PEARL RIVER, NY – OCTOBER 30, 2013 – Hudson Technologies, Inc. (NASDAQ: HDSN), announced results for the quarter and nine months ended September 30, 2013.
Revenues for the three months ended September 30, 2013 increased 5% to $15.2 million from $14.5 million in the comparable 2012 period.
During the third quarter of 2013, the Company recorded a lower-of-cost-or-market inventory adjustment (“LCM inventory adjustment”) of $14.7 million. This LCM inventory adjustment, which significantly increased our cost of sales, was due to an approximately 50% decline in R-22 pricing from March to September 2013 following the issuance of the EPA’s final rule in April 2013 which permitted higher than expected virgin R-22 allowances for 2013 and 2014. With the inclusion of the $14.7 million LCM inventory adjustment, Hudson’s third quarter 2013 operating loss was $14.4 million, as compared to operating income of $3.7 million in the same quarter of 2012. Net loss for the third quarter of 2013, including the $14.7 million LCM inventory adjustment, was $9.1 million, or a loss of $0.36 per basic and diluted share, compared to net income of $2.2 million, or $0.09 per basic share and $0.08 per diluted share, for the third quarter of 2012. Excluding this LCM inventory adjustment for the third quarter 2013, the Company achieved third quarter non-GAAP gross profit, as defined in the tables below, of $2.1 million and non-GAAP operating income, as defined in the tables below, of $254,000.
For the nine months ended September 30, 2013, revenues increased 4% to $53.8 million as compared to revenues of $51.6 million in the first nine months of 2012. With the inclusion of the $14.7 million LCM inventory adjustment, Hudson’s operating loss was $6.3 million in the first nine months of 2013, as compared to operating income of $16.4 million in the same period last year. In the nine months ended September 30, 2013, the Company reported a net loss, including the LCM inventory adjustment, of $4.3 million, or a loss of $0.17 per basic and diluted share, as compared to net income of $9.8 million, or $0.41 per basic share and $0.37 per diluted share, in the comparable period of 2012. Excluding the $14.7 million LCM inventory adjustment, for the nine months ended September 30, 2013, as defined in the tables below, the Company achieved non-GAAP gross profit of $13.8 million and non-GAAP operating income of $8.4 million.
Kevin J. Zugibe, Chairman and Chief Executive Officer of Hudson Technologies commented, “R-22 prices have dropped by 50% following the EPA’s issuance of its final rule in April 2013, adversely impacting the value of our inventory and causing the Company to record a large write down in the form of an LCM inventory adjustment. We had been operating under the belief that the EPA was applying a step-down approach to the phase-out of R-22 based upon the EPA’s public statements, the issuance of the original rule making for the 2010 to 2014 period and reinforced by two subsequent ‘no action assurance letters’ that reduced allowances for 2012 by 45% compared to 2011 levels and most recently, in January 2013, reduced allowances by approximately 18% compared to the reduced 2012 levels. The EPA’s sudden change in course with its April 2013 rule making, which increased allowances for 2013 and 2014, negatively impacted Hudson’s business plans and, we believe, those of many in our industry. In spite of the EPA’s actions, we were able to achieve modest growth in both revenues and volumes during the later part of the 2013 selling season. Furthermore, our non-GAAP gross profit margin, excluding the LCM inventory adjustment, was 26% for the nine months ended September 30, 2013 and in line with our long term historical gross margin levels.”
“Under the Montreal Protocol, virgin R-22 production must be reduced to zero by no later than December 31, 2019, and the reclamation industry will then become the principle source of supply of R-22. The EPA has stated on several occasions that its goals are to prevent market disruption and to achieve significant growth in reclamation so that a sustainable reclamation industry will be developed and able to support demand for R-22 until the end of life for R-22 systems. We believe that the EPA’s April ruling did not support these goals. The EPA has additional rule-making opportunities in the future that hopefully will reduce R-22 allowances for the period 2015 through 2019 in a manner consistent with its previously stated goals.”
Mr. Zugibe concluded, “While the April 2013 EPA ruling was a setback for Hudson, our focus remains on meeting the needs of our customers while also strategically positioning the Company to effectively navigate the changing regulatory landscape. We are working at various levels of both the executive and legislative branches of the U.S. government to bring to light the economic and environmental issues associated with production of virgin R-22. Although we can provide no assurance regarding any future regulatory actions, we remain confident that the Administration and the EPA appreciate the longer term necessity, from an economic and environmental standpoint, of an orderly phase out of the production of virgin R-22. We believe that Hudson’s reclamation capabilities will play a key role in support of this long-term imperative.”
CONFERENCE CALL INFORMATION
The Company will host a conference call to discuss the third quarter results today, October 30, 2013 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 November 30, 2013 and may be accessed by dialing (877) 660-6853. International callers may dial (201) 612-7415. Callers should use conference ID: 13572558. A transcript of the call will be available on the Hudson Technologies website approximately 24 hours after its completion.