• Revenue: $61.9 million, a 19% decrease from the previous year.
• Gross Margin: 26%, down from 40% in the prior year.
• SG&A Expenses: $8.1 million, up from $6.8 million last year.
• Operating Income: $7 million, compared to $23.1 million in the previous year.
• Net Income: $7.8 million or 17 per diluted share, down from $13.6 million or 29 per diluted share last year.
• Cash Position: $56.5 million with no debt.
• Share Repurchase: $2.6 million in common stock repurchased during the quarter.
• Full Year Revenue Guidance: Expected at the low end of prior guidance range.
• Full Year Gross Margin Guidance: Approximately 28%.

Release Date: November 04, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hudson Technologies Inc (NASDAQ:HDSN) achieved solid profitability despite pricing pressures, maintaining a gross margin of 26% for the quarter.
• The company has a strong cash position with $56.5 million in cash and no debt, strengthening its unlevered balance sheet.
• Hudson Technologies Inc (NASDAQ:HDSN) is well-positioned to benefit from the ongoing phase-out of HFCs, which is expected to increase demand for reclaimed refrigerants.
• The EPA's final refrigerant management rule mandates the use of reclaimed refrigerants in certain sectors by 2029, which is seen as a positive step for the company.
• The acquisition of USA Refrigerants is integrating well, providing new customers and additional sources of reclaimed refrigerants.

Negative Points

• Revenue for the third quarter decreased by 19% compared to the previous year, primarily due to lower refrigerant market prices and reduced revenue from the DL A contract.
• Gross margin declined significantly from 40% in the previous year's quarter to 26% in the current quarter, reflecting lower market prices.
• The company adjusted its full-year revenue expectations to the low end of its prior guidance range, with a full-year gross margin expected to be approximately 28%.
• There is concern about the rate of decline in inventory levels, which could lead to a supply-demand imbalance unless a petition is filed with the EPA to lower consumption allowances.
• The depletion rate of 2023 inventory was slower than anticipated, raising concerns about potential lower prices persisting until a significant phase-down step in 2029.

Q & A Highlights

Q: You continue to expect pricing to move higher over time, but with the 2023 inventory being down only 2% year over year, what happens if the EPA does not accelerate the phase-down? A: Brian Coleman, CEO: It's possible that prices could remain lower for longer if the EPA does not accelerate the phase-down. We are concerned about the allowance structure for 2025-2028, which might not decline sufficiently relative to demand. We would support a petition to lower consumption allowances during this period.

Q: Can you explain the petition process to challenge the EPA's allowance structure? A: Brian Coleman, CEO: A petition would involve presenting a rationale with specific evidence, such as inventory data, to reduce annual consumption allowances. Although the EPA has issued a rule for 2024-2028, it can be challenged and amended. Europe has done this by lowering annual allowances below the minimum levels.

Q: How is the integration of USA Refrigerants progressing, and is it helping with the recovery of refrigerants? A: Brian Bertaux, CFO: The integration is going well, bringing in new customers and providing additional sources for reclaim refrigerants. We are now applying USA's strategies to Hudson's existing customer base, particularly those acquired from Airgas.

Q: What was the litigation settlement gain related to? A: Brian Coleman, CEO: It was related to a commercial dispute that was settled at the end of the quarter.

Q: Given the slower depletion rate of 2023 inventory, do you expect any price uptick during the 2025 cooling season? A: Brian Coleman, CEO: It's difficult to predict pricing. We saw a greater decline this year than anticipated, and we may enter next year with similar pricing dynamics. We rely on supply-demand economics rather than allowance holders' actions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.