Greetings, and welcome to the Hudson Technologies Q3 2013 Earnings Conference Call. (Operator instructions.) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Nesbett of IMS. Thank you sir, you may begin.

Good evening and welcome to our conference call to discuss Hudson Technologies’ financial results for Q3 2013. 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 future growth strategy and Brian will review the financials, and immediately thereafter we’ll take questions from our call participants. I’ll 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 are 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 these 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 risks and uncertainties that affect our performance and the factors that can cause our actual results to differ materially. Okay, with that done I’d now like to turn the call over to Kevin.

Good evening, and thank you everyone for joining us. I hope all of you have had a chance to review our Q3 earnings release issued earlier this afternoon. In some ways this was a quarter of two extremes. On the one hand, the things we can’t control – specifically the EPA ruling and the R-22 pricing – both worked against us and the industry this refrigerants sales season. In terms of the things we can control, however, such as customer relationships and driving sales during the selling season we did a very good job, particularly in the latter part of the selling season with a nearly record volume of refrigerants sold during Q3 2013 and up from 2012. I’m proud of our team and the results we delivered by leveraging the internal forces that we could control despite the completely unpredictable series of events that ensued beginning in April of this year. As we discussed in our previous earnings call, the EPA’s final rule issued in April, 2013, allowed significantly higher than expected virgin R-22 allowances for 2013 and 2014; and as a result created an oversupply in the market which in turn caused a decline in R-22 pricing. R-22 prices declined further during Q3 with September pricing down 50% from March levels. As a result of this lower pricing we recognized an inventory write down of $14.7 million in the quarter. That said, when you look closely at our Q3 results you can see the underlying strength of our business model in spite of the challenging industry landscape that we’ve encountered since April. Revenues were up year-over-year on strong volume in the quarter. Excluding the inventory write down, on a non-GAAP basis we achieved gross profit of $2.1 million. Obviously on a GAAP basis we felt the impact of…

Thank you, Kevin. As Kevin mentioned during the quarter we recorded an inventory write down requiring a lower cost to market adjustment to our inventory of $14.7 million due to a decline in the R-22 pricing. Revenues for Q3 increased 5% to $15.2 million as compared to $14.5 million in Q3 2012. The increase in revenues was primarily related to an increase in the number of pounds sold offset by lower sales prices in 2013 when compared to the quarter in 2012. Excluding the inventory write downs we achieved a non-GAAP Q3 gross profit of $2.1 million and a non-GAAP operating income of $254,000 On a GAAP basis including the write downs during Q3 2013 we had an operating loss of $14.4 million and a net loss of $9.1 million compared to the operating income of $3.7 million and a net profit of $2.2 million during Q3 2012. Please refer to today’s press release for the reconciliation of GAAP to non-GAAP information. Revenues for the first nine months of 2013 increased 4% to $53.8 million as compared to revenues of $51.6 million in the first nine months of 2012. The increase in revenues was primarily related to an increase in the average price per pound of certain refrigerants sold offset by a slight reduction in the total number of pounds. Operating expenses increased slightly during the first nine months of 2013 to $5.4 million compared to $5.2 million in the 2012 period, with the increase primarily related to an increase in selling expenses offset by the reduction of certain professional fees that occurred in Q3 2012. For the nine months ended September 30, 2013, excluding the one-time inventory write down we achieved gross profit of $13.8 million and a non-GAAP operating income of $8.4 million; while on a GAAP basis…

As those of you who’ve followed us for a while already know we operate in a dynamic industry. Hudson’s competitive edge comes from our ability to adapt to the changes, particularly the unexpected changes that take place in our marketplace, while further solidifying our position as a leading provider and reclaimer of refrigerants. We demonstrated our adaptability this quarter as we were able to drive volumes and achieve decent margins while facing an unexpected drastic drop in R-22 pricing. Going hand-in-hand with our operational experience is our focus on providing information and perspective to the EPA and others as we await the upcoming 2015 to 2019 rule. We are concentrating our efforts to educate the EPA around our belief that an accelerated phase out of R-22 is the best way to proceed both from an environmental and market perspective. Thank you for your interest in and support of our company. Operator, we’ll now open the call for questions.

Thank you. (Operator instructions.) Our first question comes from the line of Philip Shen with ROTH Capital Partners. Please proceed with your question. Philip Shen – ROTH Capital Partners: Kevin, Brian, thank you for taking my questions. I’d like to start off with pricing. Our checks about a month ago suggested pricing had gone down to as low as $7 a pound for R-22. Can you tell us where pricing is now today and can you tell us about how much more downside risk you see if any?

Again, your channel checks generally are pretty good. I know we’ve talked about it on the past few calls. We would say right now the pricing is in that $7 to $8 range but certainly there has been pricing towards the $7 per pound number. We’re now entering that time of year as we historically recognize that you’re not selling refrigerants in Q4. Historically Q4 would represent at best about 10% of our total annual revenues and I think that would be true for most in the industry. So Q4 is not necessarily going to be much of a guide about pricing and so forth. Historically when you go from one season to another you’re typically absent the volatility that’s occurred over the past couple of years. Typically you would start to season out somewhere around where you ended the prior year. So it’s difficult to say what will happen in the future but at this point in time we’re not expecting to see much volatility or change in pricing between that $7 and $8 number. Philip Shen – ROTH Capital Partners: Okay, great. And so with that do you guys expect any more write downs? I’d imagine no given your answer just now as pricing probably won’t change much. So it sounds like we’ll probably have to wait until the beginning of the next season to see if the inventory either takes another hit or not.

Yeah, we’re required to take a look at inventory, take a look at it relative to past and future trends and as a result we’re required to make an estimate. And we’ve done all that this quarter. We hope we’ve done a good job at calculating that estimate. There’s no guarantees but we feel like we’ve done a very good job with the information at hand. Philip Shen – ROTH Capital Partners: Okay, great. Let’s move on to the EPA. During our checks a month ago some had indicated that the EPA had submitted its preliminary 2015 to 2019 allocations to OMB. Obviously you guys had, you talked about the EPA in your prepared remarks but I was wondering if you might be able to touch on this subject a bit more. What is the latest in terms of where the EPA is in their process? If they’ve submitted to the OMB is that where the ball is now or is it back in EPA’s court? I know the timing could be end of this year or early next year for I guess the rulemaking but any color on that process that you have would be helpful. Thanks.

It’s our understanding right now the rule is at OMB and it possibly does have a series of ranges in there. So nothing would happen obviously until it comes back from OMB. For us, we’ve been spending a good amount of time with a number of organizations down in Washington trying to make sure that our voices are heard and the facts are there. The biggest part for us was to actually back up and figure out what happened in the first place, why the EPA changed course in April. It certainly blindsided everyone, not just Hudson; it certainly wasn’t down the path they said they were going so we had to find out what happened first. I think we got a better idea of what may have happened and then going forward we’ve given every bit of information we can. We’re still continuing that. We expect what’s going to happen is somewhere near the end of this year, hopefully still this year or worst case early next year we’ll see a proposed rule come from the EPA. That proposed rule should be a good indication for the industry of how focused and how aggressive the EPA’s going to be in the rulemaking. So then it’ll go for public comment, and they’ll get the public comment and it’ll come back again; and the final rule will come out we believe by the end of next year – so certainly before 2015, otherwise they’d have to come out with more no action assurance letters again. So we don’t think that’s going to happen. But the proposed rule is a big deal. It doesn’t have to be the final rule for us. The proposed rule is going to indicate really where they want to take this. Are they going to be serious and drop this thing way down and let the industry and the world know that the US is back on track to cut back down to zero eventually – hopefully sooner than 2019. Philip Shen – ROTH Capital Partners: Okay, great. Thanks Kevin. And you mentioned something earlier, and that was you guys really spent a fair amount of time trying to figure out why the EPA changed course. In a nutshell can you explain to us what happened, why they changed course?

Well again, we’ll probably never get an exact answer from them. From our intelligence, from all of the intelligence we’ve gathered so far and looking at all the rest of the assumptions there’s a few factors at work. First of all the EPA lost a lawsuit to Arkema [insolve]. So when that comes into play they were going to get recoupment pounds, Arkema [insolve] and we knew that. So everyone knew that the EPA was going to have to give them make up pounds. It was assumed by the whole industry and certainly us that these pounds were going to be taken from the other allocation holders so that the overall size of the pie that the EPA kind of established in this step down would remain the same. It appears that by taking away pounds from a couple allocation holders to give to Arkema [insolve] as recoupment pounds could possibly open up the EPA to other lawsuits, so the overall pie was increased instead. So rather than take from Peter to pay Paul they just made the pie bigger and that made everyone happy they thought, except now what it did to the rest of the industry is it just fell apart and a million people got hurt from this. So it really was a defensive mechanism we believe. Again, this is what every bit of our intelligence gathering tells us. Now, we’re never going to get a straight answer that that’s exactly what happened but it sure looks like that’s what happened. Philip Shen – ROTH Capital Partners: Great. Let me jump in for one last one and then I’ll get back into the queue. In terms of the EPA, this cycle of the rulemaking and decision making, are they collecting inventory data this time around? Or what’s the situation on that score?

I mean just from an observation this particular process up to this rulemaking for the ’15 to ’19 period by the EPA, it seems different. We think the EPA is doing a very good job at one, reaching out to many of the stakeholders starting as early as I think April or May of this year, trying to gather comments and information from the industry about the [digi] model and other things that they utilized. Additionally the EPA has sent out letters to several different people, stakeholders in this industry to gather stockpile data and other information that they hadn’t previously in the other rulemaking. So the process that they’re using here seems to be more complete and certainly they’ve involved many stakeholders in this particular process prior to the rule going to OMB. So it does look a lot different than in the past. Philip Shen – ROTH Capital Partners: Great, thank you very much for taking my questions, Kevin, Brian, and I’ll jump back in queue.

Thank you. Our next question comes from the line of Greg Garner with Singular Research. Please proceed with your question. Greg Garner – Singular Research: Yeah, thank you for the questions, good afternoon. I just wanted to ask a little bit about the volume, it increased here somewhat. I’m looking through on the pricing data, if I just sort of look at my estimated pricing for last year it seems like R-22 pricing was down on a year-to-year basis about oh, 25% let’s say in the September data. And if revenues were about flat, actually up here year-over-year then it would imply that volumes were up about 20%. I know there’s some product mix issues in there. Can you provide any more clarity on that volume? Is that the right way to look at it, that the volume is actually that strong?

Yeah, the volume was very strong. As you said there’s a lot of different mixes to what we sell, there’s many different products we sell and for competitive reasons we don’t provide a lot of granularity to the pieces. But the way you view it in totality is reasonable. Absolutely we had a very, very strong Q3 in terms of volume. It was nearly a record. As Kevin mentioned we were able to obviously focus on the things we could control. We’ve got very good employees that serve our customers very well. We really tried to attack the opportunity once it came to us. When you look at Q2, unfortunately we lost 70 plus days in Q2 just because there was really no heat in most of the country. Once that heat started coming late June we really ran hard and fast to make the most of what was at that point a pretty much lost season, so I think we did a very good job as a company with regards to volumes this last quarter. Greg Garner – Singular Research: So was the volume would you say, I’m trying to get a sense of what’s driving the volumes – if it was weather-related or it seems there were a couple different industry things that could be happening. So I just wanted to ask about that, because you had mentioned about how the EPA changing course last spring, how it hurt the industry. It seems like it would have hurt the reclaimers and maybe you’re seeing some smaller reclaimers dropping out – I’m curious about that. And also on the virgin producers, any sense of what you’re seeing in the industry of any view on it, whether they’re even selling close to their allocations.

The second part of your question, it would be difficult to really impossible to know what the allocation holders are doing with their allocations. You would generally probably view the 17 allocation holders that don’t carry a lot of allocations possibly different than the top three, which have about 87% of the total. It’s likely that that group of 17 probably each and every year purchases and sells what’s available to them. Whether the larger ones actually do or not is difficult to say. The fact is in the EPA’s recent efforts the EPA is trying to gather stockpile data. We expect they’ll have that data and it’ll be part of the information they utilize to come up with the final rulemaking for ’15 and ’19 based on what they’ve said publicly to that effect. As it relates to any particular dynamics with regards to other competitors, suppliers in the industry, as Kevin mentioned many, many of us including Hudson suffered badly this year because of what happened. I wouldn’t necessarily characterize that people went out of business but probably many people’s business models and business plans suffered greatly in 2013. We just as a company, as an effort focused on doing what we can do and that is serving our customers, making sure that our customers know that we’re available to meet all of their needs and we worked very hard to execute in that fashion. Greg Garner – Singular Research: Okay, so the relationship with the distributors is what’s really seemed to carry you through this Q3 it appears. Any sense on was the weather exceptionally hotter in Q3 in the major cooling areas versus last year? I’m just trying to get a sense for how much weather inducement there was in the volume.

Really actually last year was a very warm year and last year we had a lot of warm weather sustained through September. I don’t know the exact number of cooling days exactly comparable to last year but they’re similar. What certainly would have benefited in Q3 though was that pent up demand if you will, by virtue of the fact that systems weren’t being turned on until very late in June. So certainly in Q3 we would have benefited from some shifting if you will of purchases that didn’t happen in Q2 because the systems weren’t turned on. But at the end of the day we really did a strong job on volumes.

We also had a little bit of a switch in buying patterns just because of the unknown and people not wanting to get stuck with inventory as it came down. So you got a little bit more of a just in time buying, so maybe less in Q2 got shifted over into Q3 just as a lot of smaller orders rather than bigger loads going early. And so that just in time model, again you do that when you’re obviously a little bit worried about buying too much inventory at any one time as the price looks like it might come down. Greg Garner – Singular Research: Okay, well it certainly seems you did a really good job on the volume side and yeah, I can see those influences coming into play. And just one last question: on the inventory side of things, based on the aberrations of this year versus what might be called a normal year, are you in a position now where you feel you need to buy less inventory relative to other years at this time or about the same? Or how might that be different?

Well again, it’s different for us right now. If you look at our pattern over the years, our buying patterns of inventory – we look at our customers’ needs, we look at our needs and the facts that are presented in front of us. And we’ve done a pretty good job I think year after year positioning ourselves for each year to have the volume we need to serve our customers. The difference right now is there’s too many unknowns. We wouldn’t be in a position right now to say we want to be for the first time ever a speculator of gas. And so for us buying now that would be more of a speculation because depending on what the EPA’s going to do and some other factors will tell us a lot of the facts that we really need to do a good job in purchasing inventory. So again, it’s the unknowns that we’re seeing right now that we didn’t see in previous years that would make us say we have to hold back until we get more facts. Greg Garner – Singular Research: Yeah, okay. Thanks for the clarity. Just one item on the EPA and I’ll move back into queue. It’s great to hear your involvement there and with other parts of the government that are influencing it. But just a quick question: does the EPA, is there a sense that they get what their change last spring did, how that was disruptive to increasing the reclamation which would essentially be in line with their long-term goals? I mean do they get it?

I would say when they first came out with the rule their reaction, at least the reaction we would be getting from them is maybe they didn’t totally understand that there was going to be such a negative impact on the market in many aspects of the market including most importantly for us reclamation. I don’t know that they got it then; we didn’t get the sense that they thought what they did was such a bad thing. I think now they think that. I think now they get it, we believe, we’re hoping they do. When we talk to them now, I feel right now, I’d say we feel aligned in the sense of where we should be going forward. They know we don’t really understand what would ever make them do what they did in April. I think, right now I think I feel pretty confident that they took it serious enough to get the data on the stockpile, things like that that we’ve been really actually after for years, since 2008 and even prior. What masks some of this data though unfortunately is that we’ll see a larger increase in R-410A shipments but that won’t distinguish between repair and replaced versus new construction. And all of the new construction will have R-410A units in there, so it’s difficult to make that assessment about the peak but it’s possible we’re somewhere near that level. Greg Garner – Singular Research: Okay. And last question: what’s your takeaway from the experience with the substitute gasses last year when the price of R-22 went up and probably competing gasses became more commonly used?

We didn’t actually in our prepared remarks make reference to the substitutes, although we did in Q2. In Q2 whether it had to do with a concern about supply or whether it had to do with the price of R-22 or some other factor such as a phenomenon-type factor there was a significant increase and a significant representation in the overall use and aftermarket demand for the substitutes. In Q3 that pretty much, we can’t say it went away but it went down substantially and we didn’t see the repeating buying of that, of those substitutes anywhere near the size we saw in Q2. Now, it is something that we’ll have to keep an eye on because it is something that could affect the long-term business model but it right now seems to be more an event of Q2 this year or this sales season and it didn’t really repeat itself in Q3.

I mean you have variables going on that are making a replacement gas come alive possibly in Q2. The one thing that’s overriding this as prices change, volumes change is the fact – and it is a fact and everyone understands that fact – is R-22 is the best gas they can use; the most efficient, the best capacity, the least amount of work for them or a contractor to use. Clearly everyone would just love to use R-22. So it’s not that someone’s putting something else that’s better than R-22 or even stating that it’s better than R-22 or as good. So you always have that going where a ton of the systems will need R-22 and the only reason you’d go that way is something drove you that way, like “I was worried there wasn’t going to be enough R-22,” or a price or something else. But so we saw that jump up in Q2 and we’re going to watch it closely to see what is the dynamic that makes that happen and why we didn’t see it so much in Q3. Greg Garner – Singular Research: Yeah, so it could have died off because the R-22 price came down or it could have died off because the substitute gasses weren’t performing as well.

And the substitute gasses all require some sort of additional work, and whether it be equipment manufacturers or others in the industry, even some of the producers say which is obviously the case that R-22 is the best solution for an R-22 system. Greg Garner – Singular Research: Right. Well I asked the guy who does my house and he told me he would never use a substitute gas on my equipment. [laughter]

That’s good to hear. Greg Garner – Singular Research: Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Walter Young with Thompson Davis. Please proceed with your question. Walter Young – Thompson Davis: Hi, I’ve got two questions. One is a repeat of that other question just to clarify, that the effect of the inventory write down did not have any effect on the loan covenants?

Well, we triggered or violated one of the loan covenants and that was called a fixed charge covenant, and what we did is with the amendment just last week we removed that covenant calculation temporarily and replaced it with a different covenant calculation. So we would expect that we’re not going to violate the covenant calculations going forward. Walter Young – Thompson Davis: Very good, indicating that your lenders are cooperating,

Absolutely. They recognize that it’s not the business model or our strategy, and certainly as indicated by the volumes this quarter it certainly is this one-time effect if you will of the significant price declines. And we need to obviously recognize it; we need to address it in our financial results, we need to address it in the relationship. But as I mentioned earlier we still end up with a significant amount of availability under our credit facility, so all said and done PNC’s a fantastic organization to work with. Walter Young – Thompson Davis: Very good. The second question is does the substitute gas go up and down with the price of the R-22. The replacement gas, would it follow it up and stay pretty close or does it stay really, really cheap the whole time? If the price of R-22 triples from here would the substitute gas still, could you buy it for $7 a pound?

That’s a very difficult question to answer and to try to prognosticate. We’ve seen the substitute gasses’ pricing thus far to be fairly constant. We haven’t seen them come down that much and we haven’t seen them go up that much. But what might happen in the future would be very difficult to say, but certainly it is as Kevin just mentioned something we’re definitely going to be keeping our eye on. As it related to the CFC phase out the substitutes really didn’t have a significant effect in the aftermarket demand, probably single digits but it’s something we want to keep an eye on as we move forward from this phase down to a phase out. Walter Young – Thompson Davis: Okay, thank you.

Thank you. (Operator instructions.) It appears there are no further questions at this time. I’d like to turn the floor back to management for any closing comments.

I’d like to thank our employees and our longtime shareholders for their continued support. Thank you everyone for participating in today’s conference call and we look forward to speaking with you after the year’s end. Thank you.

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.