Hudson Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Hudson Technologies third quarter 2020 earnings call. All lines have been placed on a listen-only mode. If you should require assistance throughout the conference, please press star zero on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Jennifer Belladeau. Ma'am, the floor is yours.

Thank you. Good evening, and welcome to our conference call to discuss Hudson Technologies' financial results for the third quarter of 2020. On the call today are Brian Coleman, President and Chief Executive Officer, and Nat Krishnamurti, CFO. I'll now take a moment to read the Safe Harbor Statement. During the course of this conference call, we will 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 of our business 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 of the factors that could cause our actual results to differ materially. Later in the presentation, management will refer to adjusted EBITDA. which is a non-GAAP financial measure. We refer you to the company's earnings release related 8 file today where this term is defined and reconciled to net income. With that, I'll turn the call over to Brian. Go ahead, Brian.

Good evening and thank you for joining us. Our third quarter performance was largely in line with our expectations. We saw continued pressure related to the demand as many public venues remained either entirely closed or open for only a limited usage during the pandemic. not to oversimplify the issue, but buildings that have no people or activities on a daily basis have a limited need for comfort cooling. So end market demand for refrigerants remain weak through the third quarter. We continue to experience volume declines when compared to last year as a result of the weakened demand. Pricing for R22 was stable with some modest increases when compared to the second quarter of this year, while HSC were more price competitive in the quarter when compared to the second quarter of this year, likely driven by the overall reduction in demand. Despite this challenging environment, we're pleased to have achieved increased operating income and break-even profitability in the third quarter. Our financial position and liquidity strengthened during the quarter, with total liquidity at September 30, 2020 of approximately $42 million, which includes cash and revolver availability. In addition, during the quarter, we fully paid down our revolver while increasing our cash balance to $9.2 million. We're very pleased to have made this progress in the quarter, despite the challenging environment. In the face of this economic environment, we, like many in the refrigerant industry, remain focused on controlling what we can do to effectively navigate through this pandemic. As you know, We look at the selling season as a nine-month season in which we may have certain quarters that are stronger than others. Unfortunately, this year, the majority of our selling season coincided with shutdowns, and obviously we felt the impact of the unpredictable and adverse circumstances that have characterized the year thus far. Historically, the fourth quarter is typically our quietest quarter, one in which we plan our operational strategy to anticipate and meet the needs of our customers for the following year's cooling season. We are optimistic that 2021 will bring more consistent reopenings for businesses and schools, and we are planning accordingly so that Hudson is well positioned to help meet potential demand as more cooling systems are turned back on. To be clear, we view the constrained demand for refrigerants in 2020 as an anomaly. Refrigeration and comfort cooling systems are a necessity, and the installed base of these systems has continued to grow. We are a leading source of all types of refrigerant from legacy products like CFCs and HCFCs to the current HFCs and beyond to the next generation HFOs. Additionally, we have a solid base of longstanding customers and are well positioned at two key points in the supply chain. So while this is a fluid environment, we're optimistic about future opportunities. With that in mind, during the quarter, we strengthen our organization with an industry veteran Ken Gaglione as vice president of operations. Ken was most recently the global marketing director for aftermarket refrigerants at Honeywell, where he was responsible for the profitable growth of global aftermarket business, including project management, demand planning, pricing strategy, process efficiency, and new product commercialization. With his 30 years of experience in strategic planning, marketing, Product Management, he's already become a valuable resource as we shape the company's future. Sustainability is a key initiative for the nation and for the world, and moving forward, we remain confident that the marketplace will likely adopt a phase-out of HFC refrigerants as the development and use of more environmentally friendly products continues. As we've mentioned before, the American Innovation and Manufacturing Act of 2019, or the AIM Act, which proposes to phase down the HFC production over the next 15 years is pending further consideration by the House and Senate. The bill has enjoyed bipartisan support and if enacted would put forth the regulated phase down of HFCs that will lead to the establishment of an allocation system similar to what we saw with the phase down of R22. We would then expect to see a tightening in the supply-demand balance for HFC refrigerants likely resulting in HFC price increases. This represents a tremendous long-term growth opportunity, and we expect HFC sales will continue to grow as a percentage of our revenues as refrigeration systems are upgraded and new construction continues. We are also acting innovatively to drive future sustainability, and following the close of the quarter, we announced our partnership with Blue Source. the nation's leading carbon offset developer and retailer to reduce greenhouse gas emissions associated with HFCs. Through this partnership, Hudson and BlueSource will work together initiating carbon projects to develop and market high quality voluntary carbon offsets resulting from the reclamation of HFC refrigerants across the country using the American Carbon Registry's certified reclaimed HFC refrigerants protocol or the ACR protocol. To give you a real-world example, if there was a release of refrigerant from your central air conditioning system, that would cause a severe adverse impact to the environment. To give you some further context, the global warming potential of two pounds of refrigerant 410A has the same greenhouse impact as two tons of carbon dioxide, which is the equivalent of running your car for about six months. As such, the HSC class of refrigerants can be very harmful when vented into the environment. On the flip side, recovery and reclamation provide a significant environmental benefit, and that's why we're excited by the growth in the voluntary markets and HSC reclamation. The ACR protocol is extremely important and has been executed in advance of any regulatory requirements. These projects encourage the acceleration of GHG emission reductions, and have been identified as one of the top solutions to address global climate change. Hudson was founded on a commitment to sustainability and we are excited to team with Blue Source to lead the way in driving growth in HSC refrigerant reclamation market and advance our contributions to the circular economy. We believe we are well positioned to leverage opportunities as the country continues to open and cooling systems are reengaged. were optimistic about the long-term opportunity in front of us and focused on growing our leadership position in the refrigeration and reclamation space. Now I'll turn the call over to Nat to review the financials.