Q2 2024 Hudson Technologies Inc Earnings Call

Operator: 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 our best view of the industry and 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.

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.

A few of the industry and 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 Hudson's most recent Form 10-K and other subsequent SEC filings for a discussion.

Operator: 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 to differ materially. With that out of the way, I'll turn the call over to Brian Coleman.

And of the principal risks and uncertainties that affect our business and our performance and other factors that could cause or could cause our actual results to differ materially with out of the way I'll turn the call over to Brian Coleman go ahead, Brian.

Brian Coleman: Good evening, and thank you for joining us. So far, 2024 has a number of long-term positive events, such as the significant cash flow generation, the anticipated share buyback, the acquisition of USA Refrigerants, and the expected final refrigerant management rule, creating the first ever federal mandates for the use of reclaimed refrigerants. Unfortunately, on a short-term basis, we've seen downward pricing pressure this sales season. As we move through the 2024 selling season, the landscape has been challenging.

Brian Coleman: Good evening and thank you for joining us so far 2024 has a number of long term positive events.

Brian Coleman: Such as the significant cash flow generation, the anticipated share buyback the acquisition of USA refrigerant and the expected final refrigerant management rule.

During the first ever federal mandates for the use of reclaim refrigerants.

Unfortunately on a short term basis, we've seen downward pricing pressure this sales season.

As we move through the 2020 for selling season, the landscape has been challenging.

Brian Coleman: In the second quarter, demand for refrigerants was very strong, with a 17% increase in volume over last year. However, we continued to experience pricing pressure for certain refrigerants, which negatively impacted our revenue and margin performance and outweighed the volume gained. During the second quarter, our industry saw an approximate 25% decline in the price of certain refrigerants as compared to the second quarter of 2023. And HSE pricing has increased by about 6% from the level we discussed when we last spoke on May 1, with pricing levels at about $7.50 per pound today.

In the second quarter demand for refrigerants were very strong with a 17% increase in volume over last year. However.

Brian Coleman: Given the challenging pricing environment, our margin performance was below our long-term target. However, we delivered solid profitability. With our visibility today, if current pricing levels continue through the remainder of the 2024 selling season, we would anticipate full-year revenue in the range of approximately $240 million to $250 million, with full-year gross margins of approximately 30%. As we outlined last quarter, we anticipated that pricing levels might not rebound as the season progressed. And we noted that last year's strong DLA program-specific order activity of approximately $20 million would likely not be repeated, creating a difficult comparison for this year.

Brian Coleman: While the current pricing situation is disappointing, we've been in the industry for a very long time, and we believe this pricing dynamic is temporary and does not impact our long-term view of Hudson's growth opportunities. As always, we remain focused on the elements of our business that we can control, including our commitment to ensuring that we are meeting the refrigerant needs of our customers and promoting recovery and reclamation as we help bridge the transition underway through current and future refrigerant phase-downs.

Brian Coleman: During the quarter, we announced our acquisition of USA Refrigerants, a leading purchaser of recovery refrigerants known for their strong sales organization and expertise in sourcing recovery refrigerants. Historically, USA generated average revenues of approximately $20 million per year.

Brian Coleman: This will allow us to significantly enhance our ability to profitably leverage current and future phase-downs of virgin refrigerants and the resulting supply-demand imbalance. With the addition of the USA Team, Hudson has created a dedicated refrigerant acquisition group focused on acquiring all types of refrigerants, from CFCs to HFCs, as well as the latest generation products, and we're very excited about the potential contribution of this new group. In the month of June, we onboarded and integrated this business with ours and have set the strategic plan in motion so that, in July and the balance of the year, we should see the benefits of the growth opportunity we expected to achieve as a result of this acquisition, and we welcome the USAID team to the Hudson team.

Brian Coleman: And as a reminder, as we grow our volumes of reclaimed refrigerant, and then when sold, we typically recognize double the gross margins than when we buy and sell newly manufactured refrigerants. Additionally, when we source more recovery refrigerants, we become more self-reliant on the supply side of our inventory needs. As we move towards the completion of our nine-month selling season, we will gain better visibility related to the current HSE phase-down and where the industry stands in terms of anticipated supply, demand, and balance.

Brian Coleman: We also expect to see the EPA's proposed Refrigerant Management Rule finalized this month, which is an important component of the implementation of certain aspects of the AMAC. As a reminder, the proposed EPA rule mandates the use of reclaimed refrigerants for certain applications and equipment. If the proposed rule is adopted as final, this will be the first time in our industry's history that we have a federal requirement for the mandatory use of reclaimed refrigerants in certain sectors.

Brian Coleman: Additionally, many states have proposals under consideration that would mandate the use of reclaimed refrigerants, and certain first-mover states have already adopted legislation. California, for example, will implement a mandate for the use of reclaimed refrigerants in state-governed facilities beginning in 2025. Furthermore, the EPA's Technology Transition Rule, which was finalized in October of 2023, promotes the introduction of lower GDP systems for new construction starting in 2025, as well as the conversion of the current estimated installed base of 125 million HFC and legacy systems over the next 20 years.

California for example, we will implement a mandate for the use of reclaim refrigerants and state government facilities beginning in 2025.

Brian Coleman: Furthermore, the Epa's technology transition rule, which was finalized in October 2023 <unk>.

Brian Coleman: Promotes the introduction of lower GDP systems for new construction starting in 2025.

Brian Coleman: As well as the conversion of the current estimated installed base of $125 million HFC and legacy systems over the next 20 years.

Brian Coleman: Hudson can provide any and all types of refrigerant and service, any and all types of systems. We are well equipped to support the move to next-generation refrigerants and technology. We're optimistic about the legislative environment as it relates to industry compliance and our ability to assist existing and new customers. Additionally, we are an industry leader in our efforts to support the transition to more effective refrigerant management and environmentally friendly cooling equipment.

Hudson: Hudson can't provide any and all types of refrigerants and service any and all types of systems. So.

Speaker Change: So we are well equipped to support the move to next generation refrigerants and technology.

Brian Coleman: We are optimistic about the legislative environment as it relates to the industry compliance and our ability to assist existing and new customers.

Brian Coleman: Additionally, we are an industry leader in our efforts to support the transition to more effective refrigerant management and environmentally friendly cooling equipment.

Brian Coleman: We are, of course, a huge proponent of the importance of refrigerant recovery because, beyond the negative environmental impact of venting, it is also a fact that without recovered gas, you will have no refrigerant source for producing reclaimed refrigerant.

Brian Coleman: We are of course, a huge proponent for the importance of refrigerant recovery.

Brian Coleman: Because beyond the negative environmental impact of venting.

Brian Coleman: It is also a fact that without recovered gas youll have no refrigerant source for producing reclaimed refrigerant.

Brian Coleman: During the second quarter, we attended and presented at various industry conferences to discuss the importance of recovering refrigerant are in service calls.

Brian Coleman: During the second quarter, we attended and presented at various industry conferences to discuss the importance of recovering refrigerant during service calls and the environmental benefits from using reclaimed refrigerant. We've been to Data Center World. Service Nation Summits, Lenox Vision Techs, 7x24 Exchange, and International District Energy. Hudson is widely regarded as an industry thought leader, and we're pleased to be actively working to assist the transition as our customers comply with the new regulatory environment.

Brian Coleman: And the environmental benefits from using reclaim refrigerant.

Brian Coleman: We've been at the datacenter World Service Nation, Summit's, Lennox vision Techs, seven by 24 exchange and International District Energy.

Brian Coleman: As previously noted, the three pillars of our capital allocation strategy are business working capital needs, acquisitions, and share repurchases. Based on the 2024 Wells Fargo Amendment, coupled with the recent approval of a share repurchase program of up to $10 million by the company's Board of Directors, we expect to initiate a share repurchase plan in the coming weeks, the timing of which will be based on the plan administrator and legal guidance.

Brian Coleman: We are committed to strategically deploying capital to drive long-term value for our stockholders. We believe that our compelling long-term profitability, combined with the strength of our balance sheet and cash flows, presents an attractive buying opportunity for our stock. The board's authorization of a share repurchase reflects their confidence in Hudson's long-term growth prospects and dedication to stockholder value creation. Given our significantly improved balance sheet over the past few years, we are now able to prioritize investing for growth organically and through acquisition, while also potentially returning capital to our stockholders through the opportunistic repurchase of shares.

Brian Coleman: As one of the largest individual shareholders, I take my responsibility as CEO most seriously. For those that have been long-term shareholders, hopefully, you will see two things. My and our employees' dedication to ensuring the success and growth of our company in a profitable and sustainable way and enhancing shareholder value. All of our actions are done with that intent, and I am especially proud of our employees' commitment and dedication. With that said, I'd like to introduce Brian Berteau, who, as most of you know, recently joined Hudson as CFO.

Brian Coleman: Brian has public company experience through his nearly 20 years with New York Stock Exchange-traded TREC, a name you might recognize if you have high-quality composite decking at your home. We are very pleased to welcome Brian and look forward to his contribution. Let me turn it over to him. Go ahead, Brian.

Brian Berteau: Thank you, Brian, and good evening everybody. I'm on day 7 as CFO at Hudson Technologies, and I'm impressed with what I've seen and learned thus far. I am thrilled to have the opportunity to join this accomplished leadership team and contribute to the company's long-term success. As Brian mentioned, I previously spent 20 years at Trek, the world's leading manufacturer of wood alternative decking and railing. During my tenure at Trex, revenue grew ninefold from $100 million to $900 million, and the market cap reached $10 billion.

Brian Berteau: I served in a number of senior management roles, culminating as Interim President of Trek's Commercial Products, a commercial railing product subsidiary purchased by Trek. While at Trex, I was instrumental in the company's capital allocation strategy and tactics, which included M&A as well as opportunistic share buybacks. I'm excited to bring my broad operational, financial, and strategic leadership experience to Hudson and look forward to collaborating with the leadership team in driving operational excellence and strategic growth. This is a very exciting time to be joining this dynamic company and industry. I look forward to the opportunity to introduce myself and get to know many of you over the coming days.

Brian Berteau: Now I'll turn to our financial review. For the second quarter ended June 30th, 2024, Hudson recorded revenues of $75.3 million, a 17% decrease compared to revenues of $90.5 million in the comparable 2023 period. The decrease was primarily related to decreased selling prices for certain refrigerants and lower revenue from the company's DLA contract. However, these decreases were partially offset by volume increases in refrigerant sales of 17% compared to the same period in 2023.

Brian Berteau: Gross margin was 30% for the second quarter of 2024, as compared to 41% in the second quarter of 2023, as a result of the previously mentioned depressed year-over-year market price. SG&A for the second quarter of 2024 was $9 million, compared to $8.3 million in the comparable 2023 period. During the second quarter of 2024, the company incurred $700,000 of non-recurring expenses related to one, the USA Refrigerants Acquisition, as well as IT projects.

Brian Berteau: We recorded operating income of $12.8 million in the second quarter of 2024 compared to operating income of $27.7 million in the comparable 2023 period. The company's effective tax rate for the second quarter of 2024 was 24.2% compared to 25.3% for the second quarter of 2023.

Brian Coleman: Based out of Hfcs will ultimately move pricing higher accelerate reclamation activity and drive enhanced profitability in our business we.

Brian Coleman: We believe Hudson's leadership position in the industry.

Brian Coleman: Proprietary reclamation technology, and long standing customer relationships leave us well position to drive the necessary transition to reclaimed refrigerant as Virgin supply tightens and the industry adopt new equipment and technologies.

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

Speaker Change: Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please pick. 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'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.

Speaker Change: The Star Keys, one moment, please while we poll for questions.

Speaker Change: Once again, please press star one if you have a question or comment. The first question comes from Ryan <unk> with Craig Hallum. Please proceed.

Operator: Hey, good afternoon, Brian and Brian.

Ryan: Hey, good afternoon, Brian and Brian.

Speaker Change:

Ryan: Want to start with volume up 17% in the quarter can you break that down I guess, what really drove that volume increase and was there any shift between quarters and kind of throughout the summer selling season.

Speaker Change: So Q1 volume was somewhat flat.

Unnamed Speaker: So Q1 volume was somewhat flat when we entered this selling season, but really, we had a strong interest in Q2. Now the 17%, as we talked many times before, may not be the blended growth relative to the entire nine-month sales season, but we do expect, based on the activities we've seen in Q2 and certainly see today, that we do think we're going to see growth over last year throughout the balance of the nine-month season in 24 compared to 23.

When we entered this selling season, but really we had a strong interest in it.

Speaker Change: Q2, now the 17% as we talk many times before may not be the blended growth relative to the entire nine months sales season, but we do expect based on the activities. We've seen in Q2 and certainly see today that we do think we're going to see growth over last year throughout the balance of the nine months season in <unk>.

Speaker Change: Four compared to 23.

Speaker Change: Good.

Speaker Change: Then.

Speaker Change: U S Department of Commerce.

Speaker Change: It's been doing an investigation for the past year. They came out with findings and a termination in July basically theyre going to enforce duties on HFC blends coming in from China that are further processed in the U S. Curious your thoughts on that and the potential impact to the HFC market, whether it be pricing and or just general industry dynamics.

Speaker Change: In the next couple of years.

Speaker Change: So we certainly do not like bad actors and bad behavior, and we feel certain comp.

Speaker Change: Companies that are selling refrigerant in the United States do have that propensity with that said we would have supported the.

Unnamed Speaker: With that said, we would have supported the petitioners in this ITC case ruling with regard to the circumvention findings that the ITC finally reached, claiming that the source of the refrigerant was from those companies when, in fact, the source was from China.

Speaker Change: The petitioners and this ITC case ruling with regards to the circumvention findings that the ITC finally reached.

Speaker Change: Bottom line is.

Speaker Change: It appears that certain entities would have attempted to bring product in from other countries.

Speaker Change: Claiming that the source of the refrigerant were from those companies when it appears in fact, the source was from China.

Speaker Change: As a consequence.

Speaker Change: There is a claw back if you will of duties that may impose some significant financial burdens on those that may have circumvented.

Speaker Change: The rules, we don't know what that impact will be we certainly don't know when.

Speaker Change: Those those pre.

Speaker Change: Prior tariffs payments are due.

Speaker Change: But it could have a significant impact, particularly if someone broadcasts in unfairly at a cost disadvantage to those that behave and follow the rules and regulation. So it'll be interesting to see what may happen over the next couple of months, but I think over the next couple of months.

Speaker Change: I have an answer.

Speaker Change: Sure.

Speaker Change: Last quick one for me within the revised new guidance, how much of revenue was from USA refrigerants acquisition.

Speaker Change: I'm, sorry, say that again in terms of the balance of the year.

Speaker Change: Right now in the numbers that we disclose we would not have put much revenue in.

Speaker Change: Those ranges.

Unnamed Speaker: Partly to do with the focus right now for Hudson and the USA team is buying, and we're getting into that buying season relative to, you know, year-end. Now we're starting to see contractors accumulate gas, and I think we've said this before, that typically, the returns of recovered gas tend to go about three months beyond the sale season. So what will happen is, to the extent that most of their activity is dedicated to buying refrigerant, that will go into inventory for sales next year. But certainly, we do have upside to the extent that we do garner more sales over the next, you know, particularly three months, this remainder of the selling season, relative to the guidance we provided.

Speaker Change: Partly to do with the focus right now for Hudson in the USA team is buying and we're getting into that buying season relative to.

Speaker Change: A year and now we're starting to see contractors accumulate gas and I think we've said this before that typically the returns are recovered gas tends to go about three months beyond the sales season. So what'll happen is to the extent that most of their activity or dedicated to buying refrigerant that will go into inventory for sales.

Speaker Change: Next year, but certainly we do have upside to the extent that we do get garner more sales over the next.

Speaker Change: Particularly three months this remainder of the selling season relative to the guidance we provided.

Speaker Change: Helpful. Maybe one clarification on that as we think about next year is this just an improved mix of inventory that you'll be selling with double the gross margin sits reclaim gas or do you think this will be incremental volume layered on to kind of current Hudson business.

Unnamed Speaker: We think it's cool.

Speaker Change: We think it's going to be both we sort of lost if you will the first two quarters of the nine months or three quarter sales season based on the closing date and then the integration. So we definitely feel confident that we're going to get incremental revenue as well as the benefit from higher margins from selling recover to reclaim gas.

Speaker Change: Yes.

Speaker Change: Great. Thanks, guys. Good luck.

Speaker Change: Thank you.

Speaker Change: The next question comes from Gerry Sweeney with Roth Capital. Please proceed.

Unnamed Speaker: Hey Brian, how are you guys doing? Doing well, thank you.

Gerry Sweeney: Hey, Brian and Brian how are you guys doing.

Brian Coleman: Doing well, thank you doing well thanks.

Gerry Sweeney: Just one quick question on pricing and then I'm going to go a different direction, but curious if pricing has changed since some of the circumvention balls or determination that occurred.

Speaker Change: Again, the pricing dynamic that we saw.

Unnamed Speaker: you know, describe this evening where we are today. Yeah, I don't believe we've seen any material pricing changes in any way directed towards the case. We do believe certain individuals that may have imported the gas and not paid those tariffs will be subject to a fairly significant clawback and will have that cash impact. So how they run their business and how they generate the cash and all that stuff, we're yet to see.

Speaker Change: Describe this evening is where we are today.

Speaker Change: Yes.

Speaker Change: Don't believe we've seen any material pricing changes in any way directed towards the case.

Speaker Change: We do believe certain.

Speaker Change: Individuals that may have imported the gas and not paid those tariffs will be subject to a fairly significant claw back and will have impact.

Speaker Change: Yes.

Speaker Change: We'll have that cash implications, so how they run their business and how they generate the cash and all that stuff.

Speaker Change: We're yet to see.

Speaker Change: Got you Okay. That's fair.

Speaker Change: Next question acquisition candidate you sort of highlighted with you develop the USA refrigerants acquisition.

Speaker Change: Yes.

Unnamed Speaker: Gotcha. Okay, that's fair. Can you give a little bit more detail on sort of the how and the opportunity and how, you know, what they're going to do, and how they do it?

Speaker Change: Can you give a little bit more detail on sort of how <unk> and the opportunity and what theyre going to do how they do it.

Speaker Change: How that's going to drive increased reclaim activity.

Speaker Change: So.

Speaker Change: <unk>.

Speaker Change: The USA team and the team has been around for 20 plus years real really good dedicated folks think of it that they had limited access to Virgin supplies, so for them to be able to meet their customer needs. They had to be nearly 100% self reliant on the ability.

Speaker Change: To find.

Speaker Change: And purchase and then process recovered refrigerants, so they're very good at hunting very good at relationships relationships relative to payment and timely payment. They have a very strong reputation in the contracted community and we're expecting to bring them.

Speaker Change: Expertise to Hudson and then most importantly apply that expertise to Hudson's customer base, where we feel that we havent done a sufficient job integrating the buying with the selling and we think their team is really going to help us grow that opportunity as well.

Speaker Change: Got it and then.

Speaker Change: Third and final question.

Speaker Change: Obviously.

Speaker Change: Vantiv buyback, especially with the stock at current levels, but.

Speaker Change: At some point you have a buyback, but you also have an opportunity to buy.

Speaker Change: Use gas potentially at a pretty cheap price, what's the dynamic on that or whats the ballpark.

Speaker Change: So when we look at our free cash flow, we will certainly look first to support the business and the working capital needs and then we seem to be generating more cash than needed for that so we are looking at acquisitions and also opportunistic share repurchases. So it'll be those three pillars that first and foremost is for the business.

Unnamed Speaker: So when we look at our free cash flow, we will certainly look first to support the business and our working capital needs. And then we seem to be generating more cash than needed for that. So we are looking at acquisitions and also opportunistic share purchases. It'll be those three pillars. But first and foremost, it's for the business. But fortunately for us, our free cash flow generation is more than what's needed for our business with our strategic

Speaker Change: But fortunately for us our free cash flow generation is more than what's needed for our business with our strategic growth.

Speaker Change: And at some point would you want to.

Speaker Change: Acquire more use gas as opposed to build up working capital our inventory on the gas side, especially at some point.

Speaker Change: Not that I'm, a believer that the market is going to change pricing is going to change and there is an opportunity here.

Speaker Change: Currently yes.

Speaker Change: Yes, Bryan expressed it well and that first and foremost we want to make sure we have sufficient cash to meet our needs and it's mainly working capital needs for inventory. So we're certainly not going to somehow limit our activities there or redirect cash to the extent, we make business decisions that we need more.

Speaker Change: Relative to inventory and inventory dollars.

Speaker Change: And particularly as it relates to dollars spent on buying used gas.

Speaker Change: With that said I think we've talked about this a couple of times, we don't believe that our dollars in ending inventory at December 31, 2024, we will need to be higher than the dollars at December 31, 23, and so far we're managing the business and that is the outcome. Thus far obviously is.

Speaker Change: Things change, we will take a look at that but we don't think the current allocation of capital and a $10 million amount is going to impact anything to do with our ability to buy refrigerants.

Unnamed Speaker: That's fair. I got you. Okay. I appreciate it. Thank you.

Speaker Change: I gotcha okay.

Speaker Change: I appreciate it I'll pass back in queue.

Speaker Change: Once again, if you have a question or a comment please indicate so by pressing star one on your Touchtone phone. The next question comes from Josh Nichols with B Riley. Please proceed.

Operator: Once again, if you have a question or a comment, please indicate so by pressing star 1 on your touchtone phone. The next question comes from Josh Nichols with B. Riley. Please proceed.

Josh Nichols: Yes, thanks for taking my questions a couple of the things I had already already asked but I'm just kind of curious.

Josh Nichols: Yeah, thanks for taking my questions. A couple of things I had already asked, but I'm kind of curious.

Speaker Change: Where prices shake out whenever you look at like the company's inventory levels. Today, obviously, a couple types of refrigerants in there, but generally our <unk>.

Speaker Change: See like what ballpark as the average price that you guys have for the inventory level I'm, just trying to think of the upside opportunity in the next selling season, if prices start to kind of normalize and what that could be margins relative to that 30% level you talked about for this year based on 750 a pound.

Speaker Change: So Josh will not provide that granularity as we talked many times, we are the only public company in the refrigerant space, but when you go back to the earnings call for Q1.

Speaker Change: What we talked about is we believe that as we are selling product in the 2024 season.

Unnamed Speaker: We're pulling from higher FIFO layers on a cost basis than we anticipate next year. So we do not believe the price of refrigerants is gonna remain the same in 25 as it is in 24, but if they did, just on a cost basis and FIFO inventory basis, we should have higher margins as a result of a lower cost basis entering the 25th year.

Speaker Change: We're pulling from higher FIFO layers on a cost basis than we anticipate.

Speaker Change: Next year.

Speaker Change: We do not believe the price of refrigerants are going to remain the same at <unk> 25, as they are in 'twenty four but if they did just on a cost basis and FIFO inventory basis, we should have higher margins as a result of a lower cost basis entering the 25 years.

Speaker Change: Fair enough I appreciate the context there.

Speaker Change:

Josh Nichols: And then I'm looking here. I'm kind of curious; I don't think you mentioned it specifically on the call, but looking at the DLA contract, what was the DLA contract revenue in 2Q of this year relative to last year, just for context on the year over year decline?

Speaker Change: And then im looking here.

Speaker Change: I'm kind of curious I don't think you mentioned it specifically on the call.

Speaker Change: But looking at the DLA contract what was the DLA contract revenue in Q2 of this year relative to last year just for context.

Speaker Change: Year over year decline.

Unnamed Speaker: It wasn't quite 5 million lower; it was actually about 4.2, I think, lower. So we've made up a little bit of ground relative to that 20 million. But right now, assume we're at a run rate, as we talked about, in that low 30 million range based on our anticipation. But as we said before, because there isn't a backlog and a long lead time, it's still possible there could be some procurement of products similar to what they did last year.

Unnamed Speaker: It wasn't quite

Speaker Change: It wasn't quite $5 million lower it was it was actually about.

Speaker Change: 4.2, I think lower so we've made up a little bit of ground relative to that $20 million, but right now assume are at a run rate as we talked about in that low $30 million range based on our anticipation, but as we said before because there is a backlog at a loss.

Speaker Change: Lead time, it's still possible there could be some procurement of products similar to what they did last year.

Speaker Change: Yeah.

Josh Nichols: I appreciate it. Last question for me: Digging into the weeds a little bit. You did say there were some one-time expenses. Was that like $700,000 related to USA refrigerants and something else? So presumably, if that's SG&A, then SG&A is going to dip back down to close it around like the $8 million level in 3Q because I know it wasn't backed out of any of the company's pro forma earnings because of the reporting gap. Yeah, we would expect that. So SG&A.

Speaker Change: I appreciate it and last question for me.

Speaker Change: Digging into the weeds, a little bit you did say there was some one time expenses was that like $700000 related to USA refrigerants and something else so presumably if thats in <unk>.

Speaker Change: SG&A than SG&A is going to dip back down to closer to around might be $8 million level in <unk>, because I know it was backed out many of the companies.

Speaker Change: Our earnings because just report GAAP.

Unnamed Speaker: Yeah, we would expect that. So SG&A, excluding the USA Refrigerant Acquisition plus some investments in IT to support the growth of the organization. Aside from those two, SG&A is very comparable to last year, and we would expect that to continue.

Speaker Change: Yes, we would expect that so SG&A, excluding USA refrigerant acquisition, plus some investments in it to support the growth of the organization aside from those two SG&A is very comparable to last year, and we would expect that to continue.

Speaker Change: I appreciate the context. Thank you.

Speaker Change: Thank you Josh.

Operator: Okay, the next question comes from Austin Moeller from Canaccord. Please proceed.

Speaker Change: Okay. The next question comes from Austin Moeller from Canaccord. Please proceed.

Austin Moeller: Hi, good afternoon Brian and Brian. Just my first question here: has the DLA signaled anything about their forward purchasing activity in Q3 and Q4? I know you have some optimism that they could ramp that up in the second half.

Austin Moeller: Hi, Good afternoon, Brian Brian.

Austin Moeller: Just my first question here.

Austin Moeller: Signal anything about their forward purchasing activity in Q3, and Q4 I know you have some optimism that.

Brian Coleman: They could ramp that up in the second half.

Unnamed Speaker: It doesn't quite work that way. We could really get orders in and fulfill them in a matter of days. There isn't much of a dialogue.

Speaker Change: It doesn't quite work that way.

Speaker Change: It really we could get orders in and fulfill it in a matter of days there isn't much of a dialogue theres. So many different places.

Unnamed Speaker: There are so many different places within the DoD that can procure under this contract that you wouldn't necessarily know who's considering what buys when. That's why it's very difficult to predict. But to be clear,

Speaker Change: Within the Dod that can procure under this contract.

Speaker Change: That you wouldn't necessarily know who's considering what buys when that's why it's very difficult to predict.

Speaker Change: But to be clear.

Unnamed Speaker: As it relates to the buying that occurred last year, they are active NSN numbers, and therefore, it doesn't mean that they can't buy. It's just that based on the volume and activity we saw last year, and we saw it ending in Q4 of last year and not reoccur, it doesn't mean it can't. We just don't want to guarantee or state that it will. But if those orders come, we will be able to fulfill them, and we'll be able to fulfill them on a timely basis.

Speaker Change: As it relates to the buying that occurred last year. They are active at a set of numbers.

Speaker Change: And therefore, it doesn't mean that they can't buy it just based on the volume and activity. We saw last year and we saw it ending in Q4 of last year and not reoccur.

Speaker Change: It doesn't mean it can't we just don't want to guarantee or.

Speaker Change: State that it will.

Speaker Change: But if those orders come we will be able to fulfill them and we'll be able to fill them fulfill them on a timely basis.

Speaker Change: Great and just a follow up what are you hearing in the market.

Austin Moeller: Great, and just to follow up, what are you hearing in the market from your customers and other suppliers in terms of the burndown of the existing HFC stockpile that was created? Do you anticipate that it will be fully exhausted by the next cooling season?

Speaker Change: From your customers and other suppliers in terms of the burn down of the existing HFC stockpile that was created.

Speaker Change: Anticipate that ill be points expanded by the next growing season.

Speaker Change: We will get much more visibility about the answer to that question when the EPA report the 2023.

Unnamed Speaker: We will get much more visibility about the answer to that question when the EPA reports the 2023 inventory data. We want to see what the relative relationship is between the movement of the inventory data between December 31, 2022, and 2023. We believe that this year's cooling season has been quite strong, as indicated certainly by our volume increases.

Speaker Change: Inventory data, we want to see what the relative relationship is that the movement of the inventory data between December 31, 2022, and 'twenty three.

Speaker Change: We believe that this year's cooling season has been quite strong as indicated certainly by our volume increases.

Unnamed Speaker: And we would believe, to the extent that there was a decline between 2022 and 2023, that there would be a greater decline between 2023 and 2024. So we're really wanting to wait for that data point. And that kind of goes back to the three things that are going to occur shortly that will make us comfortable to talk about the future. You know, how do we end the season on pricing? What does the EPA's final refrigerant management rule look like? And what does the 2023 inventory data look like? All three of those pieces of the puzzle should be available to us to be able to discuss on the Q3 earnings call.

Speaker Change: And we would believe to the extent that there was a decline between 22% and 23 that there will be a greater decline between 'twenty three and 'twenty four.

Austin Moeller: Excellent. That's very helpful in framing it. Thanks.

Speaker Change: So we're really wanting to wait for that data point.

Speaker Change: And that kind of goes back to the three things that are going to occur shortly that will make us comfortable to talk about the future.

Speaker Change: How do we end the season on pricing.

Speaker Change: What is the Epa's final refrigerant management rules look like and what does the 2023 inventory data look like all three of those pieces of the puzzle should be available.

Speaker Change: To us to be able to discuss that in the Q3 earnings call.

Speaker Change: Excellent.

Speaker Change: That's very helpful in framing it thanks. Thank.

Speaker Change: Thank you.

Speaker Change: We have reached the end of the question and answer session and I will now turn the call over to management for closing remarks.

Operator: We have reached the end of the question and answer session, and I will now turn the call over to management for a closing remark.

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

Brian Coleman: 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 have recently joined us for their support. We look forward to speaking with you after the third quarter results. Have a good night, everybody. Thank you.

Speaker Change: In both our long time shareholders and those that have recently joined us for their support.

Speaker Change: We look forward to speaking with you after the third quarter results have a good night everybody. Thank you.

Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.