Yahoo Finance Hudson Technologies, Inc. (NASDAQ:HDSN) Q1 2024 Earnings Call Transcript
Hudson Technologies, Inc. (NASDAQ:HDSN) Q1 2024 Earnings Call Transcript May 1, 2024
Hudson Technologies, Inc. beats earnings expectations. Reported EPS is $0.2, expectations were $0.19. HDSN isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the Hudson Technologies First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Jen Belodeau. You may begin.
Jennifer Belodeau: Thank you. Good evening and welcome to our conference call to discuss Hudson Technologies financial results for the first quarter 2024. On the call today are Brian Coleman, President and Chief Executive Officer, and Nat Krishnamurti, Chief Financial Officer. I'll now take a moment to read the safe harbor statement. During the course of this conference call, we'll 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 are based on our best view of the industry and 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 of the principal risks and uncertainties that affect our business and our performance and other 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. Go ahead, Brian.
Brian Coleman: Thank you. Good evening and thank you for joining us. Our 2024 selling season has kicked off largely as we expected with our first quarter revenues reflecting a difficult comparison to the first quarter of 2023, which was characterized by higher pricing for certain refrigerants as well as higher volume in 2023 from our DLA contract. As we detailed in the last quarter's earnings release, in 2023, we saw the highest annual revenue generated by our DLA contract at $53 million for that year. That amount included approximately $20 million, which was evenly spread across 2023 related to increased DLA-specific program activities that may not be repeated in 2024. During the first quarter of 2024, our industry saw pricing for certain refrigerants decline by approximately 20% as compared to pricing levels during the first quarter of 2023 with HFC prices currently at approximately $8 per pound.
Pricing maybe impacted by factors including the current supply of certain refrigerants in the market and weather. The reduction in refrigerant pricing was slightly offset by increased carbon credit sales and increased service projects during the quarter. With the challenging pricing environment, our margin performance was below our long-term target. However, we delivered solid profitability. Based on the current pricing levels, we do not believe the long-term targets we set in 2022 for the full-year 2025 will be achievable at this time. We will address our long-term view as we progress through this sales season, and we will have more visibility once the EPA's final Refrigerant Management rule is published and we will have the opportunity to evaluate its long-term impact.
With that said, if current pricing levels continue for the balance of the 2024 selling season, we would anticipate full-year revenue in the range of $250 million to $265 million, with gross margin below our targeted 35%. Given the ongoing step down in virgin HFC production, as supply tightens, we do expect to see an increase in the sales price for certain refrigerants, but the timing is difficult to predict. In the meantime, the lower pricing dynamic provides us the opportunity to replenish our inventory with lower cost refrigerants that we could then sell later this year and certainly next year. To be clear, we view the current pricing dynamic to be temporary in nature, and our longer term expectation of higher prices similar to the prior phase-outs remains the same.
Our balance sheet is strong with no debt providing us with the financial flexibility as we move through 2024, and our industry navigates the continued and ongoing implementation of the AIM Act. Our selling season comprises nine months from January through September, and while it's still early, we believe the 2024 season will provide valuable visibility related to the ongoing HFC phasedown and the expected corresponding supply/demand imbalance. Moreover, the EPA has referred to the proposed Refrigerant Management rule as the third leg in the AIM Act implementation. We expect this proposed rule to be final in late summer of this year. While we expect to see pricing increases as demand begins to outweigh supply due to the phasedown of HFC consumption allowances, it is difficult to predict exactly when this imbalance will occur and begin to drive increased HFC pricing.
However, we and others in our industry, firmly believe that it's not a question of if tighter supply dynamics will take place with resulting heightened pricing, but a question of when this dynamic will begin to kick in. With our established customer and vendor network as well as our industry-leading reclamation technology, we believe Hudson is well positioned to benefit as virgin HFC refrigerant production is compressed and the industry begins to rely more meaningfully on reclaimed refrigerants to service the existing installed base of cooling and refrigeration equipment. The EPA's proposed Refrigerant Management rule includes language mandating the use of reclaimed refrigerants for certain applications and equipment. If the final rule is in line with the proposed rule, the industry will see the first federal requirement for the mandatory use of reclaimed refrigerants relative to specific sectors of the industry.
These mandates may lead to a pricing differential between virgin sourced-refrigerants versus reclaimed refrigerants, with reclaimed refrigerants priced at higher levels. This would be a much different pricing dynamic compared to what we've experienced over the past 20 years. Certain states are also implementing legislation or have proposals under consideration for the mandated use of reclaimed refrigerants. In 2025, for example, California has established a mandate for the use of reclaimed refrigerants in state governed-facilities. Additionally, late last year, the EPA issued a final Technology Transition rule, promoting the introduction of lower GWP systems for new construction starting in 2025 as well as a conversion of the current estimated installed base of $125 million HFC in legacy systems over the next 20 years.
Hudson is refrigerant agnostic, with the ability to provide any and all types of refrigerant and service any and all types of systems. So we are well positioned to serve our customers as the industry gradually transitions to next-generation refrigerants and equipment. Indeed, both legislative and regulatory environments are favorable to Hudson. In line with our support of the transition to more efficient and environmentally friendly cooling equipment and refrigerant management, we are actively involved in promoting the practice of refrigerant recovery. Because without recovered gas, you have no opportunity to produce reclaimed refrigerants. To that end, during the first quarter, we intended and presented at various industry conferences, including the Air Conditioning Contractors of America; HVAC Excellence; Plumbing-Heating-Cooling Contractors Association Conference; and Air-Conditioning, Heating, Refrigeration Expo, to discuss the importance of recovering refrigerant during service calls.
We take pride in being a thought leader and helping the industry transition to the new rules. As we navigate through the 2024 selling season, we remain focused on what we can control. Meeting our customer needs today while ensuring their seamless transition to next generation and lower GWP cooling technologies as our industry evolves. Now I'll turn the call over to Nat to review the financials. Go ahead, Nat.
Nat Krishnamurti: Thank you, Brian. For the first quarter ended March 31, 2024, Hudson recorded revenues of $65.3 million, a decrease of 15% compared to revenues of $77.2 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 as compared to the first quarter of 2023 as expected. Gross margin was 33% for the first quarter of 2024 as compared to 39% in the first quarter of 2023. SG&A for the first quarter of 2024 was $7.9 million compared to $7 million in the first quarter of 2023. SG&A has grown as the company invests more in personnel and IT costs. We recorded operating income of $12.8 million in the first quarter of 2024 compared to operating income of $22.7 million in the first quarter of 2023.
The company recorded net income of $9.6 million or $0.21 per basic and $0.20 per diluted share in the first quarter of 2024 compared to net income of $15.5 million or $0.34 per basic and $0.33 per diluted share in the same period of 2023. The company recorded $3 million of income tax expense in the first quarter of 2024 compared to a tax expense of $5.3 million in the first quarter of 2023. The effective tax rates for future periods are expected to reflect an overall combined federal and state rate of 26%, subject to various temporary and permanent differences. Stockholders' equity improved to $238.6 million at March 31, 2024, as compared to $228.8 million at December 31, 2023. The company's availability, consisting of cash and revolver availability at March 31, 2024, was $82.5 million.
As we generate additional cash flow in 2024, we expect to: one, ensure we have adequate inventory on hand; two, review any possible M&A opportunities; and three, consider potential share buybacks. We have strong liquidity, and our revolving loan credit facility provides us with a solid financial platform and flexibility as we look forward. I will now turn the call back over to Brian.
Brian Coleman: Thank you, Nat. We maintain our positive longer-term view for the significantly higher sales prices and profitability from the continued and ongoing impact of the AIM Act. While 2024 maybe a challenging year towards our long-term objectives, it should be noted we are still early in this year's season. Operator, we'll now open the call to questions.
See also
14 Strongest Military Forces in the Middle East and
15 Best Perfumes For Teenage Girls.
To continue reading the Q&A session, please click here.
