Q1 2020 Earnings Call

Uh huh.

[music].

We're holding ladies and gentlemen, your line for the Hudson Technologies Conference call. At this time, we are stuck adding additional participants that will get started shortly we thank you for your patience and I say you. Please continue to hold.

[music].

Again, thank you for holding ladies and gentleman you're on line for the Hudson Technologies first quarter 2020 earnings conference call. At this time, we are still waiting the additional participant semi rival our speakers for today. We see please continue to hold the line the conference will be getting momentarily.

[music].

Good day, ladies and gentlemen, and welcome to the Hudson Technologies first quarter 2020 earnings Conference call. All lines have been placed all listen only mode and the floor. We opened for your questions and comments following the presentation.

This time it as my pleasure to turn the floor, but your host for today not Christian Murray. Please go ahead the floor is yours.

Thank you good evening and sorry for the delay.

Welcome to our conference call to discuss how can technologies' financial results for the first quarter 2020.

My name is not Krishnamurthy CFO of Hudson technologies on the call with me today, we have cabins are to be chairman and CEO and Brian Coleman, President and Chief operating officer.

I'll now take a moment to read the safe Harbor statement.

In the course of this conference call, we will make certain forward looking statements.

All statements that address expectations opinions or predictions about the future or forward looking statements. Although they reflect our current expectations and are based on a best view of the industry I never 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 Hudson's most recent form 10-K, and other subsequent SEC filings for a discussion of the principal risks and uncertainties that affect our business and our performance and of the factors that could cause our actual results could differ materially.

With that we will now turn the call over to Brian.

Good evening and thank you for joining US again, we apologize for the delay.

He start by saying the Cobot 19 has had a dramatic impact on the lives of every person business an industry throughout the United States and of course Watson is no exception.

However, Hudson operates in a critical infrastructure industry.

It is an essential business as defined by the United States government as we procure process service and deliver refrigerant in industrial gases to the government.

In refrigerants and services to wholesale and retail organizations, which serve hospitals supermarkets and many other industries throughout the United States.

We've kept our plants operating and have to effectively running operations well following all state and federal guidelines to keep our employee safe and healthy.

As of the state there has been no material impact our ability to procure or distribute our products and services.

Our priority priorities throughout the pandemic I've been to ensure the health and safety of our employees.

To keep our products and supply and to maintain the quality and safety bar products to best serve our customers across all channels as the adapt to the crisis and to position ourselves to merge strong when the crisis ads.

Looking back at the first quarter 2020, we see that the market has stabilized refrigerant prices have been constant ever seen some strengthening the pricing of R 22.

In addition, we saw an increase in the volume over the same period last year building on increased volume we saw in 2009 cheap debt.

During the first quarter, we improved the gross margins over 2019 and believe we have an opportunity to further drive improved margins in 2020, as we were placed higher priced inventory with little price product.

We believe the customers inventories are low and with the elimination of R. 22 production importation in 2020, we expect to see a tightening in the supply Virgin R 22.

We are few weeks away from the prime selling season. So it's too early in the season to know how pricing will develop.

As we proceed through 2020, we're concerned that economic factors, resulting from the various governmental restrictions that have been put in place as a result of cold 19 outbreak could have a negative impact on the demand in or price for refrigerants. The effect of refrigerant sales due to the closing of businesses combined.

And with negative financial impact to the economy is unknown at this point time will tell.

This is yet another reason why we described the sale season as a nine month season, not necessarily a quarter to quarter season.

The marketplace will likely adopt to phase out of each of see refrigerants as its development and use of more environmentally friendly products continues.

The American innovation or manufacturing Act of 2019, where the aim act if enacted would face down HSC production over the next 15 years. The aim to act enjoy strong bipartisan support and both the house and Senate are expected to take up further consideration of the aim that when they return from their existing.

Ended cobot break.

We are encouraged by the level of bipartisan support for which.

For Bill, which if enacted which started regulated ses down those agencies.

We believe a phase down of Hfcs will lead to the establishment of an allocation system and tightening in the supply demand balance that will likely result in increased pricing for these refrigerants.

Our diverse portfolio refrigerants includes hfcs or 22 and see if she sales.

We are preparing for future demand for HFO, refrigerants, which are designed ultimate and to replace agencies.

He just see sales were present, a growing percentage or revenues and with the projected installed base, we see hfcs as a tremendous long term growth opportunity for our company.

We continue to replace or higher cost faisel inventory layers with lower priced product, which we believe will drive continued improvement in our margins in 2020.

We have increased overall sales volume to our customers and have positioned the company to benefit from stabilization or industry pricing dynamics.

We remain optimistic about the long term opportunity in front of us and we believe we have a competitive advantage in the marketplace because of our long standing experience and because of three key strategic advantages.

First our strong distribution network, which puts us at two key points in the supply chain.

Our ability to sell refrigerants from legacy guess is like to see of sees todays commonly use H.C. of seasoned hfcs into Tomorrow's next generation H. oppose.

And our state of or the art proprietary technology that enables us to reclaim all of these refrigerants and thereby become the producers supplier of phased out refrigerants.

Now I'll turn the call over to not to review the financials glad that.

Thank you Brian for the first quarter ended March 31st 2020, Hudson recorded revenues of $36.4 million, an increase of 5% compared to $34.7 million in the comparable 2019 period, primarily primarily due to an increase in the volume of refrigerants old.

Gross margin for the first quarter 2020 was 23% compared to gross margin of 20% in the first quarter 2019, which as Brian mentioned is primarily due to selling lower price inventory, which continues to replace higher lira FIFO inventory from last year.

We reported operating income of $400000 into first quarter of 2020 compared to 200000 wells in the first quarter 2018 [noise].

During the first quarter 2020, the company recorded a net loss of $2.9 million or a loss of seven cents per basic and diluted share as compared to a net loss for.

$4 million or or lots of nine cents per basic and diluted share in the same period of 2019.

Selling general and administrative expenses for the first quarter 2020, where at $7.3 million compared to $6.0 million in the first quarter 2019.

Mainly due to increased nonrecurring professional fees.

The current machine a run rate is about $7 million per quarter.

Interest expense for the first quarter 2020 was $3.3 million decrease of zero point $9 million from the $4.2 million reported during the first quarter 2019, mainly due to the company paying down $14 million principal Terminaling dead in December 2019.

At March 31st 2020, we had approximately $27 million, a total availability, which includes our cash balance and revolver availability.

Our total debt balance at March 31st 2020 was approximately $109.6 million.

On an LTM March 31st 2021 basis, the terminal leverage ratio was 11.2 week times.

We have strong liquidity and our term loan and revolving credit facilities provide us with a solid financial platform and flexibility as we look into the coming years [noise].

I'll now turn the call back over to Brian.

Thanks that helps the remains a leader in the refrigerant reclamation business with the expertise innovative technology and a well established distribution network necessary to drive growth.

Despite the challenges of countering the current economic conditions, there continues to be a growing demand for refrigerants and cooling systems [noise].

That combined with our ability to provide any refrigerant any place at any time and are well established customer base gives us a solid foundation for future growth of our company.

Operator, we'll now open the call two questions.

Thank you ladies and gentlemen, if you had a question or comment star one on your telephone keypad at this time using a speaker phone, we ask that while posing a question you pick up your handset to provide the best sound quality again at a star one for any questions or comments.

Well go first to Jerry Sweeney at Roth capital.

Hey, good morning, guys. Thanks for a good afternoon I'm sorry, My long day, Thanks for taking my call hope you're hanging in there with this kind of it.

Issue you know personally we are cherry and just sorry for the delay we had a problem with the phone numbers, so sorry about that.

No worries.

I called the international alone, but that's when it got through so.

Curious just a couple of quick questions you commented on customer inventory being low just wanted to dig into that it was that just.

For a internal sales, making calls and talking to customers and just wanted to see what was the basis for the comment.

Yes, yes, I think in the prepared remarks, we we were talking.

Two or 22, but based on speaking with customers. We do believe in general and again, it's really from the sales calls.

But all inventories are up somewhat low.

So all inventories not just.

22.

Yeah. It seems that right now for the season people and maybe the economy again, but still try to figure out how much could be impacted by the economy.

Versus you know the weather obviously it was always a cool month, so, but we seem to have to inventories well right now.

And then I mean, historically well is that buying patterns have changed a little bit over time more towards what we'll call. It just in time inventory and.

And I suspect with some of Covidien economic issues, we're having a I would suspect that this sort of just in time buying pattern is what you're still seeing today or did you have any sort of prebuy.

No no.

When you look at the results of Q1, that's when you compare 19, you volume is up but again, it's still that change behavior patterns that we started to see in 2018, where people are pre buying anymore and I wish I think you just said a few moments ago, we would agree it's probable for.

Some period of time that people will buy just as needed because of the uncertainty regarding the economy.

Okay.

And from time to time, you know we have.

Discuss some I think H R 22 prices.

Could you give us any indication as to where the market is today.

So the last time, we spoke we would have.

Talks about let's say 10 dollar prices.

And that's in the right when we say, let's just say low low $10 were seeing higher 10 dollar prices right now not real significant increases but definitely increases.

And also I think about $10 number it was pretty I'm, hoping to there wasn't a whole lot of volume. So you know there was always question so with that the true true price I suspect volumes are higher and it's more of a consistent higher 10 dollar that you're seeing in other words.

Feel pretty confident that price.

Yeah, we feel confident in the price as of now again, it's still early in the season.

Some uncertainty about the economy, but right now the price seems to be stable.

Okay and then the final question is just you know even with.

Covert pre cobot.

What was the market or opportunity or how is your the ability to collect bar 22 or was there enough caf coming back we saying you know a good amount of volume just to keep a you know inventories an appropriate level.

Well, we still had the stockpile.

22, the came with the asked an acquisition and we said that we thought that it would sell out this year, so and that's we think it's going to happen.

So reclaim though is a concern for the future in that the reclaim numbers are still a low relative to what we think the demand is that possibly will mean is gonna be shortages, and then higher prices, even which in some respects maybe a good thing, but we are concerned.

We are trying new things to grow weekly volumes.

Got it.

Okay. That's it for me I appreciate it and.

Good luck I know you guys are up there in a in New York in the epicenter, so hang in there and now Apociii Sir.

Yeah. Thank you Gerry.

And just a reminder out West Star One you had a question well go next to Ryan picked all at Craig Hallum Capital.

Hey, guys. This is not on for Ryan.

Thanks for taking my questions just following up quickly on the answer to last question. What are you. What are you trying to do to spur we claim volume or anything you can say there.

Yeah, not to get into too much detail, but you know we are initiating newer programs to newer customers and so we have some optimism about that and we put.

A fair amount of sales and marketing support behind that.

Great on the inventory from Airgas acquisition, I think last quarter, you had talked about hopefully kind of getting to that by the end of Q2 is is that still kind of the estimated time line and then do you think that margins can kind of improved from.

23% in Q1 improve from their kinda back up here.

Yes so.

We believe that will sell through the higher priced inventory by the end of Q2 and yes. We do believe there will be improve margins in the back half of the year as a result of that.

Great and then just last one from me and I'll jump back into queue.

Obviously with cold benign team you had alluded to obviously the potential impact on demand there isn't anything you're seeing even just today or in the last several weeks that would indicate that customers could be pulling back on purchases or and if anything boots on the ground level on that.

[music].

I'd say no at this point is that it's early in the season, it's still cool.

We're not in the heart of the season, yet again, that's still a big unknown for us and it could have the big impact the small impact we really can't tell any you know anywhere products or people are being kept cold is probably refrigeration and air conditioning. So there's a need for refrigerants.

When you see buildings being shut down right now.

And people working from home, that's an effect it will be effect on cover cooling on bid on the office buildings.

<unk> residential having effect, where where more people are working from home. It could go the other way way of my system fixed at home because I have to work from here now not the authors so it's difficult to say with the exact effect is gonna be.

But we do know where people migrate where they are they'll need air conditioning refrigeration.

Its just different going into this year, we were seeing a little of that but it's again still too early to tell because not in the heat of the season.

Okay. Thanks, guys and good luck for the rest me a.

In the quarter. Thanks. Thanks, Thank you.

That's all they have signaled so far but just a final reminder, at West Star. One if you had a question or comment.

And with no other questions holding I'll turn the conference back to management for any additional or closing comments.

Thank you operator again, we apologize for those that late start, but I'd like to thank all of our employees, particularly those particularly during these extraordinary times for their hard work and dedication.

And I want to get thank our long term longtime shareholders and those that recently joined us for their support.

Thank you everyone participating in today's conference call and we look forward to speaking with you after the second quarter results.

Because not everybody.

Ladies and gentlemen that well conclude today's call. We thank you for your participation you may disconnect at this time and have a great Dane.

[music].