regarding the potential future impact of
the COVID-19 pandemic for the remainder of 2021 and beyond (including how the
impact of the pandemic on our business and results of operations may change from
quarter to quarter), including uncertainties related to the severity of the
disease and the emergence of new variants, the continued duration of the
pandemic, additional actions that may be taken by governmental authorities and
other unintended consequences.
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Looking forward, our management will continue to actively monitor the impact of
the global pandemic on our business, results of operations, financial condition,
liquidity, suppliers, industry, investments and workforce. We do not currently
anticipate any material impairments, with respect to intangible assets,
long-lived assets, or right of use assets, increases in allowances for credit
losses from our customers, other expenses, or changes in accounting judgments to
have a material impact on our condensed consolidated financial statements.
On March 27, 2020, the CARES Act was signed into law to address the economic
impact of the COVID-19 pandemic. On December 27, 2020, the Consolidated
Appropriations Act, 2021 was signed into law and includes further relief and
stimulus provisions to address economic concerns related to the COVID-19
pandemic. On March 11, 2021, the American Rescue Plan Act of 2021 was signed
into law and provides further economic relief and stimulus to deal with the
economic impact of the COVID-19 pandemic. We also continue to monitor any
effects that may result from these Acts and other similar legislation or actions
on our Company.
Non-GAAP Financial Measures
We include in this Quarterly Report on Form 10-Q the non-GAAP financial measures
of EBITDA from continuing operations and Adjusted EBITDA from continuing
operations and provide reconciliations from our most directly comparable GAAP
financial measures to those measures.
We believe these financial measures provide users of our financial statements
with supplemental information that may be useful in evaluating our operating
performance. We also believe that such non-GAAP measures, when read in
conjunction with our operating results presented under GAAP, can be used to
better assess our performance from period to period and relative to performance
of other companies in our industry, without regard to financing methods,
historical cost basis or capital structure. These measures are not measures of
financial performance or liquidity under GAAP and should be considered in
addition to, and not as a substitute for, analysis of our results under GAAP.
We define EBITDA from continuing operations as net income (loss) from continuing
operations plus interest expense, income tax expense (benefit), and depreciation
and amortization. In the third quarter of 2021, we redefined our non-GAAP
measure Adjusted EBITDA to also exclude one-time costs for professional services
associated with M&A and strategic initiatives. We define Adjusted EBITDA from
continuing operations as EBITDA from continuing operations net of the impact of
items we do not consider indicative of our ongoing operating performance,
including share-based compensation, gains or losses on disposal of assets, gains
or losses on extinguishment of debt and one-time costs for professional services
associated with M&A and strategic initiatives. The historical presentation of
Adjusted EBITDA in this Quarterly Report on Form 10-Q has been recast to conform
to the revised definition.
The following table presents a reconciliation of net income (loss), our most
directly comparable GAAP financial performance measure for each of the periods
presented, to EBITDA from continuing operations and Adjusted EBITDA from
continuing operations.
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                                                                            Three Months Ended
                                                                            September 30, 2021
                                              Specialty
                                           Petrochemicals            Specialty Waxes           Corporate            Consolidated
                                                                              (in thousands)
Net income (loss)                        $          2,619          $       

2,670 $ (3,406) $ 1,883
Profit from discontinued operations, net of tax

                                                  -                         -                    -                      -

Profit (loss) from continuing operations $ 2,619 $

2,670 $ (3,406) $ 1,883
Interest charges

                                      318                         -                    1                    319
Income tax expense (benefit)                        1,444                         -               (1,655)                  (211)
Depreciation and amortization                         195                        23                    -                    218
Depreciation and amortization in cost of
sales                                               2,649                     1,530                    -                  4,179

EBITDA from continuing operations $ 7,225

  4,223          $    (5,060)         $       6,388
Stock-based compensation                                -                         -                  572                    572
Gain on disposal of assets                             12                         -                    -                     12
Gain on extinguishment of debt(1)                       -                    (2,188)                   -                 (2,188)
One-time costs for professional services
associated with M&A and strategic
initiatives                                             -                         -                2,751                  2,751
Adjusted EBITDA from continuing
operations                               $          7,237          $        

2,035 $ (1,737) $ 7,535
(1) The extinction of the debt is directly linked to the cancellation of TC’s PPP loan as indicated in note 11.

                                                                           Three Months Ended
                                                                           September 30, 2020
                                             Specialty
                                          Petrochemicals            Specialty Waxes           Corporate            Consolidated
                                                                             (in thousands)
Net income (loss)                       $          4,161          $        

(1,267) $ 19,538 $ 22,432
Loss from discontinued operations, net of tax

                                                 -                         -               21,324                 21,324
Income (loss) from continuing
operations                              $          4,161          $         

(1,267) $ (1,786) $ 1,108
Interest (income) charges

                            507                         -                    1                    508
Income tax expense (benefit)                       1,150                       (26)                (271)                   853
Depreciation and amortization                        183                        24                    3                    210
Depreciation and amortization in cost
of sales                                           2,484                     1,403                    -                  3,887

EBITDA from continuing operations $ 8,485

134 $ (2,053) $ 6,566
Stock-based compensation

                               -                         -                  489                    489

One-time costs for professional
services associated with M&A and
strategic initiatives                                  -                         -                   35                     35
Adjusted EBITDA from continuing
operations                              $          8,485          $            134          $    (1,529)         $       7,090


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                                                                            Nine Months Ended
                                                                            September 30, 2021
                                              Specialty
                                           Petrochemicals            Specialty Waxes           Corporate           Consolidated
                                                                              (in thousands)
Net income (loss)                        $          8,110          $       

533 $ (8,909) $ (266)
Profit from discontinued operations, net of tax

                                                  -                         -                   -                      -

Profit (loss) from continuing operations $ 8,110

533 $ (8,909) $ (266)
Interest charges

                                      917                         -                   1                    918
Income tax expense (benefit)                        2,364                         -              (2,873)                  (509)
Depreciation and amortization                         595                        69                   6                    670
Depreciation and amortization in cost of
sales                                               7,838                     4,478                   -                 12,316

EBITDA from continuing operations $ 19,824

  5,080          $  (11,775)         $      13,129
Stock-based compensation                                -                         -               1,695                  1,695
Gain on disposal of assets                           (280)                        -                   -                   (280)
Gain on extinguishment of debt(1)                       -                    (2,188)                  -                 (2,188)
One-time costs for professional services
associated with M&A and strategic
initiatives                                             -                         -               3,998                  3,998
Adjusted EBITDA from continuing
operations                               $         19,544          $        

2,892 $ (6,082) $ 16,354
(1) The extinction of the debt is directly linked to the cancellation of TC’s PPP loan as indicated in note 11.

                                                                            Nine Months Ended
                                                                           September 30, 2020
                                             Specialty
                                          Petrochemicals            Specialty Waxes           Corporate            Consolidated
                                                                             (in thousands)
Net income (loss)                       $         10,150          $        

(385) $ 21,526 $ 31,291
Profit from discontinued operations, net of tax

                                             -                         -               26,179                 26,179
Income (loss) from continuing
operations                              $         10,150          $           (385)         $    (4,653)         $       5,112
Interest expense                                   2,158                         -                    1                  2,159
Income tax benefit                                  (249)                   (1,595)              (2,098)                (3,942)
Depreciation and amortization                        554                        71                   13                    638
Depreciation and amortization in cost
of sales                                           7,351                     4,022                    -                 11,373

EBITDA from continuing operations $ 19,964

2,113 $ (6,737) $ 15,340
Stock-based compensation

                               -                         -                1,422                  1,422
(Gain) loss on disposal of assets                     (8)                       17                    -                      9

One-time costs for professional
services associated with M&A and
strategic initiatives                                  -                         -                   35                     35
Adjusted EBITDA from continuing
operations                              $         19,956          $         

2 130 $ (5,280) $ 16,806


Liquidity and Capital Resources
Working Capital
Our approximate working capital days are summarized as follows:
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                                                  September 30, 2021                December 31, 2020                September 30, 2020
Days sales outstanding in accounts
receivable                                              39.4                             40.0                              43.7
Days sales outstanding in inventory                     19.3                             20.5                              21.4
Days sales outstanding in accounts
payable                                                 15.6                             22.9                              24.7
Days of working capital                                 43.0                             37.7                              40.4


Our days sales outstanding in accounts receivable at September 30, 2021 was 39.4
days compared to 40 days at December 31, 2020. Our days sales outstanding in
inventory decreased by approximately 1.2 days from December 31, 2020. Our days
sales outstanding in accounts payable decreased due to the payment of accrued
accounts payable at December 31, 2020, primarily related to maintenance spending
and certain feedstock payables. In addition, as our sales have increased since
the end of last year, our days sales outstanding in inventory and accounts
payable have decreased. Since days of working capital is calculated using the
above three metrics, it increased for the aforementioned reasons.
Our cash balance at September 30, 2021 was $44.4 million as compared to $55.7
million at December 31, 2020.
The change in cash is summarized as follows:               Nine Months 

Ended

                                                             September 30,
                                                                   2021     

2020

Net cash provided by (used in)                           (thousands of dollars)
Operating activities                               $       9,316           $ 17,575
Investing activities                                     (12,014)            58,371
Financing activities                                      (8,563)           (30,229)
Increase (decrease) in cash                        $     (11,261)          $ 45,717
Cash                                               $      44,403           $ 51,862


Operating Activities
Cash provided by operating activities totaled $9.3 million for the first nine
months of 2021, $8.3 million lower than the corresponding period in 2020. For
the first nine months of 2021, net income decreased approximately $31.6 million
as compared to the corresponding period in 2020, driven primarily by the
non-recurrence of the benefit of monetizing deferred taxes in 2020 under the
CARES Act. Major non-cash items affecting income in the first nine months of
2021 included the impact of depreciation and amortization of $13.0 million,
forgiveness of one of the PPP Loans of approximately $2.2 million, and
stock-based compensation of $1.7 million. Major non-cash items affecting income
in the first nine months of 2020 included the impact of deferred taxes of $14.2
million, depreciation and amortization of $12.0 million and stock-based
compensation of $1.4 million.
Additional factors leading to the decrease in cash provided by operating
activities included:
•Trade receivables increased approximately $6.7 million, primarily due to
increases in sales volumes. We do not expect any collection issues at this time.
•Inventories increased approximately $2.7 million driven primarily by the
increase in feedstock prices.
•Prepaid and other assets decreased $2.6 million primarily related to the
payment of our foreign tax liability and regular amortization of our prepaid
insurance.
•Accounts payable and accrued liabilities increased $2.4 million primarily due
to one-time costs for professional services associated with M&A and strategic
initiatives.
•The above items were offset by a decrease in taxes receivable of $1.8 million
as we collected the remaining NOL carryback claims under the CARES Act.
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Investing Activities
Cash used in investing activities during the first nine months of 2021 was
approximately $12.0 million, representing a decrease of approximately $70.4
million from the corresponding period of 2020. The outflow of the funds used in
investing activities during the first nine months of 2021 were additions to
property, plant and equipment and the rebuild and restoration of property, plant
and equipment associated with the Texas freeze event in February 2021 of
approximately $12.3 million, partially offset by approximately $0.3 million in
proceeds from the sale of assets. The primary source of the funds provided by
investing activities during the first nine months of 2020 was $68.5 million of
proceeds, net of the deposit previously paid, received in connection with the
sale of our ownership interest in AMAK discussed in Note 5, offset by additions
of plant, pipeline and equipment of approximately $10.3 million.
Financing Activities
Cash used in financing activities during the first nine months of 2021 was
approximately $8.6 million versus cash used in financing activities of $30.2
million during the corresponding period of 2020. During the first nine months of
2021, we made mandatory payments totaling $3.3 million on our Term Loan Facility
and repurchased approximately $5.0 million of shares of our common stock under
our Share Repurchase Program. During the first nine months of 2020, we drew
$20.0 million under the Revolving Facility as a precaution in light of the
uncertainty caused by the COVID-19 pandemic. We also received PPP Loans of $6.1
million to maintain the continuity of our workforce, including maintaining
compensation and benefits. Utilizing a portion of the net proceeds from the sale
of our investment in AMAK, together with cash on hand, we repaid our outstanding
balance on our Revolving Facility of $23 million at the end of the second
quarter 2020 and further reduced our debt with a $30 million prepayment toward
our Term Loan Facility in the third quarter of 2020. We also made mandatory
payments totaling $3.3 million on our Term Loan Facility during the first nine
months of 2020.
Anticipated Cash Needs
As of September 30, 2021, we have approximately $44.4 million in cash, combined
with an available balance on our Revolving Facility of the full $75 million. As
a result, we believe the Company is able to support its operating requirements
and capital expenditures through internally generated funds supplemented with
cash on our balance sheet and availability under our ARC Agreement in both the
short-term (i.e., the next 12 months) and the long-term (i.e. beyond the next 12
months).
Results of Operations
Comparison of Three Months Ended September 30, 2021 and 2020
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Specialty Petrochemicals Segment                      Three Months Ended September 30,
                                                  2021                2020        Change      % Change
                                                           (thousands of dollars)
Product Sales                          $    61,938             $ 37,580       $ 24,358         64.8  %
Processing                                   1,419                1,644           (225)       (13.7) %
Gross Revenue                          $    63,357             $ 39,224       $ 24,133         61.5  %

Volume of Sales (gallons)
Specialty Petrochemicals Products           20,862               17,868          2,994         16.8  %
Prime Product Sales                         17,180               14,734          2,446         16.6  %
By-product Sales                             3,682                3,134            548         17.5  %

Cost of Sales                          $    56,069             $ 30,732         25,337         82.4  %
Gross Margin                                  11.5   %             21.7  %                    (10.2) %
Total Operating Expense*                    19,543               17,122          2,421         14.1  %
Natural Gas Expense*                         1,735                  867            868        100.1  %
Operating Labor Costs*                       2,901                4,046         (1,145)       (28.3) %
Transportation Costs*                        5,936                5,645            291          5.2  %
General & Administrative Expense             2,681                2,438            243         10.0  %
Depreciation and Amortization**              2,844                2,667            177          6.6  %
Capital Expenditures                         3,416                2,084          1,332         63.9  %


* Included in cost of sales
**Includes $2,650 and $2,484 for 2021 and 2020, respectively, which is included
in operating expense
Gross Revenue
Gross Revenue for our Specialty Petrochemicals segment increased for the third
quarter 2021 compared to the third quarter 2020 by 61.5%, primarily due to
higher sales volumes and higher selling prices for prime products and
by-products which were previously impacted by the COVID-19 pandemic in the third
quarter of 2020.
Product Sales
Specialty Petrochemicals segment product sales increased approximately 64.8% for
the third quarter 2021 compared to the third quarter 2020. Prime products sales
volume increased approximately 2.4 million gallons, or 16.6%, from the third
quarter 2020, driven primarily by the continued increase in economic activity
including strong demand from many of our end-use markets. By-product sales
volumes in third quarter 2021 increased 17.5% compared to the third quarter
2020. By-products are produced as a result of prime product production and their
margins are significantly lower than margins for our prime products. Foreign
sales volume decreased to 17.6% of total Specialty Petrochemicals volume in the
third quarter for 2021 compared to 24.6% in the third quarter 2020. Foreign
sales volume includes sales to Canadian oil sands customers.
Processing
Processing revenues were $1.4 million in the third quarter 2021 compared to $1.6
million for the third quarter 2020.
Cost of Sales (includes but is not limited to raw materials and total operating
expense)
We use natural gasoline as feedstock, which is the heavier liquid remaining
after ethane, propane and butanes are removed from liquids produced by natural
gas wells. The material is a commodity product in the oil/petrochemical markets
and generally is readily available. The price of natural gasoline is highly
correlated with the price of crude oil. Our Advanced Reformer unit upgrades the
by-product stream produced as a result of prime product production. This upgrade
allows us to sell our by-products at higher prices than would be possible
without the Advanced Reformer unit.
Cost of sales increased 82.4% for the third quarter 2021 compared to the third
quarter 2020. The increase in cost of sales compared to the same period last
year was driven by significantly higher sales volumes, increased feedstock
prices and higher utility costs. Benchmark Mont Belvieu natural gasoline
feedstock price increased by 103% from $0.80 per gallon in third quarter 2020 to
$1.62 per gallon in the third quarter 2021. Sharp increases in feedstock costs
were only partially offset by
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product price increases which led to gross margin decline in the third quarter
of 2021 compared to third quarter of 2020. By-product margins were higher
compared to the third quarter of 2020. This was due to higher component prices.
The gross margin percentage for the Specialty Petrochemicals segment decreased
from 21.7% for the third quarter of 2020 to 11.5% in the third quarter of 2021.
Total Operating Expense (includes but is not limited to natural gas, operating
labor, depreciation and transportation)
Total Operating Expense increased $2.4 million, or 14.1%, for the third quarter
2021 compared to the same period in 2020, primarily due to higher natural gas
and transportation costs offset by outsourcing of certain operating labor.
Capital Expenditures
Capital expenditures in the third quarter 2021 were approximately $3.4 million
compared to $2.1 million in the third quarter of 2020. Third quarter 2021
capital expenditures were primarily for maintenance and upkeep of our GSPL
pipeline, which is used to transport our feedstock, of approximately
$1.5 million.
Specialty Waxes Segment                                                 

Three months ended September 30,

                                                              2021              2020            Change                % Change
                                                                             (thousands of dollars)
Product Sales                                      $     8,484           $  5,990          $  2,494                    41.6  %
Processing                                               2,796              2,533               263                    10.4  %
Gross Revenue                                      $    11,280           $  8,523          $  2,757                    32.3  %

Volume of specialty wax sales (thousand
pounds)                                                  9,786              8,821               965                    10.9  %

Cost of Sales                                      $     9,595           $  8,558          $  1,037                    12.1  %
Gross Margin (Loss)                                       14.9   %           (0.4) %                                   15.3  %
General & Administrative Expense                         1,175              1,278              (103)                   (8.1) %
Depreciation and Amortization*                           1,553              1,427               126                     8.8  %
Capital Expenditures                               $       215           $    641          $   (426)                  (66.5) %


*Includes $1,530 and $1,403 for 2021 and 2020, respectively, which is included
in cost of sales
Product Sales
Product sales revenue for the Specialty Waxes segment increased by 41.6% for the
third quarter of 2021 compared to the third quarter of 2020 due to higher
selling prices and volumes. Average selling prices for our specialty waxes
increased approximately 28% as compared to the same period last year. Specialty
wax sales volume increased approximately 1.0 million pounds in the third quarter
of 2021 compared to the third quarter of 2020. Our wax feed is based on certain
by-products produced as a result of polyethylene production at major
polyethylene producers' facilities on the US Gulf Coast.
Processing
Processing revenues were $2.8 million for the third quarter 2021, a $0.3 million
increase compared to the third quarter 2020.
Cost of sales
Cost of sales increased by 12.1%, or approximately $1.0 million, in the third
quarter 2021 compared to the third quarter 2020. This increase was driven by
higher polyethylene wax feed cost and higher purchase prices as well as
increased utility charges.
Depreciation
Depreciation for the third quarter 2021 was $1.6 million, a $0.1 million
increase compared to the third quarter of 2020.
Capital Expenditures
Capital Expenditures were approximately $0.2 million in the third quarter 2021
compared to $0.6 million in the third quarter of 2020.
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Corporate Segment                                     Three Months Ended September 30,
                                                          2021         2020       Change      % Change
                                                    (thousands of dollars)
General & Administrative Expense       $     5,555                $ 2,049   

$ 3,506 171.1%


Corporate expenses increased $3.5 million in the third quarter of 2021 compared
to the third quarter of 2020 primarily due to one-time costs for professional
services associated with M&A and strategic initiatives as well as higher
insurance costs.
Investment in AMAK - Discontinued Operations                           

Three months ended September 30,

                                                            2021             2020            Change                % Change
                                                                (thousands of dollars)
 Equity in earnings of AMAK                        $        -          $   682          $   (682)                  100.0  %


Equity in earnings of AMAK decreased due to the completion of the sale of our
ownership interest in AMAK during the third quarter of 2020. See Note 5 for
additional discussion.
Results of Operations
Comparison of Nine Months Ended September 30, 2021 and 2020
Specialty Petrochemicals Segment                    Nine Months Ended September 30,
                                                 2021            2020        Change      % Change
                                                         (thousands of dollars)
Product Sales                          $   164,359       $ 119,202       $ 45,157         37.9  %
Processing                                   4,200           4,047            153          3.8  %
Gross Revenue                          $   168,559       $ 123,249       $ 45,310         36.8  %

Volume of Sales (gallons)
Specialty Petrochemicals Products           58,038          52,952          5,086          9.6  %
Prime Product Sales                         48,716          44,042          4,674         10.6  %
By-product Sales                             9,322           8,910            412          4.6  %

Cost of Sales                          $   148,144       $ 102,654         45,490         44.3  %
Gross Margin                                  12.1  %         16.7  %                     (4.6) %
Total Operating Expense*                    57,438          50,022          7,416         14.8  %
Natural Gas Expense*                         4,604           2,479          2,125         85.7  %
Operating Labor Costs*                       9,683          11,984         (2,301)       (19.2) %
Transportation Costs*                       16,640          15,422          1,218          7.9  %
General & Administrative Expense             8,684           7,944            740          9.3  %
Depreciation and Amortization**              8,433           7,905            528          6.7  %
Capital Expenditures                        10,675           9,067          1,608         17.7  %


* Included in cost of sales
**Includes $7,838 and $7,351 for 2021 and 2020, respectively, which is included
in operating expense
Gross Revenue
Gross Revenue for our Specialty Petrochemicals segment increased during the
first nine months of 2021 from the first nine months of 2020 by 36.8%, primarily
due to higher sales volumes for prime products and byproducts. An increase in
average selling prices resulting from an increase in feedstock costs also
contributed to the higher revenues.
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Product Sales
Specialty Petrochemicals segment product sales increase approximately 37.9%
during the first nine months of 2021 from the first nine months of 2020,
primarily as a result of higher sales volumes and higher selling prices driven
by formula based pricing. Prime products sales volume increased approximately
4.7 million gallons, or 10.6%, from the first nine months of 2020 due to higher
demand. Sales in the first nine months of 2020 were generally weaker as a result
of the impact of the COVID-19 pandemic. By-product sales volumes in the first
nine months of 2021 increased 4.6% compared to the first nine months of 2020.
By-products are produced as a result of prime product production and their
margins are significantly lower than margins for our prime products. Foreign
sales volume decreased to 19.1% of total Specialty Petrochemicals volume in the
first nine months of 2021 from 24.4% in the first nine months of 2020. Foreign
sales volume includes sales to Canadian oil sands customers.
Processing
Processing revenues were approximately $4.2 million and $4.0 million for the
first nine months of 2021 and 2020, respectively.
Cost of Sales (includes but is not limited to raw materials and total operating
expense)
Cost of Sales increased 44.3% during the first nine months of 2021 from the
first nine months of 2020. The increase in cost of sales compared to the same
period last year was driven by higher sales volumes, higher feedstock costs and
higher operating expenses - primarily natural gas and transportation costs.
Benchmark Mount Belvieu natural gasoline feedstock price increased 104% from
$0.72 per gallon in the first nine months of 2020 to $1.47 per gallon in the
first nine months of 2021. By-product margins were higher compared to the first
nine months of 2020. This was due to higher component prices.
The gross margin percentage for the Specialty Petrochemicals segment decreased
from 16.7% in the first nine months of 2020 to 12.1% in the first nine months of
2021 driven by increasing feedstock costs as well as higher operating expenses
which were partially offset by product price increases.
Total Operating Expense (includes but is not limited to natural gas, operating
labor, depreciation and transportation)
Total Operating Expense increased $7.4 million, or 14.8%, during the first nine
months of 2021 from the same period in 2020. Operating expenses were impacted by
higher natural gas and transportation costs.
Capital Expenditures
Capital expenditures in the first nine months of 2021 were approximately $10.7
million compared to $9.1 million in the first nine months of 2020. The first
nine months of 2021 included approximately $3.8 million for restoration and
upkeep of our GSPL pipeline which is used to transport our feedstock.
Additionally, the first nine months of 2021 included tower replacement and feed
tank restoration costs of approximately $1.5 million as well as restoration
costs associated with the damage to plant equipment due to the Texas freeze
event in February 2021.
Specialty Waxes Segment                                                    

Nine months ended September 30,

                                                              2021                  2020            Change                % Change
                                                                               (thousands of dollars)
Product Sales                                      $    22,288               $ 18,258          $  4,030                    22.1  %
Processing                                               7,224                  8,981            (1,757)                  (19.6) %
Gross Revenue                                      $    29,512               $ 27,239          $  2,273                     8.3  %

Volume of specialty wax sales (thousand
pounds)                                                 27,411                 27,361                50                     0.2  %

Cost of Sales                                      $    27,588               $ 25,132          $  2,456                     9.8  %
Gross Margin (Loss)                                        6.5   %                7.7  %                                   (1.2) %
General & Administrative Expense                         3,522                  4,120              (598)                  (14.5) %
Depreciation and Amortization*                           4,547                  4,093               454                    11.1  %
Capital Expenditures                               $     1,620               $  1,242          $    378                    30.4  %


*Includes $4,478 and $4,022 for 2021 and 2020, respectively, which is included
in cost of sales
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Product Sales
Specialty Wax segment product sales revenue increased approximately $4.0
million, or 22.1%, during the first nine months of 2021 from the first nine
months of 2020. Product sales revenue increased as we were successful in
increasing selling prices for our specialty waxes in excess of increases in wax
feed costs. Specialty wax sales volume increased slightly, while average selling
prices increased due to higher wax pricing and a change in mix of sales to
domestic versus export customers. Our wax feed is based on certain by-products
produced as a result of polyethylene production at major polyethylene producers'
facilities on the US Gulf Coast.
Processing
Processing revenues were $7.2 million in the first nine months of 2021, a
decrease of 19.6% from the first nine months of 2020, or about $1.8 million. The
decrease was primarily due to the continuing pandemic along with the impact of
the Texas freeze event in February 2021.
Cost of Sales
Cost of Sales increased 9.8%, or nearly $2.5 million, in the first nine months
of 2021 compared to the first nine months of 2020. This increase was driven by
higher polyethylene wax feed cost and higher purchase prices as well as
increased utility charges related to the Texas freeze event.
General and Administrative
General and administrative expenses decreased approximately $0.6 million in the
first nine months of 2021 compared to the first nine months of 2020.
Depreciation
Depreciation for the first nine months of 2021 was $4.5 million, a $0.5 million
increase from the first nine months of 2020.
Capital Expenditures
Capital Expenditures were approximately $1.6 million in the first nine months of
2021 compared with $1.2 million in the first nine months of 2020. Capital
expenditures primarily relate to restoration costs associated with the damage to
pipes and other plant equipment due to the Texas freeze event in February 2021.
Corporate Segment                                     Nine Months Ended September 30,
                                                         2021         2020       Change      % Change
                                                    (thousands of dollars)
General & Administrative Expense       $     11,722              $ 6,664    

$ 5,058 75.9%


General corporate expenses increased by $5.1 million during the first nine
months of 2021 from the first nine months of 2020. The increase is primarily
attributable to one-time costs for professional services associated with M&A and
strategic initiatives as well as higher insurance costs.
Investment in AMAK - Discontinued Operations                           Nine Months Ended September 30,
                                                            2021             2020            Change                % Change
                                                                (thousands of dollars)
Equity in earnings of AMAK                         $        -          $   455          $   (455)                 (100.0) %

Equity in AMAK earnings decreased as a result of the finalization of the sale of our stake in AMAK during the third quarter of 2020. See note 5 for further discussion.

Contractual Obligations
Our contractual obligations are summarized in Part II, Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations," in
our Annual Report on Form 10-K for the year ended December 31, 2020. There have
been no other material changes to the contractual obligation amounts disclosed
in our Annual Report on Form 10-K for the year ended December 31, 2020.
Critical Accounting Policies and Estimates
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Critical accounting policies are more fully described in Note 2, "RECENT
ACCOUNTING PRONOUNCEMENTS" to the consolidated financial statements set forth in
our Annual Report on Form 10-K for the year ended December 31, 2020. The
preparation of consolidated financial statements in accordance with generally
accepted accounting principles requires management to make estimates,
assumptions and judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported amounts of revenue
and expenses during the period reported. By their nature, these estimates,
assumptions and judgments are subject to an inherent degree of uncertainty. We
base our estimates, assumptions and judgments on historical experience, market
trends and other factors that are believed to be reasonable under the
circumstances. Estimates, assumptions and judgments are reviewed on an ongoing
basis and the effects of revisions are reflected in the consolidated financial
statements in the period they are determined to be necessary. Actual results may
differ from these estimates under different assumptions or conditions. Our
critical accounting policies and estimates have been discussed with the Audit
Committee of the Board of Directors and discussed in our Annual Report on Form
10-K for the year ended December 31, 2020. For the nine months ended September
30, 2021, there were no significant changes to these policies.
Recent and New Accounting Standards
See Note 2 for a summary of recent accounting guidance.
Off Balance Sheet Arrangements
As of September 30, 2021, we do not have any off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future effect on our
financial statements, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.

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