Greetings, and welcome to the Hudson Technologies' Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Nesbett. Thank you Mr. Nesbett, you may begin.

Good afternoon, and welcome to our conference call to discuss Hudson Technologies' results for 2015 fourth 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 future growth strategies, and Brian will review the financials and immediately thereafter, we will take questions from our call participants. Let's take a short 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 the best view of the industry and our businesses 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 risks and uncertainties that affect our performance and other factors that could cause our actual results to differ materially. Okay. With that, I will now turn the call over to Kevin Zugibe. Go ahead, Kevin.

Good evening and thank you for joining us. I hope all of you had a chance to review our fourth quarter and year end 2015 earnings release issued this afternoon. We are very pleased to have achieved record revenues, solid gross margin performance and profitability for 2015. Our revenue growth for the year resulted from increased sales volumes of refrigerants and higher average R-22 pricing when compared to last year, as well as from contributions from our recent acquisitions. Our performance validates our long-term strategy that as the industry advances towards a final phase-out of R-22, can begin to adopt initiatives to phase-out next generation HFCs, Hudson should continue to see revenue growth and increased profitability. As many of you will remember, our fourth quarter is typically our weakest quarter, usually representing less than 10% of annual revenues as demand for refrigerants and servicing taper off following the refrigerant season. We saw decline in revenues in the fourth quarter of 2015 compared to last year's fourth quarter which is benefited from unusually strong pre-season refrigerants sales, driven primarily by the EPAs October 2014 final rule that provided a more aggressive step down approach for the phase-out of R-22 production. R-22, which is an HCFC, remains the most widely used refrigerants. And as we expected, we saw multiple price increases throughout the 2015 season with the price of R-22 rising more than $2.30 per pound in that period. While we are in the early stages of the 2016 sales season, currently we are seeing R-22 prices in excess of $11 per pound. As we detailed in previous call, as the phase-out of R-22 progresses, the industry is transitioning to HFCs as the primary replacement for CFCs and HCFCs. As a result, usage of HFCs is increasing at a double digit revenue…

Thank you, Kevin. Revenues for the fourth quarter decreased 9% to $7.3 million as compared to $8.1 million in the fourth quarter of 2014. Compared to the fourth quarter of 2014, we saw a decline in sales volumes of certain refrigerants, as well as the decline in service revenues. Gross margins while still somewhat lower than our historical margins, due largely to reduced margins on the HFC refrigerants sales did increase to 19% from the 2015 period as compared to 12% in the same quarter of last year. We believe the negative pressure on gross margins from the HFC refrigerants and services are temporary and not likely to have a similar drag on margins during the 2016 sales season. Operating expenses for the fourth quarter were $3.1 million compared to $2.9 million in the previous year quarter. The increase is primarily attributable to expenses associated with our acquisitions and payroll expenses. Net loss for the quarter was $1 million or loss of $0.03 per basic and fully diluted share compared to a net loss of $1.1 million or $0.03 basic and fully diluted share loss in the fourth quarter of 2014. Our balance sheet remains strong. As of December 31 2015, the company had $62 million in inventory, an increase from $37 million at December 31, 2014. The increase is primarily related to the increase in the cost to refrigerants, and preparation for the 2016 refrigerants selling season and to a lesser extent due to our acquisitions. At the end of the quarter we had 60 million of availability under our credit facility and approximately 38 million in working capital. I will now turn the call back over to Kevin.

We are very encouraged by the market dynamics we are seeing early in 2016 selling season. While we are successfully operating within the parameters of the R-22 phase-out, we are already seeing ground 12 support, that is generating significant momentum around the timely and efficient phase-out of the next generation HFCs. Heightened environmental concern is forging a clear path to additional phase-outs which will help drive the adoption of reclamation across all classes of refrigerants. We believe our proprietary technology, long standing industry relationships, improving distribution network, not only position us to meet the needs of our customers, but also gives us the ability to adapt ongoing transitions in our industry. Operator, we’ll now open the call to question.

[Operator Instructions] Our first question comes from the line of Steve Dyer of Craig-Hallum. Please proceed with your question.

Thank you. Good afternoon. Our check would suggest that inventory of R-22 is fairly low particularly as compared to more recent years. How do you think about the pricing? I know you are seeing, sort of $11plus at the moment, but given the supply demand characteristics you are seeing, where do you think that can go this summer?

I think we are seeing the same thing you see and it seems tightening out there on availability. Prices having no problem by drifting up which we expected they would and they get it through last year. We expect from what we could see, again – the season hasn't started yet from what we see. We can imagine it's drifting upwards - going upwards the same kind of – what it did in 2015 but hopefully even more. So, we don’t think it will be a monster jump in anyone time but that small increase, small increase, small increase that you’ll see every month, every two months throughout the season should - we said it $2.50 increase last year, we think that or hopefully better this year.

Okay, that's helpful. And what would you anticipate that’s going to do to your reclamation business. I mean obviously help it, but any further color you can give there?

Again, it’s hard to say. We saw certain growth obviously we're happy last year. Any increased price, we think will helps. What we think equally, the reason is coming up is it's becoming obvious to people as a shortage or there will be a shortage for sure. As that becomes more apparent to them, I think that will make people bring more dirty gas back to it. It's actually not just the price. It's some are still out there thinking there won't be a shortage. And this is actually becoming a little more glaring to the rest to them I think. They will start being a little more careful with [indiscernible] gas and that was always the hope. Its what's the reason - they do ask, some people out there right now, some still think there won't be a shortage which is surprising to us but once it becomes a little more clear, not just the price, but the price is following the availability.

Got it. And then one last follow up. Big jump in inventory this quarter, is that you guys stockpiling R-22 or is there something else that's playing there?

No. We don't ever in our opinion go long on inventory. We certainly do try to buy inventory particularly in third and fourth quarter. We certainly try to do it from an opportunistic point of view. At some level from comparability, it's a little misleading only because the acquisitions - not all the acquisitions were there and all the inventory at December 31, 2014. Also keep in mind as you all know that the price of 22 increased during last year, which meant the price of inventory would have to increase as well. But it's a combination of all these things, but typically we go into a refrigerant sale season and typically our inventory turns following that. Our 1.2, 1.5, 1.8 turns, we would expect in 2016 there will be something like that again.

Okay, thank you.

Our next question comes from the line of Gerry Sweeney of ROTH Capital. Please proceed with your question.

Hi guys, thank you for taking my call. A little bit of clarity I think in the script you mentioned you saw 30% increase in reclaim? Can you - is that 30% in R-22? Is that your off the base counts, just want to get a little bit more clarity on that.

The 30% is R-22, but in the way across the board we saw the same types of increases, but certainly R-22 30%. Also that's organic. It's not taken to account on the acquisitions, obviously with the acquisitions, the numbers are higher even. But it was a very good year for reclaim in growth and reclaim particularly compared to the last couple of years.

Okay. I was thinking to the next question. Is that you taking market share or do you think that's more and more reclaim activity occurring?

It's difficult to answer that question, because we don't have a baseline and EPS data is not available yet. We think we have strategies that do allow us to grow market share, but we also saw greater interest in activity in reclaim not -- of course not the entire spectrum. As Kevin said, there are still people out there that are not necessarily in the game as much as we think they will be in this year. So we are expecting more growth this year. But it could be a combination of both gains and share and certainly just overall increases in reclaim activities but it’s hard to say at this moment.

Okay. And I know if you wanted - one follow up. This question has to do with just market share as well. Can you give us some idea of what Hudson is doing today to increase market share? I think in the past you talked about some kind of systems to collect it at different drop off point et cetera. But any strategy, strategic initiatives to capture share anything like that that's on the board?

Our strategies really have been consistent, it certainly changes and tweaks overall. But consistent and trying to work within the natural distribution chain and for Hudson Technology to support the wholesaler network out there throughout the United States, we still feel and always have felt that that's where the focal point of the terms would come from, that's where the growth in reclamation opportunities will come from. And if we strengthened our relationships with the wholesalers, we'll strengthen an increase ability to grow reclamation. So from a strategic point of view, there is no particular overall changes to it. We just felt that that strategy allowed us to continue to grow and hopefully grow market share as well.

Thanks guys, I really appreciate it.

Our next question comes from the line of David Mandell of William Blair. Please proceed with your question.

Earlier this year, I believe the government made a ruling regarding HFC dumping. Can you kind of discuss the ruling and any possible implications?

So there was a recent affirmative finding just actually in January. But to the ultimate process probably won't conclude until July this year. It's a legal process, it's more on those different gates or stages in this. This is now the second affirmative finding in this process. We obviously feel good about the process thus far, but until we get to that final ruling, anything could happen. But we are happy what we see. Prices on HFC affirming, prices are higher today than they – let’s say the bottom of last year. It's hard to visually see where we are going to go and certainly to the extent that the final verdict is positive. That will be absolutely - more permanently positive for HFCs for the foreseeable future, but right now we feel good about the situation and feel good about our ability to make some money in HFC component of refrigerant sale.

Okay. And then staying on HFC's, both on the press release and on the call you dedicated a decent amount of time to talking about the eventual reclamation opportunity with HFC's. How far out is the timeline for that right now?

Well, there is possibly two opportunities. Certainly regulatory driven and the timeline for that is a number of years. Is it two years, is it three years? It's difficult to say. The appearance globally is that there is a lot of momentum to move forward and move forward quickly, but again it's a process. However, we feel that there is an opportunity not necessarily regulatory driven, but driven by corporate mandates. And people beginning to understand the environmental benefit of the use of reclaim refrigerant versus the use of virgin refrigerants. And we think that may gain some attraction sooner than the regulatory paths right now.

In addition to that, one of the facts with the anti-dumping all of it as prices come up on HFCs, obviously than from an economic point of view, it's definitely more viable to do reclamation to make it affordable for the contractor so to get it to us. And so it's the exact same distribution chain, it's the exact same guy who is bringing us 22 today, can bring us HFCs. We just have to make it economics viable for them to do that. So all of these come together so if it's the regulatory or is it the anti-dumping, is it the pricing coming up, hard to say, but we think the pricing will have a big effect. So we'll be doing a lot more reclamations.

Thank you for taking my questions.

[Operator Instructions] Our next question comes from the line of Craig Hoagland of Anderson Hoagland & Company. Please proceed with your question.

Thank you. Could you say a little bit about how you try to size up the HFC opportunity? How many times per year that market is or how many machines are installed based or how you think about that?

Well, at one point just on the 22, which probably at that point it had about a 70% market share, there was approximately $100 million units out there. There eventually be at least $100 million HFC units out there if not more and likely more than that. As new installations and new construction grow then that overall size can grow. So at some point on top of that, the areas of market that isn't going through are being affected as much of the 22 phase-out is that large commercial industrial, and that's close to 30%. So when an HFC phase-out, you would end up with 100% of the market being phased out as opposed to, let's say currently about 65%. So it will be a larger opportunities than the R-22 opportunities today.

In fact if you look at it respective – when you look at the CFC phase-out part, those things went from CFCs to HFCs directly. Most of those went straight to HFCs. 22 was sitting off to the side as Brian said, a bigger piece of the market but - everything else that are out there for R-12 CFC-based R-HFCs. Now here comes HCFCs meaning 22 are going to HFC. Now if you look at it, there were two distinct phase-outs that are made to go the entire market toward HFC. So yes, it's a lot more volume of HFCs comparatively to either the CFC or the HFC results.

Okay. And going back to R-22, is there a price that what's you think substitute gasses become more economic or is that really driven by the application that needs a refill and some of those applications are going to require 22 in the substitutes just won't work.

Well, there is clearly both of that. There is definitely a lot of applications that will stay 22, that's for sure. Others might come in because of price differential which we did see in 2013 and then they kind of went away again, it's quite that high enough for you to expect a piece of the market will do that. Again, another benefit of the anti-dumping and HFC price is coming us most of the drop in have HFCs. So their prices are going to go up. So we thought right from the beginning, we thought HFC price come up, we said good, that will raise the price on any kind of dropping. So there is a combination of things that could happen. We don't know what price we would have to get to, but clearly a big part of market is going to – I don’t know what price it is only reduced to 22. And we would see some people go through it. We are not worried about the drop in at this point as much, just pricing is going to come up, because there is not much availability. And we know clearly our customer base we feel comfortable to be able to move the volume that we will move – that we plan to move this year.

Okay. Thank you, gentlemen.

Our next question comes from the line of Tim Johnson of Bard Associates Inc. Please proceed with your question.

Question on the inventories. How are they valued and what would you estimate is the market value of current prices?

Our inventories always on a historical cost basis. So we get the benefit of price increases and we would have been buying inventory throughout the period but more focused on the third and fourth quarter. As either myself or Kevin mentioned, we have already seen increases probably at this point on a comparable basis, we are about dollar/pound higher already and we are just in the beginning of the season compared to where we were at the end of year so that we'll be built in, in some sort of positive benefit for us.

Can you estimate the value?

We don't break although disclosure out and so forth, but we would get that value and that would begin to turn as we turn the inventory. So it could turn at a higher number or even further price increases or it could remain just competitive of what the market price will be.

And the price up substantially since December 31?

It's up about a $1 or £1. And we - and as Kevin said and possibly I said the same thing, we are expecting to see further price increases and we believe the price will go up more than it did last year and last year it went up about $2.50 throughout the season.

Thank you.

Our next question comes from the line of Gerry Sweeney of ROTH Capital. Please proceed with your question.

Hi guys. Just one question and Kevin I know you mentioned that not everybody out there in the refrigerant world believe there's going to be a inventory crunch on R-22 per say, but what is the tone out there? Are you getting more inbound calls, are you asking – do you have availability? I mean it sounds like with the EPA mandate it's cut and virgin production, there is even my checks had some people raising the question of inventory being hit this year. I would imagine there are some people starting to say, hey, we better make sure we have access to it. Are you seeing any of that?

We are definitely seeing that. In fact that's the reason I said it's surprising some people didn't think it was going to be a shortage and whatever else, because they are just starting to get interested. We bought people on board, even wholesalers. The wholesalers selling gas for 30 years and they didn't have a reclamation program until last year. And so as we talk to more, we know more out there, we are trying to convince them that - the only way you're going to get 22 is from someone like us and that's one of the benefits when we talked before about marketing strategy, things would change over the year for us, that availability of our 22 supply because the producers won't have it going forward. That's a good care for them to get them into this game. So as we talked to reclaimers, they are starting - to distributors and wholesalers, they are starting to believe for the first time, hey, I need access to it unless I have a reclamation program and offer to the customers, I won't. That's why they are knocking on the door and that's when it becomes clear to us that they didn't really have a viable program. That's just been surprising. And there is many out there. So there is still a lot of guys out there that are just seeing a light and we do expect to bring them in.

Okay. You haven't disclosed how many distributors that you are working with on a reclaim business? Is it - are you up 10% a year, 20%?

We don't disclose that, but back to let's say our market share we believe you read that approximately 25%. Again, we don't have EPA numbers to check that. So you could extrapolate that we have 25% of that overall opportunity.

I appreciate it Brian. That's it for me.

Our next question comes from the line of Shawn Boyd of Next Mark Capital. Please proceed with your question.

Just a couple of quick ones. Kevin, if you don't mind, with the prices being where they are R-22 and moving up a little bit faster, slightly faster rate this year. Reclamation should start to begin to greater degree. So volume growth in 2016, I assume that should be higher than 2015? Is that the right way to look at this?

We think so, yes. I believe we may have touched upon a bit, possibly not. We think there is going to be higher growth this year whether it actually does or doesn't. It's hard to say. It's way too early in season, the returns don't happen until begin let's say May. But we also think '17 is going to be higher, because we think again the real acceleration and reclamation will happen as we start to move away from or deplete the stock piles that clear out there, which we think is going to happen again this year.

Got it. I know in general you are targeting over 10% volume growth per year, you always seem to be doing something significantly greater than that and that just need backing into rough numbers, is that correct?

On overall basis in '15, we probably only ended up around 12%, may be 13% volume growth, which does sound lower than you might have thought and the only reason is that - as low as that was because the fourth quarter '14 was significantly higher than any other period. And so on a 12-month-to-12-month basis, the percentage came down probably closer to 12% or 13% versus we are probably a much higher in upper teens before that fourth quarter. So it's really - the comparison is off a little bit.

Yes. So normalize in high teens. Okay. And then last thing from me. On the operating expenses, I understand acquisitions term up little bit. So at this $3.1 million for the quarter, is that the kind of number to think about as we go into 2016? Higher or lower, anything you can help us with there would be great.

Probably it could be a little bit lower as the baseline, but not significantly. So I don't think it's going to throw you up using that. Another way to look at it - if you look at the 12-month period now, we've got baked in all of the acquisitions. So that's really a good baseline when you are comparing '14 to '15, you got apples and oranges between the time of the acquisitions and so forth. So $3.1 million, $3 million probably in that range.

Got it. Great. Thanks Brian.

There are no further questions in audio portion of the conference at this time. I'd now like to turn the conference back over to management for closing remarks.