Good day, ladies and gentlemen, and welcome to the Hudson Technologies First Quarter 2020 Earnings Conference Call. All lines have been placed on a listen-only mode and the floor will be opened for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host for today, Nat Krishnamurti. Please go ahead. The floor is yours.

Thank you. Good evening, and sorry for the delay. Welcome to our conference call to discuss Hudson Technologies' financial results for the first quarter of 2020. My name is Nat Krishnamurti, CFO of Hudson Technologies. On the call with me today, we have Kevin Zugibe, Chairman and CEO; and Brian Coleman, President and Chief Operating Officer. 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 of our businesses, as we see them today, they are not guarantees of future performance. Please understand that these statements involve a number of risks and assumptions, and since those elements can change and in certain cases, are not within our control, we would ask that you consider and interpret them in that light. We urge you to review Hudson's most recent Form 10-K and other subsequent SEC filings for a discussion of the principal risks and uncertainties that affect our business and our performance and of the factors that could cause our actual results to differ materially. With that, we will now turn the call over to Brian Coleman.

Good evening, and thank you for joining us. Again, we apologize for the delay. Let me start by saying that COVID-19 has had a dramatic impact on the lives of every person, business and industry throughout the United States. And of course, Hudson is no exception. However, Hudson operates in a critical infrastructure industry and is an essential business as defined by the United States government as we procure, process, service and deliver refrigerants and industrial gases to the government and refrigerants and services to wholesale and retail organizations, which serve hospitals, supermarkets and many other industries throughout the United States. We have kept our plants operating and have been effectively running our operations while following all state and federal guidelines to keep our employees safe and healthy. As of this date, there has been no material impact on our ability to procure or distribute our products and services. Our priorities throughout the pandemic have been to ensure the health and safety of our employees, to keep our products in supply and to maintain the quality and safety of our products to best serve our customers across all channels as they adapt to the crisis and to position ourselves to emerge strong when the crisis ends. Looking back at the first quarter of 2020, we see that the market has stabilized. Refrigerant prices have been constant, and we're seeing some strengthening in the pricing of R-22. In addition, we saw an increase in the volume over the same period last year, building on the increased volume we saw in 2019. During the first quarter, we improved the gross margins over 2019 and believe we have an opportunity to further drive improved margins in 2020 as we replace higher-priced inventory with low-priced product. We believe that customers' inventories are low, and…

Thank you, Brian. For the first quarter ended March 31, 2020, Hudson recorded revenues of $36.4 million, an increase of 5% compared to $34.7 million in the comparable 2019 period, primarily due to an increase in the volume of refrigerants sold. Gross margin for the first quarter of 2020 was 23% compared to gross margin of 20% in the first quarter of 2019, which, as Brian mentioned, is primarily due to selling lower price inventory, which continues to replace higher layer FIFO inventory from last year. We reported operating income of $400,000 in the first quarter of 2020 compared to $200,000 in the first quarter of 2019. During the first quarter of 2020, the company recorded a net loss of $2.9 million, or a loss of $0.07 per basic and diluted share as compared to a net loss of $4 million or a loss of $0.09 per basic and diluted share in the same period of 2019. Selling, general and administrative expenses for the first quarter of 2020 were at $7.3 million compared to $6.0 million in the first quarter of 2019, mainly due to increased nonrecurring professional fees. The current SG&A run rate is about $7 million per quarter. Interest expense for the first quarter 2020 was $3.3 million, a decrease of $0.9 million from the $4.2 million reported during the first quarter of 2019, mainly due to the company paying down $14 million of principal term loan debt in December 2019. At March 31, 2020, we had approximately $27 million of total availability, which includes our cash balance and revolver availability. Our total debt balance at March 31, 2020, was approximately $109.6 million. On an LTM March 31, 2020 basis, the term loan leverage ratio was 11.28x. We have strong liquidity, and our term loan and revolving loan credit facilities provide us with a solid financial platform and flexibility as we look into the coming years. I will now turn the call back over to Brian.

Thanks, Nat. Hudson remains a leader in the refrigerant and reclamation business with the expertise, innovative technology and a well-established distribution network necessary to drive growth. Despite the challenges encountered in the current economic conditions, there continues to be a growing demand for refrigerants and cooling systems. That combined with our ability to provide any refrigerant, any place, at any time and our well-established customer base gives us a solid foundation for future growth of our company. Operator, we'll now open the call to questions.

Thank you. [Operator Instructions] We'll go first to Gerry Sweeney at ROTH Capital.

Hey. Good morning, guys. Good afternoon, I'm sorry it's been a long day. Thanks for taking my call. I hope you're hanging in there with this COVID issue personally.

Yes. We are, Gerry. And just sorry for the delay, we had a problem with the phone number, so sorry about that.

No, no worries. I called the international number, that's when I got through, so curious, just a couple of quick questions. You commented on customer inventory being low. Just wanted to dig into that, was that just your internal sales, making calls, talking to customers and just wanted to see what was the basis of the comment?

Yes. I think in the prepared remarks, we were talking to R-22, but based on speaking with customers, we do believe, in general, and again, it's really from the sales calls that all inventories are somewhat low.

All inventories, not just R-22?

Yes. It seems that right now, for the season, people and maybe it's the economy. Again, we're still trying to figure out how much could be impacted by the economy versus the weather, obviously, April is always a cool month. So – but we think the inventories are low right now.

Yes. And then, I mean historically, well the buying patterns have changed a little bit over time, more towards what we'll call just in time inventory, and I suspect with some of the COVID and economic issues we're having. I would suspect that this sort of just in time buying pattern is what you're still seeing today? Or did you have any sort of pre-buy with...?

No. When you look at the results of Q1 2020 compared to 2019, your volume is up but again, it's still that change behavior or pattern that we started to see in 2018 where people aren't pre-buying anymore. And look, as I think you just said a few moments ago, we would agree, it's probable for some period of time that people will buy just as needed because of the uncertainty regarding the economy.

Okay. And from time-to-time, we have discussed some, I think, R-22 prices. Could you give us any indication as to where the market is today?

So the last time we spoke, we would have talked about, let's say, $10 prices.

Yes. That's the number, yes.

And when we said that, let's just say low $10, we're seeing higher $10 prices right now. Not real significant increases, but definitely increases.

And also, I think on the $10 number, it was pretty – I mean, there wasn't a whole lot of volume. So there was always questions of was that the true price? I suspect volumes are higher and it's more of a consistent, higher $10 that you're seeing? In other words, feel pretty confident in that price?

Yes. We feel confident in the price as of now. Again, it's still early in the season and some uncertainty about the economy. But right now, the price seems to be stable.

Okay. And then the final question is just even with COVID, pre-COVID, what was the market or opportunity? Or how was your – the ability to collect R-22? Was there enough gas coming back? And were you seeing a good amount of volume just to keep inventories at an appropriate level?

Well, we still had the stockpile of 22 that came with the ASPEN acquisition. And we said that we thought that we would sell out this year, and that's what we think is going to happen. So reclaim though is a concern for the future in that the reclaim numbers are still low relative to what we think the demand is that possibly will mean there's going to be shortages and then higher prices even, which in some respects may be a good thing. But we are concerned, and we are trying new things to grow reclaim volumes.

Got it. Okay, that's it from me. I appreciate it and good luck and I know you guys were up there in New York present or so, hanging there and I'll talk you soon.

Yes. Thank you, Gerry.

[Operator Instructions] We'll go next to Ryan Sigdahl at Craig-Hallum Capital.

This is Matt on for Ryan. Thanks for taking my questions. Just following-up quickly on the answer to the last question, what are you trying to do to spur reclaim volume? Or anything you can say there?

Yes. Not to get into too much detail, but we are initiating newer programs to newer customers. And so we have some optimism about that, and we put a fair amount of sales and marketing support behind that.

Great. On the inventory from the Airgas acquisition, I think last quarter, you had talked about, hopefully, kind of getting through that by the end of Q2. Is that still kind of the estimated time line? And then do you think that margins can kind of improve from 23% in Q1 – improve from there kind of in the back half of the year?

Yes. So we believe that we'll sell-through the higher-priced inventory by the end of Q2. And yes, we do believe there will be improved margins in the back half of the year as a result of that.

Great. And then just last one for me, and I'll jump back in the queue. Obviously, with COVID-19, you had alluded to obviously, the potential impact on demand. Is there anything you're seeing even just today or in the last several weeks that would indicate that customers could be pulling back on purchases or anything boots on the ground level on that?

I'd say no at this point. It's early in the season. It's still cool. We're not in the heart of the season yet. Again, that's still a big unknown for us, and it could have a big impact, a small impact. We really can't tell. Anywhere products or people who are being kept cold, there's probably a refrigeration and air conditioning. So there's a need for refrigerants. When you see buildings being shut down right now, and people working from home, that's an effect. It will be effect on comfort cooling on office buildings. It could even be the residential have an effect where more people are working from home, it could go the other way, where, hey, I'm getting my system fixed at home because I have to work from here now, not in the office. So it's difficult to say what the exact effect is going to be. But we do know where people migrate, where they are, they'll need air conditioning and refrigeration. It's just different going into this year. We're seeing a little of that, but it's – again, it's still too early to tell because we're not in the heat of the season.

Thanks guys and good luck for the rest of the quarter. Thanks.

Thanks.

Thank you.

[Operator Instructions] With no other questions holding, I'll turn the conference back to management for any additional or closing comments.

Thank you, operator. Again, we apologize for the late start, but I'd like to thank all of our employees, particularly those – particularly during these extraordinary times for their hard work and dedication, and I want to again thank our long-term – long-time shareholders and those that recently joined us for their support. Thank you, everyone for participating in today's conference call, and we look forward to speaking with you after the second quarter results. Have a good night, everybody.

Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day.