Hudson Technologies, Inc. (HDSN) Q2 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Hudson Technologies' Second Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. (Operator Instructions). It is now my pleasure to introduce your host, Mr. John Nesbett of IMS. Thank you, Mr. Nesbett you may begin.

Good evening, and welcome to our conference call to discuss Hudson Technologies' financial results for the 2013 second quarter. On the call today we have Kevin Zugibe, Hudson's Chairman and Chief Executive Officer; and Brian Coleman, Hudson's President and Chief Operating Officer. Kevin will review the company's business operations and Brian will review the financials, and immediately thereafter we will take questions from our call participants. I'd like to take a moment to read the Safe Harbor Statement. During the course of this conference call we will make certain forward-looking statements. All statements that address expectations, opinions, or predictions about the future or forward-looking statements. Although they reflect our current expectations and are based on our best view of the industry and our business as we see them today they are not guarantees of future performance. These statements involve a number of risks and assumptions and since those elements can change we would ask that you interpret them in that light. We urge you to review Hudson's Form 10-K and other SEC filings for a discussion of the principal risk and uncertainties that effect our performance and other factors that could cause our actual results to differ materially. Okay, now I would now like to turn the call over to Kevin Zugibe. Go ahead Kevin.

Good evening and thank you everyone for joining us. As initially reported in our preliminary second quarter press release and reiterated in our full results issued this afternoon Hudson is operating in a challenging environment, that resulted in a disappointing second quarter and we believe these challenges will continue to effect the remainder of the 2013 refrigerant sales season. While the current conditions are certainly not ideal they do not deter our long term view that with a responsible approach to the phase out of virgin R-22 production we will see a vibrant reclamation industry and more predictable results for our business. On our first quarter call, we discussed the EPA's final ruling issued on April 3rd, permitting higher than anticipated allowances for the production of virgin R-22 in 2013 and 2014. At the time of that call the industry was still absorbing the information and although we felt blind-sided by the EPA's actions we had not seen any meaningful shifts in pricing or sales activity. However, as the refrigerant season progressed through the second quarter it became apparent that the EPA's ruling was driving excess supplies relative to demand. This impact was compounded by unusually cold spring weather in 2013 which according to a recent report from the National Oceanic and Atmospheric Administration was the coldest spring the U.S. has experienced since 1996. Consequently, while during the second quarter our customer's typically restock R-22 to prepare for the seasonally warm weather, the urgency around re-stocking was significantly and adversely impacted by the cool spring and the realization that the EPA's action allowed excess R22 supply into the marketplace. Both conditions set in motion a decline in both demand and price during this period and over supply combined with reduced demand is never a good combination. Now that the warmer weather is finally upon us there are two other dynamics that are beginning to materialize which we believe maybe impacting the overall demand for R-22 in 2013 and are adding to the oversupply situation. First, there is an increasing use of drop in gases in the systems that are designed to run a R-22. The term drop-in describes the refrigerant which can be used in place of R-22 in an existing system. As we have mentioned before r410a which is a new refrigerant replacing R-22 cannot be used in an R-22 system, but these new drop-in refrigerants can. Currently, anecdotal information from our customers indicate that these products may end up representing approximately 20% of the aftermarket R-22 demand by the end of 2013 as compared to less than 10% in 2012. At the moment it is difficult to determine if this year’s growth is drop-in refrigerant volumes is a direct result of the higher R-22 prices seen earlier this year or if the growth is related to contractors aggressively marketing this alternative to home owners. I will point out though that none of the drop-ins are as good as R-22 from a performance and energy efficiency point of view and some had safety issues. Second, some contractors are encouraging customers to upgrade or retrofit their systems by telling home owners that R-22 will soon be obsolete or illegal. This is simply not the case and we are working very hard to counteract this misinformation in the marketplace by making sure that home owners understand that R-22 specifically reclaimed R-22 will be around for 20 years or more just as plain CFCs are still available today despite their phase out in 1996. Consequently we are working with the EPA and members of our industry to encourage them to recognize these issues and to better educate consumers to be more diligent in their selection of solutions and to be more aware of what is happening in their own backyard. When CFCs were phased out 1996 we faced similar pricing issues and misinformation. We have the benefit of that past experience as we worked through the current challenges related to the R-22 phase out and we are confident that given time the R-22 phase out will lead to a longer growth opportunity for the reclamation industry and for Hudson. At this juncture we are seeing R-22 pricing down approximately 40% from the end of the first quarter. There remains uncertainly and confusion in the industry around pricing which negatively affects the buyer’s confidence in this product. As we get through the balance of this year refrigerant selling season which should wind down in the coming months we will have better clarity and market data to more accurately assess the value of 22 and the impact of some of this short term issues previously mentioned. With that in mind we will be reviewing our short term strategies and our inventory levels in preparation for the 2014 season. Given the pricing trend that we are seeing in the third quarter we will also have to review the carried value of our inventory and as such we maybe require to make an adjustment to our inventory value. If you recall we worked through similar issues during the 2009 refrigerant sales season. We view this year’s convergence of negative market forces as a one-time event and the issues and circumstances that we are currently working through are short term issues that do not negatively affect our long term view for reclamation and R-22. The EPA's April ruling is a step backward from both an environmental and a marketplace perspective. In compliance with the Montreal Protocol R-22 production must go to zero by 2020. However cooling systems typically have a shelf life of 20 years and R-22 is the most commonly used refrigerant in these systems. The EPA step down approach which began in 2010 was designed to cause a shortfall in the supply of virgin R-22 versus the aftermarket demand plus encouraging the practice of reclamation to fill the supply gap. In January 2012 the EPA issued no action assurance letters that accelerated the R-22 phase out and in June 2013 the EPA continued its guidance by issuing no action assurance letters for 2013 further reducing production in-line with the industry’s expectations of the phase out. But in April 2013 the EPA reversed course and issued its final rule allowing for increased production rather than the expected reduction that we and the rest of the industry had been anticipating. The resulting oversupply of R-22 and the reduced demand is negatively impacting the economic incentive that we can currently provide to our reclamation customers. The EPA is currently drafting new rules for R-22 allowances for the years 2015 to 2019. And we agree that the agency will publish and imposed rule within the next six to nine months. We believe that in order to meet the zero production goal by 2020 the EPA must be more aggressive in its upcoming allowance rulings for the 3015 to 2019 period. We are expanding our efforts to educate the agency as well as other decision makers and home owners about these issues and to urge the EPA to move faster with regard to the R-22 phase down. Clearly this was the challenging quarter in refrigerant sales season for our company. However we are expanding our efforts to educate the EPA about the adverse environmental and market impacts that will result from the continued production of R-22, and to demonstrate the need to aggressively reduce and ultimately eliminate virgin production of R-22 during 2015 to 2019 period. As a leading reclaimer Hudson remains in strong position to benefit from the ultimate phase-out. Now I will hand it over to Brian to provide our detailed financial results.

Thank you, Kevin. Revenues for the second quarter decreased to $15.8 million or 29% as compared to $22.3 million in the second quarter of 2012. The decrease in revenues was primarily related to a decrease in the number of pounds of certain refrigerants sold offset by an increase in the number of jobs completed and an increase in the average revenues per job from our service business compared to the second quarter of 2012. For the quarter net income was 334,000 or $0.01 per basic and diluted share compared to net income of $5.1 million or $0.22 per basic and $0.20 per diluted share in the second quarter of 2012. Revenues for the first six months of 2013 increased 4% to $38.6 million as compared to revenues of $37.1 million in the first six months of 2012. The increase in revenues was primarily related to an increase in the average price per pound offset by a decrease in number of pounds of certain refrigerants sold. Operating expenses remained relatively flat during the first half of 2013 at $3.5 million when compared to 2012. For the first six months of 2013 we reported net income of $4.8 million or $0.20 per basic and $0.18 per diluted share compared to net income of $7.6 million or $0.32 per basic and $29 per diluted share in the first six months of 2012. Now turning to the balance sheet, as of June 30, 2013 the company had $51 million in inventory which is an increase from the $40 million we had at December 31. 2012. As Kevin mentioned as we exit this refrigerant sales season we’ll have to take a hard look at our inventory as we begin to prepare for the 2014 refrigerant sales season. The steps that we will undertake are likely to be similar to those we had taken during the 2009 refrigerant season. Our balance sheet remains strong and our recent expansion of our credit facility with PNC will be sufficient to meet our needs for the foreseeable future. At the end of the quarter we had over 7 million of availability under our credit facility and over 33 million in working capital. At this point I would like to turn the call back over to Kevin for some final thought.

Looking forward we believe it is imperative from both an environmental and market perspective that EPA accelerates the phase out of 22. Because of this we’ve added resources to ensure that our recommendations are heard. Secondly we are increasing our efforts to make sure that customers fully understand our options regarding R-22 most importantly that reclaimed gas is the best alternative and that Hudson will be able to service their R-22 needs throughout the phase out and beyond. Finally we are working to further solidify our position as leading provider in reclaimed refrigerants. From a compliance horizon we are only three years into a 10 year phase down period and 2020 is not that far away. While there will almost certainly be further challenges our investment and capabilities position us to grow our place as a leading R-22 reclaimer as well the provider of the next generation refrigerants. Thank you for your interest and support of our company. Operator will now open the call to questions.

(Operator Instructions). Thank you. The first question comes from Philip Shen of ROTH Capital Partners. Please go ahead. Mr. Shen your line is live.

Hi, can you hear me?

Yes we can hear you now.

Hey thank you for taking my questions, Brian and Kevin. My first question is on pricing. How much lower do you anticipate R-22 pricing could go? Our checks are suggesting that pricing is kind are on the $8 to $9 level per pound and we are hearing that there could be another dollar downside. At what levels do you anticipate pricing bottoming out?

Generally speaking your channel check seems to be fairly accurate relative to pricing in the marketplace. As of at (least the) prognosticating, I think at this point anyone who suggests that they know what’s going to happen with price probably obviously doesn’t really have an answer. Certainly this year prices have come down probably at greater rates than we would have anticipated particularly looking at the overall dynamics. We still have the same major players controlling a significant amount of the overall supply. It’s difficult to say what will happen, what price, but we are beginning to tail off, meaning at this point in time most of the people that would be buying refrigerants are tending to place much smaller orders because those people will eventually in a few weeks begin to convert their warehouses over to heating supplies and equipment and the like. So no one really wants to carry refrigerants into the winter and into the next season. So it is very difficult to prognosticate at this point in time. There are probably we will a see bottom this particular quarter, what it might be it’s hard to say.

Okay. And just as a follow-up here, what is the rationale for the manufacturers to drop pricing? Ultimately now it they would hurt their overall profitability to gain a fair amount of share and volumes or do they make-up for reducing by a dollar per pound. So what’s your view on this?

We would see here and again it’s one off again so one of the difficulties for us is there is a number of moving parts here and it’s not just things like over supply or demand or drop ins. There is a little bit change here for the first time. What that change is and again we are throwing this out saying this is one of things we think could be affecting. They don’t effect definitely but for the first time this has been pretty clear even when there was no shortage the producers were able to raise price. So what changed here, just even if there was actual supply other years they were able to do it but this year they couldn’t and it went the other way. So that dynamic is we have always struggled with it saying you don’t need a shortage when you have a controlled substance here and 87% of the allocations are controlled by three guys, well three companies mainly. Well for the first time there has been a little bit of a change in this new rule, certain producers got more than others and actually the lion's share went to one that maybe wasn’t the biggest supplier of the gas. So that dynamic is the one odd ball that was different from other years and is making other producers lower price to keep their customers. That seems to be a potential here as to why for the first time that they would yield. That’s the one change that we can glaringly see that happened this year. Again even when there was plenty of gas this didn’t happen. So the only real change was it’s not an equal percentage between the three big guys that have the 87%. And just the follow-up this phenomena is a two year phenomena the discretion the EPA uses were for these extra pounds or recoupment pounds and recoupment pounds were provided for both the ‘13 and the ‘14 year. To our understanding that clears that previous open matter relative to a litigation. So we'll have this unusual dynamic this year and next year as well.

Okay. Thanks very much.

Thank you the next question is from Greg Garner - Singular Research. Please go ahead.

Thanks for taking my question and I also want to thank both you guys for your communication at the end of the quarter to communicate the unusual situation that’s occurring. So question I guess is may be primarily for you Kevin or perhaps both of you. Just about the communication with the EPA and also communication to contractors or end users about the misinformation. So regarding the EPA can you give us some more color, are they -- are you supplying documents or are you on the phone with them every so often or are they responding to what you have to say your commentary any color on that?

Well let me just say we have been quite focused for a lot of years here with the EPA, as lobbyists and others just giving information. And so that’s why Hudson were blindsided because we had up to this point no indication that this was coming at as others did. So going forward it’s that definition substituting doing the same thing over and over expecting different results. So didn't wanted to go down with same attitude with our lobbyists alone and going right to EPA and expecting different results. So we are not exactly sure two-fold, what happened what made them reverse, okay so we are not positive with that, what that exactly was, we have ideas. And what do they need to put into their vintage model or just to understand the dynamic in the industry that’s why no more pounds of 22 are needed. So what we did is we’ve done down aggressive campaign much more aggressive than we had but even additional lobbyists that we think are going to get us into other channels throughout the government, not just the EPA to get the facts down there. So all of these facts whether it’s drop in replacement, finding up the volumes, finding out the volumes at the inventory that’s out there, stockpiled. Again it’s quite ridiculous that all of these rules came out without any knowledge, zero knowledge of what the stockpile is in the industry when the EPA can find it out and they can write letters and demand what the number is but yet year-after-year they wouldn’t do it. So to do that rule in April without that information is simply irresponsible and so right now the push right now I think we will be successful and we’re pushing hard for them to, for one, to find the stockpile information, that’s like a needed number to find out what is supplied. When it comes to additional supply, find out how many drop in have been sold, that should be one piece of information that should go in the model of are these drop-ins, are they efficient no, are they lose capacity, yes are they as good for the unit from ability, no but the point is they should know, because honestly if its viable alternative it’s got to go into the factors. And right now in their vintage model we believe they don’t have any of that. So we know they don’t have stockpile information, we don’t believe they have the drop-ins. So they need to understand this, get that data. So what we’re doing is actively going out there really through lobbyists and other organizations to get EPA to understand. So we’re not just going straight to the EPA like we previously had done.

Okay. Thanks appreciate that. Any sense for the EPA, when we say that’s an EPA are they listening to your efforts or is it too early to say?

The EPA is taking an opportunity to reach out for various stakeholders prior to the issuance of a proposed rule. So the EPA has taken, let’s say an active role to open their door and invite people in to discuss matters. And they’ve encouraged stakeholders to do so. So absolutely they have gathered information, probably really since the early April up through current moment in time. Shortly if not sometime within a few weeks it’s always difficult to prognosticate but that proposed rule will then go over to [R&D] and then there would be an additional process and review of the information. And we’re not sure originally EPA set a goal to get a proposed rule out by December of this year. It sounds now that it’s likely that it won’t happen, probably now like we more like sometime in the first quarter of next year a proposed rule will come out. That’s the next and most important milestone that we will have before us. That will set the tone by the EPA as to what demand is. They will be revaluating the information pursuant to the vintage model and more importantly their view on what the step down ought to be for that '15 to '19 period of time. Ultimately there will be a public comment period and hopefully we will see a final rule for that period by December of 2014.

Okay. Thank you I guess used up my questions, I will go back in the queue then. Thanks.

Thank you the next question is from Daniel Sort, a private investor. Please go ahead.

Hi, can you hear me. Thanks for taking the question. I guess I am just first of all wondering if you disclosed this, can you talk about pounds sold this quarter versus last year same quarter?

Our volumes are down this quarter fairly significantly. Looking at it from a seasonal perspective this quarter I am not quite specifically answer but we are down pretty close to 35% this year. Again most of that we were fairly even through the first quarter of this year with the prior year, but almost all the decline in volume was a result of the second quarter.

And okay, just stepping away from that. Maybe just thinking even more long term, apart from EPA announcement and pricing other discussions, one of the items I guess disclosed especially in your 10-K is pending out patents which are set to expire, and I am just wondering how interested are you in maintaining good barriers and being I guess the chosen source for reclamation with these patents set to expire in the next perhaps year or two, as disclosed in the 10-K?

Well again we have a number of patents, we have 16 or so now and what happens is when we first started the patents were the main thing that was really a separator for us. From that you do process patents off of that, you do -- if they aren’t expiring yet you do proprietary processes. So what end happening is if you looked at our facilities any of our facilities for reclamation the machine itself was the key. Okay, that was the key years ago. Since then it's just a piece. So first of all it’s proprietary so we don’t sell this to people who don't know how to build this machine. So the patent itself isn’t good enough for you to build it alone. So you have to know the proprietary so we always thought the proprietary was as strong as the patent to us. But since then the machine is a piece. We have a number of steps. Our reclamation facilities, it’s amazing how many steps are there to make a one-stop shop. The machine has become just a piece. So it’s important, so we like the machine we like the speed and efficiency of our machines but it’s only, it's nowhere near as important in the overall as it was years ago and it’s still proprietary. People do not know what’s inside the machine and again we have added lot more patents and set up the processes to even use the machines.

Sure. I appreciate that. And maybe if I can just ask one more follow-up just I guess of that same line. So I mean I guess what kind I mean I guess we are hearing especially with lot of the misconceptions which were being told to customers, we have seen for example these other companies which produce the virgin and all this and releasing more gas what are the steps you yourself are taking or maybe it's kind of disclose but I mean what other barriers are there from preventing these people from becoming reclaimers and to get into Hudson space?

So in some respects the reclamation market has been a sort of a close closet (inaudible) seeing, meaning we haven’t seen any new entrants here. It's the same people utilizing off the shelf technology. There is a lot of very small owner-managed businesses. There is probably only a handful of reclaimers that are really of size the smaller ones have advantages that they are close to the customers and will cover a small or narrow geography around their facilities. As Kevin mentioned, I mean capital is certainly one thing. Technology is another but it is again those customer relations we have been reclamation leader for a long time now. We have been providing for -- one of the producers reclamation all the way back to 1997. So it's probably at this point the relationships may be the most important barrier for anyone to get in here.

Thanks. I appreciate this.

Thanks. Next question is from William Ostrand of Oppenheimer. Please go ahead. William Ostrand - Oppenheimer & Co.: Yes good evening Brian and Kevin. I have a question actually, point of information with respect to the balance sheet. As I understood it you were carrying $51 million or so R-22 at cost as opposed to being regular mark-to-market is that correct?

That’s correct. William Ostrand - Oppenheimer & Co.: Okay. And so I heard Kevin mentioned that there may be the need for a write down of that asset given the recent collapse of R-22 prices. Is that a necessity due to a FASB rule?

Yes, I mean the accounting rules and regulations provide that to the extent I am not quite sure exactly the precise word directly but the expression is permanent impairment you need to recognize that, yes. William Ostrand - Oppenheimer & Co.: Okay. All right, thank you.

Thank you. The next question is from Bob Johnson of Satuit Capital. Please go ahead.

Yes, I wonder if you could touch briefly on the increase in short and long-term debt by roughly what, 12 million or so I am assuming that that's in conjunction with the build-up of inventory? And then I have a follow up question after you are through that.

Yes, our debt will increase primarily as the consequence of purchasing inventory. Then typically the debt balance would decline as a result of the sales inventory. So in this particular quarter the second quarter we didn’t have the sales that we would have expected therefore the debt probably from a comparability of prior quarters relatively speaking is higher. But at the end of the day it's still the refrigerant sales season, that we’re still finishing up this quarter. After this season is over we’ll revaluate strategies, reevaluate market dynamics, also kind of begin to understand where possibly the EPA is going and what other people in the marketplace think where the EPA should be going and so forth. So lot of different factors will start to call that, after this season is over let’s say, through September. So now we are in that period of time which we are every year really, analyzing what’s happening, why and what are we going to do about and then preparing for the following season.

Okay. And you used the word were determine an impairment and clearly were just talking about the EPAs program to bring down allowables, suggest at least to me that inventory decline prices are not necessarily permanent, so a write off may or may not be requisite?

Well we’re going to have to evaluate I mean once the season is over, once we get a better understanding of exactly what happened and why and more than importantly what are pricing dynamics and factors as we exit the season, again recognizing the two things in our overall business model that we today do not control is the EPA actions and pricing. The pricing dynamics for the most part are set by three large allocation holders. And over time all that will diminish and not even exist. I mean as we go further and further downward on the limitation and the termination of virgin production. Those factors will be completely irrelevant and we’ll control all of our key components to our business model. So right now what we’re going to have to do after the seasons over is really, take a look at everything.

Okay, and then if you could just help me understand a little bit more propane, gas I never heard of drop-in gas. I thought there was R-22 and reclaimed and that was really the dynamics of what was going on in the inventory. All of a sudden out of the clear blue sky we hear about drop-in, and drop-in has a price impact. So I guess what I am wondering is one, who supplies the drop-in. So is this some from those, the three major suppliers of virgin R-22, are there new people. How much of a price differential is there and what is to prevent the EPA's program from getting accomplished if drop-ins become a fact of life and become bigger.

So (inaudible) is now on previous calls we thought the word drop-in had come up as been asked. Basically what do we think of drop-in is what would be a big percent. Now we always related the fact on these calls that drop-ins were always part of the market in the mid-90s, later 90s during the CFC phase out there were always drop-ins, meaning another refrigerant that could be used in that R-22 system when 12 was phased out and it was never a large number. They were always out there, there was a ton of producers that make them, small guys little one man shows, some big companies and they never had any big traction but they were whatever they were in the market. We never tracked it deeply because it never affected the price on 12. But they were out there, they were a small number, maybe single-digits, I think we said percentage wise. There has been drop-in replacements for 22 for 10 years and that’s like gases that people would put into a 22 system that were less efficient, less capacity more work you had to change the oil and things like that, but they were out there and they never effected the market all of these years. So we would always react to well they never did bring down the price of R-12 during the CFC phase out, they never have brought down R-22 this whole time and they have been around. And so we really won’t focus that drop-in replacements could be significant. All of last year drop-ins were out there never affected the price, never affected our business and again we never add -- we never could figure out exactly what the percentage was but it was something that was affecting us. It’s something it would be difficult for us to get an actual number anyway. So this year first quarter we don’t see it. EPA does what they do. Markets are getting real tight, all of a sudden. We are struggling to find out what happen to demand, what happened to supply. No supply jumped up on 22 from what the EPA did but what happened is it a combination the demand go away how could demand go away, well we know the temperature did. So we are tracking it, trying to find out what actually happened and one thing that started to come about in conversations was there are drop-ins more often than it ever had. So a number of people manufacture, the producers manufacturers of drop-ins a lot of small guys as they always did have these drop-ins, none of them are as efficient as 22 or had the capacity of 22. 22 is a true drop-in, put it right in, most of the other ones are you have to change the oil to a different oil and you have to do some work on the seals of the CFC or whatever on the system. Problem is two things. One is, it appears this year again is it potentially because the price on 22 got high in the first quarter and these drop-ins then looked more attractive, we don’t know. It could be a piece. We know that we are hearing a lot of what we say is we say 20% total gas. We are going by what we are hearing from our customers. We can’t get those numbers. But it appears that we are seeing it more than we ever did. A lot of systems couldn’t take the drop-ins. So a lot of chillers and other things you won’t say it’s going to be 22, a lot of the people who want their system to last and put the right gas in, and get the most efficiency will always be 22. So there will be a big section of the market that will always be 22. We have been surprised by the number of times we hear drop-ins and how supply houses are selling. So yes it appeared this year, it surprised us because we never saw during the CFC phase out as a big number we saw, exact same way for 22 that how it’s been up to this point. And suddenly it appeared right now, difficult to tell but I will tell you this, every bit of these possible drop-ins for a piece of the market is being told to the EPA. So we are -- this it’s not good news for us as people are selling it but it is good information to prove to the EPA they not need to produce 22 anymore. So we know that it can only be used in a specific piece of equipment or a certain percentage of the market, but yes for the first time it has done more this year, we heard the name drop-in replacements than ever.

Okay. Thank you for that background.

Thank you. The next question is from Greg Garner of Singular Research. Please go ahead.

Yes, thanks. Another question I just want to ask you about your relationship with the distributors and if you give us some color on how they perceive the market dynamics in the last quarter, do they perceive it as short-term disruption or is it more difficult to collect the dirty gas, the reclamation can you give us some -- little flavor on that?

Yes, I see it’s hard to speak of the answers of other people, but I think probably most people would say some of the things or most of the things that we've said, surprised, blind-sided those kinds of works. So this particular season has been very unusual particularly when you reflect back on how it started and so forth. At the end of the day like we’ve said many times before each of these seasons is a nine month season, with a right unto the wrong, if you a period of time when you get to prepare and plan ahead and assess what happened. So you do it some level while as disappointed that our fourth quarter is only the very important quarter or sole quarter but still gives you an opportunity to better assess and plan for the future. So it’s hard to answer the question what other people are exactly thinking but I would say and we would say in general that this is a short term event. It doesn’t necessarily mean that 2014 is going to be wonderful and so forth. There is still is going to be that situation we described before about the last year of recoupments and one particular allowance holder having a far greater share compared to any of the others, but then the mitigating circumstances certainly will be the proposed rule coming out from the EPA. I think on that end, the one thing I think the producers see it, we see it that can change all of this. The client said, the recoupment house and all of that, we know the numbers for next year and we think it's too many pounds for next year. So on its own we don’t like it. But a simple thing, one step EPA comes out early next year saying they are significantly cutting, if not cutting completely 2015 to 2019. If they came out with a proposed rule indicating that they are going to cut it severely, that alone we think would have an immediate effect on our market. We think immediately people who have pound for carry in for future years they wouldn't just dump them on the market. It will be an immediate we believe it will be immediate. I think the producers think that, we think that we talked to. So it’s not that we like the number of pounds for ’14 but when we say short term we believe we’re going to have an effect with EPA and they’re going to do something we’re hoping anyway. And we think these things are all facts that we’re adding right now, drop-ins everything else that they need to know and if they’re really understand it and we get some push from different agencies from the White House to O&B to congressmen we think if people are going to look at the facts, they should cut the R-22 down to nothing or significantly down. If they can put that message on their proposed rule we think ’14 would actually be very good. So that’s why we do have hope for ’14 even though on its face if the EPA does nothing there's too many pounds we believe for ’14 as it sits right now.

Okay. Great, I appreciate that. And just one item on the extra allocation given to the one virgin manufacturer and the drop-ins are mentioned, so these are some supply figure factors but also the weather had an impact in the quarter. And it appears to me this is my assessment and wanted to hear the commentary you might have on it but with the weather being so cool for so long and it being the coolest weather, coolest spring in 17 years I guess probably had greater impact of that is that safe assessment, greater impact than these other factors?

We felt that too and so we don’t see an immediate hit to what the EPA did but then what happens in our industry just as we saw in 2009 what happens is that was a the cold year, 2009 too and when that happened then everyone who had the supply was jumping “sell it.” And then they are trying to match each other and prices keep coming down. If you try to feed something that doesn't need the volume. And spring started, we believe and we kept seeing that was the weather and everyone or everyone was saying, producers alone were saying hey, once it gets hot it will be okay and then the price cut coming down as people realized I got to move this volume even though the industry is not pulling it in right now, and then that fear of that EPA, everyone knew for the first time, that everybody has extra pounds. And it was the knowledge now that everybody has extra pounds and because what the EPA did and I am fighting for survival here, a company for your quarter to sell x pounds, well that makes you do silly things and that makes people do stupid things and they start dropping price, exhibit is going to force feed it and that's what seem to be the dynamic. But I agree, the spring seemed to be a big effect. But we don't think it would have lasted that long if people didn't have a knowledge that these are glut of 22 because of what the EPA did.

Okay, but then it's seen that in 2014 again with even just the normal spring it certainly would create a much more favorable dynamic than what occurred this year so far.

Yes, I mean back to this, we should have and under normal circumstances begun to see buying in April in the southern part of the United States, certainly mid-Atlantic by May and certainly the North to Northeast by June. None of that dynamic happened. And just generally speaking once that happens because it happened in other times besides 2009, first you talk about a shift in the season and then you talk about a lost season. And once you have 70 or 80 days in a quarter, it's a lost season, because you are in that period of time now, even though it will be warm in July of this year people are buying but they are buying very relatively smaller orders, more frequently but nobody really wants to carry inventory and what this whole pricing dynamic it adds a second flavor of caution in that if I buy it, is it going to be lower tomorrow or next week or next month. So there is both of those dynamics. So at the end of the day those are all the things that we are going to have to assess as we get through the rest of this particular quarter, third quarter, and the remainder of the season and then re-evaluate everything in 2014.

Okay, all right, thank you.

Thank you. We have no further questions in queue at this time. I would like to turn the floor back over to management for any additional remarks.

Okay, I would like to thank first of all our employees and including our long term shareholders for their continued support. And I want to thank everyone for participating in today's conference call. And we look forward to speaking with you after the close of the third quarter. Thank you very much.

Thank you. Ladies and gentleman, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.