Hudson Technologies(HDSN) - 2024 Q2 - Quarterly Report

Part I. Financial Information This section provides the unaudited financial statements and management's analysis for the period ended June 30, 2024 Item 1. Financial Statements The unaudited consolidated financial statements for June 30, 2024, show declines in revenue and net income, increased cash and goodwill, and improved operating cash flow Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $30,524 | $12,446 | | Inventories | $123,729 | $154,450 | | Goodwill | $62,420 | $47,803 | | Total Assets | $300,917 | $296,672 | | Liabilities & Equity | | | | Total current liabilities | $42,308 | $58,551 | | Total Liabilities | $52,249 | $67,899 | | Total Stockholders' Equity | $248,668 | $228,773 | - Key changes from Dec 31, 2023 include a significant increase in cash and cash equivalents by $18.1 million, a $30.7 million decrease in inventories, and a $14.6 million increase in goodwill, primarily due to the USA Refrigerants acquisition[5] Consolidated Statements of Income Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | YoY Change | H1 2024 | H1 2023 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $75,282 | $90,474 | -16.8% | $140,532 | $167,673 | -16.2% | | Gross Profit | $22,571 | $36,627 | -38.4% | $43,992 | $66,957 | -34.3% | | Operating Income | $12,798 | $27,655 | -53.7% | $25,574 | $50,310 | -49.2% | | Net Income | $9,585 | $19,189 | -50.1% | $19,147 | $34,720 | -44.9% | | Diluted EPS | $0.20 | $0.41 | -51.2% | $0.40 | $0.73 | -45.2% | - Interest expense decreased dramatically to $0.15 million in Q2 2024 from $1.9 million in Q2 2023, following the full repayment of the term loan facility in Q3 2023[6] Consolidated Statements of Cash Flows Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Category | 2024 | 2023 | | :--- | :--- | :--- | | Cash provided by operating activities | $40,835 | $21,246 | | Cash used in investing activities | ($22,755) | ($837) | | Cash used in financing activities | ($2) | ($14,289) | | Increase in cash and cash equivalents | $18,078 | $6,120 | - The significant increase in cash used for investing activities in H1 2024 was driven by a $20.7 million payment for an acquisition[10] - Cash from operating activities nearly doubled year-over-year, primarily due to a large positive change in inventories ($33.8 million) despite lower net income[10] Notes to the Consolidated Financial Statements The notes detail accounting policies, the USA Refrigerants acquisition, AIM Act impact, debt structure, and a subsequent stock repurchase authorization - The company's business focuses on refrigerant services, including sales, reclamation, and on-site services, operating as a single reportable segment[11][12] - On June 6, 2024, the company acquired USA Refrigerants for approximately $20.7 million in cash, plus a potential $2.0 million contingent payment, expanding its customer network and access to refrigerant for reclamation[15][16] - The AIM Act mandates a phasedown of virgin HFC refrigerants, with a 40% reduction from baseline levels for 2024-2028, making refrigerant reclamation critical to supply[17][18] - Subsequent to the quarter's end, on August 6, 2024, the Board of Directors authorized a stock repurchase program for up to $10 million of common stock during 2024 and 2025[103] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue and net income declines to lower refrigerant prices and volume, while highlighting strong liquidity, increased working capital, and the USA Refrigerants acquisition Performance Comparison: H1 2024 vs H1 2023 | Metric | H1 2024 | H1 2023 | Key Driver of Change | | :--- | :--- | :--- | :--- | | Revenues | $140.5M | $167.7M | Decrease of 16% due to lower selling prices and volume of certain refrigerants | | Cost of Sales % | 69% | 60% | Increase due to sale of higher-cost inventory amid falling sales prices | | SG&A Expenses | $17.0M | $15.3M | Increase due to higher headcount, professional fees, and acquisition costs | | Net Income | $19.1M | $34.7M | Decrease of 44.9% driven by lower revenues and gross margin | - The company's working capital increased by $5.9 million to $152.3 million at June 30, 2024, from December 31, 2023, reflecting continued profitability and effective management of assets and liabilities[122] - Cash and cash equivalents increased by $18.1 million to $30.5 million at June 30, 2024, from year-end 2023, bolstered by strong operating cash flow of $40.8 million in the first half of the year[125][126] - The company repaid its term loan facility in full during Q3 2023, which significantly reduced interest expense in 2024[116][119][139] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from variable interest rates on its credit facility and volatility in refrigerant demand, price, and availability - The company is exposed to interest rate risk through its $75 million Amended Wells Fargo Facility, which has a variable interest rate, with no outstanding balance as of June 30, 2024[148] - Significant market risk exists from fluctuations in the demand, price, and availability of refrigerants, potentially leading to reduced revenues or inventory write-downs[149] Controls and Procedures Management concluded the company's disclosure controls were effective as of June 30, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[151] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, these controls[152] Part II. Other Information This section provides additional disclosures, including updates on risk factors, other information, and a list of exhibits Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Form 10-K for the year ended December 31, 2023 - There have been no material changes to the risk factors disclosed in the Company's Form 10-K for the year ended December 31, 2023[154] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended June 30, 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter[155] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files