Q3 2019 Earnings Call

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Operator are you there.

Thank you that's used to be a slight technical issue I will just play music for my Matt.

Greetings and welcome to the Hudson Technologies. So of course, I 29, It chain earnings conference call.

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It is now my pleasure to introduce your host Gen. Bella Jay. Thank you may begin.

Thank you good evening and welcome to our conference call discussed Hudson Technologies financial results for the third quarter of 29 team on the call today, we have Kevin's I'd be chairman and Chief Executive Officer, and Brian Coleman, President and Chief operating Officer, I'll now take a moment to read the safe Harbor statement. During the course of this conference call, we will make certain forward looking statement.

All statements that address expectations opinions or predictions about the future are forward looking statements. Although they reflect our current expectations that are based on her betsy or the industry end of our businesses as we see them today. They are not guarantees of future performance. Please understand that these statements involve a number of risks and assumptions and since those elements can change and in certain cases are not within our control.

We would ask that you consider and interpret them in that light. We urge you to review headsets Form 10-K , and other I think some filings for a discussion of the principal risks and uncertainties that affect our business and our performance and other factors that could cause our actual results could differ materially with that I'll turn the call over to Kevin go ahead Kevin.

Good evening, Thank you for joining us.

Despite the continuing challenging challenges our industry is facing we close out the 2019 selling season was solid third quarter revenue growth driven by an increase in volume of certain refrigerant sold and growth with went up within our deal a contract.

Pricing remained at levels consistent with what we saw at the end of the second quarter, but were lower when compared to pricing in the third quarter 2018.

During the third quarter R 22 pricing was approximately $9 per pound recently, the remaining two out large allocation holders have raised or 22 prices and we are currently experiencing pricing above $10 per pound, which is the first time that we have seen sales up at this price level. This year.

Although our 22 pricing during this year sale season was disappointing we're encouraged that our volume has increased.

We're experiencing be first upward trend in pricing quite awhile.

Additionally, now that one of the big three producers has announced that there is no longer supporting or 22 sales looking forward, we're optimistic about pricing and demand for our 22 in the 2020 sale season.

The remains a large installed base of R 22 systems in the U.S. demand for copper cooling and food refrigeration is strong and continues to grow and given the expense associated with replacing or upgrading a refrigeration or cooling system.

We expect demand for our 22 to continue through 2030 and beyond.

With the elimination of Virgin production and importation in 2020, we expect to see a shortfall in the supply of R. 22, and we believe our ability to reclaim and resell our 20 to create a tremendous opportunity a position Hudson to address the anticipated supply shortage.

And become the leading producer of R 22.

Beyond our 22, what is important to remember that Hudson is competitively positioned at two points in the supply chain with a strong national distribution network and the ability to provide all types of refrigerant anywhere in the country at any time.

This includes legacy gases, such as Cfcs currently used.

Yes, it including our 22 agencies as well as next generation HFO products.

Additionally, the industry will likely continue to phase out HFC refrigerants as a development and use of more environmentally friendly products continues.

We have the proprietary technology to evolve along with those changes and reclaim all of these gas is more quickly and efficiently the any competitor positioning us as a leading supplier producer for the foreseeable future.

During the last two selling seasons the entire industry saw significant decline in pricing on almost all refreshers.

As we are steadily selling off our higher cost LIFO layers.

We have increased overall sales volume to our customers and a position the company to benefit from the eventual stabilization of our industry pricing dynamics.

2019 has been a challenging year, but as evidenced by our increased sales volumes were confident about our long range prospects and remain focused on our growing and growing our market share and leadership position.

Unfortunately as of today, we remain Noncompliant went to financial covenants contained in our term loan in a revolving credit facility.

Ryan will provide more detail around this situation, but in short we don't believe that the covenants false relate to a liquidity issue, but rather relate to a leverage issue under the current covenant structure.

Our brands Aspen in Hudson are well known and well respected in the marketplace and we have in establishing growing customer base, perhaps most importantly.

We move forward with the knowledge and experience gained from our more than 30 years and business.

Time, and again, we have demonstrated our agility in the face of adverse market conditions, and we're intently focused on leveraging our competitive positioning in the supply chain aren't has portal portfolio of products, our technology and our large customer base to grow our market share our leadership position now I'll turn the call over to Brian to review the financials go ahead Brian .

Thank you Kevin for the third quarter ended September Thirtyth 2019, Hudson recorded revenues of 45.6 million.

13% increase compared to the 40.5 million in the comparable 2018 period.

The increase in revenues was due to increase in refrigerant volumes and growth with the deal they contract.

Offset by decline in prices of certain refrigerants, so doing its during the 2019 quarter when compared to 2018.

X gene a expense for third quarter 2019 was 8.3 million an increase of 900000 from the 7.4 million and a third quarter of 2018.

The increase in as gene a was primarily related to over $1 million of professional fees regarding activities with the lenders and insurance expense.

The net income for the third quarter, 2019 was 2.7 million or six cents per basic and diluted share.

During the third quarter 2019, as previously announced we settled a working capital dispute with Air guess round Hudson's acquisition of the Aspen refrigerant in the amount to be point 9 million.

Net loss for the third quarter, 2018 was 13.9 million or 33 cents per basic and diluted share.

Included in the 13.9 million Corp, third quarter 2018 laws are approximately 9 million in noncash charges related to deferred tax reserve and approximately 2 million can nonrecurring charges related to the acquisition and integration.

Right, whereas been refrigerants.

As Kevin mentioned earlier, the company failed to comply with.

Financial covenants in our term loan and revolving credit facilities at September Thirtyth 2019.

We're currently in default under those agreements.

Other than the financial covenants. The company has been fully complied with all of its debt payments and other obligations on a timely basis and had over 23 million of availability pursuant to the borrowing base formula its revolving credit facility as of September 32019.

During the third quarter of 2019, the company utilized cash from operations to pay over 18 million of debt.

As such the company does not believe the covenant default release liquidity issue, but rather relates to leverage issue under the current covenant structure.

We are working closely we're lenders to secure waivers and amendments under both the term loan or a revolving credit facility.

The lenders do other Reits have to clear all amounts of these facilities to be immediately due and payable and there could be no assurances that the company will be able to obtain any such waivers or amendments.

We were at a similar position last year with our lenders and while there are no guarantees we believe that the company, it's advisors and the lenders and their advisors can reach an agreement on these matters I will now turn the call back over to Kevin Thanks, Brian .

We remain energized by the long term opportunity in front of us and with our proven ability to evolve along with our industry. We believe we're well positioned to take advantage of the changing market dynamics.

The refrigerant industry has long been a fluid marketplace and at Hudson Weve focused our efforts on ensuring that we have the right products technology and people in place to capitalize on this dynamic environment and expand our leadership role in the refrigerant reclamation business.

Thank you all for your continued support of Hudson and now Brian that and I will take your questions. Operator, Please open the call to questions.

Thank you see we will now be conducting a question and answer session. If he would like to ask a question. Please press Star then one on your telephone K pads.

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One moment, please fall we poll for questions.

Your first question comes from Steve Dyer from Craig Hallum.

Go ahead please.

Hey, guys trying to go on for Steve.

Hey, Dan Your question I guess on the on the recent price increase what's been the market reaction to the raise and then has that been across the whole industry did did others follow suit behind kind of the large guys that they did a first.

Well.

Let's say I'd say, a little bit Oh, yes, and no meaning worth that were in the wintertime. So it's not the same as the middle of the season. So volumes, obviously are nowhere near where they'd be in the summer but.

That said it as we saw the prices come from the big guys.

The reason, we're able to get 10 is because others follow suit we were they stayed down there we wouldn't be able to do so it doesn't mean that everyone in the chain has done that.

There's some stragglers always.

But across the board were seeing others not just the main producers of the big allocation holders with higher prices. So we're not alone out there.

Again, it could be a couple of stragglers.

And then just one quick follow up on that I guess is it primarily a function of kind of the supply demand environment and getting closer to the 2024 phase out here or.

Is it.

Once it just trying to kind of push through a price just to test the market's reaction I guess in a seasonally slow times. It seems like an odd time of the year to to push through pricing I guess, so any color I guess on what you're hearing on why they decided now.

We've seen at times that producers others raise price in Q4 as sort of a precursor to price increases that will happen in the following spring and so forth.

We can't obviously predicted that the action happening right now, but we have seen this happened before that its setting the stage for further price increases, but we're assuming again the genesis behind that is there's only a certain amount of supply that they would have in stockpile and their limiting their supply and that's with the first.

They would be limiting their supply, which would raise the price of Pablo market with follow. So this was the first side of some of the meeting their supply.

Raising the price.

Great then switching over I mean volume was up nicely in the quarter without a function of you guys trying to push through some of that higher priced inventory or was that you know a strength in the industry.

It was more last year, we had a couple of cycles, where we were not as competitive as we let's say in hindsight ought to have been.

Because they were price declines occurring that we thought were going to be temporary in the became more permanent.

So throughout this entire year, we've been more aggressive or returning to more normal pricing practices compared to the 18 season.

And this just simply was a reflection of let's say that behavior.

Again this year like last year people, who are buying much later in the season because again most of our customers were seeing are acting in that just in time.

Buying pattern as they did an 18 too.

Oh, one more for me that I'll hop back in the queue here I'm. So kinda back to inventory how do you guys feel I mean is down nicely in the quarter here. How do you feel about where you are exiting the quarter and do you think this is a good base to go off over do you think you'll need to to grow into this selling season next year or you know.

Actually even further rationalize it.

We're probably getting to a baseline of inventory bout total balance so you'll see some ups and downs, but you won't see the kind of large inventory balances that we carried the last couple of years.

We're trying to turn or inventory over more quickly than we had previously though.

Great. That's it for me thanks, guys.

Thanks.

Thank you.

Just as a reminder, if anyone would like to register for a question. It is star then one on your telephone.

Thank you.

Your next question will come from well to young Edmunds private capital go ahead. Please.

Good afternoon I'm interested in.

The covenants of course are you also negotiating with others.

Other lenders besides the original lending group.

We really are focused on trying to settle the matter with the existing lenders.

And that we still believe that at some point in time will end up with different lenders.

But we're trying to resolve everything with the existing lenders first before we move on.

Good luck.

Thanks.

Thank you thanks Walter.

Thank you. Your next question comes from Craig Hoagland.

Anderson Hoagland and car go ahead please.

Thanks.

Just wondering if you can give us any kind of forward look on cash flow for the fourth quarter, you expect that to be positive and to pay down more debt.

It may very well be part of all this in some respects, where we've been building some cash because we'll try to settle everything out here.

The inventory may not change materially between now and the ended the year in terms of total dollars, that's where we've seen a lot of generation of cash to date. So for the moment, we would say we're probably at the point of let's say cash generation for the for the 12 months would be similar to the nine months.

But it doesn't mean that we wouldn't get more dollars that inventory.

Right Okay.

Thanks, Brian .

Thank you see there are no further questions at this time I would now like to turn the flow back over to Kevin for closing comments.

Okay, we'd like to thank all of our employees our loan time shareholders and those that have recently joined for their support thanks, everyone for participating in today's call. We look forward a speaking the fourth quarter. Thanks again.