Hudson Technologies, Inc. (HDSN) Q2 2017 Earnings Report, Transcript and Summary

Greetings and welcome to Hudson’s Conference Call to Discuss their Definite Agreement to Acquire Airgas-Refrigerants as well as their Second Quarter Results. 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’d now like to turn the conference over to your host, John Nesbett of IMS. Thank you, Mr. Nesbett. You may begin.

Good afternoon. On the call today, we have Kevin Zugibe, Hudson’s Chairman and Chief Executive Officer; and Brian Coleman, President and Chief Operating Officer of Hudson. This afternoon after the market close, Hudson announced both a definitive agreement to acquire Airgas-Refrigerants, as well as its second quarter financial results. Of the call this afternoon, management will review its second quarter results and then will provide an overview of its proposed acquisition of Airgas-Refrigerants. Finally, we will then open the call up for questions. Importantly, there is a slide presentation, which will only accompany the acquisition discussion. This slide presentation can be accessed on the Investor Relations section of the company website. Please go to www.hudsontech.com, click on the Investor Relations tab in the upper right-hand corner and select the Events & Presentations tab, which is the fourth in the dropdown menu. When you reach the Events & Presentations page, you’ll see the slide deck on the right-hand side of the page, it’s on the top right side of the page. As a backup, you can also access the deck through the web link, which is available for the call. This is a user control deck, so viewers will be responsible for advancing the slides and management will prompt you, as they advance through the deck. Okay. I’ll now 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 the 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 other factors that could cause our actual results to differ materially. Okay. With that, I’d now like to turn the call over to Kevin. Go ahead, Kevin.

Good afternoon, and thank you for joining us. We had a few very exciting announcement after the close today. First, Brian will briefly review the second quarter results, and then we will provide you an overview of our definitive agreement to acquire Airgas-Refrigerants, which we also announced after the close today. First, let me review the quarter. Our second quarter was particularly strong, reflecting record revenues and revenue growth, improved gross margin and significantly increased profitability. The second quarter represents the midpoint of our nine-month selling season and we benefited from increased sales volume and higher average pricing for R-22 refrigerants, as well as what was a temporary spike in pricing of HFC refrigerants. While we’re very pleased to have delivered very strong second quarter results, particularly related to HFC pricing, since the close of the second quarter, we have seen a moderation in both volume and pricing for all refrigerants. We have seen R-22 pricing decrease – seen R-22 prices decrease to roughly $18 per pound. In addition, as we predicted, the spike in HFC pricing that we saw in the second quarter is retracting, as the supply and balance from Chinese producers beginning to subside. As we have said for several years, these ebbs and flows in pricing and volume during the cooling season are not unusual, which is frankly why we emphasize and encourage everyone to think of our business effectively over the nine-month – none months ended September as opposed to a quarter-to-quarter comparison. The R-22 refrigerant sale season has taken a different trajectory than the HFC market. In the first quarter of 20177, producers aggressively raised their pricing in R-22, and one producer got out ahead of others and aggressively sold the product in the first quarter, that would otherwise have been available for sale later in the season. This advance selling activity created excess supply in the marketplace. In addition, we had a cool May and early June in the North and Northeast, an area which typically drives a significant amount of seasonal R-22 demand. With the cool temperatures, we saw a slower start to the cooling season. These factors coupled with a slight rise in demand for substitutes, particularly in the second quarter created the recent pricing pressure on R-22 that we anticipate will likely to last through remainder of the 2017 cooling season. We believe all of these conditions are temporary and that their reflects will be concentrated to the latter part of the selling season. Regarding HFCs, around the time of our first quarter 2017 call, we were beginning to see signs of global market disruptions and predicted that we may see volatility in HFC pricing for the cooling season. As it turned out, there was a severe, although temporary supply in demand and balance. This disruption is beginning to subside. And we believe that by the end of the third quarter 2017, HFC pricing will return to a levels similar to that at the beginning of the year. Consequently, we will likely encounter gross margin headwinds from R-22 and HFCs during the third quarter of 2017 when compared to the exceptional margin performance in the first-half of 2017 and the third quarter of 2016. On a long-term basis, we remain encouraged by the opportunities that R-22 will provide for many years to come. And also by the understanding that as the industry transitions away from R-22, the role of next-generation refrigerants HFCs will steadily increase as nearly all new equipment, including the equipment that’s replacing R-22 units runs on HFCs. These HFCs have also been identified for phase down beginning in 2019, and we believe this phase now represents a significant long-term opportunity for Hudson. As with their larger installed base, we anticipate that the HFC reclamation opportunity has the potential to be larger than the current R-22 opportunity. We’re very pleased to have built on the momentum of our strong first quarter performance to deliver record growth and profitability in the second quarter of 2017. With that, I’ll hand it over to Brian to provide our detailed financial results.

Thank you, Kevin. Revenues for the second quarter increased by 51% to $52.2 million, as compared to $34.6 million in the second quarter of 2016. The revenue increase was primarily driven by an increase in both volume and price of certain refrigerants. Gross margins for the quarter were 33%, as compared to 30% in the same quarter last year. Operating expenses for the quarter increased to $3.5 million, compared to $2.3 million in the previous year quarter. The increase in operating expenses is primarily due to $800,000 of non-recurring operating expenses related to corporate development initiatives. Net income for the quarter was $8.5 million, or $0.21 per basic and $0.20 per diluted share, compared to net income of $4.8 million, or $0.15 per basic and $0.14 per diluted share in the second quarter of 2016. Our balance sheet remains strong. Our cash balance was $33.7 million as of June 30, 2017, primarily due to the capital raise that we completed in December of 2016. This capital provided us with a solid platform to evaluate and execute M&A opportunities, such as the one we’re about to discuss. Additionally, as of June 30, 2017, the company had $64.6 million in inventory, compared to $68.6 million at December 31, 2016. Moreover, at the end of the first quarter, we had approximately $113 million in working capital. I will now turn the call back over to Kevin.

Okay. Thank you, Brian. I would like to shift gears and share some exciting news with you about our definitive agreement to acquire Airgas-Refrigerants. As a reminder, there is a slide deck that will accompany our discussion of the acquisition. This slide deck can be accessed on the Investor Relations section of the company website at hudsontech.com under the Events & Presentations tab. Let me start by saying, we’re very pleased to announce our agreement to acquire Airgas-Refrigerants, or ARI, which we believe represents a major milestone for our company. The addition of Airgas-Refrigerants is expected to double the size of our business, provide a complimentary product portfolio, significantly grow our customer base and enhanced our sales and distribution capabilities. Before I jump into the details of the announcement, as a reminder, the transaction is not yet closed and is subject to an antitrust review and the customary closing conditions. So I’m – as I’m sure, you can expect these limits, the extent of our information we can provide at this time. That being said, we look forward to providing more specifics after the transaction closes, which we expect to be later in 2017. So please refer to Slide 1 for the Safe Harbor statement. Slide 2 take us through some of the specifics of the acquisitions. Brian will take us through the additional financial details later in the call, but in short, we’re acquiring Airgas-Refrigerants for $220 million subject to closing and post-closing adjustments, and we expect to finance the deal with a combination of balance sheet cash and new debt. We won’t issue additional equity for this transaction. Airgas-Refrigerants, a subsidiary of Airgas Inc., an Air Liquide company is a refrigerant distributor and EPA certified reclaimer in the U.S. Sourcing, reclaiming refrigerants for sales to a variety of end users, which is complimentary to our business. They are a well respected company with an excellent management team. They have a long history in the refrigerant industry, and we’re excited to have this opportunity to combine our operations, which provides the unique opportunity to scale our business. In March 31, 2017, trailing 12-month pro forma revenue, the combined business is approximately $250 million. The transaction is expected to be accretive to earnings beginning one year following the close of the transaction. As I mentioned, we anticipate the transaction will close in 2017. As with most deals of this size, the transaction is subject to waiting periods under the HSR Antitrust Improvements Act and customary closing conditions. Slide 3 depicts how complimentary these two businesses are. Airgas-Refrigerants is a part of Airgas, which is a public company until it was acquired by Air Liquide in 2016. The acquisition of ARI announced today since we doubled the size of our business, while strengthening our product and service offerings, expanding our geographic reach in the U.S. and providing a significantly enhanced management team and employee base. While there are a lot of complementary elements of the two businesses, the one element that ARI does not have is energy services component, which we see is an upside for the combined businesses. Slide 4 highlights the strategic benefits of the combined – the combination of Hudson Technologies and Airgas-Refrigerants. Specifically, this acquisition is expected to strengthen our current operations by providing the following benefits. ARI’s large customer base for HFCs positions Hudson to better serve an expanded customer base during the future phase down of HFCs. Expanded customer network increases access to refrigerants and strengthens distribution capabilities, anticipated cross-selling of Hudson services to ARI’s existing customer base, increased processing capacity to support the anticipated growth in reclamation, volume from the ongoing phase-out of HCFC production and expected future phase-outs, enhanced geographic footprint in the U.S. and strategic purchase of valuable refrigerant inventory will more than double Hudson’s existing inventory balance. On Slide 5, we take you through the evolution of our industry to help highlight why this acquisition positions us so favorably for long-term growth. As we’ve often discussed, the going phase-out of HCFC refrigerants and the expected future phase-out HFC refrigerants represents a tremendous growth opportunity for Hudson. Hudson has experience in managing the shift from one class of gas to the next, the current phase-out of HCFCs is similar to what happened with chlorofluorocarbons, or CFCs, and what is expected to happen with HFCs. We believe the combined company will be better positioned to serve customers during the ongoing phase-out of HCFCs and positions us to serve an expanded customer base during the future phase-down of HFCs. In the near-term, we expect to benefit from ARI’s higher volume of HFC sales, as the industry shifts from R-22 to HFCs. Currently, Hudson is seeing increased HFC sale activity and ARI has strong HFC business. With the continued evolution of our industry, we believe this acquisition provides increased access to legacy, as well as next-generation gases and expense and diversifies our product offerings, our application capabilities and our customer base. By combining with ARI, we’re positioning our business for continued growth and profitability as the industry transitions to new technologies and gases. Slide 6 provides a snapshot of what Hudson’s new expanded operations will look like. To the left, you can see the map depicting extended geographic coverage of the combined operations. At close, the customer base of the combined company would grow to more than 7,000 and we’ll have more than 2 million pounds of additional reclamation processing capacity. We’ll also increase our employee count with the addition of ARI’s experienced leadership team, as well as the seasoned base of sales and operational employees. This acquisition also gives us access to a new and significantly larger audience for our global energy service offerings, which are a growing focus of our business, providing optimization solutions, engineering assessments and energy management tools to a growing population of companies, and government entities seeking to maximize their energy efficiency and sustainability initiatives. It’s a very exciting development for our company, one that we expect will significantly enhance our capabilities and portfolio of solutions, allowing us to accelerate our ability to serve the needs of our growing customer base. Now, I’ll turn the call over to Brian to discuss the financial details of this acquisition.

Turning to Slide 7, as Kevin has outlined, this is a strategically significant acquisition for Hudson, one, which we’ve been pursuing for some time and we’re very excited to discuss the financial benefits. On a trailing basis, the combined revenue of the company is approximately $250 million. As Kevin mentioned earlier, because the deal is not closed, we’re limited on the amount of specifics we can provide about ARI’s financials. That said, the combined business has an attractive margin profile with a consolidated pro forma gross margin consistent with our 30% target, and consolidated operating margins expected to meet our current 20%-plus performance. So the combined entities positioned to drive considerable long-term earnings for our shareholders. We expect this transaction to be accretive to earnings beginning one-year following the close of the transaction, solely due to the requirements of purchase price allocation that I will describe in a moment. Upon closing, we will be required to allocate the purchase price among the assets acquired. Since inventory is a key component to the valuation of their business, we will have to adjust upwards the ARI cost basis of that inventory. The resulting step-up of their inventory cost will represent the current fair market value of the inventory. As a result, this step-up will have downward pressure on future gross margins, primarily in 2018, as we sell their acquired inventory. Consequently, the purchased ARI inventory will have a higher cost basis to our own inventory, which is why this effect is most likely isolated to 2018. Ultimately, this transaction supports an overall investment thesis of purchasing less intangible assets versus liquid assets such as inventory. Once the purchase price accounting adjustments examination has been completed by our independent auditors, we expect that the corresponding intangibles, including goodwill will be approximately 25% of the total purchase price. The acquisition price is $220 million is subject to post-closing adjustments. The acquisition will be financed in part with an enhanced asset-based lending facility of $150 million from P&C Bank and its new term loan of approximately $95 million, with GSL Capital Partners L.P., a member of the Blackstone Group. No additional Hudson equity will be issued to finance this transaction. Post-transaction, our total leverage ratio will be approximately three times pro forma adjusted trailing month EBITDA. Given our strong profitable – given our strong profitability and expected growth going forward, this is reasonable leverage ratio. Hudson’s acquisition of ARI has been improved unanimously by Hudson’s Board and we expect the deal to close in 2017 subject to HSR approval and customary closing conditions. I will now turn the call back over to Kevin.

Okay. Turning in conclusion to Slide 8, our agreement to acquire ARI is an exciting and transformative development for our company. We look forward to welcoming ARI’s employees to the Hudson family upon closing and deleveraging our strength and capabilities, expertise and reach to serve our existing and new customers with expanded portfolio of products and comprehensive refrigerant services and represents another stepping stone to our long-term growth prospects. We anticipate that this transaction will close later in 2017. Until the deal closes, Hudson and ARI will continue to operate as two independent companies. With our expertise, longstanding relationships and leadership role in our industry and those at ARI, we believe the ongoing phase-out of R-22 and future phase-down in next-generation HFCs continue to represent a significant growth opportunity for our company. We believe we are uniquely positioned to help our customers navigate the evolving industry, which continues to introduce next-generation climate and ozone-friendly technologies in refrigerant and to capitalize on the large opportunity in front of us. We thank our existing employees and shareholders for their support and look forward to welcoming our new ARI colleagues to the Hudson family. Operator, we’ll now open the call to questions.

Thank you. Ladies and gentlemen, we’ll now be conducting a question-and-answer session [Operator Instructions] Our first question comes from the line of Steve Dyer with Craig Hallum Please proceed with your question.

Guys, congratulations on the quarter and the acquisition, well done.

Thanks.

Thanks, Steve.

I guess I’ll start first as it relates to the quarter, it seem like sort of a perfect scenario with HCFC and HFC price increases pretty rapidly. You talked about a little bit of margin headwind in the back-half of the year has also – have leveled off. To what sort of magnitude are you should we look at? Are we kind of down in that mid-20s range, lower, just ballpark as to how to think about that?

So in the second quarter we achieved even higher margins, a lot of that though came obviously from the situation with regards to HFCs. We had entered this year suggesting margins would be in that say 28% to 30% range. We’re probably now down to that bottom end of that range based on what’s happening with the balance of the season. All of these are really affecting the downward pricing of 22. And then now the significant downward pricing on the HFCs, because it was a really big rollercoaster up and now the rollercoaster is coming down are really going to have a combined negative effect in the third quarter. But it shouldn’t be taking us down to something below historical levels.

Got it, thanks Brian, that’s helpful. You talked a little bit about substitutes, which is something we started to kind of here late in the quarter, particularly as it relates to residential. How much if any sort of a threat do you feel like that is to sort of the reclamation thesis or the reclamation story kind of from here to 2019? Are there any sort of structural reasons why that won’t be a big deal or how do you think about that that’s not something that I sort of recall when R-12 was being phased out?

So back to just the last part of that, the R-12. There probably always was little blips here and there, but we’ve always said the substitute with the old CFC phase out were single-digits. As it relates to the movement upward, it is slight really with regard to substitutes this year. Not as severe or as great as we saw in that second quarter of 2013. So it’s a slight blip up relative to where it might have been last season. It’s probably a little bit above single-digits mean like 10% to 15% as opposed to I think in 2013 it could have peaked as much as 20% of in that quarter. So it’s a slight bump up possibly was related to some of the sticker shock this season with the big increases early in the quarter, early in the season in the first quarter. But it doesn’t look like it’s sustaining into the third quarter now. So we’ll keep – continue to keep our eye on it and report on it.

Okay, great and then just a couple quickly on the acquisition and then I’ll turn it over to somebody else. I guess the two that I would anticipate in HSR risk, I would think not, but I don’t know if your people are telling me anything different. And then just [Audio Dip] purchase accounting…?

Steve, you are kind of breaking up, we can’t quite hear the question, sorry.

Yes, you got muted out there.

Is this better?

Yes.

So, I guess just basically any HSR risk, Hart-Scott-Rodino in your view to the acquisition in the back-half of the year. And then just excluding the purchase accounting, would you expect it would be accretive right away, is that just kind of the only gating factor?

Well, we on the HSR, as far as we’re right now, we don’t know of any, we don’t expect. Again, it’s a process and from what we understand from anti-trust attorneys, that nothing is glaring right now. So we expect we’re not going to have a problem. So you can’t guarantee anything until that closes obviously.

And then to the accretive question. That’s – you’re correct, that’s why we feel with the 12 months as we work out the inventory and we’ll have, let’s say, more normal purchasing in gross margin. We’ll have this temporary unusual situation relative to how we have to allocate the purchase price that would affect the gross margin and then ultimately the positive impact on earnings per share.

Got it, okay I’ll jump back in the queue, thank you.

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

Hey, good afternoon Brian and Kevin.

Hey Gerry.

Congratulations on the acquisition. I’m going to start with acquisitions; one, I want to talk about maybe some of the assets or some of the benefits you are getting from it? And curious to how much reclaim activity ARI has and if and also how they go to market, because increasingly claim is one of the key components, especially going forward into the next couple of years. So, I want to see, one, how much they do? And two, do they have a different way of going to market and getting gas than you do?

First of all, and it’s a difficult time right now in this period before we close. Obviously we’re limited on how much of that we can talk about, and so again we’re going to have to avoid –

I respect that, I mean whatever, I understand.

I mean the one thing that I think we had said in the presentation is, we feel that these two businesses are complementary and that would also, I mean, in terms of customer base will be complementary to each other, but we are very limited as to how much we could describe currently.

Okay, so I mean, even on the particular assets, not anything on the financial side?

Sorry, the question is about asset, say that again?

I want to see what my next question was, I was just curious on the HFC side if they have the ability to do blinding and different technologies like that, I mean, HFCs which would give you a benefit, I’m not sure if you can talk about some of the specific assets that they have or abilities, can you comment on that?

Again, so if you look at, one of the things we like about their company is, they all come at different strengths for different areas with those technology on one of our ends to distribution and so very similar, but definitely some differences. One difference that we like is, they are ahead of us when it comes to HFCs on the sales, so we like that. So if you look at the two businesses, you might say very, very similar, but those differences can be significant as we go down years from now where it will be – the whole market will be HFC. So they got a good jump, we already were doing very well and we like where they are going, so the two together work very well, so anyone of these subjects that you could pick in blending to whatever yet is very similar companies.

Okay, I’m going try one more and that’s again if you can answer, I completely understand, but does this change your SG&A structure on a go forward basis? You give an idea of the revenue they do and you kind of give a general ballpark in terms of margins, but curious as maybe if it changes Hudson’s SG&A structure on a go forward basis, in terms of people etcetera?

Again, they might have been on slide, but there is a similar number of headcount in both organizations. There’s a lot of similarities in just overall size. We have this anomaly with regards to the allocation of the purchase price relative to inventory, but their ability to provide strong operating margins in that – you know in ranges similar to what we’ve seen. It makes a lot of sense since the businesses are similar, but again we have to be careful about how much we could disclose at this point in time. There is a lot of similarity.

Okay, I just – I apologize, just trying to pry a little bit. And then again, one just follow-up on the purchase price accounting, the way – correct me if I’m wrong, the way we look at this, once you purchase your inventory, purchase accounting makes you value that inventory, I suspect at today’s value which will essentially raise the value of that inventory than essentially when you are selling that, so there’s less of a difference between – it increases your cost of goods sold at least on paper from that perspective, is that the way to look at it and hence the lack of accretion in the first year?

That’s correct; exactly that’s how it works.

Alright, again congratulations, I’ll jump back in line, thank you.

[Operator Instructions] Our next question comes from the line of Sarkis Sherbetchyan with B. Riley. Please proceed with your question.

Hey guys, this is Aman jumping in for Sarkis for now. Firstly, congratulations on the great quarter and the acquisition. So, I guess my first question, I want to touch on the acquisition a bit later, but firstly, can you talk about your expected economics from the DOA contracts? What sort of run rate revenue do you expect from that contract for the rest of the year?

Well, again it’s – we just got started in really weeks. So it just started and we’ll have better information over really the next couple months, so we’ll really give you an update when we announce our third, right now just – honestly within the last two weeks forward.

Okay sure. And then when it comes to the acquisition, are you able to provide sales multiples or EBITDA multiples?

We have to basically stay away from any discussion about the – their particular financial results and performance and we have to respect that. So, we’re avoiding anything other than discussing combined or consolidated revenues.

Okay, yes, it makes sense. Okay, and then yes, I’ll jump back in queue, thanks for everything. Thank you.

Right, thank you.

Thank you. Our next question comes from the line of Steve Dyer, Craig Hallum. Please proceed with your question.

Thank you, just a couple quick follow-ups. As it relates to the DoD contract, I think you had suggested last quarter that it would start late July timeframe, are we on track for that as planned?

Yes, it just kicked in. This has only been a couple weeks, that’s why, so we’re just getting our feet wetting it right now. Things are going as we planned, but we’ll have more facts as we go along since it’s new to us. We planned for a while for this, so I think we have the right horses for this. I think we feel comfortable and confident in this, but we don’t have any facts yet about volumes where this goes, we just got going. So, I’m pretty excited about it, but we’ll share with you after the third quarter.

Great, and then just last question, I’m trying to kind of make heads or tails or something that’s in the 8-K it talks about a seller purchasing at a price of $21 a pound, the greater of inventory, I don’t know if you know what I’m talking about there, but could you clarify sort of what all that means?

In the document there is several different price adjustments, all of this will be sorted out at closing and post-closing and so forth, so there’s some price points in that document. But there will be many different combinations to figure out what the net purchase price will be.

Got it. Okay, thank you.

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

Hey guys, congratulations.

Thank you.

I wanted to circle back for a minute to the question of substitute gases in the market. You mentioned that you had thought that effect might diminish in the third quarter; I believe that’s what you said. And my question is just what do you perceive to drive the ebb and flow of that factor in the marketplace?

We’re never entirely certain, we attributed, I think responded just a few moments ago that possibly with just simply sticker shock relative to the price of 22 with specifically to the fact that the price of 22 was increased fairly substantially in the first quarter of this year. So, when the season starts and let’s just say, I think you’re in the St. Louis, April-May timeframe that’s when the contractor would really first see that high price. Because we see these high prices earlier, the distribution chain are basically stocking their shelves, but the consumption happens when the warm weather occurs. So, it’s possible, it was just that sticker shock. It wasn’t a big spike though, like we said, it wasn’t as big or anything comparable like we saw in the second quarter of 2013 and it does seem like it’s sort of receiving currently in this third quarter.

Right, so is that to say the year – and I understand you are saying you are not sure about this, but if the – the price of our R-22 moved up gradually, but significantly the substitutes might not encroach as much as if it jumps up suddenly?

Well, we haven’t seen it. It happened in 2013 for a short period, because when the EPA came up with the – that rule temporarily and that was the shock and it was the same thing. The price was high. And they thought there’s plenty of supply. Next thing substitutes came out cheap. We haven’t seen anything. Now this year comes along, people loaded up early. So there was a lot of people with higher priced inventory on their shelves and then the cool spring comes along. And now they can’t move it out. So the same kind of dynamic again, and it seem to get forced down to a lower-cost gas, which was the replacements, people don’t necessarily love the replacements, but it was a cheaper gas. As we do think it was a sticker shock in the cool spring they got that kicked. But again, in the past when that’s happened, it rebounds and comes right back up again. So, yes, there’s some belief that if it was a smoother rise in price rather than the jump that it did, if the sticker shock probably wouldn’t have happened and cool spring wouldn’t have happened, but maybe that wouldn’t be enough.

And if you look back in 2016, that’s really what did happen. We saw a lot of incremental price increases throughout the season. But when you look at the price range from where it was at the beginning to the end, it did have a significant increase. But we really didn’t see any significant movement in the substitute product question.

All right. Okay, very helpful. Thank you.

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

I promise I won’t ask about the acquisition. But since – I had a couple of questions. But since people were talking about substitutes and becoming a little bit higher in part of the, I guess, the sales or greater portion, are there any newer substitute blends on the market that are better drop-ins, more efficient, easier to use that have come out more recently than some of the ones that some of the other replacements that came out a couple of years ago?

I – we don’t, again there we know of anything specific that way and we would say probably the ones that we do hear out there that we would that we thought were more were the ones that have been out for a while. So we haven’t felt that we’ve – that there’s a new name out there that that’s taking part of market share and that’s where it was going. it was just really the same products.

Okay.

And again, I don’t think anybody claims or sufficient or as good on performance as 22.

Yes.

We’re – just a path they can use if it’s – if they’re related to 22 price potentially.

Yes, I mean, that’s what I heard that some newer ones were out there and they were more efficient than some of the older ones, but certainly less efficient than the R-22s and as prices were up around 22, 23 there, we’re getting a little bit more play just because of, as you said, sticker shock, but okay. How is and I got to press this is next question with, I know it’s – you like to look at it on a full-year basis, however, since we’re halfway through August or closings and halfway through August. How is reclaim activity progressing this year?

It’s certainly up. It’s still though early in the season to measure it and we really frankly don’t measure it. The amount of reclaim that comes in August, in September and so forth is very significant. So…

Yes.

I mean, it’s really is a quarter behind our refrigerant sales season.

Yes. I just want to check. I know nine times out of ten, that’s the way it usually progresses, but sometimes you do. I know, in the past on occasion, it’s coming at a little bit different time so consistent with the past.

The other thing is, there was a court ruling out of the D.C. circuit yesterday, essentially striking down some of the regulation on the HFC side, because I think HFCs were promulgated on ozone damage and HFCs are more global warming and et cetera. But is this just part of the legal process that we’re going to have to sort of meander through until HFCs really start to be phased-out, any commentary on that?

What was you’re hoping from that the next logical path and we’re hoping the whole time it is going towards the ratification of the Montreal Protocol. And that’s clearly from our end would be the best thing for our industry and that’s one thing we’ve been pushing. So what you’re talking about wouldn’t affect that, that was more on the – from the snap rule equipment. But for us, we see the amendment of Montreal protocol makes total sense for everyone. We think that one is going to jump behind it, we think for a lot of reasons. But – so we if there’s anything we were hoping it’s going to get accelerated the ratification of the Montreal Protocol.

And that court case has no bearing on whether or not the Montreal Protocol could be ratified. It’s isolated report based.

Got it. So Montreal Protocol sort of standalone a different that’s happening that was right waiting. okay great I appreciate it thanks guys.

Thanks.

Thank you. I’d like to turn the floor back to management for closing comments.

Great. I’d like to thank our employees, our long time shareholders, and those who recently joined us for their continued support. Thank you everyone for participating in today’s conference call and we look forward to speaking with you after the third quarter results. Thanks..

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.