Good day, ladies and gentlemen and welcome to the Hudson Technologies Third Quarter 2020 Earnings Call. All lines have been placed on a listen-only mode. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Jennifer Belodeau. Ma'am, the floor is yours.

Thank you. Good evening and welcome to our conference call to discuss Hudson Technologies financial results for the third quarter of 2020. On the call today are Brian Coleman, President and Chief Executive Officer; and Nat Krishnamurti, CFO. 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 business 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. Later in the presentation management will refer to adjusted EBITDA, which is a non-GAAP financial measure. We refer you to the company's earnings release and related 8-K filed today, where this term is defined and reconciled to net income. With that, I'll turn the call over to Brian. Go ahead, Brian.

Good evening and thank you for joining us. Our third quarter performance was largely in line with our expectations. We saw continued pressure related to the demand, as many public venues remained either entirely closed or open for only a limited usage during the pandemic. Not to oversimplify the issue, but buildings that have no people or activities on a daily basis have a limited need for comfort cooling. So end market demand for refrigerants remained weak through the third quarter. We continue to experience volume declines when compared to last year, as a result of the weakened demand. Pricing for R-22 was stable, with some modest increases when compared to the second quarter of this year, while HFCs were more price competitive in the quarter when compared to the second quarter of this year, likely driven by the overall reduction in demand. Despite this challenging environment, we're pleased to achieved increased operating income and breakeven profitability in the third quarter. Our financial position and liquidity strengthened during the quarter, with total liquidity at September 30, 2020, of approximately $42 million, which includes cash and revolver availability. In addition, during the quarter, we fully paid down our revolver, while increasing our cash balance to $9.2 million. We're very pleased to have made this progress in the quarter, despite the challenging environment. In the face of this economic environment, we, like many in the refrigerant industry, remain focused on controlling what we can do to effectively navigate through this pandemic. As you know, we look at the selling season as a nine-month season, in which we may have certain quarters that are stronger than others. Unfortunately, this year, the majority of our selling season coincided with shutdowns and, obviously, we felt the impact of the unpredictable and adverse circumstances that have…

Thank you, Brian. For the third quarter ended September 30, 2020, Hudson recorded revenues of $41.5 million, a decrease of 9% as compared to $45.6 million in the comparable 2019 period, primarily due to a decline in volume as the continued COVID-19 pandemic and the associated closures of public venues, adversely impacted our end markets and the overall demand for refrigerants. Gross margin for the third quarter of 2020 improved to 22%, compared to 17% in the third quarter of 2019. Although the gross margin has improved from 2019, the 2020 gross margins were slightly lower than expected due to increased HFC sales compared to other refrigerants and a slightly more price competitive market, likely due to the decrease in demand associated with the economy. SG&A for the third quarter of 2020 was $6.2 million, a $2.1 million decrease compared to $8.3 million in the third quarter of 2019, mainly due to reduced professional fees and payroll costs. We reported operating income of $2.1 million in the third quarter of 2020 compared to an operating loss of $1.2 million in the third quarter of 2019. Interest expense for the third quarter of 2020 was $3 million, a decrease of $1.4 million from the $4.4 million reported during the third quarter of 2019, mainly due to the company paying down $16.5 million of debt during the third quarter of 2020 and $15.2 million of debt during the fourth quarter of 2019. The company recorded net income of $39,000 or breakeven earnings per basic and diluted share in the third quarter of 2020, compared to net income of $2.7 million or $0.06 per basic and diluted share in the same period of 2019. It is important to note, that third quarter 2019 net income included other income of $8.9 million, consisting of proceeds from the working capital settlement, arising from the acquisition of ASPEN Refrigerants Inc., which then led to the net income of $2.7 million last year. On an LTM basis, adjusted EBITDA at September 30, 2020 was $14.9 million, with a leverage ratio of 5.8 time, a tremendous improvement compared to LTM adjusted EBITDA of $8.5 million and a leverage ratio of 13.8 times at September 30, 2019. At September 30, 2020 we had approximately $42 million of total availability, consisting of our cash balance and revolver availability. Also, as of September 30, 2020, we have fully paid off our revolver, while increasing our cash balance to $9.2 million. 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. During these challenging times, we remain optimistic for the future, because of our long history and experience in this industry, providing essential products and services. We've created a solid platform over the years and we remain intent on building our leadership position in the refrigerant and reclamation business by leveraging our long-time experience, loyal customer base, innovative technology and well-established distribution to drive growth. Operator, we'll now open the call to questions. Operator?

Thank you. The floor is now open to question. [Operator Instructions] And we have a question that just came in from Craig Hoagland from Anderson Hoagland. Please state your question.

Hey, Brian, could you just comment a little bit on the aftermarket for the pricing and the reclaim market for refrigerants?

R-22 pricing was pretty strong in the third quarter. We saw some increases compared to the second quarter of this year. And we're pretty much above a $10 mark, which let's say in the first half of the season we're in that $10 range. So we're above that now. As it relates to HFCs though, HFCs have been a little bit volatile and trending down in the third quarter when compared to the second quarter and probably was due to the fact that the overall demand was down and let's say we had inventory at some of our competitors and it was a little bit price competitive through the season.

And do you have a sense if stockpiles of R-22 have cleared out at all? Or are we still working down the virgin gas inventory?

So we believe that the majority of the stockpile was with the three large chemical producers that had 90% of the allocations and they were Honeywell, Chemours and Arkema. And we always believe that Arkema might have had the larger of the stockpile due to the lawsuit that occurred way back in 2013. With that said, Honeywell announced that they were out of the 22 business last season around June of last year. Chemours is acting as if they are out, although we won't know for sure and they haven't done an announcement to that effect. But it does appear that they may be out of 22. And that leaves Arkema with some amount and we certainly do think they'll have some amount for the next season.

Okay, all right. And can you comment on your mix between R-22 and HFCs?

Well, for competitive reasons, we don't break out the information. But right now HFCs in the aftermarket probably represent about 70% of the overall demand and it could be higher. So our business would likely look something similar to the overall marketplace since we touched most pools within the marketplace.

Okay, okay. And that's the R-22 equipment is just aging out and being displaced.

Correct. But it's really -- two things are happening. All new construction since around 2012 have been solely HFC systems. Now you're starting to see some HFOs go out in the marketplace. But -- so they've mainly been new systems relative to either replacement of 22, or new construction, which is why you're seeing the dominant growth in HFCs.

Okay. All right. Thank you.

You're welcome.

[Operator Instructions] And it doesn't look like we have any further questions.

All right. Well, thank you operator. I'd like to thank all of our employees particularly during these extraordinary times for their hard work and dedication. I want to again thank our 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 fourth quarter results. Have a good night everybody.

Thank you.

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time and have a great day.