Hudson Technologies(US:HDSN)2022-03-24 21:10Company Overview - Hudson Technologies is a refrigerant services company focused on providing environmentally sustainable solutions in the refrigeration industry[9]. - Hudson Technologies is recognized as the largest refrigerant reclaimer in the United States, emphasizing its commitment to sustainability and the circular economy[22]. Financial Performance - Revenues for the year ended December 31, 2021 were $192.7 million, an increase of $45.1 million or 30.6% from $147.6 million in 2020[122]. - Cost of sales for 2021 was $121.1 million, representing 63% of sales, down from 76% in 2020, primarily due to higher selling prices and lower costs of certain refrigerants[123]. - Net income for the year ended December 31, 2021 was $32.3 million, an increase of $37.5 million from a net loss of $5.2 million in 2020[128]. - Working capital increased to $55.5 million as of December 31, 2021, up $31.1 million from $24.4 million in 2020[129]. - Inventory as of December 31, 2021 was $94.1 million, an increase of $49.6 million from $44.5 million in 2020, driven by rising inventory costs[130]. - Trade receivables increased to $14.2 million as of December 31, 2021, up $4.4 million from $9.8 million in 2020[131]. - Net cash used in operating activities for 2021 was $1.2 million, a reduction of $12.9 million compared to net cash provided of $11.7 million in 2020[132]. - Net cash provided by financing activities for 2021 was $5.3 million, compared to net cash used of $12.5 million in 2020, mainly due to borrowings under the revolving credit facility[134]. - As of December 31, 2021, cash and cash equivalents were $3.5 million, an increase of approximately $2.2 million from $1.3 million in 2020[135]. Regulatory Environment - The company operates in a highly regulated industry, with significant changes in regulations affecting the production and consumption of refrigerants[12]. - The refrigerant reclamation and management business is subject to extensive regulatory compliance, which may require the company to alter operations or discontinue certain products, potentially resulting in substantial costs[82]. - An amendment to the Montreal Protocol requires developed countries to reduce HFC production and use by 85% by 2047, with initial reductions starting in 2019, impacting the company's operations[84]. Customer Relationships - For the year ended December 31, 2021, one customer accounted for 10% of the company's revenues, highlighting the importance of key customer relationships[37]. - The company’s contract with the United States Defense Logistics Agency accounted for 10% and 14% of revenues for the years ended December 31, 2021, and 2020, respectively[79]. Competition and Market Risks - Hudson Technologies competes on the basis of its proprietary high-volume equipment and breadth of services, facing competition from both regional and national companies[40]. - The company faces strong competition from regional and national companies, which may hinder its ability to compete effectively, especially in new markets[85]. - The company is exposed to market risk from fluctuations in the demand, price, and availability of refrigerants, which could materially affect revenue[203]. Financing and Capital Structure - The company has an asset-based lending facility of up to $90 million and a term loan of $85 million, both secured by substantially all assets[67]. - The company may need additional financing to satisfy future capital requirements, which may not be readily available[72]. - The company has the authority to issue up to 5,000,000 shares of "blank check" preferred stock, which could impede changes in control and affect common stock holders[86]. - The company's common stock is listed on the NASDAQ Capital Market, and failure to comply with NASDAQ rules could severely limit market liquidity[87]. - Approximately 10% of the company's outstanding common stock is beneficially owned by its officers and directors, giving them significant control over corporate transactions[88]. Operational Efficiency - Hudson Technologies offers proprietary services such as RefrigerantSide® Services, which improve system performance and reduce energy consumption[24]. - The company has developed SmartEnergy OPS®, a web-based real-time monitoring service that enhances the efficiency of energy systems, including refrigeration[32]. - The company employs twelve full-time personnel for quality control and regulatory compliance monitoring[59]. - The company holds several U.S. and foreign patents related to refrigerant recycling and reclamation technologies, with expiration dates between January 2023 and July 2035[61]. Risk Management - The company maintains environmental impairment insurance of $10,000,000 per occurrence and $10,000,000 annual aggregate for events occurring after November 1996[45]. - The company believes it is in material compliance with all applicable regulations material to its business operations[58]. - The company’s business could be negatively impacted by adverse weather or economic downturns, affecting demand and pricing for refrigerants[73]. - The company faces risks related to the phase-out of virgin HCFC refrigerants, which could impact revenue from refrigerant sales[191]. COVID-19 Impact - The company has implemented measures to ensure business continuity during the COVID-19 pandemic, with no material impact on its ability to procure or distribute products[106]. Internal Controls - The company's disclosure controls and procedures were evaluated and deemed effective by the Chief Executive Officer and Chief Financial Officer[206]. - There were no changes in internal control over financial reporting that materially affected the company during the quarter ended December 31, 2021[207]. - The company's internal control over financial reporting is designed to provide reasonable assurance regarding the preparation and fair presentation of financial statements[208].