Q4 2023 Hudson Technologies Inc Earnings Call

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Operator: Greetings and welcome to Hudson Technologies' fourth quarter and year-end 2023 earnings call. This time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone.

Greetings and welcome to Hudson Technologies fourth quarter and year end 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Operator: Please note this conference is being recorded. I will now turn the conference over to your host, John Nesbett of INS Investor Relations, and John Umayyad. And thank you all for tuning in. I'm John Nesbett.

Please note. This conference is being recorded I will now turn the conference over to your host John Nesbit of IMS Investor Relations. John you may begin.

John Nesbett: Thank you. Good evening, and welcome to our conference call to discuss Hudson Technologies financial results for the fourth quarter of 2023. On the call are Brian Coleman, President, Chief Executive Officer, and Nat Krishnamurti, Chief Financial Officer. Now, take a quick moment to read the Safe Harbor Statement.

Thank you good evening and welcome to our conference call to discuss Hudson Technologies financial results for the fourth quarter 2023 on the call are Brian Coleman, President and Chief Executive Officer, and Dr. Christian Murdy, Chief Financial Officer.

I'll take a quick moment to read the Safe Harbor statement. During the course of this conference call. We will make certain forward looking statements all statements that address expectations opinions or predictions about the future are forward looking statements. Although they reflect our current expectations and are based on our best view of the industry and our businesses as we see them today. They are not guarantees of future performance. Please.

John Nesbett: During the course of this conference call, we will make certain forward-looking statements, both statements that address expectations, opinions, and predictions about the future. Although they reflect our current expectations and are based on our best view of the industry and 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 these 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 actual results to differ materially. With that, I'm going to turn the call over to Brian Coleman. Go ahead, Brian.

And that these statements involve a number of risks and assumptions.

And since these 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.

Performance some of the factors that could cause actual results to differ materially.

With that I'll now turn the call over to Brian Coleman Goodbye.

Brian F. Coleman: Good evening, and thank you for joining us. 2023 was a strong year for our company, highlighted by consistently strong cash flow, profitability, and the extinguishment of our term loan debt. We delivered a solid fourth quarter, consistent with our historical performance for this period. However, as many of you know, the fourth quarter is historically our weakest as it falls outside of our nine-month selling season of January to September.

Good evening and thank you for joining US 2023 was a strong year for our company highlighted by consistently strong cash flow profitability and extinguishment of our term loan debt.

We delivered a solid fourth quarter consistent with our historical performance for this period.

As many of you know the fourth quarter is historically, our weakest as it falls outside of our nine month selling season of January to September.

Brian F. Coleman: We had a difficult comparison in the fourth quarter of 2023, as the fourth quarter of 2022 benefited from higher sales prices for certain refrigerants, which favorably impacted revenue and margin performance in that period. In the fourth quarter of 2023, we recognized revenues of $44.9 million, a decrease of 5% compared to the fourth quarter of 2022, despite a 24% decline in selling prices. We were able to offset the pricing decline thanks to an increase in volume and increased revenues from our DLA, or Defense Logistic Agency, contract serving the Department of Defense. In 2023, we saw the highest annual revenue generated by our contract with the DLA at $53 million.

We had a difficult comparison in the fourth quarter of 2023 as the fourth quarter of 2022 benefitted from higher sales prices for certain refrigerants.

Which favorably impacted revenue and margin performance in that period.

In the fourth quarter of 2023, we recognize revenues of $44 9 million, a decrease of 5% compared to the fourth quarter of 2022.

Despite a 24% decline in selling prices.

We were able to offset the pricing decline thanks to increase in value and increased revenues from our DLA or defense logistic agency contract serving the department of defense.

In 2023, we saw the highest annual revenue generated by our contract with DLA at $53 million.

Brian F. Coleman: That said, we believe that approximately $20 million of the 2023 DLA revenue was related to increased DLA-specific program activities that may not be repeated in 2024. Consequently, we may see DLA annual revenues return to more historical levels in 2024. Gross margin in the quarter was 31%, which is slightly lower than last year.

That said, we believe that approximately $20 million of the 2023 DLA revenue was.

Was related to increased D. L. A specific program activities that may not be repeated in 2024.

Consequently, we may see DLA annual revenues returned to more historical levels in 2024.

Gross margin in the quarter was 31%, which is slightly lower than last year.

Brian F. Coleman: Consistent profitability and operating cash flow allowed us to eliminate over $100 million in outstanding debt originating from the first quarter of 2022. In the third quarter of 2023, we fully repaid our term loan well before its March 2027 maturity date. These operational successes and the elimination of debt have allowed us to significantly strengthen our balance sheet and provide improved financial flexibility as we move through 2024. Looking at the regulatory landscape, in July of 2023, the EPA issued its final rule for allowances mandating a 40% baseline reduction in virgin HFC production and consumption allowances for the 2024 to 2028 period. To recap, Congress legislated the AMAC, which mandated a 10% step down in virgin HSE production and consumption for both 2022 and 2023. Starting in 2024 and continuing through 2028, there is a 40% baseline reduction. As a reminder, there are no limitations or caps placed on Reclaim Refrigerant. The EPA has also issued a Vital Technology Transition Rule.

Consistent profitability and operating cash flow has allowed us to eliminate over $100 million in outstanding debt originally from the first quarter of 2022.

In the third quarter of 2023, we fully repaid our term loan well before its March 2027 maturity date.

These operational successes and the elimination of debt have allowed us to significantly strengthen our balance sheet and provide improved financial flexibility as we move through 2024.

Looking at the regulatory landscape in July of 2023, the EPA issued its final rule for allowances.

Mandating, a 40% baseline reduction and Virgin HFC production and consumption allowances for the 2024 to 2028 period.

To recap Congress legislated, the APAC, which mandated a 10% step down in Virgin HFC production and consumption for both 2022 and 'twenty three.

Starting in 'twenty, four and continuing through 2028.

There is a 40% baseline reduction.

As a reminder, there are no limitations or caps placed them reclaim refrigerants.

The EPA has also issued a final technology transition rule.

Brian F. Coleman: Based on the technology transition rule, our industry will see the introduction of lower GDP systems for new construction starting in 2025, as well as a conversion over the next 20 years of the existing installed base of HSE and legacy refrigerant systems, which is estimated to be more than 125 million stationary units. As we have previously discussed, we are agnostic to the various refrigerant types and systems and expect to serve customer demands as they move through the technology transition. Lastly, the EPA issued a proposed rule that addresses the use of reclaimed refrigerant, which was required to be promulgated as part of the AMAC legislation.

Based on the technology transition rule, our industry will see the introduction of lower GDP systems for new construction starting in 2025.

As well as a conversion over the next 20 years of the existing installed base of HSE and legacy refrigerant systems.

Which is estimated to be more than a 125 million stationary units.

As we have previously discussed we are agnostic to the various refrigerant types of systems and expect to serve customer demands as they move through the technology transition.

Lastly, the EPA issued a proposed rule that addresses the use of reclaim refrigerants.

Which was required to be promulgated as part of the Aimak legislation.

Brian F. Coleman: We expect that the proposed rule will be finalized in the summer of 2024. Assuming the final rule looks similar to the proposed rule, we'll have the first ever federal requirement for the mandatory use of reclaimed refrigerants in relation to specific sectors of our industry. In addition, we are seeing certain states take action, either through existing legislation or with various proposals under consideration, with reclaimed refrigerant use mandates that may be even more aggressive than the final federal rule. As we stated on previous calls, heightened regulatory and reporting initiatives may also drive consolidation in our industry. While Hudson is well prepared for a more stringent regulatory environment, some of our competitors may find it difficult to comply with the new requirements, creating potentially attractive acquisition opportunities.

We expect that the proposed rule will be finalized in the summer of 2024.

Assuming the final rules look similar to the proposed rule will have the first ever federal requirement for the mandatory use of reclaim refrigerants relative to specific sectors of the of our industry.

In addition, we are seeing certain states take action either through existing legislation or with various proposals under consideration.

With reclaim refrigerant use mandates that may be even more aggressive than the final federal rule.

As we've stated on previous calls heightened regulatory and reporting initiatives May also drive consolidation in our industry.

While Hudson is we'll prepare for more stringent regulatory environment. Some of our competitors may find it difficult to comply with the new requirements.

Creating potentially attractive acquisition opportunities.

Brian F. Coleman: Another advantage for Hudson is the shifting landscape for our field service capabilities and expertise. As a supplier of reclaimed refrigerants, we are positioned at two strategic points in the supply chain, as a distributor of virgin refrigerants and as a producer of recycled or reclaimed refrigerants, which can then be distributed to our customers. Moreover, with our field service capabilities, we can assist in the conversion of cooling systems to run on next-generation refrigerants, and we can recover and reclaim any type of refrigerator.

Another advantage for Hudson is the shifting landscape for our field service capabilities and expertise.

As a supplier reclaim refrigerants, we are positioning it to strategic points in the supply chain.

As a distributor of virtual refrigerants and as a producer of recycled or reclaim refrigerants with which then can be distributed through our customers.

Moreover, with our field service capabilities, we can assist in the conversions of cooling systems to run on next generation refrigerants and <unk>.

We can recover reclaim any type of refrigerant puts.

Brian F. Coleman: Put simply, as the industry evolves, so does Hudson. Hudson has held a leadership role in the refrigerant industry for more than 30 years, and we've long been committed to the development of sustainable solutions around responsible refrigerant management and the adoption of recycling. The AIM Act is creating a very favorable environment for our business by requiring a significant increase in reclaim volumes, particularly for high GDP HSCs like 404A and 410A, and it's encouraging to see a heightened focus on regulatory issues regarding HSA. As a long-term proponent and practitioner of lifecycle refrigerant management, we believe Hudson is uniquely positioned to help drive the transition to more efficient cooling equipment and greener refrigerants, while also servicing the existing installed base with reclaimed refrigerants as the industry continues to evolve, in line with our support of the transition to more efficient, environmentally friendly cooling equipment and refrigerant management.

Put simply as the industry evolves so does Hudson.

Hudson has held a leadership role in the refrigerant industry for more than 30 years and.

And we've long been committed to the development of sustainable solutions around responsible refrigerant management and the adoption of reclamation.

The aim act is creating a very favorable environment for our business by requiring a significant increase in reclaim volumes, particularly for high jewelry P. Hfcs like for a foray in for today.

And it's encouraging to see a heightened focused on regulatory issues regarding hfcs.

As a long term proponent a practitioner of lifecycle refrigerant management, we believe Hudson issue meekly position to help drive the transition to more efficient cooling equipment and greener refrigerants, while also servicing the existing installed base with reclaim refrigerants as the industry continues to evolve.

In line with our support of the transition to more efficient environmentally friendly cooling equipment and refrigerant management.

Brian F. Coleman: We are and have been a leader in sustainable refrigerant practices for more than 30 years. In January, our reclaimed refrigerant brand, Emerald Refrigerants, and our on-site services were recognized by Building Green, an industry leader focusing on sustainable building solutions, as the top 10 sustainable products and services for 2023. In July, Emerald was recognized again as the top product of the year by the Environment Plus Energy Leadership Awards Program, which recognizes excellence in products and projects that deliver significant energy and environmental benefits.

We are and have been a leader in sustainable refrigerant practices for more than 30 years.

In January our reclaim refrigerant brand Emerald refrigerants, and our onsite services were recognized by building Green and industry leader focusing on sustainable building solutions as top 10 sustainable products and services for 2023.

In July <unk> was recognized again as the top product of the year by the environment plus Energy leadership Awards program, which recognizes excellence in products and projects that deliver significant energy and environmental benefits.

Brian F. Coleman: We also joined the Kuhl Coalition, a multi-stakeholder network that connects a wide range of key participants to facilitate knowledge exchange, advocacy, and joint action towards a rapid global transition to efficient, climate-friendly cooling. Finally, we announced our official support for the Global Cooling Pledge, which was launched at the UN Climate Change Conference or COP28 in Dubai in December. This pledge, which has gained overwhelming support from the international community, is a joint initiative between the United Arab Emirates committing countries to reducing their cooling-related emissions by at least 68% by 2050 and established several other targets, including the creation of minimum energy performance standards by 2030. We are very pleased with both our fourth quarter and full year 2023 results. I do want to point out that we are coming up against a tough competition in Q1024 when compared to 2023.

We also joined the cool coalition of.

A multi stakeholder network that connects a wide range of key participants to facilitate knowledge exchange advocacy and joint action towards the rapid global transition to efficient climate friendly cooling.

Finally, we announced our official support of the global cooling pledge.

Which was launched at the UN climate change conference or Cop 28 in Dubai in December.

This pledge, which has gained overwhelming support from the international community is a joint initiative between United Arab Emirates committing countries to reducing their cooling related emissions by at least 68% by 2050.

It establishes several other targets, including the creation of minimum energy performance standards by 2030.

We are very pleased with both our fourth quarter and full year 2023 results.

I do want to point out that we are coming up against a tough comp in Q1 of 'twenty four when compared to 2023.

Brian F. Coleman: With regard to refrigerant pricing, at this point in the season, we continue to see pricing pressure with the price of certain refrigerants remaining consistent or, in some cases, slightly below where we were when we exited 2023, which is well below the prices we saw in the first quarter of 2023. These market dynamics are also contributing to cautious early season customer purchasing patterns. With the current pricing structure in 2024, we do expect to operate much closer to the 35% gross margin expectations we have previously communicated than the 39% we achieved in 2023. Moreover, during 2023, we saw particularly strong revenue from the DLA with an annual spend of about $53 million. We believe that the DLA-specific program activity purchases, which began in Q1 of 2023, will not be repeated in Q1 of 2024. That said, we remain optimistic that we will see increased demand as we head into the spring, at the heart of our nine-month selling season. Overall, we believe that Hudson is well positioned for growth and success as the implementation of the AIM Act unfolds.

With regard to refrigerant pricing at this point in the season, we continue to see pricing pressure with the price of certain refrigerants remaining consistent or in some cases slightly below where we were when we exited 2023.

Which is well below the price that we saw the first quarter of 2023.

These market dynamics are also contributing to cautious early season customer purchasing patterns with.

With the current pricing structure in 2024, we do expect to operate much closer to the 35% gross margin expectations. We have previously communicated than the 39% we achieved in 2023.

Moreover, during 2023, we saw particularly strong revenue from the DLA with an annual spend is at $53 million.

We believe that the DLA specific program activity purchases, which began in Q1 of 'twenty three will not be repeated in Q1 of 2024.

That said, we remain optimistic that we will see increased demand as we head into the spring in the heart of our nine month selling season.

Overall, we believe that Hudson is well positioned for growth and success as the implementation of the aim Act unfolds.

Nat Krishnamurti: This is an exciting time for Hudson and the industry as a whole, and we remain focused on leveraging our strengths to distinguish ourselves as a leader in this rapidly shifting regulatory landscape to remain focused at the forefront of the transition to the next generation of cooling solutions. Now I'll turn the call over to Nat to review the financials. Go ahead, Nat.

This is an exciting time for Hudson and the industry as a whole and we remain focused on leveraging our strengths to distinguish ourselves as a leader in this rapidly shifting regulatory landscape to remain focused at the forefront of the transition to next generation cooling solutions.

Now I'll turn the call over to Ned to review the financials go ahead, Matt.

Nat Krishnamurti: Thank you, Brian. Well, for the fourth quarter ended December 31st, 2023, Hudson recorded revenues of $44.9 million, a decrease of 5% compared to revenues of $47.4 million in the comparable 2022 period. The decrease was primarily related to decreased selling prices for certain refrigerants offset by slightly higher volumes.

Thank you Brian.

Fourth quarter ended December 31, 2023, Hudson recorded revenues of $44 9 million, a decrease of 5% compared to revenues of $47 $4 million in the comparable 2022 period.

The decrease was primarily related to decreased selling prices for certain refrigerants offset by slightly higher volume.

Nat Krishnamurti: Gross margin was 31% for the 4th quarter of 2023, slightly lower than the 4th quarter of 2022 and coming in below our long-term, range gross margin target of 35 percent. As you know, the fourth quarter typically is our lowest refrigerant volume and gross margin quarter. SG&A for the fourth quarter of 2023 was $8.5 million, compared to $7.5 million in the fourth quarter of 2022, as Sinead has grown as the company invests more in personnel and IT.

Gross margin was 31% for the fourth quarter of 2023 slightly lower than fourth quarter, 2022, and coming in below our long term.

The range gross margin target of 35%.

As you know the fourth quarter typically is our lowest refrigerant volume and gross margin quarter.

SG&A for the fourth quarter of 2023 was $8 5 million compared.

Compared to $7 $5 million in the fourth quarter of 2022.

SG&A has grown as a company invest more in personnel costs.

Nat Krishnamurti: We recorded an operating income of $4.7 million in the fourth quarter of 2023 compared to operating income of $7.1 million in the fourth quarter of 2022. The company recorded net income of $3.9 million, or $0.09 per basic and $0.08 per diluted share, in the fourth quarter of 2023, compared to net income of $5.1 million, or $0.11 per basic and diluted share, in the same period of 2022. For the full year ended December 31, 2023, Hudson reported revenue of $289 million, a decrease of 11% compared to revenues of $325.2 million for the full year 2022. The revenue decline was primarily related to decreased selling prices for certain refrigerators.

We recorded operating income of $4 7 million in the fourth quarter of 2023 compared to operating income of $7 1 million.

In the fourth quarter of 2022.

The company recorded net income of $3 $9 million or <unk> <unk> per basic and <unk> <unk> per diluted share in the fourth quarter of 2023 compared to net income of $5 1 million or <unk> 11 per basic and diluted share in the same period of 2022.

Full year ended for the full year ended December 31, 2023, Hudson reported revenue of $289 million, a decrease of 11% compared to revenues of $325 $2 million for full year 2022.

The revenue decline was primarily related to decreased selling prices for certain refrigerants.

Nat Krishnamurti: Gross margin for full year 2023 was 39% compared to gross margin of 50% in the prior year period. The margin decrease is primarily related to reduced selling prices and increased cost of refrigerant products, slightly offset by higher margin DLA and carbon credit sales. Hudson reported operating income of $78.2 million for full year 2023 compared to operating income of $131.5 million in the prior year.

Gross margin for full year, 2023 was 39% compared to gross margin of 50% in the prior year period.

The margin decrease is primarily related to reduced selling prices and increased cost of refrigerant products slightly offset by higher margin DLA and carbon credit sales.

Hudson reported operating income of $78 $2 million for full year 2023, compared to operating income of one $131 5 million in the prior year.

Nat Krishnamurti: The company recorded net income of $52.2 million, or $1.15 per basic and $1.10 per diluted share, in 2023, compared to net income of $103.8 million, or $2.31 per basic and $2.20 per diluted share, in 2022. Tax expense was $17.6 million in 2023 and $13.4 million in 2022. Tax expense was higher in 2023 than in 2022 since, as we've previously stated, the tax benefit related to the deduction of net operating losses declined as we fully utilized these net operating losses in 2022 due to increased profitability. The effective tax rates for future periods are expected to reflect an overall combined federal and state tax rate of 26 percent, subject to various temporary and permanent differences.

The company recorded net income of $52 $2 million or $1 15 per basic and $1 10 per diluted share in 2023 compared to net income of $103 $8 million or $2 31 per basic and $2 20 per diluted share in 2022.

Tax expense was $17 $6 million in 2023, and $13 4 million in 2022.

Tax expense was higher in 2023 and 2022 since as we've previously stated the tax benefit related to the deduction of net operating losses declined as we fully utilize these net operating losses in 2022 due to increased profitability.

The effective tax rates for future periods are expected to reflect an overall combined federal and state tax rate of 26%.

Subject to various temporary and permanent differences.

Nat Krishnamurti: As previously announced, Hudson fully paid off its remaining $32.5 million of term loan debt during the third quarter of 2023, resulting from improved performance and increased cash flow. During the 12 months ended December 31st, 2023, the company generated $58.5 million of cash flow from operations, which was mainly used to pay down term loan debt in 2023. Stockholders' equity improved to $228.8 million at December 31, 2023, as compared to $174.9 million at December 31, 2022. The company's liquidity, consisting of cash and revolver availability, at December 31, 2023 was $84 million.

As previously announced Hudson fully paid off its remaining $32 $5 million of term loan debt during the third quarter of 2023, resulting from improved performance and increased cash flow.

During the 12 months ended December 31, 2023, the company generated $58 $5 million of cash flow from operations, which was mainly used to pay down term loan debt in 2023.

Stockholders equity improved to $228 8 million at December 31, 2023, as compared to $174 9 million at December 31 2022.

The companys availability, consisting of cash and revolver availability at December 31, 2023 was $84 million.

Nat Krishnamurti: As we continue to generate additional cash flow in 2024, we expect to, one, ensure we have adequate inventory on hand, two, review any possible M&A opportunities, and three, consider potential share buybacks. We have strong liquidity, and our evolving loan credit facility provides us with a solid financial platform and flexibility as we look forward. I will now turn the call back over to Brian. Thank you, Nat.

As we continue to generate additional cash flow in 2024, we expect to one ensure we have adequate inventory on hand to review any possible M&A opportunities and three consider potential share buybacks.

We have strong liquidity and a revolving loan credit facility provided provides us with a solid financial platform and flexibility as we look forward.

I will now turn the call back over to Brian.

Thank you that 2023 was a strong year for our business and an example of what we can accomplish when we execute our business strategy and leverage our position as a leading provider of sustainable products and services for the refrigerant and reclamation industry.

Brian F. Coleman: 2023 was a strong year for our business and an example of what we can accomplish when we execute on our business strategy and leverage our position as a leading provider of sustainable products and services for the refrigerant and reclamation industry. We are optimistic about our long-term prospects, particularly as the EPA and various states execute on initiatives to promote growth and recycling. Operator, we'll now open the call to questions. Certainly, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question. You may press star two if you would like to remove your question from the list. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.

We are optimistic about our long term prospects, particularly as the EPA in various states execute on initiatives to promote the growth in reclamation.

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

Currently at this time, we will be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again Thats star one if you wish to ask a question. Please hold while we poll for questions.

Operator: Again, that's star number one if you wish to ask a question. Please hold while we poll for questions. The first question today is coming from Ryan Sigdahl from Cray Column. Ryan, your line is live. Hey, good afternoon, Brian, and Nat. Curious what you're seeing from R22 and R410A or HFC pressure. Ryan, are you there? Apologies, but we seem to have lost Ryan's line. Can you guys hear me?

And the first question today is coming from Orion staked out from Craig Hallum, Brian Your line of lives.

Hey, good afternoon, Brian that curious, though what youre seeing from R 22, and our four kind of air HFC price.

Brian are you there.

Apologies, we seem to have lost Ryan's line one moment.

Oh, Okay go ahead Ray I'm, sorry can you guys hear me. Okay. Yes go ahead, yeah, Ryan maybe start at the beginning we lost you at some point sorry.

Brian F. Coleman: Good. Well, good afternoon, guys. Just want to start on pricing. I know you said lower, but curious if you could quantify kind of what you're seeing on the R22 side versus the HFC side and then how that's trended through the quarter and then now through March. So Q4 quarter, HFC pricing and R22 pricing were fairly consistent as we updated back in November at around that $10 price and had a slight uptick from what was the low probably in Q3. As it relates to 22, we think 22 will remain constant and steady, if you will, with pricing in the, let's say, $30 a pound range that we've talked about before. It's really early in the year, but a few HFCs, not all, we've seen some price pressure on below, let's say $10 in that eight to 10 price range, but only a handful, not necessarily all of them.

Well good afternoon, guys I just want to start on pricing I know you said lower but curious if you could quantify kind of what youre seeing on R 22 side versus the HFC side, and then how that trended through the quarter and then now through <unk>.

March.

So Q4 quarter.

<unk> see pricing in R 22 pricing were fairly consistent as we updated back in November and around that $10 price. It had a slight uptick from what was the low probably in Q3.

As it relates to 'twenty, two we think 'twenty two will remain constant.

Steady if you will our pricing in the let's say that $30 pound range that we've talked about before.

It's really early in the year, but a few hfc's not all we've seen some price pressure rod below let's say $10 in that eight to 10 price range, but only a handful not necessarily all of them. So we've not seen this type of break in pricing in the past but.

Brian F. Coleman: So we've not seen this type of break in pricing in the past. But right now, for the moment, and you know, a two month view of the 24 selling season, we're seeing a little bit of a break in some prices. Great.

Right now for the moment in a two month view of the 20 <unk> selling season, we're seeing a little bit of a break in some prices.

Great.

Brian F. Coleman: DLA, are you willing to quantify what it was in Q4? I know you gave the year and then how that compared to the prior year. As it relates to DLA, it was fairly consistent through the year.

L. A are you willing to quantify what it was in Q4 I know you gave the year and then I'll, let compared to prior year.

As it relates to DLA it was fairly consistent through the year.

Brian F. Coleman: But we were getting signals that they weren't going to be buying the types of products that we saw them buy throughout the year that we're now attributing to these additional purchases or surge purchases or non-recurring purchases. Now, we could be wrong, but we started to see this increase in Q1 of 23, and we know for certain in Q1 of 24, there will not be any of these types of purchases. It will be more business as usual or the past volume of activity. It doesn't mean that things could change later in this year, and so we're trying to be cautious and let folks know that possibly about $20 million or the $53 million may be more non-recurring than recurring. Got it. One more financial SG&A stepped up a little bit more than usual in the quarter. I guess is this a new trend?

But we were getting signals that they work.

Going to be buying the types of products that we sold them by throughout the year that we're now attributing to these.

Additional purchases or surge purchases or nonrecurring purchases that we could be wrong.

But we started to see this increase in Q1 of 'twenty three and we know for certain in Q1 'twenty four there will not be any of these types of purchases it'll be more business as usual or the past volume activities.

It doesn't mean that things could change later in this year.

And so we're trying to be cautious and let folks know that possibly about $20 million of the $53 million maybe more nonrecurring.

Then recurring.

Got it.

One more.

<unk> SG&A stepped up a little bit more than normal in the quarter. I guess is this a new trend and then what was that incremental spend on specifically in the quarter.

Nat Krishnamurti: And then what was that incremental spend on specifically in the quarter? Yeah, the incremental trend, let's say incremental spend, I would say it's more on the personnel and the IT side as we invest more in each of those areas. And I would say that's probably closer to the run rate for the future.

Yes incremental trend, let's say incremental spend what I would say, it's more on the personnel side as we invest more in each of those areas and I would say, that's probably closer to the run rate for the future.

Nat Krishnamurti: Great. Thanks, guys. Good luck. Thank you. Thank you. The next question is coming from Josh Nichols from B Reilly. Joshua Linus, Yeah, thanks for taking my question.

Great. Thanks, guys. Good luck.

Thank you.

Thank you. The next question is coming from Josh Nichols from B Riley Josh Your line is live.

Yes. Thanks for taking my question just as a follow up.

Brian F. Coleman: Just as a follow-up, I know you mentioned you didn't expect any DLA-specific project revenue in 1Q of 24 relative to last year. However, how much revenue was received for at least project-specific DLA revenue in the first quarter of last year? We're just trying to get a gauge for how much 1Q may be down quarter-over-quarter, year-over-year relative to what you did last year, just based on the DLA project-specific. Yes, so the DLA increase, and let's just say this, extra $20 million, possibly, although, like I said, it could come up later in the year, was fairly even. So you're talking about something close to, let's say, probably not quite $5 million, but close to $5 million, and that $20 million spread out pretty evenly over the quarter. I appreciate the color on that.

I know you mentioned you didn't expect any DLA specific project revenue in <unk>.

24 relative to last year.

How much revenue was received for at least project specific DLA revenue in the first quarter of last year, just trying to get a gauge for the.

How much <unk>, maybe down quarter over quarter year over year relative to what you did last year just based on the DLA project specific stuff.

Yes, so the deal they increase it let's just say this extra 20 million, possibly although like I said it could come up later in the year was fairly even.

So youre talking about something close to let's say, but not probably not quite 5 million, but close to $5 million.

Is that 20 million spread out pretty evenly over the quarters.

I appreciate the color on that and then.

Brian F. Coleman: And then a pretty big increase in inventory, right, for the quarter. I know that you're probably gearing up for an anticipated increase in reclamation refrigerants. I'm just curious if you could kind of provide a little bit more color on the ramp-up in inventory and what you're seeing there and the expectation as we move through the year. Yeah, you're really seeing, let's say, seasonal buying that you might historically see in the latter part of the year. So what will typically happen is we'll begin to stock up in Q4 for sales into Q1 and Q2 of the following year. You'll typically see the inventory start to come down, and then you'll start to see it in the latter part of the year build back up.

Pretty big increase in inventory right for.

The quarter I know that.

Are you, you're probably gearing up for an anticipated increase in reclamation.

So I'm just curious if you can kind of provide a little bit more color on the ramp up in inventory.

What youre seeing there and the expectation as we move through the year.

Yes, you really seeing let's say that seasonal buying.

And that you might historically see in the latter part of the year. So will typically happen is we'll begin to stock up in Q4.

For sales into Q1, and Q2 of the following year.

You'll typically see the inventory start to come down.

And then youll start to see it in the latter part of the year build back up.

Brian F. Coleman: Right now, we don't anticipate any material dollar increases necessary for inventory through this particular year and that we would probably end up at the end of next year with about the same total dollars in inventory in December 2024 as you're seeing in December 2023. Thanks, Brian. And then last question for me. You mentioned it. I mean, you become a debt-free entity; you generate a bunch of cash, right?

Right now, we don't envision any material dollar increases necessary for inventory through this particular year.

And then we would probably end up at the end of next year with about the same total dollars in inventory.

In December 2024, as Youre seeing at December of 2023.

Okay.

Thanks, Brian and then last question for me you mentioned it I mean, you would become a debt free entity you are generating a bunch of cash right.

Brian F. Coleman: Even with relatively subdued refrigerant prices today, at least on the HFC side, what are your thoughts on the likelihood of potential M&A opportunities in the near term? Are you seeing an increasing pond to fish from, so to speak, already? Are prices attractive or elevated relative to historical prices? I'm just curious for some context.

Even with relatively subdued refrigerant prices today at least on the HFC side I guess your thoughts on the likelihood of potential M&A opportunities in the near term or are you seeing an increasing pond to fish from so to speak already our prices attractive or are elevated relative to historic so I'm just curious for some.

Context.

Brian F. Coleman: I'll start with our primary focus, as far as the use of cash is concerned, inventory, right? In other words, if prices do go up later on in the year, we have to govern that first and foremost. But then, secondarily, to your point, M&A is of definite interest to us, so we just have to be patient in the right type of acquisition. As we've mentioned in the past, we're just not here to roll up a bunch of acquisitions. We want to be very smart and very intuitive in terms of the types of benefit that we get from a potential acquisition. It could include customer lists and other things like that, customer relationships, and provide other types of synergies that we need in our business to help cross-sell.

I'll start with it.

Our primary focus.

As far as use of cash is concerned is inventory right in other words.

If prices do go up.

Later on the year, we have to govern that first and foremost, but then secondarily. It to your point M&A is a definitely interest to us so.

We just have to be patient and the right type of acquisition.

We've mentioned in the past.

We're just not here to roll up a.

A bunch of acquisitions, we we want to be very smart and <unk>.

Very intuitive in terms of the types of <unk>.

Benefit that we get from a potential acquisition and this concludes that could include customer lists and other things like that customer relationships and to provide like other types of synergies that we need in our business to help cross sell.

Brian F. Coleman: And maybe just to add one other thing to that, we have done quite a number of acquisitions over the last 20 years. I would say, though, there's a little bit more competition or more dry powder available for private equity to complete acquisitions and, particularly, interest in the HVAC industry. So we've run into, let's say, more competition or acquisition price pressure because of some of those activities and those funds.

And maybe just to add one other thing to that.

We have done quite a number of acquisitions over the last 20 years.

I would say, though there is a little bit more competition or more dry powder available for private equity.

Two.

To complete acquisitions, and particularly interest in the HVAC industry.

So we've run into let's say more competition or acquisition price pressure.

Because of some of those activities in those funds.

Brian F. Coleman: We haven't changed our overall view about valuation, and so we hopefully tend to be on the conservative side of valuation when we eventually complete acquisitions. But we still think we will have an advantage over private equities because I do think we have a particular reputation in the industry. Typically, when we do complete an acquisition, we're looking to keep management and staff.

We haven't changed our overall view about valuation.

And so we hopefully tend to be on the conservative side evaluation. When we eventually complete acquisitions, but we still think we will have an advantage over private equities.

Because I do think we have a particular reputation in the industry typically when we do complete an acquisition, we're looking to keep management and staff.

Brian F. Coleman: It's often the people that have the value in that transaction, so I think we have some advantage, but there is pricing pressure right now in the market. Thanks, guys. I'll hop back in the queue. Thank you. Thank you, and once again, it's star number one if you wish to ask a question. The next question is coming from Leanne Hayden from Canaccord. Leanne, your line is live.

It's often the people that had the value in that transaction. So I think we have some advantage, but there is pricing pressure right now in the market.

Thanks, guys I appreciate it I'll hop back in the queue.

Thank you.

Thank you and once again Thats star one if you wish to ask a question. The next question is coming from Lyanne Hayden from Canaccord your.

Your line is live.

Operator: Hi, everyone. Thanks so much for taking my questions. So just to start, and to the extent that this is repetitive, I do apologize. I've had some connectivity issues throughout the call.

Hi, everyone. Thanks, so much for taking my questions.

So just to start can.

To the extent that this is repetitive I do apologize it has.

Annuity issues, you have to call, but regardless you have.

Brian F. Coleman: But regardless, do you expect this year's HFC refrigerant price increases to sufficiently offset the expected $20 million of non-recurring costs from the DLA contract? So that's a good question, and at the moment, difficult to answer. We're so early in the season, as you can imagine, there's no warm weather.

Expect this year in HFC worksite drink price increases here.

Sufficiently offset the expected $20 million of nonrecurring from DLA contract.

So that's a good question and at the moment difficult to answer.

So early in the season as you can imagine theres no warm weather.

Brian F. Coleman: The AC or comfort cooling really drives demand. We will start to see some increase in that demand in the southern states, Texas, Florida, and so forth, hopefully in the near term here. And once we get into Q2, we'll have more confidence about how we think our 2024 pricing relative to the selling season will look. Right now, we don't really have sufficient information to be able to predict what will happen with price. Generally speaking, we do think that prices will be up in 2024 because of the reduction in the availability of virgin production and consumption.

The AC or comfort cooling really drives demand.

We will start to see some increase in that demand in the southern States, Texas, Florida, and so forth hopefully in the near term here.

And once we get into.

Q2 will have more confidence about how we think our 2020 for pricing relative to the selling season will look at right. Now we don't really have sufficient information to be able to predict what will happen with price generally speaking, we do think that prices would be up in.

<unk> 2024, because of the reduction in the availability of Virgin production and consumption.

Brian F. Coleman: Okay, right? That makes sense. All right. Thanks for that. And then just secondly, for me, are you able to disclose which classes of refrigerants experienced lower Q4 pricing relative to higher sales volume? Yes, so sorry, that was the, when we are generally today talking about price, we'll be distinguishing HFC pricing as a complete bucket, but there are about 20 different HFC refrigerants versus, let's say, R22. So when we were talking about some of the pricing pressure and some refrigerants pricing right now, today slightly lower than how we exited last year, we were talking about that HFC class. As it relates to R22, we said a little earlier that pretty much the price of R22 is stable and around that $30 a pound price.

Okay, right that makes sense alright, thanks for that and then just another one for me are you able to disclose which classes of refrigerants experienced lower Q4 pricing relative to higher sales volumes.

Yes, so sorry that that was the when we are generally today talking about price will be distinguishing HFC pricing as a complete bucket, but there's about 20 different HFC refrigerants.

<unk>, let's say our 'twenty two so when we were talking about some of the pricing pressure and some refrigerants pricing right now today slightly lower than how we exited last year, we were talking about that HFC class as it relates to our 'twenty. Two we said a little earlier that pretty much the price of <unk>.

<unk> two is stable at around that $30 a pound price.

Brian F. Coleman: All right, understood. Got it. Thanks so much, you guys. Have a good evening. Thank you. There were no other questions at this time.

Alright understood got it. Thanks, so much you guys.

Hi, good evening.

Thank you there are no other questions at this time I would now like to hand, the call back to Brian Coleman for closing remarks.

Brian F. Coleman: I would now like to hand the call back to Brian Coleman for closing remarks. Well, thank you, operator. I'd like to thank our employees for their continued support and dedication to our business, and both our longtime shareholders and those that recently joined us for their support. We look forward to speaking with you after the first quarter results. Have a good night, everybody. Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

Well. Thank you operator, I'd like to thank our employees for their continued support and dedication to our business.

And both our long time shareholders and those that recently joined us for their support.

We look forward to speaking with you after the first quarter results have a good night everybody.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.