Hudson (HDSN) 4 Aug 222022 Q2 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to the Hudson Technologies Second Quarter 2022 Earnings Call. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, John Nesbett. Sir, the floor is yours.

Thank you, Ali. to for call the welcome Technologies' discuss and results financial second evening, our to conference Hudson Good quarter XXXX.

today Nat Officer. call Executive harbor statement. to the are President safe Coleman, On and read Officer; the and take Krishnamurti, I'll Financial Chief a moment Brian Chief

During of the about future call, forward-looking statements. this we forward-looking make certain predictions the All opinions statements and course statements. that conference will address expectations, are

and interpret best our guarantees reflect are expectations a would that results business, that are view them of and the most see factors actual current recent uncertainties to elements within our ask in industry Please of understand not our performance and the they urge Although to that subsequent and involve differ based today, the that other discussion business cases, and risks not can affect for these since and and of other could assumptions. our our performance. are consider you SEC these we review and, as change cause them statements you certain on they we number filings materially. of Form And Hudson's and a We future our in light. risks control, principal XX-K

that, Go will over ahead, Okay. call With Coleman. I now Brian. Brian to the turn

Good evening, and thank you for joining us.

consistent strength significantly Our continued in seeing with the and as of margins enhanced certain growth, results cash season second reflect increased second showed refrigerants. and unfolds. revenue the quarter sustained results We're momentum quarter substantial And selling flow profitability. strength price our

price of At levels, consistent material of the increased appreciation to the first basis certain the quarter second selling levels selling refrigerants. In margin achieved in we without higher XX%, gross prices for during addition average to the revenues a average pricing XXXX. XXXX, record as cost these maintained with the remain of quarter

of balance gross margins season. equipment for the with today, customer and important will full for on the performance with second raised economy XX%. sustainable in in we've them around mid-XX% to shared refrigerant the although quarter, moderate products year achieve continued industry relationships. range, least long-term blended who margin high longer-term believe value our the developing it our gross and believe gross remain to with to and our services a at in anticipated settling visibility inventory ability increases this With the circular margin for in recognize working slightly focused we the year Hudson's price We and costs the margins, sales customers During expectations transitions cleaner component due will relationships be strategic We of the we in as an is refrigerants vision during believe the to refrigerants. provide of exceptionally stabilization full

the compliance As and in we consumption discussed step-down virgin XXXX. start the 'XX before, of in XX% allowances and the with XXXX and production AIM mandated industry's HFCs Act, which marks both XXXX reduction XX% in baseline a for a

R-XX reclaimed the proprietary a decades so phaseout demand Act most phased is to state-of-the-art and anticipated more use and production promotes saw the is leading fill production what down. refrigerants as position the with steps are knowledge, the and HFCs than to technology previously reclaimer to supply refrigerants aggressive the phasedown Additionally, as qualified meet we much HFC commonly with the virgin refrigerant, fastest of uniquely with a virgin down. reclaimed of currently used faster mandates as Hudson gap

the initiatives their advancing California the in and we're refrigerant reclaimed way HFCs. our this various requirements, to OEMs OEMs are regulations Act, on the these we're seeing set reach opportunities federal Hudson meeting are own is audience. that recognition with within focused states set other equipment. by states growing to assist has the new a suited uses XX% government. in ideally minimum working to of we're the also participants related on to and addition use the as the for factory-charged brand certain In Many with requirement partnerships and forming AIM industry comply forth led

Hudson's with the we're OEMs and announced others. capabilities Hudson a and industry the assist market, to forward have our of our and federal to to to look factory equally successful seeing that states and not aftermarket the supplier service assisting rule-makings resource National, by equipment of partners, the and time. of at level, we relationships transition servicing just deal use as systems. Additionally, for expanding and to a will Lennox residential a reclaim evolve reclaim and our the their at This of new compliance friendly refrigerants and history as long increased over steward but this cooling next-generation alliance reductions equipment with for and highlights from support believe role increase continue environmentally and phasedown Lennox a continue Hudson alliance us more We refrigerants. chemical to opportunity presents tremendous a the important the transition. HVAC industry's as market field with the ongoing whereby government expand latest transitions prior leadership our new efficient will through of just to exclusive certified We strategic industry to be OEM has level, dealt refrigerants

to this we year and targets. forecast in long-term release, the see of the million current afternoon's updating also for revenues date our XXXX. should as in pricing for stated selling increasing given Looking are full dynamics XXXX Based on pricing reported our current we we excess the levels, previously forward, season, $XXX press

gross believe will range. and to our during be the with costs in blended stabilization continue the mid-XX% balance of moderate we inventory today, gross year believe we in season, anticipated in will now increases sales at margin margin due year to prices full the visibility full the performance least for While

forward. sustained be for the As an to accelerated profitability higher we expect business what shift AIM significantly going Act it we relates implementation, seen have the to will

approximately a increases historical by than price long-term increase in provides shift years profits gross over conservative, than remaining to are Assuming further there This certainly seeing in slower while margins for reduce we but and invest business flexibility HFC may X are growth the XXXX, moderating that our significantly pace for such levels, greater HFC us with long-term saw the to enhanced revenue annualized an are price above impact XXXX, considerably to targets targeting also phasedown increases XX%. to we're related These next financial we targets. continuing debt. to $XXX applying to of and factors million

within industry HVAC could some has than strong, create the be a broader headwinds. the And particularly but the very front. Thus aftermarket markets, on example, could recessionary For far, potentially other very economy we're industry reclaim phasedown. the insulated an Conversely, we more economic everyone like our mandated potentially environment stayed eye targets and keeping as it. signals these assumptions else, the modest just given on are make watching our

the and As we promote the continuing cooling of meeting move are long-standing to needs focused our traditional foster our selling through and completion customers season, of remain we on sustainable practices.

to to more refrigerants committed providing and products cleaner our transition equipment. industry-wide to enable are We efficient and services the

incentives enable atmosphere uniquely the harmful by positioned a reclaimer, the and that reclaim industry to the and of our technology to waste refrigerant and venting partners into refrigerants driving As refrigerants. Hudson forward recover, the reduce leading is reuse

for company. portfolio is a our management. exciting reclamation our environmentally and capabilities pivotal our for leadership to platform a market time refrigerant as of on-site steward of time sustainable our reclaimed recognition. refrigerants Our EMERALD gaining sound, is industry provide a services solid of and grow us role brand This for And

to As meet refrigerant we refrigerant the well industry our to types, demand product customer for all HFOs. with continues HCFCs, including and positioned CFCs, and evolve, offerings HFCs remain capabilities next-generation

and our consistent only we as as a industry role long-standing We refrigerants. and and leader grow a circular participant economy and customers historical of refrigerants. our are seamless partners transition environmentally friendly the will systems more proponent to cooling and an seek And efficient believe

turn Nat I'll over to the Now financials. ahead, review Go the call Nat. to

you, Thank Brian.

of was of For June compared driven Hudson margin of XXXX. quarter selling the the growth revenue increase XX% margin prices XXXX, million in significant appreciation period. XXXX million, without due the The cost the to was material compared refrigerants second the certain increase for increased of price, by to gross refrigerants mainly a of comparable the ended second in is and quarter sold. an basis quarter. revenues XX% certain the The to quarter $XX.X increase for during $XXX.X Gross XX% XXXX selling second reported in XX, of

and quarter tax second While basic cost, operating the lower of quarter the compared revenue $XX.X to of XXXX. mainly per of to we in diluted gross recorded catch $X.XX XXXX net XXXX up operating the at in to pricing The for margin of XXXX compared million expect second of to the costs as income half $XX.X $X.XX with million range, million tax the quarter the selling or valuation during in or of full or revenue of the did the of million of million the company included we first for XXXX. XXXX. the of achieve to $XX.X to $X.XX income per year share second X.X% XX% quarter million net compared gross benefit performance the in and of or stabilized XXXX increased mid-XX% basic income $XX.X million $X.XX a quarter income the due of increased for the second profitability. moderate SG&A and of least the was per half per as allowance of margin $XX.X of We during of a to recorded the an price of period in release second Net share second second XX.X% $X associated income diluted same also result quarter $X.X of year. year, income

The incremental ended declining flow, $XX the XXXX, ratio also ratio the XX trailing and months improved term During June June XX increased to performance X.XX:X reducing company's of the and of XX, availability a trailing June resulting XXXX, thus from for XXXX, ended months XXXX. quarter $XX for the of leverage consisting X.XX:X revolver down at significantly paid cash XX, cash was of million. from an company availability, million loan its XX, debt, second leverage

other to flow, we two, we additional balance one, three, arise. sheet; our they have consider continue we expect further ensure cash as opportunities to: inventory As hand; generate adequate and on delever

as we and liquidity, to over a Brian. loan loan platform strong credit look will forward. the facilities and now financial and flexibility have We back us call provide with I term turn solid revolving our

the reclamation refrigerant selling season. sustainable industry. the Thanks, capitalize our role a Operator, call market well continued questions. we're and for as opportunities Nat. far, strong our of provider on services with to thus believe the for we enhance open we positioned and growth now as pleased leading XXXX We're products to performance, we'll And in the

[Operator Instructions].

coming your is affiliation question first pose Your question. Sir, Sigdahl. mention please from and your Ryan

Nice results.

Thank Ryan. you,

there? still you Are second. a for out phased You

hear you Can me? am. I

Yes, better. that's

Yes.

Sorry.

Good.

gross and So I with year-to-date. in impressive want start the to quarter Obviously, margins. extremely

we the transitory have So there's would that flowing margin benefit appear. line. been than feels know some X last price would bigger the it But it quarters like gross through

So it much how quarter. was or the kind seems structural call gross you would can margin what gross price like ex margins were out that versus structural within I well you normal increase guess, that better break XX%? this from price of or normal

last we you the around average, $XX consistent entire a QX It's was when back, basically months, we certainly, and were probably call throughout further earnings on second $XX in pricing through QX, difficult HFCs, to quarter, last That as X the say, itself. consistent through try increases And went pound. to reported today. that's price let's over for bifurcate there But it. go

as that So price up to today's would as the basis sales in our QX there level, overall related at seen. we cost not release. have with And increase whereas the But margins throughout an the result, inventory of press reflected entire we QX of as ended the we our gross of costs, might period, it higher much thought as really wasn't a benefit in had some have.

talked XXXX that looking were. you've your gross targets further, out about the and was XX% normal of Historically, margin, Maybe XXXX kind as margin. Brian, targets, what gross always XX%

So by what's I raise points? confidence you giving X that to guess

close in growth reflecting even volumes not using some to conservative height reclaim. but the that. It's We're a say phaseout, HCFC relying we're growth of R-XX in on would reach certainly, I'd reclaim, getting reclaims very but the that reclaim

that stockpile in you through AIM any that know expect, just period of certainly coming today. short-term we the that the XX% But believing results. have to into will would overall long-term the are be Act, economy AIM into basis, don't on see a into there Act affect XXXX overall expression a would so HFCs, you reduction of increases get the annual the that from when we inventory we And to are other consumed. availability was We could where period, or how coming using the extent it price and

we in anticipated by we're XXXX, and of And increases balance supply/demand, so really certainly, levels normal possibly with the tightness to see economic would a sooner, from at increases today. start certainly price

then following on that. maybe up And

So still as R-XX secondly, it But can as pretty trended see as growth sounds what as categories? those reclamation you you And well of tight. or has on like comment HFCs, then you each inventory on on is both channel inventory? comment how channel that far can

remain pattern foreseeable as need as pricing, inventory future. the expectation XX would, price that relates and low for down XXs, mid-XXs. chain. it not and that to the continue it pretty for, probably this So We constant foreseeable the they the We constant are The XX expect point, to will future. expect people and will R-XX remains is would people still again, buying at sale just it, and in carry

there So see wouldn't and for several to no changes changes to expect come. years

let's 'XX. as relates a of having XXXX it could Was think not don't little not more it now think some thought chain the a could We certain little bit if higher but be certain would normal. anticipation about, a downstream. have there might bit overly it's in say, buyers there As a or than material, bit inventory but part? little is, the what level that and we're HFCs, third chain in inventory HFC We're we be inventory to in more to

Reclaim.

be to continues And disappointing. reclaim. somewhat Reclaim

were when would season will it's decades, say, QX in HFC paid still that last they say value. I in for the heard mind QX, contractor time have would and that the And HFC that likely could has contractor refrigerants, early I be be a early Now they probably whereas for first charged. a

reclaim reclaim, on we said that to before, as half do picks we've typically think, back So with up the regards season. the of

a But that going points repairs, to start are then importance And contractors This economy, significant through end. their of I the the in way in can gas to of the is then Hudson commercially. to on industry talking of this accumulate all for busy Participants Technologies in of season towards not this reuse the and to As recover send it the they that back start really benefits new preferred bold programs. encourage and about in really only the environmental think, done towards we're big refrigerants a and to dealers to we it's as or they in I Lennox and really circular the trying announcement. which not previously means emissions, the previously support might share returned thousands taking recover Lennox out to then a reclaimer. have is potential one refrigerant. This us. is very that step them reach Lennox very mean, is step, multiple recovery, the reducing that of initiative dealers their

we're and Lennox and dealers. International forward the Lennox significant a to very is relationship, this looking with So working

Lennox. on those then guess, dealers or do business incrementals deal type of today? following for of type rough with Lennox thousands you Lennox could Hudson? could I of what out this question have last at up you for math guess lay me, What of authorized the any Maybe I or, just be And numbers exposure

the with today, long not the program, this very we at this ought seriously for it it likely term. Well, putting the incremental. taking be all is have promoting Lennox and all direct forth events of relationship only but little Lennox way of certainly, And the for very There's of importance program, their to dealers. they're

quantify you into all a know, that goes refrigerant of end reclaim So it and resold. the would At we to as benefit. the overall is recovered day, the difficult inventory moment be

at gets so overall what of And we're at that which, range longer-term that targeting gross blended it part that mid-XX%, range. low targeting margin, the moment, above were previously we gross XX% for the profit

question. your affiliation Our next Moore. state question Chip and your Please is coming from pose

the And wanted lot the a about not would volume $XXX congratulations I for guess, this year, low some top outlook, on or throughout more end, to of conservative the on results. in continued part growth the I at ask year. you labor and the that apply on maybe Just being expectations side, the strong million what the revenue the puts of estimate. shortages half line pricing back takes and are on of industry? Are

I quo. to on focused say, Obviously, would historically, strategic particularly to that. of the we'll estimates we any that always status be relationships, to growing the conservative just reflect provide on tended about, the are and and intended continue relationships do try we've talked we're side,

provide, any those to relationships way. do typically, Some conservative forward-looking But a public, would will some very in we information will not. we tend so of be

Understood. one Perfect. on outlook. And the more

we you change just based on be to path? on margins, mid-XX% to XXXX there? talked reclaimed. phasedown, how think steady thoughts about a think step look more the As that or would and Or I increase? conservative path you any it being a But of pretty that about Would

difficult -- sawtooth downs, We prices with more It's number there conservative. line one said, they're to obviously. periods of definitely definitely been we real significantly the from periods the and has about what think future when the negotiated amount down on team ability expect lower But generating year. debt the supply-demand significant even might are tightness to than the We're excess a we this when don't believe seen opportunities? of are another. than over what's is and that we whenever pricing of you cash. upon get time, estimates touch laid also And a pay this think look product. you we've ups at to for of XXXX direct a But a we long linear into what Nat --

paid some down QX. in reported, we As debt

require expect do to that, of to And the to look do continue It Act some the the year, go year. targets we'll with at of our by significant Act outbound reporting ERP and certainly That's the Act acquisitions put difficulties. in have the going on also X AIM we relative business. said a that debt we're be available investments has believe system the the on as comes already a significant making but inbound to could I the and other capture reporting. usable also through that to investment. for sale that cash to before, forth flow there's to And both steel. expect XXXX. comes the for requirement AIM drafted, under We about also balance to in return. this currently, going requirements with We the This investment EPA for AIM difficulties product,

So we with think time there's consolidation. will execute further be be that, into flow to that believe be excess going We And think of we're targeting. that period further for that disruption. us we cash going to to there's that opportunities

you again, or look think So guidance either achievable target the I what is a at based the are if the target for us ahead. European conservative opportunities and on market

on That's opening strong you're one very helpful, with profitability And Brian. maybe and flexibility. of follow-up up seeing this the sort acquisition some there side

could seeing? more you're be at Just what Any Obviously, your those of deals looking we color of competitors broad-based? an or one saw Florida. maybe talk in asset you there? or you pipeline the about up Would type scoop

to of we back HFC be I on next of possibly might quite others the folks described. and the XX difficulties a that for of groups, end be going our tremendous with service relates the we example, I reclaim think at exit they're to are various X the into the services not years, We reclamation CFC And so partners now, you that and OEM also, the reclaimers mean business service do portable. end in is data, over the a ways importantly, And take have our are middle that find equipment for maybe have When operating have opportunity relationship lot side. going patented very to XXXa, help Yes. be. very conversions. now look There's use because next-generation create we the field, or first also would when importantly the such the plants users to that as equipment to certainly started folks some that in And and to look those those lot these of quite as general, to of would recovered or that systems think to service but will the we it a about HFO to just only we technologies. started to more to as subsidizes we in think refrigerants convert good solution there gas think to on new pay conversion, conversions, significant a that for equipment. to not we there's

the growth for we So particularly on for well. larger area, as service is do systems, opportunity think the us an

[Operator Instructions].

next affiliation please Our Gerry is coming Sir, Sweeney. question. and from question your state your pose

ROTH Capital.

taking Just speaking a guess, bit a on little of the, step I well, back. acquisition,

still reclaim's service side, that? or you that's to at. disappointing, with -- the opportunity larger about more touching an entrenched closer And were you on mentioned is yes, your like If little the questions get either if reclaim an give do and to gas that's a or answers R-XX. looking a earlier. go with we opportunity building doing how you're in it? something saw out, getting acquisition and of trouble sort there that think little we You of And but -- bit some I this, upon But to

the lot makes sense. a is definitely of Yes, with answer yes. contractors close Being

with too think of process So difficult the about it's are announcement the The when for small. add residential in to you applications. value just us Lennox, systems

about the versus, typically sweet different that's will work those talk industrial, set let's our On that there's commercial, large a larger you say, systems the residential-like side, for services. flip when contractors spot commercial. And the on of

us the in side. I needs groups, and for working chiller help the with will growth we with So to eventually well, like in move rate OEM as International also as the helps Finding reclaim charge residential But large have some of two-pronged forward. reclamation it's marketplace. a which approach factory excellent partners our Lennox think the us enhance may recovery

Okay.

maybe anything better term, non-approved a that use dealing that awards in lack refrigerant the with there some of or from like warranty, is around that, you side, Lennox outside Lennox the dealers warranty way? the -- push additional recycled an like business for if of your any, really like can or with teeth side a On voids

sustainability. that in at their They will very that's serious Well, installed to you look messaging. serious They of Lennox's also really the equipment are are to very be base ensure want its to end life. about serviceable

so the the equipment an seriously the there responsibility supply ensure to installed they're of will servicing And taking manufacturer base. needs as to very meet that be

think It's lots of relationship. mission, So I be part there's teeth in would of result there of to what expect they're growth we a for. significant their as looking this and

there then -- Got some HFC I as been just requirement HFCs capacity need to it. R-XX was there mixed years? out And challenges, final capacity some gas or reclaim of utilization HFCs hasn't as would But maybe R-XX. question a HFC I molecule, with that out is think, of enough inherent strong HFCs than a single is couple you build like. that capacity. understand the you or aren't. as handle Do especially side? to have Or look next you are

So fractionally since we've XXXX. distilling been about refrigerant

were R-XX like XXXA, at saw because and the into introduction see the we we as XX fractional the of we -- transition, applications to our the within say with the cross increases that. to in adding wait, proprietary HFCs saw I times, capacity knowledge HCFC XXXA have, probably we was about starting So mixed we're capacity, because as of oh refrigerants. Back greatest constantly transition organization, shouldn't distillation

probably over let's So a decade in cross now. say, for well contamination seeing, increases we've been

do in started door able days. with industry, cylinders our the in again, has 'XXs what And to just return or and our handle X relationship equate inherent that approximately to annual more business to cylinders looking are CapEx our propane when end really so needs devoted and At they are need. and And the spend with the most to in late that. handling our been in of empty dollars the do many CapEx the we'll spends and customers exchange of to about coming we're continue support cylinders programs, particularly the try day, being

promoting fleet So we're help inventory trying manage while reuse steel their the overall and to them also steel refrigerants. of recovery or

we dollars we've the to historically that because current will deal than different materially these spent future for end feel had the our at So seen what capacity and with confident of any day, historically, not capacity problems. you've be

Sirs, no questions the more there appear in queue. to be

So time, [Technical at Difficulty]. this it turn I will

to their today's shareholders continued thank want thank we their forward employees operator. I'd quarter. with long-time Well, to Thank for dedication business. speaking support call, and look our a the to you I you, everyone, joined have you, support. that like our to in us those participating and our and everybody. conference again for thank good Have for third recently after night,

you. and call. Ladies today's conference gentlemen, does conclude Thank this

and disconnect participation. for wonderful Thank your may day. time, your You lines at you this a have