Hudson Technologies, Inc. — Q1 2016 Form 10-Q
Business and period: Refrigerant services company reporting the three months ended March 31, 2016, compared with Q1 2015. Operations comprise one reportable segment, including refrigerant and reclamation sales and RefrigerantSide services. Financial statement amounts below are in millions unless otherwise noted.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Revenue | $28.167 | $22.103 |
| Gross profit; gross margin | $7.522; 26.7% | $5.525; 25.0% |
| Operating income; operating margin | $5.019; 17.8% | $3.270; 14.8% |
| Net income; diluted EPS | $2.944; $0.09 | $1.893; $0.06 |
| Operating cash flow | $(5.723) | $(0.812) |
| Cash and cash equivalents | $1.167 | $1.258 at Dec. 31, 2015 |
| Working capital | $43.531 | $38.509 at Dec. 31, 2015 |
| Debt | $30.353 total; $26.141 current and $4.212 long-term | $24.866 at Dec. 31, 2015 |
Revenue rose 27%. Refrigerant and reclamation sales were $26.649 million, up from $20.487 million; RefrigerantSide services were $1.518 million, down from $1.616 million. Management attributed the refrigerant increase mainly to higher selling prices, contributing $3.395 million, and greater pounds sold, contributing $2.767 million. Cost of sales fell to 73% of revenue from 75%. Operating expenses increased $0.248 million, and interest expense increased to $0.271 million from $0.207 million. Income tax expense was $1.804 million versus $1.170 million.
Operating cash use reflected higher receivables and prepaid/other assets and lower payables and accrued expenses, partly offset by earnings and lower inventory. Financing provided $5.765 million, primarily from net short-term borrowings; investing used $0.133 million. Capital expenditures were estimated at approximately $1.8 million for 2016. At quarter-end, the PNC facility had $29.808 million drawn, approximately $10.2 million available, and an effective rate of 4.00%.
Changes, outlook, and risks
- Compared with Q1 2015, revenue, gross profit, operating income, and net income increased; RefrigerantSide revenue decreased slightly. Receivables rose $11.426 million from year-end while inventory declined $6.613 million.
- After quarter-end, on April 8, 2016, the company amended its PNC facility: maximum loan capacity rose from $40 million to $50 million, revolving capacity from $36 million to $46 million, and the termination date was extended to June 30, 2020. This is a subsequent event, not a March 31 balance-sheet change.
- Management noted refrigerant sales are seasonal, with peak sales generally in the first half; cooler-than-usual spring or summer weather may reduce demand. No specific revenue or earnings guidance was provided.
- Key exposures include refrigerant availability, pricing and demand; regulation and the HCFC phase-down; customer concentration; weather and seasonality; and variable-rate debt. Two customers represented 44% of Q1 revenue and had $5.085 million of receivables outstanding at March 31.
- The company reported compliance with PNC covenants at March 31, including a minimum fixed-charge coverage ratio requirement, but cautioned future compliance depends on operating performance and external conditions. The facility is secured by receivables, inventory, intellectual property and other assets.
- Contractual cash obligations totaled $36.308 million, including $30.353 million of debt principal, estimated interest, operating leases, and acquisition earn-out/license payable. The remaining acquisition earn-out estimate was unchanged during the quarter.
- Management reported no material change in pending legal matters and concluded disclosure controls were effective. It was evaluating the potential effects of new revenue and lease accounting standards; impacts were not yet estimated.
Important facts for investors to verify
- Whether the sharp rise in receivables converts to cash on schedule, given operating cash outflow and significant customer concentration.
- Refrigerant selling prices, sales volumes, supply availability, and inventory valuation as regulatory phase-downs and market conditions evolve.
- Use of the expanded PNC borrowing capacity, interest-rate exposure, covenant headroom, and debt repayment requirements.
- Progress against the approximately $1.8 million 2016 capital expenditure estimate and the timing and amount of acquisition-related payments.