Hudson Technologies, Inc. — Q1 2024 Form 10-Q
Business and period: Refrigerant products, reclamation and related services provider serving the HVACR industry; one reportable segment. Quarter ended March 31, 2024; figures below are compared with Q1 2023 unless noted. Amounts are in millions except per-share data.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $65.3 | $77.2 | Down 15% |
| Gross profit / margin | $21.4 / 32.8% | $30.3 / 39.3% | Margin down 6.5 percentage points |
| Operating income / margin | $12.8 / 19.6% | $22.7 / 29.3% | Lower |
| Net income | $9.6 | $15.5 | Down 38% |
| Diluted EPS | $0.20 | $0.33 | Down |
| Operating cash flow | $(0.9) | $10.7 | Down $11.6 |
| Capital expenditures | $1.0 | $0.4 | Up $0.5 |
Product and related sales were $63.8 million, versus $76.0 million; RefrigerantSide Services revenue was $1.4 million, versus $1.2 million. Lower selling prices for certain refrigerants drove the revenue decline. Cost of sales rose to 67% of revenue from 61%, primarily because sales included inventory purchased at higher prices. SG&A increased to $7.9 million from $7.0 million, due to personnel costs and professional fees. Interest expense fell to $0.2 million from $1.8 million following repayment of term debt in 2023. Effective tax rate was 23.9%, compared with 25.3%.
Balance sheet and liquidity
At March 31, 2024, cash was $10.6 million; working capital was $156.1 million, up from $146.4 million at year-end 2023. Receivables were $35.9 million, up $10.7 million, and inventory was $147.8 million, down $6.7 million. Total liabilities were $55.6 million and stockholders’ equity was $238.6 million. The company reported no outstanding borrowings under its $75 million Wells Fargo revolving facility, though it had a $0.9 million letter of credit outstanding. The former term loan and FILO tranche were repaid in 2023. Operating cash use reflected working-capital timing, including payments of accounts payable and accrued expenses and changes in receivables and inventory.
Management commentary, outlook and risks
- Management expects to meet foreseeable working-capital needs through anticipated operating cash flows and available borrowing capacity. No formal revenue or earnings guidance is provided.
- The business is seasonal, with typically higher revenue in the first nine months; unusually cool weather, refrigerant price declines, supply constraints or lower demand could impair results.
- Management cited the HFC phase-down under the AIM Act and noted that a proposed EPA refrigerant-management rule was expected to be finalized in Q3 2024. Reclamation is not subject to the allowance system. Regulatory changes may affect refrigerant demand, supply and prices.
- One customer represented more than 10% of revenue in each comparative quarter; receivables from that customer were $11.9 million at March 31, 2024. Customer loss or reduced purchases could materially affect results.
- The Wells Fargo facility requires minimum liquidity of $5 million, including at least $3 million of availability. A fixed-charge-coverage covenant can spring into effect under specified availability conditions. The company reported compliance at quarter-end but cautioned future compliance depends partly on factors beyond its control.
- The company recorded a preliminary estimate of incremental refrigerant procurement costs related to supply-chain issues in accrued liabilities; the filing does not provide a clear amount. Inventory net-realizable-value adjustments were $5.6 million at quarter-end, versus $5.2 million at year-end.
- No goodwill impairment was recorded. Management reported effective disclosure controls and no material change in internal control over financial reporting; no material changes to the 2023 Form 10-K risk factors were reported.
Important facts for investors to verify
- Whether refrigerant pricing and gross margins stabilize after the Q1 decline, and how much higher-cost inventory remains.
- Cash conversion and working-capital movements, especially receivables, payables and inventory through peak season.
- Revolver availability and covenant headroom, including any springing fixed-charge-coverage test.
- Customer concentration, refrigerant sourcing conditions and the impact and timing of EPA rules.
- The amount and finalization of the estimated supply-chain-related procurement costs accrued in Q1.