Good afternoon, ladies and gentlemen, and welcome to the Hudson Technologies' Fourth Quarter Year End 2021 Earnings Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, John Nesbett, Investor Relations for Hudson Technologies. Sir, the floor is yours.

Thank you. Good evening, and welcome to our conference call to discuss Hudson Technologies' financial results for the fourth quarter and year-end 2021. On the call today are Brian Coleman, President and Chief Executive Officer; and Nat Krishnamurti, Chief Financial 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 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 these 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 with a discussion of the principal risks and uncertainties that affect our business and our performance and other factors that could cause our actual results to differ materially. With that, we'll now turn the call over to Brian Coleman. Go ahead, Brian.

Good evening and thank you for joining us. We're pleased to closed 2021 with record fourth quarter and full year results. Our strong fourth quarter performance reflected significant revenue growth, enhanced margins and improved profitability. It is important to note that our fourth quarter has historically been our weakest quarter, given that it falls outside our traditional nine month selling season, which takes place from January through September. However, after the close of the selling season this year, the industry saw a continued strength in the average selling price of certain refrigerants, which drove our unusually strong fourth quarter performance. Looking forward, we are energized to carry the momentum we built throughout 2021 into 2022. To provide some pricing perspective, the average selling price of many refrigerants increased sequentially from the third quarter to the fourth quarter. We had not expected fourth quarter pricing to increase, but rather remain stable as it has traditionally done. Instead, pricing for certain refrigerants steadily trended upward throughout 2021. As we enter the 2022 season, we believe this pricing behavior will continue, particularly as the AIM Act phasedown of HSC begins. Assuming this pricing trend continues for the 2022 selling season, we could see revenues exceeding $270 million in 2022. If we look to Europe as guidance for pricing relative to the initial steps taken under HSC phasedown there, we could expect to see a doubling in price for HSC refrigerants from the 2021 levels, in the next few years. While we can't be certain pricing will reach those levels or the timing of any such increase. But overtime, if we reach those levels, we could see our revenues reach $350 million with an operating income of over $70 million. Moreover, such a pricing dynamic should be a stimulus for growth and reclamation, which…

Thank you, Brian. For the fourth quarter ended December 31, 2021, Hudson recorded revenues of $37.8 million, an increase of 71% compared to $22.1 million in the comparable 2020 period. The growth is related to increase selling prices for certain refrigerants during the quarter. Gross margin was 45% for the fourth quarter of 2021 compared to 25% in the fourth quarter of 2020. The improved gross margin is primarily attributable to higher selling prices in the quarter, which in the context of our FIFO approach to inventory favorably impacted our gross margin performance. As we move through 2022, we expect gross margin performance and full year to be in the lower end of the 30% level. SG&A made for the fourth quarter of 2021 was $7 million, or 18.4% of revenue, as compared to $6.5 million, or 29.2% of revenue in the fourth quarter of 2020. To slightly higher SG&A cost was driven by higher payroll costs and professional fees. We recorded operating income of $9.3 million in the fourth quarter of 2021, compared to an operating loss of $1.7 million in the fourth quarter of 2020. The Company recorded net income of $6.2 million or $0.14 per basic and $0.13 per diluted share in the fourth quarter of 2021 compared to net loss of $4.7 million or a loss of $0.11 per basic and diluted share in the same period of points of 2020. Looking at for year 2021, Hudson reported revenues of $192.7 million, an increase of 31% compared to revenues of $147.6 million in 2020. Gross margin for 2021 was 37% compared to 24% for the full year 2022. The Company recorded net income of $32.3 million, or $0.74 per basic and $0.69 per diluted share for full year 2021 compared to a net loss of $5.2…

Thanks Nat. As we enter the 2022 selling season, we're excited about the opportunities ahead and focused on growing our leadership position in the refrigerant and reclamation industry. Operator, we'll now open the floor to questions

[Operator Instructions] First question is coming from Gerard Sweeney with ROTH Capital. Your line is live.

A couple questions for you. Just curious, how the HSC recovery in the market is going? Do you have any sort of planning strategies maybe to maximize this opportunity? In the past, sometimes it's been a little bit of a challenge. Just curious, if how you look at the market on a go forward opportunity?

So, I'd say yes, in the past, the overall reclamation volumes were less than we expected. We certainly expected more compliance to the law. We also expected that some amount of economics would help drive or change behavior. With regards to this particular phase down, the HSC phase down, there's a lot of differences than we might have seen in the past. First of all, environmental organizations are seeking ways to help improve reclamation. They see it as an opportunity to the extent that reclaim can grow faster than expected then the Virgin production facedown could maybe accelerate as well. So, there's that side of the equation. Certainly now that we have a requirement and state of California and uncertain what the federal level might do, but a requirement for OEMs to use a small percentage of reclaim in their factory charge that shouldn't certify OEMs to help participate in the growth of reclamation, so that there's adequate supply to meet their compliance needs. The other thing that we feel strongly about relative to this opportunity is even at the producer level. At some level, when we get to the far end of the phase down, we'll see a limit on HSC Virgin production, but some of that HSC production is likely going to be needed to help grow HFOs. So, if there is inadequate virgin HSCs, at that time, reclamation certainly could help in that process as well. So, there's a lot of different factors in this particular phase out as compared to the prior phase out. So, we're looking forward to an opportunity to see significant growth in reclamation and not necessarily driven by reclamation, by regulation, excuse me, but really driven by business, the participants in this industry, across the board, including reclaimers.

There's more stakeholders, it's what it sounds like. But from everyone from the local HVAC company all the way to the producers. Is that a fair way of looking at it?

Yes, we'd say just about anybody in the chain would want to see growth or reclamation and we expect in some level, they're going to participate in that. And the other thing, if you think about it, right now, you could argue HSCs are a very large percentage of the overall installed base in the United States. Is it in the 80%, 85% range, probably something in that kind of range. And that means that 80% or 85% of the installed base is going to have to change out of HFCs over let's say, the next 10, 15, 20 years. And that's a tremendous opportunity for recovery and we use as we work our way through this overall change to more environmentally friendly refrigerants.

Are they're changing gears a little bit just to the HDC pricing, obviously, there is moving parts with AIM Act, but there is also been supply chain issues. Do you know if any of the pricing increases or pricing pressure was a result of supply chain or any insight into that? Or is it just driven purely by the AIM Act?

It's probably both. Certainly, supply chain issues existed throughout last year, whether it be raw material costs or just transportation costs, delays in transportation. And they are likely going to continue at least for the foreseeable future, let's say the first half of this year, possibly there might be improvement towards the back half. But also as it relates to now the overall reduction in availability relative to demand, we are starting to see price increases just from a supply demand imbalance.

Got it. And then a final question for me, and I'll jump back in line is, curious, several years ago, there was a little bit of a pre-buy opportunity for some refrigerants and then the market shifted a little bit more towards, just in time inventory. Are you seeing any shift in buying patterns this year for refrigerants?

Not necessarily. But, I do think there might be a hybrid this year. As folks may be more concerned about availability and as a result may look to stock a little bit more products earlier than later. At the end of the day, I wouldn't necessarily expect to go back to the old days, like the pre-2017 period, where there was a tremendous stocking that would've occurred in Q1. It was probably going to be a little bit more than we saw last year, but I don't think we are ever going go back to the old days.

[Operator Instructions] The next question is coming from Ryan Sigdahl from Craig-Hallum Capital Group. Your line is live.

Good afternoon, Brian. Thanks for questions. Curious on the $270 million revenue that you mentioned for 2022. Curious, two questions on that. One, what is the current price assumption you're using R-22 and R-410A? And then secondly, are you assuming volume is at least directionally flat up down from 2021?

So, when it comes to some of the target that we've talked about, we're assuming volume is flat. We are also assuming no material change with regards to supply side, meaning reclaim versus Virgin, because those circumstances would only make the results better than what we have reflected thus far or talked about thus far. So, as it relates to pricing R-22 pricing is definitely at the $30 level now and seems to be fairly constant at that level and maybe slightly higher. It is possible it could go higher, but we typically had folks think about the $30 level because that's the kind of sustainable level we saw with CFCs. With regards to HFCs, you are now seeing pricing above $10 a pound probably $10 to $12 a pound, depending on the refrigerants of course, but certainly a significant jump that occurred throughout the 2021 year.

And then just so I caught it, I think you mentioned low 30% gross margin expectation for 2022. How do you compare that I guess looking at your 2024 targets? I believe it implies kind of a 30%-ish percent gross margin, still the right assumption there on out here. Can you compare and contrast the two?

What we're trying to suggest right now is we certainly did better on a gross margin basis relative to more FIFO inventory than a sustainable level. We think that low 30s is the sustainable level. But we also think we could do better than that now, to the extent that we see growth in reclaimed volume. And that probably will start to happen in somewhat the later years. So, we are expecting growth in HFC reclaimed in 2022. But because the used gas return comes in on the back half of the year, typically relative to the season, you're usually going to see that growth go into inventory in 2022 and see the margin improvements until 2023 when you sell out that reclaimed gas. So, as we continue to update activities will be updating what's happening with reclamation opportunities. And to the extent we're pursuing more relationships, like a AprilAire and organizations that are looking to find ways to grow reclamation, we're excited about that opportunity because the margins typically on reclaimed guests that we acquire a higher than Virgin supply side.

Great. Then just on OpEx, how we think about historically, it's been fixed good or bad? In conditions, how should we think about that going forward with kind of HSC pays out and the current supply chain issues we have?

Yes, I would say it's pretty flat, we probably maintain the same type of SG&A that we started with them.

Thanks there. One more just on the debt refinance, can you start through kind of the lenders who are considering the process and I guess how you decided on TCW Asset Management, I know you had quite a few issues with the previous lender. So curious how this went around? Thanks.

Sure. So we test a fairly broad net out into the marketplace with lenders that would look somewhat similar to TCW. At the end of the day, we spent time when it was small group and then really it just the relationship with TCW personnel, the types of questions they were asking, the way they wanted to get into the business and understand it better, made them a leader in the overall process. The nice thing about working with them is the folks that we spent all this time over many months, many different due diligence questions and reviews are the same team that's going to continue with this investment. So a lot of times you'll work with lenders, where you have new business folks, and they hand it over to another group to maintain the relationship. But in this case, it's the same folks for both pieces of the puzzle. So we're really happy with the relationship. They have, I think a very strong reputation in the industry. So we're looking forward to a very long relationship with them.

This concludes today's Q&A portion of the call. I'd like to turn the call back to management for closing remarks.

Well, thank you, operator. I'd like to thank our employees for their continued support and dedication to our business. I want again thank our longtime shareholders and those that are 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 first quarter results. Have a good night everybody. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.