Q1 2025 Hudson Technologies Inc Earnings Call
Although they reflect our current expectations and are based on 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 in certain cases or not within our control, we would ask that you consider and interpret them in that light.
Speaker Change: We urge you to review Hudson's most recent form 10K and other subsequent SEC finalings for a discussion of the principal risks and uncertainties to affect our business and our performance and of the factors that could cause our actual results to differ materially. With that out of the layout, turn the call over to Brian Coleman. Go ahead, Brian .
Speaker Change: Good evening and thank you for joining us. We are pleased to have started 2025 with slightly improved sales volume in the first quarter, which is a promising start to this year's nine-month sale-exesit.
Speaker Change: That said, we did see a revenue decline as expected in the quarter to $55.3 million with gross margin of 22%. Reflecting continued lower overall refrigerant market pricing as compared to the first quarter of last year, which all set our sales volume gains. [inaudible]
Speaker Change: First quarter, 2025, refrigerator pricing declined slightly as compared to the fourth quarter of 2024. In this year's first quarter, pricing was approximately 40% lower than the first quarter of 2024.
Speaker Change: We also saw a continued momentum in the refrigerant recovery activities that supply our Reclamation business, which resulted in increased reclaimed volume during the first quarter.
Last year's strategic acquisition of USA refrigerants has strengthened our capabilities and are to reach around the purchasing of recovered refrigerants.
Speaker Change: We are focused on continuing to approve our purchasing presidents in the marketplaces.
Speaker Change: In addition, much of the volume gain in the quarter came from the USA acquisition .
Speaker Change: Finally, as expected, we saw orders related to our DLA contract that levels consistent with last year's first quarter.
Speaker Change: At the close of the first quarter, pricing for certain HFCs was still under $6 per pound, but since the close of the quarter, we've seen pricing increase to over $6 per pound.
Speaker Change: As I mentioned on the previous quarterly calls, when we discuss H.O.C. pricing, we are generally focused on the price of H.O.C.410A, which represents about 70% of the total aftermarket demand for H.O.C.'s.
Speaker Change: I'm sure I don't have to point out that the microeconomic environment is quite volatile.
Speaker Change: Currently tariff costs are beginning to affect our supply side costs for both virgin refrigerants and cylinders.
Speaker Change: The industry, including Hudson, has begun to pass these higher costs through the distribution chain.
Speaker Change: As a result, and at this moment, we believe our 2025 gross margin will be closer to the mid-20s, improving slightly from our first quarter margin performance.
Speaker Change: With the many fluctuations in tariffs, the current situation is creating uncertainty, both for our costs and for our prices to our customers.
[inaudible]
Speaker Change: We are also seeing supply side disruption for the next generation of refrigerants associated with the AMAC's technology transition rule.
Speaker Change: The technology transition will mandate the cooling systems manufactured starting January 1, 2025 and moving forward can no longer use certain higher GWP HSC refrigerants such as 410A.
Speaker Change: and we'll need to use lower G2P refrigerants like 454B and 32.
Speaker Change: The market demand for these new lower GDP refrigerants is currently exceeding production volumes, but we believe additional production capacity has been added and production should balance out with demand by the latter part of this cooling season.
Speaker Change: The tariff situation has also resulted in higher costs for new refrigerants and for the moment those costs are also being passed through the distribution chain.
Speaker Change: We are on the early stages of this year's cooling system, but we are seeing some shortages impact conversions to lower GWP refrigerants and new system installations.
Speaker Change: I want to take a minute to discuss the change in the administration and its potential impact to the EPA.
Speaker Change: For the moment, it appears staff associated with the Ministering to Aim Act are in place.
Speaker Change: We do believe the EPA intends to examine the many regulations in place, including a review of the final rule makings associated with the A-MACT, which would then include the Refrigerate Management Rule.
Speaker Change: That said, we are early in the EPA's evaluation process, so we, along with others in our industry, are actively communicating with the EPA and members of Congress.
Speaker Change: Lastly, during the quarter, we further strengthened our unleavened balance sheet and ended the quarter with 81 million in cash and no debt. [inaudible]
Speaker Change: We remain focused on the priorities of our capital allocation strategy, including investing in organic growth, pursuing acquisition opportunities that will strengthen our capabilities or geographic reach, and the opportunistic repurchase of our stock.
Speaker Change: To date, in 2025, we have repurchased 4.5 million of common stock under our stock buyback
Speaker Change: Now we'll introduce Kate Horton, Senior Vice President of Sales and Marketing to provide some additional detail around Hudson's market opportunity. Please go Hey Kate.
Kate Houghton: Thank you, Brian , and good evening, everyone. We are in the early days of the cooling season, as most areas in the Midwest and Northeast are seeing relatively cool spring temperatures, but we are encouraged by the modest sales volume growth we experienced in the quarter.
Kate Houghton: As temperatures begin to rise in those geographies, which is typically late May early June , we will have better visibility of the supply-demand landscape.
Kate Houghton: As we've noticed previously, it takes the first couple of hot days for people to turn on the unit and become aware of a problem, which then leads to a service call and the need for refrigerant.
Kate Houghton: When those activities begin to take place this season, we'll have a better view of whether upstream inventories have been depleted or remain at the elevated levels we saw last year.
Kate Houghton: As we begin to move to the heart of the cooling season, we will stay focused on the elements of our business that we can control.
Kate Houghton: First, ensuring that our customers have the right refrigerants, where and when they need them And second, promoting recovery and reclamation activities as our industry transitions to lower GWP equipment and refrigerants [inaudible]
Kate Houghton: Hudson is well positioned with a proven distribution network and long-standing supplier and customer relationships to effectively supply the market with all types of refrigerants, from legacy CFCs and HCFCs through HFCs and HFO low GWP refrigerants.
Kate Houghton: We believe the current phase-down of HFC refrigerants provides a substantial long-term opportunity for the continued growth of our reclamation business as the supply of urgent HFCs begins to decline to meet the needs of the large, installed base of HFC equipment.
Kate Houghton: This equipment typically has a useful life of approximately 20 years, so the demand trajectory for HFCs is expected to be lengthy.
Kate Houghton: In addition to the AM Act, which mandates the phase down of HFCs, several states are beginning to implement requirements for the use of reclaimed refrigerants in their municipal buildings, creating an additional demand opportunity for reclaimed refrigerants.
Kate Houghton: We believe these mandates provide an opportunity for contractors to abandon the practice of venting refrigerants as they more fully understand that they will need reclaimed refrigerants to be able to serve their customers who will increasingly encounter reclaimed mandates.
Kate Houghton: Hudson is committed to elevating the importance of responsible, life cycle, refrigerant management throughout promotion of field recovery practices throughout the industry.
Kate Houghton: We are actively involved in the training and education of technicians by participating at HVACR Industry Events and by addressing technician training sessions hosted by our customers.
Kate Houghton: During the first quarter, Hudson attended and-or spoke at HVAC Excellence, ACA, and Lennox Live among others. Our efforts have expanded our recognition as a reclaimed partner and approved our access to recovered refrigerant.
Kate Houghton: We're pleased with our team's ability to execute on the things we can control to perform better than the overall market.
Kate Houghton: We remain committed to meeting the needs of our custom base through refrigerant sales, equipment servicing and through our reclamation capabilities.
Kate Houghton: Our industry's ongoing evolution to lower GWP equipment and refrigerants can at times present a challenging landscape for our customers and Hudson is here to ease that transition.
Kate Houghton: Now I'll turn the call over to Brian Bertaux, our CFO , to review our first quarter financial results. Go ahead, Brian . Thank you, Kate. Good evening, everybody. I will now review our first quarter 2025 financial results with a comparison to the first quarter of 2024 results.
Kate Houghton: Hudson recorded $55.3 million in revenue, a 15% decrease compared to the 2024 quarter.
Kate Houghton: Increase cell volume was more than offset by lower refrigerant market prices. Revenue from the company's DLA contract was consistent with the historical mid $30 million annualized run rate.
Kate Houghton: Gross margin was 22 percent compared to 33 percent of 2024 quarter due to low refrigerant market prices. Gross margin in the quarter came in slightly below our full year 2025 gross margin expectation of mid 20 percent.
Kate Houghton: Sweeney was $8.2 million, slightly above the $7.9 million recognized in the 2024 quarter.
Kate Houghton: The $9.9 million decline in revenue in the first quarter essentially dropped to our operating income. We recorded operating income of $3.1 million, a $9.7 million decrease compared to $12.8 million in the 2024 quarter.
Kate Houghton: Hudson recorded net income of $2.8 million or $0.6 per diluted share compared to net income of $9.6 million or $0.20 per diluted share in the 2024 quarter. The company strengthened its unlevered balance sheet ending the first quarter with $81 million in cash and no debt.
Kate Houghton: Our capital allocation strategy remains focused on organic and strategic growth, as well as
Kate Houghton: We repurchased $1.8 million in company stock during the first quarter of 2025. As of today's call, we have repurchased a total of $4.5 million during 2025. I will now turn the call back over to Brian .
Speaker Change: Thank you, Brian . Overall, we're pleased with the start to the 2025 and are committed to controlling what we can deliver a successful cooling season, as mentioned earlier a focus on two main elements.
Speaker Change: Ensuring that our customers have the right refrigerants where and when they need them and promoting recovery and reclamation activities as our industry transitions to lower GDP equipment and refrigerants.
Speaker Change: We remain optimistic that our industry's continuing transition represents a tremendous long-term growth opportunity for Hudson as we leverage our leadership position as a refrigerant and service provider and increase our capabilities around recovery and reclamation.
Operator will 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 press star one on your telephone keypad.
Speaker Change: A confirmation to only indicate your line is in the question of the kill. You may press card too if you would like to remove your question from the kill. For participants using sneakier equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Speaker Change: Once again, please press star one if you have a question or a comment.
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Speaker Change: A first question comes from Ryan Sigdahl with Craig Hallam, please proceed.
Hey Brian , Brian Kate.
Speaker Change: Want to start with pricing. Good to hear after several years of declines. We found some stability and actually seen some price increases in here in that. Curious your perspective on what's actually driving that? Is it entirely tariff driven and higher landed cost or?
Speaker Change: You know are there other dynamics that you want to call out and then do you think this is just a temporary spike or are you hearing? Kind of from an industry standpoint that this is more of the start potentially of stability and maybe prices moving higher?
Speaker Change: So there's two parts to the question that I think we have some degree of certainty and one not quite yet.
Speaker Change: So the first is there have been disruptions in the supply chain which generally does result in higher prices.
Speaker Change: and certainly the tariffs, whether they be on steel or on goods that could be coming from either China or India, they have added costs to the equation.
Speaker Change: Where we don't have certainty at the moment because we're too early in the cooling season is where inventories, when we talk about inventories we always use that word stockpile inventories upstream or in total.
Speaker Change: compared to the overall demand. We'll start to get indications about that as we get into the normal weather, typically late May into June .
Speaker Change: That will help us understand the permanency possibly of the pricing that we're seeing today versus reaction to some of the other matters. But for the moment we're certainly seeing stability and price increases.
Speaker Change: Challenges with cylinders. Shouldn't that be an advantage for you? It sounds like it's going to pressure growth margins, but my understanding was you guys have a large fleet of reusable cylinders, so I would have thought that was an opportunity, but can you help clarify, I guess.
Speaker Change: where the margin pressure is going to come from and the cylinder shortage in from an industry standpoint how that directly impacts Hudson and your competitive positioning.
Speaker Change: So Hudson probably does have many advantages over others in the industry since we do distribute quite a lot of refrigerants in reusable steel.
Speaker Change: where the challenges come in a play are now some of the cylinders need left handed thread of vows to handle the A2L refrigerants.
Speaker Change: But also now as it relates to disposable cylinders or cylinders they're in the smaller size one
because we're converting to A to L.
Speaker Change: It appears that the demand again is greater than forecasted for that steel and that causes some supply disruptions and certainly wherever the manufacturers are sourcing that raw steel from could affect their costs relative to a country's entire associated with that.
Speaker Change: Are you seeing any benefit to reclamation from tariffs from cylinders from inflation from everything we're talking about from a macro standpoint? I guess is this changing behavior or any accelerant to the reclamation business that you're seeing?
Bye.
Speaker Change: So we did a report that reclaimed volumes in Q1 are up and certainly that's a good sign. We don't normally talk about reclaimed volumes and growth until the end of the year, but we're certainly trending at a similar growth rate if maybe not better as we did last year.
Speaker Change: and we are expecting to continue to see reclaimed growth, irrespective of tariffs and so on down the line.
because of our educational efforts, because of our partnering efforts.
Speaker Change: because of the circular relationship we're trying to create with all of our customers that you really need to recover gas if you want to have availability of supply or try to say another way in disruptive markets, we're always going to support our reclaimed customers with supplies and refrigerant.
Speaker Change: So I'd say that the growth and reclaim, again, Q1 is a slow quarter so the percentage certainly is double digit, but
Speaker Change: It's off of a low number or a quarter number relative to Q2 and 3 particularly but at the end of the day I think it's the combination of our efforts.
Speaker Change: that really are beginning to get a contract to do the recoveries. And generally, once they start to do a recovery and convert from bending, they stick with it because they realize it is easier than they originally thought.
Very good. Thanks guys. Good luck.
The next question is from Austin Moeller with Canacord, please proceed.
Austin Moller: Hi, good afternoon. Just my first question. Have imports of refrigerants through Mexico been impacted anyway due to tariffs or allowances unchanged due to USMCA adherence?
Speaker Change: It sounds like there might be two parts to your question, so any importer in the United States needs to have an allowance or call the Potomptial Allowance.
and so...
I would think there is limited production capacity in Mexico.
Speaker Change: and therefore as a result of that limitation, although there is some production capacity in Mexico, the overall impact of the market is like we're more impacted by the tariffs in India.
Speaker Change: Which you probably know were originally 3% I think they went to like 26% now the back down to I think 13% so there's been volatility there And there's always been very very high towers on the Chinese goods and now they're even higher with the new Chinese towers
Speaker Change: Okay, and what are you hearing from some of your distribution partners about the core weather experience in the Northeast in April ?
Speaker Change: Really for us, it isn't so much cooler weather in the Northeast. It's always, let's say, generally speaking, non-air conditioning weather up until sometime in May.
Speaker Change: and we certainly like to see it get warm, Chicago, New York, etc. somewhere around the oil day. And if that's the case, generally speaking, you're going to have a very good
Speaker Change: Cooling season or demand will be normal relative any other year so the current whether it doesn't really bother us
Speaker Change: Sometimes you get cooler weather in places like Texas and Florida that could affect Q1 a little bit, but at the end of the day, in the North and Northeast, we really don't worry about weather until May
Great, I'll pass it back there. Thank you
Speaker Change: The next question comes from Josh Nichols with B Riley Securities. Please proceed.
Speaker Change: Hi, this is Matthew O'on for Josh Nichols. Thanks for taking my questions.
Leaving
Speaker Change: All right, so last call you mentioned, the DLA contract did around 36 million in sales for 2024 and that it'll start fending normally to normal purchasing levels for a 2025, so how you see that cadence trending now that we're almost halfway through the year.
Speaker Change: Yeah, I noted on my part of the call that we expect DLA to hit about that same level mid 35 and 2025.
Speaker Change: Got it, helpful. And in terms of capital allocation plans, now that you're almost halfway through the $10 million that was approved for Bivex, what are those plans this year?
Speaker Change: Well, we'll continue to proceed opportunistically through the $10 million, and we'll determine our options then, but we're going to stay the course. We have $5.2 million left there, $5.2 million is left to go.
Speaker Change: Right, got it, thanks. And this last quick one, it looks like, you know, there's been substantial drops in inventory, in your inventory the past couple quarters. How do you see that trending for the rest of the year and where is sort of that normalized level?
We believe we're approaching the normalized level.
Speaker Change: Alright, well, thanks for taking my questions, that's all I had.
Thank you.
Speaker Change: Once again, if you have a question or comment, please indicate so by person star one.
Speaker Change: Okay, we have no further questions in the queue. I'd like to turn the floor back to management for any closing remarks.
Speaker Change: Thank you, operator. I'd like to thank our employees for their continued support and dedication to our business.
Speaker Change: and both our longtime shareholders and those that recently joined us for their support. We look forward to speaking with you after the second quarter results. Have a good night everybody.
Speaker Change: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.