Hudson Technologies(US:HDSN)2024-08-07 02:01Financial Data and Key Metrics Changes - For Q2 2024, Hudson recorded revenues of $75.3 million, a 17% decrease compared to $90.5 million in Q2 2023, primarily due to decreased selling prices for certain refrigerants and lower revenue from the DLA contract [18] - Gross margin was 30% for Q2 2024, down from 41% in Q2 2023, attributed to depressed market prices [18] - Net income for Q2 2024 was $9.6 million or $0.20 per diluted share, compared to $19.2 million or $0.41 per diluted share in Q2 2023 [19] Business Line Data and Key Metrics Changes - The company experienced a 17% increase in refrigerant sales volume compared to the same period last year, despite pricing pressures [4][18] - The DLA contract revenue was approximately $4.2 million lower than the previous year, contributing to the overall revenue decline [40] Market Data and Key Metrics Changes - The industry saw a 25% decline in the price of certain refrigerants compared to Q2 2023, with HFC pricing decreasing by about 6% [5] - Current pricing levels for HFCs are around $7.50 per pound [5] Company Strategy and Development Direction - The acquisition of USA Refrigerants is expected to enhance Hudson's capabilities in refrigerant recovery and reclamation, with historical revenues of approximately $20 million per year [6][7] - The company is focused on capital allocation strategies that include working capital needs, acquisitions, and share repurchases, with a share repurchase program of up to $10 million approved by the Board [13][14] Management's Comments on Operating Environment and Future Outlook - Management believes the current pricing dynamic is temporary and does not affect the long-term growth outlook for Hudson [21] - The anticipated final Refrigerant Management Rule by the EPA is expected to create federal mandates for the use of reclaimed refrigerants, which could positively impact the business [9][10] Other Important Information - The company ended the period with no debt and generated $38.8 million in free cash flow, excluding the $20.7 million used for the USA Refrigerants acquisition [19][20] - Hudson's total liquidity at June 30, 2024, was $89.5 million, positioning the company well for operational needs and capital allocation [20] Q&A Session Summary Question: What drove the 17% volume increase in the quarter? - Management indicated that Q1 volume was flat, but strong interest in Q2 led to the increase, with expectations for continued growth throughout the nine-month season [22] Question: What are the implications of the U.S. Department of Commerce's investigation findings? - Management expressed support for the ruling against bad actors and noted potential financial burdens on those circumventing rules, but the impact on pricing remains uncertain [24][25] Question: How much revenue is expected from the USA Refrigerants acquisition? - Management stated that not much revenue is included in current guidance as the focus is on acquiring refrigerants for inventory rather than immediate sales [26][27] Question: Has pricing changed since the circumvention rules were determined? - Management noted no material pricing changes directly related to the case, but potential financial implications for those who circumvented rules could affect market dynamics [29] Question: What is the expected impact of the USA Refrigerants acquisition on reclaim activity? - The USA team is expected to leverage their expertise in sourcing recovered refrigerants to enhance Hudson's capabilities and drive increased reclaim activity [30][31] Question: What are the expectations for the DLA contract revenue? - Management indicated that DLA contract revenue was about $4.2 million lower than last year, with a current run rate in the low $30 million range [40] Question: What is the outlook for the burn down of existing HFC stockpiles? - Management is awaiting EPA's 2023 inventory data to assess the market dynamics and expects a decline in stockpiles based on strong cooling season activity [46][47]