Hudson Technologies Inc 2026 Q2 Earnings Call

Good evening, and welcome to our conference call to discuss Hudson Technologies' financial results for the second quarter of 2026. On the call today are Ken Gaglione, President and Chief Executive Officer, and Brian Bertaux, 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 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 these elements can change and certain cases are not within our control, we would ask that you consider interpreting 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 the factors that could cause our actual results to differ materially. With that, we will now turn the call over to Ken Gaglione.

Please go ahead, Ken. Hey, good evening, and thank you for joining us to discuss our second quarter results.

The refrigerant selling season is underway, and I'm generally pleased with our strong second quarter results against some rather challenging market and business conditions. Our priority remains long-term value creation, including our focus on operational excellence through the improvement of our core capabilities and longer-term efforts to create less cyclical, more diversified sources of revenue with the goal of reducing our dependency on spot refrigerant pricing. We continue to execute on that vision in the second quarter by investing in the talent and technology we need to accomplish these goals with the backdrop of weaker than expected HFC market prices, illustrating the importance of shifting our business model to have less exposure to variations in pricing dynamics.

We're in an inflationary economy. This tends to favor repair versus replacement of HVAC units and resulting demand for aftermarket refrigerants, this is counter to what we saw in the quarter. There are several possible reasons for softness in HFC prices. At this point, we can only speculate that a few factors are contributing to the softness, including recent information we've seen about illegally imported refrigerants coming across the southern border, excess channel inventory, simply that while there have been short bursts of higher temperatures this summer, we haven't really seen a prolonged period of hot weather for a long enough period of time. The industry is acting on the question of illegal imports, we're optimistic the situation will improve in the long run. Additionally, the forecasted El Niño effect and accompanying warmer weather may also benefit our business as we round out the selling season.

For the quarter, sales revenue was up 8%, driven by a strong 12% increase in sales volume. While our increase in reclamation volume again demonstrates our customers' strong commitment to refrigerant lifecycle management and Hudson's expanding network for recovered refrigerant sources. These positive results were offset by the HFC refrigerant pricing and higher costs related to our investments, both of which impacted net income. Brian will provide more detail on our financial results in a moment. Turning to our business with the DLA, orders during the second quarter were in line with our annual run rate for the DLA contract. The five-year annual contract that was awarded to us and then rescinded due to a competitor's challenge is still in review.

During the quarter, we were awarded a bridge contract, which keeps the current contract terms and conditions intact for four months through November 29th, 2026, with two additional three-month extensions through May of 2027. We are very confident this open matter will be resolved shortly. Next, we often get questions about Hudson's activity in the rapidly expanding data center market. Most of what we read and hear about data centers today is focused on the immediate build opportunity for direct and indirect cooling and the role traditional HVAC systems play. These are generally first-fill opportunities for new systems dominated by virgin refrigerants sold to OEMs or through OEM channels. Hudson's business is centered on specialized high-speed recovery and legacy reclaimed refrigerant supply to the aftermarket.

Today, we have a nascent business with data centers, which is not a meaningful portion of our business today, we expect this segment to be a much larger opportunity in three to five years as data center HVAC systems begin to need optimization, resupply, or decommissioning. We will continue to look for ways to optimize our presence in the data center market. This expected future demand is yet another reason for investment today in operational readiness. First, as I noted earlier, recovered refrigerants are an important feedstock for operations.

During the quarter, we saw continued growth in recovered refrigerant volume as we leverage our past investments and acquisitions that expanded our recovery ability and more recently, the successful pilot of aftermarket small recovery trucks, or SRT, in the New York City area that further facilitates our lifecycle refrigerant management program by focusing on high density, lower volume recoveries that our legacy service operations did not address. The solution is high-speed, EPA compliant, and allows our contractor partners to focus on other value-added revenue-generating activities. By focusing on the contractor, we are not only expanding our access to recovered refrigerant, but also helping to increase overall industry recovery rates by simplifying the recovery and reward transaction so it is effortless as possible while still complying with EPA reporting requirements.

Second, when we receive recovered refrigerant from contractors for reclamation, those cylinders can contain one refrigerant or may be mixed with multiple refrigerants. Hudson has two of the seven reclamation facilities in this country that can separate mixed refrigerants from a cylinder using fractional distillation. This enables the conversion of recovered refrigerant feedstock into saleable products with greater efficiency compared to simple distillation or other methods. While fractional distillation is not new, the proprietary way we accomplish the separation is one of Hudson's core competencies. We're building on that expertise, and during the quarter, we announced our intent to partner with Icorium, an NSF I-Corps startup company based in Lawrence, Kansas, to scale their patented extractive distillation technology to increase our ability to separate complicated next generation azeotropes and HFO refrigerant blends in one of the most efficient ways possible.

Unlocking this traditionally difficult separation capability allows Hudson to extract the most refrigerant from every pound of recovered gas, promoting faster transition of feedstock into working capital and producing a sustainable competitive advantage in the process. The intended partnership with Icorium is just one component of Hudson's advanced operations directive, which we expect will enable the company to expand both capability and capacity ahead of the next EPA phase down and before expected increase in that data center-related demands. As announced previously, our facility in Illinois experienced extensive damage from a tornado on June eleventh, causing us to temporarily idle operations while the plant was secured. The good news is that the damage was mostly related to the building structure and no one was injured, with the storm removing the roof and the equipment attached to it, and water damage to the interior of the facility.

While the plant was without power for approximately one week, there was no detectable damage to the separation columns or to our product inventory. Facility was completely out of service for approximately three weeks with no loss of inventory and is now fully functioning while major repairs are underway. Expenses related to the full restoration will be covered by insurance and are not reflected in our second quarter P&L. Now I'll turn the call over to Brian.

Please go ahead, Brian. Thank you, Ken, and good evening, everybody.