Hudson Technologies(HDSN) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Company reported revenue of $55.3 million for Q1 2025, a 15% decrease compared to the same period in 2024, primarily due to lower refrigerant market prices offsetting increased sales volume [18][19] - Gross margin decreased to 22% from 33% year-over-year, attributed to low refrigerant market prices [19] - Operating income fell to $3.1 million, a decrease of $9.7 million compared to the previous year [19] - Net income was $2.8 million or $0.06 per diluted share, down from $9.6 million or $0.20 per diluted share in Q1 2024 [20] Business Line Data and Key Metrics Changes - The reclamation business saw increased reclaim volume during the first quarter, supported by the strategic acquisition of USA Refrigerants [6] - Revenue from the DLA contract remained consistent with a historical mid $30 million annualized run rate [18] Market Data and Key Metrics Changes - Pricing for certain HFCs was reported to be under $6 per pound at the close of Q1, but has since increased to over $6 per pound [7] - The demand for new lower GWP refrigerants is currently exceeding production volumes, with expectations for production to balance out with demand by the latter part of the cooling season [9] Company Strategy and Development Direction - Company is focused on improving purchasing presence in the marketplace and enhancing reclamation capabilities [6] - The capital allocation strategy emphasizes organic growth, strategic acquisitions, and opportunistic stock repurchases [11][20] - The transition to lower GWP refrigerants presents a long-term growth opportunity for the reclamation business as the supply of virgin HFCs declines [15] Management's Comments on Operating Environment and Future Outlook - Management noted the microeconomic environment is volatile, with tariff costs beginning to affect supply side costs [8] - There is uncertainty regarding costs and prices due to fluctuations in tariffs and supply disruptions related to the transition to next-generation refrigerants [8][10] - Management remains optimistic about the industry's transition representing a significant long-term growth opportunity [22] Other Important Information - Company ended the quarter with $81 million in cash and no debt, strengthening its unlevered balance sheet [11][20] - A total of $4.5 million of common stock has been repurchased under the stock buyback plan in 2025 [20] Q&A Session Summary Question: What is driving the recent price increases? - Management indicated that supply chain disruptions and tariffs have contributed to higher prices, but the permanence of these price changes will be clearer as the cooling season progresses [25][27] Question: How does the cylinder shortage impact margins? - Management acknowledged that while Hudson has advantages with reusable cylinders, supply disruptions are occurring due to longer lead times for valve manufacturing and increased demand for disposable cylinders [28][30] Question: Is there any benefit to reclamation from current macroeconomic conditions? - Management reported an increase in reclaimed volumes and expects continued growth in reclamation due to educational efforts and partnerships [31] Question: How have imports of refrigerants through Mexico been affected by tariffs? - Management noted that while there is limited production capacity in Mexico, the overall market is more impacted by tariffs on goods from India and China [36][38] Question: How is the cooler weather in the Northeast affecting demand? - Management stated that cooler weather does not significantly impact demand until late May, when warmer temperatures typically lead to increased cooling system usage [38] Question: What are the expectations for the DLA contract sales in 2025? - Management expects DLA contract sales to trend around mid $30 million for 2025 [44] Question: What are the capital allocation plans for stock buybacks? - Management confirmed they will continue to proceed opportunistically with the remaining $5.2 million allocated for buybacks [46] Question: How is inventory trending for the rest of the year? - Management believes they are approaching normalized inventory levels [47]