May 9, 2021
Operator
Good afternoon, ladies and gentlemen, and welcome to the Hudson Technologies First quarter 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, [ph]Jennifer Bella Dough.
Ma'am the floor is yours..
Jennifer Bella
Thank you. Good evening and welcome to our conference call to discuss Hudson Technologies' financial results for the first quarter 2021.
On the call today are Brian Coleman, President and Chief Executive Officer; and Nat Krishnamurti, Chief Financial Officer. I'll 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. Okay.
With that, I'll now turn the call over to Brian Coleman. Go ahead, Brian.
Brian Coleman
Good evening. And thank you for joining us as a March 31st, we kicked off our 2021 selling season.
Our first quarter revenues were slightly down from the first quarter of 2020 permanently due to the impact of the COVID pandemic, which did not materially affect the economy until late March of 2020. This year, while the economy is opening back up, it's a gradual process, largely dependent on where our customers are located geographically and our first quarter revenues reflect that, but we still believe we can get back to 2019 volumes levels during the 2021 cooling season that said, well, first quarter revenues were down related to decrease the volume.
We were encouraged by price stability and pricing improvement for nearly all refrigerants. We are well-prepared to meet potential demand as the nine month selling season moves forward, particularly as cooling systems come back online with the return of business as usual.
And as we move into the warmer late spring and summer weather, Hudson continues to be a leading source for all refrigerants from legacy products like CFCs and HDFCs to the current HFCs and beyond to the next generation. Hfos we are positioned at two key points in the supply chain with a solid and long standing customer base.
With our capabilities of relationships, we remain optimistic about future opportunities. With the new administration comes a new regulatory landscape, and we're encouraged by the progress made with passing of the AIM Act in December of 2020 and the support the reclamation is receiving.
As a leading source of wall refrigerants, Hudson is keenly focused on our role as environmental and sustainability legislation is adopted. Our capabilities as the re-claimer uniquely positioned us to support the phase down of virgin HFC production, as we can reclaim and recycle these refrigerants, positioning us as an effective resource in the circular economy of the refrigerant industry.
The AIM Act requires the phase down of Virgin HFC production over the next 15 years with a cumulative 40% reduction in the baseline scheduled to take place in just two and a half years. The install base of HSC systems is large and growing, so reclamation will be a key component to maintaining necessary supply during an orderly phased out.
This presents a significant long-term opportunity for Hudson to grow as an HFC supplier while also supporting the transition away from production of Virgin HFCs. The regulator phase down of HFC Virgin production through the establishment of an allocation system has some similarities to the previous ODS phase-out, which included R-22.
But with that previous phase-out the reclamation industry was in its infancy today. The reclamation industry is well-established with Hudson representing approximately 35% of all refrigerant reclamation activity in the U S and the AIM ACT mandates the EPA to support the growth and development of the reclamation market.
We are excited by the opportunities we're seeing not only to grow our business, but also to provide our services, to benefit the environment. Likewise, we continue our focus and efforts of making our California production sites, carbon neutral, as we seek to achieve California's stated goals for emission reductions and their legislative phase-out of Virgin HFC refrigerant use.
As we make progress in our California sites, our larger goal is to achieve carbon neutrality at all, all of our production facilities, just as we work with our customers to provide equipment optimization services, to help them lower their energy bills and reduce their carbon footprint, re remain intent on finding more and better ways to improve the circular economy and end of life management of refrigerants. With our visibility today, we are optimistic about the 2021 selling season as we see the steady reopening of businesses, schools, and public facilities that make up our customers and end markets as cooling systems are re-engaged and new systems come online.
We believe that we're well positioned to leverage the near term opportunities we are seeing in the refrigerant marketplace. Additionally, the scheduled phase down of HSC version production represents a significant opportunity for the growth of our reclamation industry.
And in turn our leadership position. Now I'll turn the call over to Nat to review the financials.
Go ahead, Nat.
Nat Krishnamurti
Thank you, Brian. For the first quarter ended March 31st, 2021, Hudson recorded revenues of $33.8 million.
The decrease of 7% as compared to $36.4 million in the comparable 2020 period, primarily due to a decline in volume related to the COVID impact stemming from the closure of businesses, schools and other public venues, which as Brian mentioned, did not materially impact the economy until March of late March of 2020. This is partially offset by an increase in selling price of certain refrigerants, which also led to the improved gross margin of 27%.
But the first quarter of 2021 compared to 23% in the first quarter of 2020. SG&A for the first quarter of 2021 was $6.7 million, a $600,000 decrease compared to $7.3 million in the first quarter of 2020, mainly due to reduced professional fees, partially offset by an increase in non-cash stock comp compensation expense.
We recorded operating income of $1.7 million in the first quarter of 2021 compared to operating income of $400,000 in the, first quarter of 2020, to continue with the cost savings interest expense for the first quarter of 2021 was $2.8 million a decrease of about a half a million dollars from the $3.3 million reported during the first quarter of 2020, mainly due to principal payments made on the term loan. The company recorded a net loss of $1.1 million or a loss of $0.02 per basic and diluted share in the first quarter of 2021, compared to a net loss of $2.9 million or $0.07 per basic and diluted share in the same period of 2020 at March 31st, 2021, we had approximately $32 million of total availability consisting of both our cash balance and revolver availability.
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 forward with our stronger balance sheet and improved liquidity metrics, we hope to further improve our financial condition by exploring the refinancing of our, of our existing debt to help grow and support the business.
And I'll turn the call back over to Brian.
Brian Coleman
Thanks Nat. We are a leader in the industry with extensive experience that has served us well through the volatility and challenges we've encountered over the years.
We built a solid platform for growth with a standing customer base established distribution network and industry leading technology. As we move through the balance of 2021, we are energized by the opportunities ahead while focused on meeting the needs of our customer base and increasing our position as a leader in the refrigerant and reclamation industry.
Operator, We'll now open the call to questions.
Operator
Thank you, ladies and gentlemen, the floor is now open for questions. [Operator Instructions] And your first question is coming from Ryan Sigdahl with Craig-Hallum Capital Group.
Brian, your lines live
Ryan Sigdahl
Great. Thanks Brian.
That taken our questions. I'm curious.
So I know seasonality and weather kind of, as we warm up through the year, have an impact, but maybe in the context of a normal kind of month over month, compare how have volumes and demand trended through Q1? And then also into April here, have we seen a, an increase with the reopening?
Brian Coleman
So, in the first quarter the volumes were down which again, we attributed primarily to the overall openings or closings, whatever way you want to reference it. We do think that Q2, we should be able to grow our revenues in, in 2021 based on volume when compared to 2020.
And we're really focused on really on volumes and, and the type of business we had for the 19 year that may not come out that way, but we do think there'll be sufficient openings throughout the country. And as you probably have heard in the past, the second quarter really gets kicked off.
Not in April, April is generally very slow month, but it really gets kicked off in the warmer weather in may that we're starting to get into. And particularly we like to see a string of 90 degree days you know, round Memorial day, weekend, early June, particularly for the north and Northeast cause that really kicks on the whole comfort cooling season.
And that's really what moves the volume of refrigerants
Ryan Sigdahl
And then on gross margin, So it looks like a three-year high there. So it's really nice was that improvement primarily just price or were there, was there any other factors in their mix, et cetera?
Nat Krishnamurti
It was primarily price in some cases or cost basis, a little bit lower but we are seeing like an HSE class of refrigerants higher prices, but we're also seeing higher costs now that a lot of the tariffs are been applied to the various components. So the margins on the HFC class will probably stay similar throughout the season, even though we've seen some price increases, as I said, we've seen corresponding cost increases there, but the mid-twenties that we're at in the 27% we do think is achievable for the balance of the year.
Ryan Sigdahl
Great. then maybe I missed it, Brian, normally you give kind of what the price of our 2022 is in the quarter, curious what that is.
And then also where that price is today?
Nat Krishnamurti
Is right now, or, you know, ranging in the 15 to $17 range. In some cases you might see a little bit higher but certainly up from the beginning of the year we think we're going to see further price increases this year.
You know, we don't know when, but certainly the warm weather is going to help us to understand that relative to both the supply side and how much stockpile might be left and then certainly the demand side
Ryan Sigdahl
On that stockpile, any indication of kind of where we're at?
Nat Krishnamurti
No, no changes from the last couple of reported periods. You know, we think [indiscernible] is out, although they never published a letter.
But based on the communications we understand they've had with customers, so that always ended up leaving Arkema as the entity that likely has a fairly large stockpile, will it be used up this season or not? It's difficult to know but we don't think that their stockpile is going to last for much longer.
Ryan Sigdahl
Great. one more for me.
So the DOD contract, it was a five-year contract five-year extension option. Believe we're coming up close to that.
Five-Year mark here, I guess. How has that contract or relationship gone relative to your expectations and then remind us of the timeline for that extension?
Brian Coleman
You're correct. It expires at the end of July, we do believe we will receive the five-year renewal as evidence let's say to why we believe that if they were to go out and you know, not extended with us, they'd have to do a formal bid process, which they haven't done.
That's a very lengthy process. So we think that they're going to exercise their option.
We believe we performed very well, particularly in connection with the prior contract holder in terms of delivery and fill rates and different metrics that are required within the contract. We're still a little disappointed though on the overall spend through the contract.
We're not getting back to the levels yet that we had seen in the 2019 period. We were tracking to almost 25 million in revenues and on a quarter, quarter basis, we were seeing growth in but on a quarterly basis.
We think that this year, so at some level, the COVID effected the contract as well. And we think this year that we can get back to marketing the contract more broadly and probably that all that will begin after the renewal, which we probably will hear about that renewal before the contract expires, but and maybe 30 days out yet from where we are.
Ryan Sigdahl
Great. Thanks guys.
Good luck. Thank you.
Operator
Your next question is coming from Gerard Sweeney with ROTH Capital Partners. Jerry your line is live.
Gerard Sweeney
Hey, good afternoon, Brian. And thanks for taking my call.
Good. obviously, you know, COVID was a little bit of a struggle last year, but you know, it also depends on where you are in parts of the country and, you know, Brian we're in the Northeast and New York city scheduling to open up, you know, Pennsylvania, Philadelphia is scheduled to open up soon.
Is there an opportunity to see a little bit of a surge in business as some of these businesses that may have been shuttered or running at 25% capacity start turning on systems, you know, more people, more body heat, you know, you're starting to get into the summertime and maybe some of these systems just weren't charged up last year. Is there an opportunity, potential opportunity for that?
Brian Coleman
We do believe so. How much of it will will it be, we don't know.
And this is why we're still optimistic about the 2021 season, as you said. The north Northeast is beginning to open up in, in ways that we never, we had not seen before.
So we do think a lot of systems will be turned on you know, New York city is still having a lot of struggles. But at the end of the day, we think there is a potential upside because systems likely could have leaked, you know, over this past year because they haven't been run and tested.
So that would cause, you know, potentially increase also they may not have been maintained as well as they normally would have. So there's a potential increase for refrigerant sales and service work in that regard too.
Gerard Sweeney
Got you and then just on the, on the phase-out of HSEs on the allocation system, you, we went through this obviously with our 22 phase-out, I sort of caught the tail end when I picked up coverage a bunch of years ago, but is there, it's not always as smooth or as linear as we would like. And sometimes lawsuits pop up and I suspect HFCs are a little bit, might be a little bit different than our 22 phase-out.
I think a lot of people won't want them gone including producers, but do you have any insight onto insight into how it may develop over the next couple of years?
Brian Coleman
From that perspective, I would recommend folks go to our website and look at page seven of our current presentation because you'll see this step down. It comes very hard and very fast.
So in two and a half years there's going to have to be a 40% reduction from the baseline. We went with the 22 phase-out.
We probably went more than 10 years, maybe 12 years before we ever got to that threshold. So here, the step down comes very quickly, very hard, very fast that I think is what makes this particular opportunity different.
So in the old 22 phase-out, there was the ability for the creation of very large stockpiles, for example there probably be stockpiles in this phase-out, but we don't think to the magnitude because the length of time to create a stockpile is, is greatly diminished. Because we're already starting next year, there'll be a 10% reduction off of the baseline.
And then that'll run for the 22 and 23 year and then a 30% reduction, which then is a cumulative 40. So we think that's the big difference here.
Also, the big difference is within the AIM ACT. The EPA is mandated to find ways to help support the growth in reclamation.
There's no such language in the original cleaner act and I'm in and the phase-out structure for all the ODSP products. They also deplete substances.
So there's a lot of differences. There's similarities, certainly, but there's also differences that I think will be positive to the reclamation industry and Hudson technologies.
Gerard Sweeney
Got you and by the HSE market versus our 22, when they went to pace that HSEs are significantly?
Brian Coleman
Right at it's peak, you know, 22 could have been 70% of the overall market. Okay.
You know, right now HFCs are probably 80% with are 22 around 20%. And as each year progresses to 22 share diminishes and the HFCs grow because all of the new construction, new equipment, all the change out of the 22 units or HFC based soon HFOs will be introduced more widely than they are today.
And they're beginning to get some traction. So over time HFOs will grow into a larger market share.
But that's probably, you know, five, 10 years out in terms of timeline of it becoming a material piece of the overall market.
Gerard Sweeney
Got it. Okay.
and one more question, just pivoting back to our 22, probably should ask that a couple minutes ago, but how are collections going, obviously, you know that is a key component to the model is collecting the use gas?
Brian Coleman
Yeah, we've shared, I think our disappointment with you all we just are struggling with why we're not seeing more gas coming back. We do think there is more gas that could come back.
How much of it is illegal venting? How much of it is illegal reuse?
We don't know. And part of this HFC phase-out is the EPA has got to figure out this issue and is being mandated to find ways and systems, if you will, to improve you know, the legal recovery and then improve the volume of reclamation.
So, you know, the positive thing more, again, getting back to HFCs is the HSC reclaim is in its infancy relative to what we think the overall opportunity is. And there's certainly, you know, five X, potentially 10 X growth in reclamation over the next number of years as these eight Virgin HFCs gases are being faced out.
Operator
I like to turn the floor back to Brian Coleman, sir. The floor is yours.
Brian Coleman
Well, thank you operator. I'd like to thank all of 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 today's conference call and look forward to speaking with you after the second quarter results.
Have a good night, everybody.
Operator
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.