Hudson Technologies, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Hudson Technologies second quarter 2022 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, John Nesbitt. Sir, the floor is yours.

Thank you, Ali. Good evening and welcome to our conference call to discuss Hudson Technologies financial results for the second quarter 2022. On the call today are Brian Coleman, President and Chief Executive Officer, and Nat Krishnamurti, Chief Financial Officer. I'll 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, and 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 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 these elements can change and in certain cases are not within our control, we would ask you to 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 discussion of the principal risks and uncertainties that affect our business and our performance and are the factors that could cause the actual results to differ materially. Okay, with that, I will now turn the call over to Brian Coleman. Go ahead, Brian.

Good evening, and thank you for joining us. Our second quarter results show continued strength with substantial revenue growth, significantly enhanced margins, and increased cash flow and profitability. We're seeing consistent momentum as the selling season unfolds, and our second quarter results reflect sustained strength in the price of certain refrigerants. In addition to record revenues for the second quarter of 2022, Gross margin increased to 55% as the average selling prices remain consistent with the levels achieved during the first quarter of 2022. At these pricing levels, we maintained a higher average selling price without material appreciation in the cost basis of certain refrigerants. During the second quarter, we continued to achieve exceptionally high gross margins. Although we believe margin performance for the full year will moderate slightly, due to increases in inventory costs and anticipated stabilization in the sales price during the balance of the season. With our visibility today, we've raised our expectations for the full-year blended gross margin and believe it will be at least in the mid-40% range, with longer-term gross margins settling in around 35%. We remain focused on developing strategic working relationships with customers who recognize the long-term value in Hudson's ability to provide them with sustainable refrigerant products and services as the industry transitions to cleaner equipment and refrigerants. We believe a shared vision for the circular economy of refrigerants is an important component of our customer relationships. As we discussed before, 2022 marks the start of the industry's compliance with the AIM Act, which mandated a 10% step-down in production and consumption allowances for virgin HFCs in both 2022 and 2023, and a 40% baseline reduction in 2024. Additionally, the Act mandates a much more aggressive and faster phase-down than what we previously saw with the R22 phase-out, and promotes the use of reclaimed refrigerants to meet demand as virgin production steps down. HFCs are currently the most commonly used refrigerant, so as a leading reclaimer with the fastest state-of-the-art technology and decades of proprietary knowledge, Hudson is uniquely qualified to position to fill the anticipated HFC supply gap with reclaimed refrigerants as virgin production is phased down. In addition to the opportunities we're seeing related to the AMAC, we're also forming new partnerships as certain industry participants are working to comply with initiatives set forth by various states and the federal government. California has led the way with the requirement that OEMs use a minimum 10% reclaimed refrigerant in the factory-charged equipment. Many other states are advancing their own set of regulations on the uses for HFCs. Hudson is ideally suited to assist OEMs in meeting these requirements, and we're focused on growing our brand recognition and reach within this audience. Additionally, we're seeing increased increase from the OEM market, not just at the factory level, but equally important, at the field service level, as states and the federal government have dealt and continue to deal with chemical reductions and new equipment and servicing rulemakings that will evolve over time. We just announced a new strategic alliance with Lenox International, whereby Hudson will be the exclusive supplier of certified reclaimed refrigerants to Lenox for the aftermarket support of their residential HVAC systems. This alliance highlights Hudson's capabilities as a resource for our industry partners, and we look forward to expanding our relationships to assist compliance and transition to the use of reclaimed refrigerants by OEMs and others. Hudson has a long and successful history of assisting our industry through prior transitions to more environmentally friendly and efficient next-generation cooling equipment and refrigerants. We believe this latest phase-down presents us with a tremendous market opportunity to continue to expand our leadership role as a steward of the industry's ongoing transition. Looking forward, as we reported in this afternoon's press release, given the pricing dynamics to date for the current selling season, we are increasing our previously stated 2022 forecast and also updating our long-term targets. Based on current pricing levels, we should see revenues in excess of $290 million for the full year 2022. While we continue to believe gross margin performance for the full year will moderate due to increases in inventory costs and anticipated stabilization in sales prices during the balance of the season, With our visibility today, we now believe full year blended gross margin will be at least in the mid 40% range. As it relates to the AMAC implementation, we have seen an accelerated shift to what we expect will be significantly higher sustained profitability for the business going forward. Assuming further HFC price increases related to HFC phase down and applying a slower pace to price increases than we saw in 2022, we are targeting an annualized revenue of greater than $400 million by 2025, with gross margins remaining above historical levels but moderating over the next three years to approximately 35%. This shift we're seeing to significantly increase profits for the business provides considerably enhanced financial flexibility for us to invest in our long-term growth while also continuing to reduce debt. These long-term targets are conservative and they are certainly factors that may impact such targets. For example, these targets make very modest assumptions on the reclaim front. Conversely, just like everyone else, we are watching the economic signals within our industry and the broader economy as a recessionary environment could potentially create some headwinds. Thus far, the HVAC aftermarket has stayed very strong, particularly given the mandated phase down, and our industry could potentially be more insulated than other markets. but we're keeping an eye on it. As we move through the completion of our traditional selling season, we remain focused on meeting the needs of our longstanding customers and on continuing to foster and promote sustainable cooling practices. We are committed to providing the products and services to enable our industry-wide transition to cleaner refrigerants and more efficient equipment. As the leading reclaimer, Hudson is uniquely positioned to reduce refrigerant waste and the harmful venting of refrigerants into the atmosphere by driving forward the technology and the incentives that enable our industry partners to recover, reclaim, and reuse refrigerants. Our MO brand of reclaimed refrigerants is gaining market recognition And our reclamation capabilities and portfolio of onsite services provide a solid platform for us to grow our leadership role as a steward of environmentally sound, sustainable refrigerant management. This is a pivotal time for our industry and exciting time for our company. As the refrigerant industry continues to evolve, we remain well positioned with our capabilities and product offerings to meet customer demand for all refrigerant types. including CFCs, HCFCs, HFCs, and next-generation HFOs. We are a longstanding participant and proponent of the circular economy of refrigerants, and we believe our historical and consistent role as an industry leader will only grow as our customers and partners seek a seamless transition to more efficient and environmentally friendly cooling systems and refrigerants. Now I'll turn the call over to Nat to review the financials. Go ahead, Nat.