Good day, everyone, and welcome to the Hudson Technologies Third Quarter 2025 Earnings Call. It is now my pleasure to hand the floor over to your host, Jennifer Belodeau. 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 2025. On the call today are Vincent Abbatecola, Hudson's Lead Independent Director; Brian Bertaux, CFO and Interim CEO; and Kate Houghton, Hudson's Senior Vice President of Sales and Marketing. 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 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 of the factors that could cause our actual results to differ materially. With that, we will now turn the call over to Vincent Abbatecola from our Board of Directors. Please go ahead, Vincent.

Thank you, Jennifer. Good evening all, and thank you for joining us. Earlier this week, we announced that Brian Coleman has stepped down as Chairman and Chief Executive Officer of Hudson Technologies. Brian had a long and successful tenure with Hudson. And on behalf of the Board, we thank him for his dedication and contributions to our company. He was particularly instrumental during the difficult time after the passing of our founder, Kevin Zugibe. Brian's leadership and financial acumen allowed Hudson to further strengthen its competitive positioning while also transforming our balance sheet. We sincerely wish Brian Coleman every success in the future. Our company is now centered on advancing our growth strategy to focus on both organic and inorganic opportunities to build upon our strong foundation, a strategy which we believe requires alternative CEO skill sets. Our Board is in the final stage of our search to select a Chief Executive Officer candidate who will lead Hudson in the next phase of its growth, and we expect to announce an appointment in the near term. I'll now turn this call over to Brian Bertaux, Hudson's Chief Financial Officer, who has assumed the CEO responsibilities during this interim period. The Board very much thanks Brian for filling that role. Please go ahead, Brian.

Thank you, Vincent, and good evening, everybody. I am humbled to serve as Interim CEO for Hudson Technologies during this transition. I effectively served in a similar role at another point in my career, and I'm fortunate we have a great leadership team and passionate employees at Hudson. Together, we will continue to drive the company forward and increase shareholder value. We are very pleased with our strong third quarter results to close out our 9-month refrigerant selling season. Key third quarter highlights include 20% revenue growth, 32% gross margin, and a 59% increase in net income of $12.4 million. Our third quarter revenue growth was driven by both increased sales volume and a higher average sales price of refrigerants. Additionally, we continue to expand our strategic supply chain of aftermarket refrigerants through outreach and awareness campaigns to encourage the return of used refrigerant by contractors to service cooling systems. We will provide a full overview of our annual growth in refrigerant reclamation during our next call when we report full year 2025 results. HFCs were approximately $8 per pound in the third quarter. When we discuss pricing, we generally focus on 410A, which represents about 70% of the total aftermarket demand for HFCs. Also, I'm extremely pleased to note that we were recently awarded the renewal of the contract to support the U.S. Military as prime contractor with the U.S. Defense Logistics Agency, the DLA. We are energized to have won the Indefinite Delivery and Quantity contract, which is valued at $210 million for the first 5-year base period and includes a 5-year renewal option. Hudson has served as prime contractor to the DLA since 2016, and we believe their selection demonstrates the strength of our partnership and our success in reliably providing critical materials to the nation's many military installations and facilities. There was a tremendous effort by our team to win this competitive bid, and I, on behalf of the entire company, want to thank them for their strong execution and track record servicing the contract over the last 9 years. We look forward to continuing our relationship as a valued partner to the U.S. military in the supply of refrigerants, industrial gases, and equipment. Now we want to turn to 2024 HFC market data as recently reported by the EPA. 2024 refrigerant reclamation activity for the industry grew by 19%. Hudson's reclamation grew at about the same rate. HFC inventory levels declined 18% in 2024. We expected a steeper decline in inventory as 2024 HFC production was curtailed 30% from 2023 levels through the AIM Act. So consistent with 2023, the 2024 update indicates that the supply in the channel remains plentiful related to demand. Over time, 410A refrigerant market dominance will be taken over by lower GWP new generation refrigerants. As with other refrigerant phase-outs, 410A demand will continue for another 20-plus years as 410A units remain in service through their useful lives. Therefore, our concern remains that an ideal supply and demand balance in the HFC refrigerant landscape may not occur until 2029, which is when the next production curtailment will occur. Now I'll turn the call over to Kate Houghton, Senior Vice President of Sales and Marketing, to provide some additional detail around Hudson's market opportunity. Kate?

Thank you, Brian, and good evening, everyone. We saw increased sales volume in the third quarter as temperatures warmed up across the country and cooling systems were activated in earnest. With systems turned on and in regular use, service appointments typically tick up as operating issues are identified. Our sales activity in the third quarter largely mitigated what had been a late start to our 9-month season. We executed strongly during this year's selling season, ensuring that our customers had the refrigerants they needed when and where they needed them. We continue to make excellent progress promoting recovery and reclamation activities to the field technicians who are integral in the recovery and return process. Without field technicians recovering refrigerant from a unit, reclamation does not occur, and our continued outreach to influence technician participation is reflected in the positive growth of our reclaim numbers. The fourth quarter is historically our slowest quarter as a large portion of our customers transition from cooling applications to heating. The 2024 EPA data released in September largely aligned with our expectations and visibility of the market. While we believe the time frame to supply-demand imbalance has lengthened slightly, we remain confident that the current phase down of HFC Refrigerants represents a significant long-term growth opportunity for Hudson. Additionally, the EPA has certain proposals currently under review that would potentially make changes to the technology transition rule of the AIM Act. In a recent proposal, the EPA seeks to extend compliance dates for certain equipment transitions for applications in supermarket systems and industrial process refrigeration, amongst others. The proposal includes extending the compliant dates for the move to lower GWP equipment solutions as far out as 2032. In addition, the EPA recognizes that there may be the possibility of stranding equipment that had been manufactured prior to January 1, 2025, and is allowing for the sell-through of that manufactured equipment to continue beyond December 31, 2025. The proposed rule should not materially impact Hudson and may provide a slight advantage for our business. It's also important to note that while the technology transition time frame is under review, the core elements of the AIM Act, including the allowance system and refrigerant management rule, which mandates the phase down of HFCs remain in place. We are closely monitoring all developments and are in direct and frequent contact with the EPA as well as members of Congress. Federal regulations aside, Hudson is well positioned to capitalize on state-by-state initiatives around the use of lower GWP refrigerants and equipment. Several states have already instituted requirements for the use of reclaim refrigerant in their municipal buildings and for higher GWP HFCs, and we expect more to follow. We remain committed to increasing our position as a thought leader and vocal promoter of responsible refrigerant management. In early September, we sponsored a panel discussion as part of Climate Week NYC entitled Reclaiming the Future Together, Power on the Growth of Refrigerant Reclamation. During this event, we brought together a distinguished group of industry experts, including representatives from HARDI, the District of Columbia Sustainable Energy Utility, from Lennox International, and from the Rocky Mountain Institute to discuss the economic benefits and the environmental importance of refrigerant reclamation. At this event, we discussed the first of its kind DC SEU refrigerant recovery pilot, which focuses on greenhouse gas emission reduction. We remain committed to developing partnerships, such as with the DC SEU, to reach all corners of the refrigerant recovery market. In addition to events like Climate Week, we remain active working with refrigeration technicians and contractors to encourage the recovery and return of refrigerants during the processing of servicing a cooling system rather than the practice of venting refrigerant. With the increase in 2024 reclamation activity in the industry as tracked by the EPA, as well as the consistent growth we've seen in our company's reclamation business, we believe our efforts are driving meaningful progress. Our extensive long-standing customer network, proprietary technology, and national footprint position us well as a source for newly manufactured refrigerants as new lower GWP products are introduced and also as a resource for recovery and reclamation activity. We believe our strength in all aspects of refrigerant supply, as well as recovery, reclamation, and sophisticated field service is a competitive advantage as we look to expand existing customer relationships and win new customers while also ensuring a smooth transition during the ongoing and future refrigerant phase down. Now I'll turn the call back to Brian to review our third quarter financial results. Go ahead, Brian.

Thank you, Kate. I'll now review our third quarter 2025 financial results in a little more detail with a comparison to the 2024 quarter. Hudson recorded $74 million in revenue, an increase of 20%. Revenue growth in the quarter was driven by increased sales volume, coupled with an increase in our average sales price. We posted 32% gross margin, reflecting a 630 basis point increase in 2024 with the improvement related to favorable trends in refrigerant market pricing. Gross profit at $23.7 million improved significantly as compared to $15.9 million in the 2024 quarter. We recorded $8.9 million in SG&A expenses compared to $8.1 million last year. The increase is related to staffing additions. With that, operating income essentially doubled to $14 million. We recognized $1.6 million and $2.3 million of favorable other income in the 2025 and 2024 quarters, respectively. The 2025 other income related to a potential earn-out from last year's acquisition of USA Refrigerant that did not materialize. The 2024 other income was primarily related to a favorable legal settlement. Hudson recorded net income of $12.4 million or $0.27 per share compared to net income of $7.8 million or $0.17 per share last year. Our third quarter revenue performance essentially offset what was a late start to this year's selling season. With that, we finished the 9 months of 2025 with nearly the same revenue as 2024. The company strengthened its unlevered balance sheet, ending the quarter with $90 million in cash. Our capital allocation strategy remains focused on organic and strategic growth as well as opportunistic share repurchases. We repurchased $1.3 million of stock in the third quarter, bringing our total purchases to $5.8 million thus far in 2025. We are pleased to have delivered improved third quarter gross margin. However, as many of you know, our fourth quarter is our seasonally slowest quarter as the majority of our aftermarket customers transition from cooling to heating applications. With that in mind, we are maintaining our expectation of slightly above mid-20% gross margin for full year 2025. In closing, we have built our business and long-standing customer base around our capabilities of getting the right refrigerant, to the right place, at the right time. As our industry continues to move through the lower GWP refrigerant phase downs, we are all well positioned to meet demand for current and next-generation refrigerants, leveraging our industry experience, proprietary technology, and proven distribution network to ensure reliable customer service and satisfaction. Operator, we'll now open the call to questions.

Your first question is coming from Gerry Sweeney from ROTH Capital.

This one may be for Vincent. I apologize. I think I got Vincent right. And when you said you're in the final stages of looking for a new CEO, and I think you also mentioned alternative skills. Just curious if you could give us a little bit more details on what alternative skill sets may mean? I'm assuming this is at least someone with some more acquisition experience, but I'm also curious if this infers maybe a different sales strategy or different reclaim strategy as well?

Jerry, this is Eric. I'll take that question. Really, what we're looking for, and I think you're hitting the nail on the head here, is probably someone with a larger company background that both has experience with acquisitions, but also a lot of skills around organic growth of companies that have much larger lines than, say, just refrigerant reclamation and recycling that might have some insight into other complementary areas that we might be able to expand into like expanding our services offerings, et cetera.

Certainly. I appreciate your insights. Brian, I wanted to touch on our channel checks, which have been quite positive. Our conversations with contacts suggest that HFC pricing might see an increase due to issues with HFO rollout and gas canister availability. Some of the pricing hikes we experienced this summer could be temporary. Currently, our checks indicate that HFC prices are around $6.50 per pound. I’m interested in your thoughts for next year, considering we have a stockpile and potential easing of HFO challenges, where the pricing might end up.

I believe your channel checks are quite accurate. At this point, we would anticipate that pricing for next year, on average for the entire year, would align with this year's average. However, we acknowledge that this is just an expectation, and given the volatility of the market, there is uncertainty surrounding it.

No, that's fair. And we don't have a crystal ball. So I just want to get your thoughts on that. So got it. And I'll jump back in queue. I may have a question or 2 more, but I don't want to get much of your time.

Your next question is coming from Ryan Sigdahl from Craig-Hallum.

On the EPA data, similar thoughts as you guys kind of imply slightly lower demand, slightly higher supply. You mentioned potentially not being at an imbalance until 2029 or after. Curious how much that changes potentially the strategy from a core organic Hudson standpoint over the next couple of years and also maybe an M&A standpoint, and if that had anything to do with kind of the timing for a change at CEO?

Ryan, I can take a crack at that. I think you're right. I mean we do see the same things in the market that other people see. I think beyond just us guessing where gas prices are, I think we know as a company, we need to reduce our overall exposure to the ups and downs of the gas market. And we're likely to do that through both organic expansions, but also likely through M&A and acquiring complementary lines that aren't necessarily completely tied to refrigerant gas prices.

Yes. DLA, congrats on the competitive renewal there. Any change from an assumption standpoint? I get kind of the upper bounds, but it had been running at the $30 million to $35 million of revenue. Is that still the right assumption? And then anything different with this contract? And then kind of last part of this would be government shutdown. Any impact there, I guess, in the near term?

Yes. So we are very pleased to have won that. I would tell you that over time, you'd expect it to be consistent with where it has been. Yes, the government shutdown is having some near-term volatility. So we've seen a little bit of an impact of that in the fourth quarter. Hopefully, it's just timing. But overall, when we think about the contract, it's consistent with the current contract.

Last one for me. Any benefit from selling A2Ls, both either from a volume revenue, but even more so kind of in the pricing commentary?

Yes. So this year saw the rollout of both R-32 and R-454B, and we were well positioned there. We had a good supply chain even through the shortages of the crisis, and we had a lot of activity there. We were able to service our core customers, take care of them and also see that follow through with some of our other HFCs. So we were pleased how we navigated that this year, and we're very well set up for going into 2026 relative to A2Ls.

And maybe just a follow-up on that. Do you expect the A2Ls to be kind of a core part of the go-forward business? Or was it more of a stop gap given supply chain challenges for others?

So certainly, as you look forward, A2L systems will start to become more of an impact for us and more of a larger part of our business. The HFCs, the 410As, the 134, that installation base is very dominant, and we'll continue to be in that space for a long time as those systems need repair and before they phase out. But you'll see that the A2L start to grow in terms of percentage and importance for us as we move forward. And certainly, again, we expect growth in that part of our business next year.

Your next question is coming from Matthew Maus from B. Riley.

This is Matthew, on for Josh. I guess just first on the 3Q beat, can you break down what drove that beat? Was it more volume or just better pricing or mix? And also, how did USA refrigerants kind of track in 3Q?

It was more volume driven. So it was about 18% volume and a couple of points higher pricing. And USA refrigerants really had the same contribution as it's had throughout the year. So nothing notable with regards to USA refrigerant. But again, what we've really gained from USA refrigerant is having access to that aftermarket supply of refrigerants. So they're growing our base of lower-cost aftermarket refrigerants as compared to buying virgin refrigerants.

Got it. Just a quick question from me. When I look at the inventory, I saw that you reached a normalized level in the past two quarters and then there was an increase in the third quarter. I'm curious about the reasoning behind that.

We want to ensure that we are in a good position to serve the market next year. I would say last year's cash flow was significantly affected by our inventory reduction. In 2025, you will see a more normalized working capital structure for us, and we are pleased to report that we generated $25 million in operating cash flow under this normalized structure. We are producing strong cash flow primarily from operating income.

Your next question is coming from Andrew Steinhardt from Canaccord. That's just where we want to make sure that we're at a point to adequately serve the market next year. I would say that last year's cash flow was significantly impacted by our inventory reduction. Now you're seeing in 2025, a normalized working capital structure for us, but we're very pleased that we had $25 million of operating cash flow, and that's at a normalized working capital structure. So we're generating very strong cash flow mostly through operating income.

Brian, Eric, Kate and the rest of the team, this is Andrew, on for Austin. Congrats on the solid quarter here. I'll jump right into my first question. You guys have almost $90 million in cash with no debt on the balance sheet and have made the interest in growing inorganically pretty clear. Would the intent be to acquire a business that can reduce the seasonal impact to revenues? And I guess, what kind of specific capabilities, markets or businesses in general do you think add the most value to the company with its current footprint?

Yes. So that's a great question. We've talked about areas that we investigate M&A on previous calls. Certainly, large interest in service businesses and thinking about being closer aligned to those end-user customers, whether that's aligned with our current field services and expansion of that complementary areas, maybe some areas that we haven't been in. But thinking about all of the things that go into HVAC cooling systems and adjacent spaces is where we're spending a lot of time and really looking at what's available and turning over some rocks to go into that. We have looked at other reclaimers, and so there are some other opportunities there potentially, but we really are focusing on that service area for our interest in acquisition.

Got it. That's helpful. And if I could just ask a follow-up kind of in a different direction here. Volumes were pretty solid through the first 9 months of the year. Are there any plans to utilize a portion of the $90 million to add distribution centers based on current demand considering the satisfactory number of reclamation labs?

We're not going to speak to that in detail. But again, we are looking to optimize the $90 million strategic initiatives, acquisitions. So perhaps that may be on the list, but we're not going to go into any detail.

That concludes our Q&A session. I'll now hand the conference back to Brian Bertaux for closing remarks. Please go ahead.

Thank you. Our company's success is a result of the collective efforts of our 250 employees with contributions from everybody in this building, in our facilities across the country and those out in the field. Our team has consistently proved that they will always vigorously pursue the best in themselves and their departments for the benefit of our customers, our partners, and the company. We remain committed to growing our leadership position in the refrigerant and reclamation industry to drive improved financial results and increase shareholder value. On behalf of Kate, myself, and the Board of Directors, we say thank you to all of our employees for your continued support and dedication to our business. And as always, we also thank both our long and short-term shareholders and those that recently joined us for their support. We look forward to speaking with you in March to discuss the fourth quarter and our full year 2025 results. Have a good night, everybody.

Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.