HUDSON TECHNOLOGIES INC /NY [HDSN] Filings

10-Q 1 hdsn-20230930x10q.htm 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-13412

Hudson Technologies, Inc.

(Exact name of registrant as specified in its charter)

New York
(State or other jurisdiction of
incorporation or organization)

13-3641539
(I.R.S. Employer
Identification No.)

300 Tice Boulevard
Suite 290 Woodcliff Lake, New Jersey (Address of principal executive offices)	07677 (Zip Code)

Registrant’s telephone number, including area code (845) 735-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered

Common stock, $0.01 par value	HDSN	NASDAQ Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common stock, $0.01 par value		45,502,380 shares
Class		Outstanding at November 7, 2023

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Hudson Technologies, Inc.

Index

Part	Item		Page

Part I.	Financial Information		3

	Item 1	- Financial Statements (unaudited)	3
		- Consolidated Balance Sheets	3
		- Consolidated Statements of Income	4
		- Consolidated Statements of Stockholders’ Equity	5
		- Consolidated Statements of Cash Flows	6
		- Notes to the Consolidated Financial Statements	7
	Item 2	- Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3	- Quantitative and Qualitative Disclosures About Market Risk	26
	Item 4	- Controls and Procedures	28

Part II.	Other Information		29

	Item 1A	- Risk Factors	29
	Item 5	-Other Information	29
	Item 6	- Exhibits	29

	Signatures		30

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PART I – FINANCIAL INFORMATION

Item 1 - Financial Statements

Hudson Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(Amounts in thousands, except for share and par value amounts)


	September 30,		December 31,
	2023		2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	3,783	$	5,295
Trade accounts receivable – net		44,935		20,872
Inventories		139,231		145,377
Prepaid expenses and other current assets		10,143		5,289
Total current assets		198,092		176,833

Property, plant and equipment, less accumulated depreciation		20,570		20,568
Goodwill		47,803		47,803
Intangible assets, less accumulated amortization		15,469		17,564
Right of use asset		7,041		7,339
Other assets		2,418		2,386
Total Assets	$	291,393	$	272,493

Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable	$	16,828	$	14,165
Accrued expenses and other current liabilities		30,260		27,908
Accrued payroll		5,030		6,303
Current maturities of long-term debt		—		4,250
Short-term debt		5,000		—
Total current liabilities		57,118		52,626
Deferred tax liability		4,524		244
Long-term lease liabilities		5,167		5,763
Long-term debt, less current maturities, net of deferred financing costs		—		38,985
Total Liabilities		66,809		97,618

Commitments and contingencies

Stockholders’ equity:
Preferred stock, shares authorized 5,000,000: Series A Convertible preferred stock, $0.01 par value ($100 liquidation preference value); shares authorized 150,000; none issued or outstanding		—		—
Common stock, $0.01 par value; shares authorized 100,000,000; issued and outstanding 45,484,325 and 45,287,619, respectively		455		453
Additional paid-in capital		117,847		116,442
Accumulated retained earnings		106,282		57,980
Total Stockholders’ Equity		224,584		174,875

Total Liabilities and Stockholders’ Equity	$	291,393	$	272,493

See Accompanying Notes to the Consolidated Financial Statements.

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Hudson Technologies, Inc. and Subsidiaries

Consolidated Statements of Income

(unaudited)

(Amounts in thousands, except for share and per share amounts)


	Three months				Nine months
	ended September 30,				ended September 30,
	2023		2022		2023		2022
Revenues	$	76,496	$	89,502	$	244,169	$	277,781
Cost of sales		45,916		45,263		146,632		130,225
Gross profit		30,580		44,239		97,537		147,556

Operating expenses:
Selling, general and administrative		6,760		7,219		22,010		21,057
Amortization		698		698		2,095		2,095
Total operating expenses		7,458		7,917		24,105		23,152

Operating income		23,122		36,322		73,432		124,404

Other expense:
Net interest expense		4,358		2,365		8,106		12,293

Income before income taxes		18,764		33,957		65,326		112,111

Income tax expense		5,182		4,601		17,024		13,390

Net income	$	13,582	$	29,356	$	48,302	$	98,721

Net income per common share – Basic	$	0.30	$	0.65	$	1.07	$	2.20
Net income per common share – Diluted	$	0.29	$	0.62	$	1.02	$	2.10
Weighted average number of shares outstanding – Basic		45,404,963		45,063,810		45,348,072		44,935,739
Weighted average number of shares outstanding – Diluted		47,345,380		47,181,424		47,319,464		47,053,010

See Accompanying Notes to the Consolidated Financial Statements.

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Hudson Technologies, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(unaudited)

(Amounts in thousands, except for share amounts)

Three Months Ended September 30,


				Additional
	Common Stock			Paid-in		Retained
	Shares	Amount		Capital		Earnings		Total
Balance at July 1, 2022	45,020,087	$	450	$	116,943	$	23,544	$	140,937

Issuance of common stock upon exercise of stock options	50,281		1		58		—		59

Excess tax benefits from exercise of stock options	—		—		(10)		—		(10)

Stock compensation expense	—		—		247		—		247

Net income	—		—		—		29,356		29,356

Balance at September 30, 2022	45,070,368	$	451	$	117,238	$	52,900	$	170,589

Balance at July 1, 2023	45,375,598	$	454	$	118,296	$	92,700	$	211,450

Issuance of common stock upon exercise of stock options	108,727		1		1		—		2

Excess tax benefits from exercise of stock options	—		—		(690)		—		(690)

Stock compensation expense	—		—		240		—		240

Net income	—		—		—		13,582		13,582

Balance at September 30, 2023	45,484,325	$	455	$	117,847	$	106,282	$	224,584

Nine Months Ended September 30,


						Retained
				Additional		Earnings
	Common Stock			Paid-in		(Accumulated
	Shares	Amount		Capital		Deficit)		Total
Balance at January 1, 2022	44,758,925	$	448	$	116,312	$	(45,821)	$	70,939

Issuance of common stock upon exercise of stock options	311,443		3		179		—		182

Excess tax benefits from exercise of stock options	—		—		(83)		—		(83)

Stock compensation expense	—		—		830		—		830

Net income	—		—		—		98,721		98,721

Balance at September 30, 2022	45,070,368	$	451	$	117,238	$	52,900	$	170,589

Balance at January 1, 2023	45,287,619	$	453	$	116,442	$	57,980	$	174,875

Issuance of common stock upon exercise of stock options	196,706		2		37		—		39

Excess tax benefits from exercise of stock options	—		—		(693)		—		(693)

Stock compensation expense	—		—		2,061		—		2,061

Net income	—		—		—		48,302		48,302

Balance at September 30, 2023	45,484,325	$	455	$	117,847	$	106,282	$	224,584

See Accompanying Notes to the Consolidated Financial Statements

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Hudson Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

(Amounts in thousands)


	Nine months
	ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	48,302	$	98,721
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		2,213		2,455
Amortization of intangible assets		2,095		2,095
Lower of cost or net realizable value reserve		(2,195)		(1,155)
Allowance for doubtful accounts		800		1,711
Stock compensation expense		2,061		830
Amortization of deferred finance costs		669		2,152
Loss on extinguishment of debt		3,427		4,665
Deferred tax expense		4,280		(814)
Changes in assets and liabilities:
Trade accounts receivable		(24,863)		(26,156)
Inventories		8,341		(24,860)
Prepaid and other assets		(684)		(9,990)
Lease obligations		1		16
Income taxes receivable		(4,212)		—
Accounts payable and accrued expenses		3,283		10,346
Cash provided by operating activities		43,518		60,016

Cash flows from investing activities:
Additions to property, plant, and equipment		(2,215)		(1,715)
Cash used in investing activities		(2,215)		(1,715)

Cash flows from financing activities:
Proceeds from issuance of common stock		39		182
Excess tax benefits from exercise of stock options		(693)		(83)
Payment of deferred financing cost		—		(8,512)
Borrowing of short-term debt – net		5,000		—
Proceeds from long-term debt		—		100,000
Repayment of long-term debt		(47,161)		(138,331)
Cash used in financing activities		(42,815)		(46,744)

(Decrease) increase in cash and cash equivalents		(1,512)		11,557
Cash and cash equivalents at beginning of period		5,295		3,492
Cash and cash equivalents at end of period	$	3,783	$	15,049

Supplemental Disclosure of Cash Flow Information:
Cash paid during period for interest	$	4,232	$	10,100
Cash paid for income taxes – net	$	16,955	$	9,791

See Accompanying Notes to the Consolidated Financial Statements

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Hudson Technologies, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

Business

Hudson Technologies, Inc. (“Hudson” or the “Company”), incorporated under the laws of New York on January 11, 1991, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. Hudson has proven, reliable programs that meet customer refrigerant needs by providing environmentally sustainable solutions from initial sale of refrigerant gas through recovery, reclamation and reuse, peak operating performance of equipment through energy efficiency and emergency air conditioning and refrigeration system repair, to final refrigerant disposal and carbon credit trading.

The Company’s operations consist of one reportable segment. The Company’s products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, and include refrigerant and industrial gas sales, refrigerant management services consisting primarily of reclamation of refrigerants and RefrigerantSide® Services performed at a customer’s site. RefrigerantSide® Services consist of system decontamination to remove moisture, oils and other contaminants intended to restore systems to designed capacity. In addition, the Company’s SmartEnergy OPS® service is a web-based real time continuous monitoring service applicable to a facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry® and Chill Smart® services are also predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also participates in the generation of carbon offset projects. The Company operates principally through its wholly-owned subsidiary, Hudson Technologies Company. Unless the context requires otherwise, references to the “Company”, “Hudson”, “we”, “us”, “our”, or similar pronouns refer to Hudson Technologies, Inc. and its subsidiaries.

In preparing the accompanying consolidated financial statements, and in accordance with Accounting Standards Codification (“ASC”) 855-10 “Subsequent Events”, the Company’s management has evaluated subsequent events through the date that the financial statements were filed.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included in this quarterly report should be read in conjunction with the Company’s audited financial statements and related notes thereto for the year ended December 31, 2022. Operating results for the nine-month period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

In the opinion of management, all estimates and adjustments considered necessary for a fair presentation have been included and all such adjustments were normal and recurring.

AIM Act

On September 23, 2021, the United States Environmental Protection Agency (“EPA”) issued the final rule establishing the framework to allocate allowances for virgin production and consumption of hydrofluorocarbon refrigerants (“HFCs”). The EPA is responsible for the administration of the HFC phase down enacted by Congress under the AIM Act.

The AIM Act directs the EPA to address the reduction in virgin HFCs and provides authority to do so in three respects:

phase down the production and consumption of listed HFCs,

manage these HFCs and their substitutes including reclamation of refrigerants, and

facilitate the transition to next-generation technologies.

Congress required that the EPA consider ways to promote reclamation in all phases of its implementation of the AIM Act. The AIM Act introduces a stepdown of 10% from baseline levels in 2022 and 2023, and establishes a cumulative 40% reduction in the baseline for 2024. Hudson received allocation allowances for calendar years 2022 and 2023 equal to approximately 3 million Metric Tons Exchange Value Equivalents per year, or approximately 1% of the total HFC consumption, with allowances for future periods to be determined at a later date. Reclamation will be critical to maintaining necessary HFC supply levels to ensure an orderly phasedown.

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On October 6, 2023, the EPA announced the latest actions to phase down HFCs under the AIM Act:

The first new action is a final rule to accelerate the ongoing transition to more efficient and climate-safe technologies in new refrigeration, heating and cooling systems and other products by restricting the use of HFCs where alternatives are already available. The rule, which applies to both imported and domestically manufactured products, bans HFCs in certain equipment and sets a limit on the global warming potentials (GWPs) of the HFCs that can be used in each subsector, with compliance dates ranging from 2025 to 2028.

The second action is a proposed rule (subject to further comments) to better manage and reuse existing HFCs, including by reducing wasteful leaks from equipment and supporting HFC recycling and reclamation. The proposed rule includes requirements for repairing leaky equipment, use of automatic leak detection systems on large refrigeration systems, use of reclaimed HFCs for certain applications, recovery of HFCs from cylinders before their disposal, and a container tracking system.

Consolidation

The consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. The Company’s consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc. and Hudson Technologies Company. The Company does not present a statement of comprehensive income as its comprehensive income is the same as its net income.

Fair Value of Financial Instruments

The carrying values of financial instruments including cash, trade accounts receivable and accounts payable approximate fair value at September 30, 2023 and December 31, 2022, because of the relatively short maturity of these instruments. The carrying value of debt approximates fair value, due to the variable rate nature of the debt, as of September 30, 2023 and December 31, 2022. See Note 2 for further details.

Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Company maintains its temporary cash investments in highly-rated financial institutions and, at times, the balances exceed FDIC insurance coverage. The Company’s trade accounts receivable are primarily due from companies throughout the United States. The Company reviews each customer’s credit history before extending credit.

The Company establishes an allowance for doubtful accounts based on factors associated with the credit risk of specific accounts, historical trends, and other information. The carrying value of the Company’s accounts receivable is reduced by the established allowance for doubtful accounts. The allowance for doubtful accounts includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve for the remaining accounts receivable balances. The Company adjusts its reserves based on factors that affect the collectability of the accounts receivable balances.

For the nine month period ended September 30, 2023 there was one customer accounting for greater than 10% of the Company’s revenues and at September 30, 2023 there were $19.7 million of accounts receivable from this customer. For the nine-month period ended September 30, 2022 there was no customer accounting for 10% of the Company’s revenues.

The loss of a principal customer or a decline in the economic prospects of and/or a reduction in purchases of the Company’s products or services by any such customer could have a material adverse effect on the Company’s operating results and financial position.

Cash and Cash Equivalents

Temporary investments with original maturities of ninety days or less are included in cash and cash equivalents.

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Inventories

Inventories, consisting primarily of refrigerant products available for sale, are stated at the lower of cost, on a first-in first-out basis, or net realizable value. Where the market price of inventory is less than the related cost, the Company may be required to write down its inventory through a lower of cost or net realizable value adjustment, the impact of which would be reflected in cost of sales on the Consolidated Statements of Operations. Any such adjustment would be based on management’s judgment regarding future demand and market conditions and analysis of historical experience.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, including internally manufactured equipment. The cost to complete equipment that is under construction is not considered to be material to the Company’s financial position. Provision for depreciation is recorded (for financial reporting purposes) using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the shorter of economic life or terms of the respective leases. Costs of maintenance and repairs are charged to expense when incurred.

Due to the specialized nature of the Company’s business, it is possible that the Company’s estimates of equipment useful life periods may change in the future.

Goodwill

The Company has made acquisitions that included a significant amount of goodwill and other intangible assets. The Company applies the purchase method of accounting for acquisitions, which among other things, requires the recognition of goodwill (which represents the excess of the purchase price of the acquisition over the fair value of the net assets acquired and identified intangible assets). The Company tests its goodwill for impairment annually on a qualitative or quantitative basis (on the first day of the fourth quarter) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an asset below its carrying value. Goodwill is tested for impairment at the reporting unit level. When performing the annual impairment test, the Company has the option of first performing a qualitative assessment, which requires management to make assumptions affecting a reporting unit, to determine the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such a conclusion is reached, the Company is then required to perform a quantitative impairment assessment of goodwill. The Company has one reporting unit at September 30, 2023. Other intangible assets that meet certain criteria are amortized over their estimated useful lives.

An impairment charge is recorded based on the excess of a reporting unit’s carrying amount over its fair value. An impairment charge would be recognized when the carrying amount exceeds the estimated fair value of a reporting unit. These impairment evaluations use many assumptions and estimates in determining an impairment loss, including certain assumptions and estimates related to future earnings. If the Company does not achieve its earnings objectives, the assumptions and estimates underlying these impairment evaluations could be adversely affected, which could result in an asset impairment charge that would negatively impact operating results. During the fourth quarter of 2022, the Company completed its annual impairment test as of October 1 and determined in its qualitative assessment it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, resulting in no goodwill impairment. There can be no assurances that future sustained declines in macroeconomic or business conditions affecting our industry will not occur, which could result in goodwill impairment charges in future periods.

There were no goodwill impairment losses recognized in 2022 or the nine months ended September 30, 2023.

Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company accounts for operating leases in accordance with ASU 2016-02. The Company’s accounting for finance leases remained substantially unchanged. See Note 5 for further details and current balances.

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Cylinder Deposit Liability

The cylinder deposit liability, which is included in accrued expenses and other current liabilities on the Company’s Balance Sheet, represents the amount due to customers for the return of refillable cylinders. The Company’s Aspen Refrigerants division (“ARI”) charges its customers cylinder deposits upon the shipment of refrigerant gases that are contained in refillable cylinders. The amount charged to the customer by ARI approximates the cost of a new cylinder of the same size. Upon return of a cylinder, this liability is reduced. The cylinder deposit liability balance was $16.6 million and $13.6 million at September 30, 2023 and December 31, 2022, respectively.

Revenues and Cost of Sales

The Company’s products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems. Most of the Company’s revenues are realized from the sale of refrigerant and industrial gases and related products. The Company also generates revenue from refrigerant management services performed at a customer’s site and in-house. The Company conducts its business primarily within the US.

The Company applies the FASB’s guidance on revenue recognition, which requires the Company to recognize revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services transferred to its customers. In most instances, the Company’s contract with a customer is the customer’s purchase order and the sales price to the customer is fixed. For certain customers, the Company may also enter into a sales agreement outlining a framework of terms and conditions applicable to future purchase orders received from that customer. Because the Company’s contracts with customers are typically for a single customer purchase order, the duration of the contract is usually less than one year. The Company’s performance obligations related to product sales are satisfied at a point in time, which may occur upon shipment of the product or receipt by the customer, depending on the terms of the arrangement. The Company’s performance obligations related to reclamation and RefrigerantSide® services are generally satisfied at a point in time when the service is performed. Accordingly, revenues are recorded upon the shipment of the product, or in certain instances upon receipt by the customer, or the completion of the service.

In July 2016 the Company was awarded, as prime contractor, a five-year contract, including a five-year renewal option, which has been exercised through July 2026, by the United States Defense Logistics Agency (“DLA”) for the management, supply, and sale of refrigerants, compressed gases, cylinders, and related services. Due to the contract containing multiple performance obligations, the Company assessed the arrangement in accordance with ASC 606-10-25-14. The Company determined that the sale of refrigerants and the management services provided under the contract each have stand-alone value. Accordingly, the performance obligation related to the sale of refrigerants is satisfied at a point in time, mainly when the customer receives and obtains control of the product. The performance obligation related to management service revenue is satisfied over time and revenue is recognized on a straight-line basis over the term of the arrangement as the management services are provided.

Cost of sales is recorded based on the cost of products shipped or services performed and related direct operating costs of the Company’s facilities. In general, the Company performs shipping and handling services for its customers in connection with the delivery of refrigerant and other products. The Company elected to implement ASC 606-10-25-18B, whereby the Company accounts for such shipping and handling as activities to fulfill the promise to transfer the good. To the extent that the Company charges its customers shipping fees, such amounts are included as a component of revenue and the corresponding costs are included as a component of cost of sales.

Income Taxes

The Company is taxed at statutory corporate income tax rates after adjusting income reported for financial statement purposes for certain items. Current income tax expense reflects the tax results of revenues and expenses currently taxable or deductible. The Company utilizes the asset and liability method of accounting for deferred income taxes, which provides for the recognition of deferred tax assets or liabilities, based on enacted tax rates and laws, for the differences between the financial and income tax reporting bases of assets and liabilities. The tax benefit associated with the Company’s net operating loss carry forwards (“NOLs”) is recognized to the extent that the Company expects to realize future taxable income.

During the year ended December 31, 2022, the Company concluded that its deferred tax assets were more likely than not to become realizable. The Company fully reversed its existing valuation allowance of $15.1 million, with $11.6 million reversed during the first and second quarters of 2022, and the remaining $3.5 million through the third and fourth quarters of 2022. The conclusion that a valuation allowance was no longer needed was based on the achievement of three years of cumulative pre-tax income, the utilization of the Company’s $29.3 million federal NOLs, which comprised a majority of the Company’s deferred tax assets, combined with estimates of future years’ pre-tax income that were sufficient to realize the remaining deferred tax assets.

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As of September 30, 2023, the Company had no federal NOLs, as the Company utilized all of its remaining federal NOLs during the year ended December 31, 2022. As of September 30, 2023, the Company had state tax NOLs of approximately $1.8 million, expiring in various years. We review the likelihood that we will realize the benefit of our deferred tax assets on a quarterly basis.

The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities. As of September 30, 2023 and December 31, 2022, the Company believes it had no uncertain tax positions.

Income per Common and Equivalent Shares

If dilutive, common equivalent shares (common shares assuming exercise of options) utilizing the treasury stock method are considered in the presentation of diluted income per share. The reconciliation of shares used to determine net income per share is as follows (dollars in thousands, unaudited):


	Three Months				Nine Months
	ended September 30,				ended September 30,
	2023		2022		2023		2022
Net income	$	13,582	$	29,356	$	48,302	$	98,721

Weighted average number of shares – basic		45,404,963		45,063,810		45,348,072		44,935,739
Shares underlying options		1,940,417		2,117,614		1,971,392		2,117,271
Weighted average number of shares – diluted		47,345,380		47,181,424		47,319,464		47,053,010

During the three month periods ended September 30, 2023 and 2022, certain options aggregating 7,444 and 2,743 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.

During the nine month periods ended September 30, 2023 and 2022, certain options aggregating 7,444 and 2,980 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.

Estimates and Risks

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires the use of estimates and assumptions that affect the amounts reported in these financial statements and footnotes. The Company considers these accounting estimates to be critical in the preparation of the accompanying consolidated financial statements. The Company uses information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used. Additionally, these estimates may not ultimately reflect the actual amounts of the final transactions that occur. The Company utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies. In the event that the assumptions or conditions change in the future, the estimates could differ from the original estimates.

Several of the Company’s accounting policies involve significant judgments, uncertainties, and estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management’s judgments and estimates, there could be a material adverse effect on the Company. On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventory reserves, goodwill and commitments and contingencies. With respect to trade accounts receivable, the Company estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations. For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary.

The Company participates in an industry that is highly regulated, and changes in the regulations affecting its business could affect its operating results. Currently the Company purchases virgin hydrofluorocarbon (“HFC”) and hydrofluroolefin (“HFO”) refrigerants and reclaimable, primarily hydrochlorofluorocarbons (“HCFC”), HFC and chlorofluorocarbon (“CFC”), refrigerants from suppliers and its customers. To the extent that the Company is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand and/or price for refrigerants sold by the Company, the Company could realize reductions in revenue from refrigerant sales, which could have a material adverse effect on its operating results and its financial position. The process of sourcing refrigerants includes various procurement costs, such as freight, processing, insurance, and other costs, relating to the delivery of refrigerants. As a result of the recently noted global supply

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chain issues, the Company determined it could be exposed to incremental costs related to these refrigerant purchases. These costs represent the Company’s initial estimate that are possibly subject to finalization in future periods and are recorded in accrued expenses and other current liabilities on the consolidated balance sheet as of September 30, 2023.

The Company is subject to various legal proceedings. The Company assesses the merit and potential liability associated with each of these proceedings. In addition, the Company estimates potential liability, if any, related to these matters. To the extent that these estimates are not accurate, or circumstances change in the future, the Company could realize liabilities, which could have a material adverse effect on its operating results and its financial position.

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope, and in November 2018, issued ASU No. 2018-19 and in April 2019, issued ASU No. 2019-04 and in May 2019, issued ASU No. 2019-05, and in November 2019, issued ASU No. 2019-11, which each amended the standard. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company adopted ASU No. 2016-13 on January 1, 2023. The adoption of ASU No. 2016-13 did not have a material impact on its results of operations or financial position.

In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which is intended to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt-Debt with Conversion and Other Options, for convertible instruments. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company adopted ASU 2020-06 on January 1, 2023. The adoption of ASU 2020-06 did not have a material impact on its results of operations or financial position.

Note 2 - Fair Value

ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

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Level 3: Valuations for assets and liabilities include certain unobservable inputs in the assumptions and projections used in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Note 3 - Inventories

Inventories consist of the following:


	September 30,		December 31,
	2023		2022
	(unaudited)
(in thousands)
Refrigerants and cylinders	$	144,123	$	152,840
Less: net realizable value adjustments		(4,892)		(7,463)
Total	$	139,231	$	145,377

Note 4 - Property, plant and equipment

Elements of property, plant and equipment are as follows:


	September 30,		December 31,		Estimated
	2023		2022		Lives
(in thousands)	(unaudited)
Property, plant and equipment
- Land	$	1,255	$	1,255
- Land improvements		319		319	6-10 years
- Buildings		1,446		1,446	25-39 years
- Building improvements		3,467		3,396	25-39 years
- Cylinders		13,300		13,315	15-30 years
- Equipment		28,920		27,258	3-10 years
- Equipment under capital lease		315		315	5-7 years
- Vehicles		1,789		1,773	3-5 years
- Lab and computer equipment, software		3,233		3,103	2-8 years
- Furniture & fixtures		933		840	5-10 years
- Leasehold improvements		865		852	3-5 years
- Construction-in-progress		3,741		3,533
Subtotal		59,583		57,405
Less: Accumulated depreciation		(39,013)		(36,837)
Total	$	20,570	$	20,568

Depreciation expense for the nine months ended September 30, 2023 and 2022 was $2.2 million and $2.5 million, respectively.

Note 5 - Leases

The Company has various lease agreements with terms up to 11 years, including leases of buildings and various equipment. Some leases include options to purchase, terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised.

At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. Some of the Company’s lease arrangements contain lease components (e.g. minimum rent payments) and non-lease components (e.g. common area maintenance, charges, utilities and property taxes). The Company elected the package of practical expedients permitted under the transition guidance, which allows it to carry forward its historical lease classification, its assessment on whether a contract contains a lease, and its initial direct costs for any leases that existed prior to the adoption of the new standard. The Company also elected to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a

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straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value, guarantees or material restrictive covenants.

Operating leases are included in Right of use asset, Accrued expenses and other current liabilities, and Long-term lease liabilities on the consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred.

Operating lease expense of $2.1 million and $1.9 million, for the nine months ended September 30, 2023 and 2022, respectively, is included in Selling, general and administrative expenses on the consolidated statements of operations.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of September 30, 2023.


	September 30,
Maturity of Lease Payments	2023
(in thousands)	(unaudited)
2023 (remaining)	$	1,291
-2024		2,372
-2025		2,173
-2026		1,283
-2027		799
-Thereafter		960
Total undiscounted operating lease payments		8,878
Less imputed interest		(1,739)
Present value of operating lease liabilities	$	7,139

Balance Sheet Classification


	September 30,
	2023
(in thousands)	(unaudited)
Current lease liabilities (recorded in Accrued expenses and other current liabilities)	$	1,972
Long-term lease liabilities		5,167
Total operating lease liabilities	$	7,139

Other Information


	September 30,
	2023
Weighted-average remaining term for operating leases	3.07	years
Weighted-average discount rate for operating leases	8.24	%

Cash Flows

Cash paid for amounts included in the present value of operating lease liabilities during the nine months ended September 30, 2023 and 2022 was $2.1 million and $1.9 million, respectively and is included in operating cash flows.

Note 6 - Goodwill and intangible assets

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations accounted for under the purchase method of accounting.

There were no goodwill impairment losses recognized for the nine-month period ended September 30, 2023, and year ended December 31, 2022. Based on the results of the impairment assessments of goodwill and intangible assets performed, management concluded that the fair value of the Company’s goodwill exceeds the carrying value and that there are no impairment indicators related to intangible assets.

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At September 30, 2023 and December 31, 2022 the Company had $47.8 million of goodwill.

The Company’s other intangible assets consist of the following:


		September 30, 2023						December 31, 2022
		(unaudited)
	Amortization	Gross						Gross
	Period	Carrying		Accumulated				Carrying		Accumulated
(in thousands)	(in years)	Amount		Amortization		Net		Amount		Amortization		Net
Intangible assets with determinable lives
Covenant not to compete	6 – 10		870		776		94		870		710		160
Customer relationships	3 – 12		31,560		16,486		15,074		31,560		14,491		17,069
Above market leases	13		567		266		301		567		232		335
Total identifiable intangible assets		$	32,997	$	17,528	$	15,469	$	32,997	$	15,433	$	17,564

Amortization expense for the nine months ended September 30, 2023 and 2022 was $2.1 million for both periods. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

Note 7 - Share-based compensation

Share-based compensation represents the cost related to share-based awards, typically stock options or stock grants, granted to employees, non-employees, officers and directors. Share-based compensation is measured at grant date, based on the estimated aggregate fair value of the award on the grant date, and such amount is charged to compensation expense on a straight-line basis (net of estimated forfeitures) over the requisite service period. For the nine month periods ended September 30, 2023 and 2022, share-based compensation expense of $2.1 million and $0.8 million, respectively, is reflected in Selling, general and administrative expenses in the consolidated Income Statements.

Share-based awards have historically been made as stock options, and recently also as stock grants, issued pursuant to the terms of the Company’s stock option and stock incentive plans (collectively, the “Plans”), described below. The Plans may be administered by the Board of Directors or the Compensation Committee of the Board or by another committee appointed by the Board from among its members as provided in the Plans. Presently, the Plans are administered by the Company’s Compensation Committee of the Board of Directors. As of September 30, 2023 there were an aggregate of 4,350,191 shares of the Company’s common stock available under the Plans for issuance for future stock option grants or other stock based awards.

Stock option awards, which allow the recipient to purchase shares of the Company’s common stock at a fixed price, are typically granted at an exercise price equal to the Company’s stock price at the date of grant. Typically, the Company’s stock option awards have vested from immediately to two years from the grant date and have had a contractual term ranging from three to ten years. ISOs granted under the Plans may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Nonqualified options granted under the Plans may not be granted at a price less than the fair market value of the common stock. Options granted under the Plans expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).

Effective September 17, 2014, the Company adopted its 2014 Stock Incentive Plan (“2014 Plan”) pursuant to which 3,000,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs may be granted under the 2014 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. Unless the 2014 Plan is sooner terminated, the ability to grant options or other awards under the 2014 Plan will expire on September 17, 2024.

Effective June 7, 2018, the Company adopted its 2018 Stock Incentive Plan (“2018 Plan”) pursuant to which 4,000,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs may be granted under the 2018 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. Unless the 2018 Plan is sooner terminated, the ability to grant options or other awards under the 2018 Plan will expire on June 7, 2028.

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Effective June 11, 2020, the Company adopted its 2020 Stock Incentive Plan (“2020 Plan”) pursuant to which 3,000,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs may be granted under the 2020 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. Unless the 2020 Plan is sooner terminated, the ability to grant options or other awards under the 2020 Plan will expire on June 11, 2030.

All stock options have been granted to employees and non-employees at exercise prices equal to or in excess of the market value on the date of the grant.

The Company determines the fair value of share-based awards at the grant date by using the Black-Scholes option-pricing model, and has utilized the simplified method to compute expected lives of share-based awards. There were options to purchase 592,798 and 379,070 shares of common stock granted during the nine month periods ended September 30, 2023 and 2022, respectively.

A summary of the activity for stock options issued under the Company’s Plans for the indicated periods is presented below:


		Weighted
		Average
		Exercise
Stock Option Plan Totals	Shares	Price
Outstanding at December 31, 2021	2,604,023	$	1.03
-Cancelled	(11,781)	$	3.75
-Exercised	(583,273)	$	1.15
-Granted (1)	381,181	$	4.33
Outstanding at December 31, 2022	2,390,150	$	1.51
-Cancelled	(26,150)	$	9.62
-Exercised	(275,405)	$	2.68
-Granted (2)	592,798	$

HUDSON TECHNOLOGIES INC /NY [HDSN] Filings
10-Q	[2023-11-07]
10-Q	[2023-08-08]
10-Q	[2023-05-09]
10-K	[2023-03-14]
10-Q	[2022-11-08]
10-Q	[2022-08-08]
10-Q	[2022-05-10]
10-K	[2022-03-24]
10-Q	[2021-11-15]
10-Q	[2021-08-11]
10-Q	[2021-05-11]
10-K	[2021-03-12]
10-Q	[2020-11-10]
10-Q	[2020-08-05]
10-Q	[2020-05-15]
10-K	[2020-03-13]
10-Q	[2019-11-15]
10-Q	[2019-08-14]
10-Q	[2019-05-02]
10-K	[2019-03-15]
10-Q	[2018-11-30]
10-Q	[2018-11-30]
10-Q	[2018-05-10]
10-K	[2018-03-16]
10-Q	[2017-11-09]
10-Q	[2017-08-09]
10-Q	[2017-05-04]
10-K	[2017-03-10]
10-Q	[2016-11-04]
10-Q	[2016-08-03]
10-Q	[2016-05-06]
10-K	[2016-03-11]
10-Q	[2015-11-10]
10-Q	[2015-07-30]
10-Q	[2015-05-06]
10-K	[2015-03-16]
10-Q	[2014-10-29]
10-Q	[2014-07-31]
10-Q	[2014-04-29]
10-K	[2014-02-28]
10-Q	[2013-11-08]
10-Q	[2013-08-06]
10-Q	[2013-05-06]
10-K	[2013-03-05]
10-Q	[2012-10-31]
10-Q	[2012-08-01]
10-Q	[2012-05-01]
10-K	[2012-03-05]