Pearl River, NY – August 8, 2018 – Hudson Technologies, Inc. (NASDAQ: HDSN) announced results for the second quarter and six months ended June 30, 2018.
For the quarter ended June 30, 2018 Hudson reported revenues of $58.1 million, an increase of 11% compared to $52.2 million in the comparable 2017 period. Revenues for the 2018 period included revenues from Aspen Refrigerants, Inc. (“ARI”) which was acquired in October 2017. During the second quarter of 2018, the Company recognized a $14 million inventory write down due to a decline in selling price of certain gases that occurred in the quarter. The Company also recognized an additional $18 million write down for the previously recorded step up in inventory basis associated with the acquisition of ARI, which had previously been reflected as a non-GAAP adjustment. Due to the impact of the inventory write downs, the Company’s net loss for the second quarter of 2018 was $28.6 million, or ($0.67) per basic and diluted share, compared to net income of $8.5 million or $0.21 per basic and $0.20 per diluted share in the second quarter of 2017. Non-GAAP adjusted net income for the quarter ended June 30, 2018, which excludes any inventory write downs, was $0.2 million, or $0.00 per diluted share, compared to non-GAAP adjusted net income of $9.1 million, or $0.21 per diluted share during the second quarter of 2017. Adjusted EBITDA was $4.7 million for the second quarter of 2018, as compared to adjusted EBITDA of $15.3 million for the second quarter of 2017.
For the six months ended June 30, 2018, Hudson reported revenues of $100.5 million, an increase of 10% compared to $91.1 million in the comparable 2017 period. Revenues for the 2018 period included revenues from ARI. The Company experienced negative gross margins for the first six months of 2018 compared to gross margin of 32.8% in the first six months of 2017. Due to the impact of the $32 million of inventory write downs in the second quarter of 2018, the Company’s net loss for the first half of 2018 was $31.6 million, or ($0.75) per basic and diluted share, compared to net income of $14.3 million or $0.34 per basic and $0.33 per diluted share in the first half of 2017. Non-GAAP adjusted net loss for the six months ended June 30, 2018, which excludes any inventory write downs, was $0.8 million, or ($0.02) per diluted share, compared to non-GAAP adjusted net income of $15.2 million, or $0.35 per diluted share during the first six months of 2017. Adjusted EBITDA was $7.6 million for the first half of 2018, as compared to adjusted EBITDA of $25.9 million for the first half of 2017.
Reconciliations of net income (loss) to non-GAAP adjusted net income (loss), diluted net income (loss) per share to non-GAAP adjusted diluted net income (loss) per share, and net income (loss) to non-GAAP adjusted EBITDA, respectively, are provided in the tables immediately following the consolidated statement of operations. Additional information about the Company’s non-GAAP financial measures can be found under the caption “Use of Non-GAAP Measures” below.
The Company is currently operating under a waiver and amendment to its term loan credit and security agreement with the term loan lenders (“Term Loan”). The waiver runs through August 14, 2018, and discussions are continuing with respect to an amendment of the Term Loan’s existing total leverage ratio financial covenant and certain other terms, which the Company expects to complete on or before August 14, 2018. Accordingly, the Company plans to file Form 12b-25 to delay the filing of its second quarter 10-Q to correspond with the anticipated amendment.
Kevin J. Zugibe, Chairman and Chief Executive Officer of Hudson Technologies commented, “This was an extremely disappointing quarter as our business continued to be impacted by the challenging pricing environment affecting the industry and the market from the start of the 2018 selling season. Even though we experienced more seasonably warm temperatures in the latter half of the second quarter, we continued to encounter pricing declines during the quarter for most of the refrigerants we sell. In addition, while volume picked up slightly as compared to the first quarter of 2018, buying demand did not reach typical second quarter levels and many customers continued their just in time buying pattern reflected in the first quarter results. With our visibility today, we do not expect to achieve the revenue or gross margin targets set forth in our first quarter 2018 earnings release.
“On a positive note, despite the challenging market conditions, during the first half of 2018 we generated approximately $8.6 million in positive operating cash flow and paid down approximately $10.6 million of debt. We believe we should generate approximately $30 million in free cash flow in 2018 primarily from the reduction in inventory levels and a one-time tax benefit related to the recent tax law changes.
“As we previously noted, we anticipated that the 2018 cooling season would be challenging. A benefit of our longevity in this industry is that we have faced and overcome price corrections and disappointing sales seasons before. As in these prior seasons, we anticipate that pricing will stabilize and buying patterns will return to more typical levels in future quarters and seasons. As such, despite current market dynamics, we remain optimistic about the long-term market opportunity as we believe that under our FIFO system we should see margins improve as we replace our higher price inventory with lower priced product.
“We are working with our term loan lenders to secure an amendment to the Term Loan which, if approved, would provide financial flexibility as we navigate through today’s challenging market conditions. We appreciate the support of our Term Loan lenders throughout this process and we expect to finalize an amendment on or before August 14, 2018.”
Mr. Zugibe concluded, “Our acquisition of ASPEN Refrigerants has enhanced our portfolio of product offerings and diversified our customer base which has strengthened our ability to navigate periodic downturns in our industry. With our combined longstanding experience, breadth of products and service offerings and our established and expanding customer base, Hudson remains a leader in the refrigerant and reclamation business, poised for growth as our industry moves toward the final virgin production phase out of R-22 in 2019 and transitions to new technologies and refrigerants.”
Conference Call Information
The Company will host a conference call and webcast to discuss the second quarter results today, August 8, 2018 at 5:00 P.M. Eastern Time.
To access the live webcast, log onto the Hudson Technologies website at www.hudsontech.com, and click on “Investor Relations”.
To participate in the call by phone, dial (877) 407-9205 approximately five minutes prior to the scheduled start time. International callers please dial (201) 689-8054.
A replay of the teleconference will be available until September 8, 2018 and may be accessed by dialing (877) 481-4010. International callers may dial (919) 882-2331. Callers should use conference ID: 34361.