Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements, contained in this section and elsewhere in this Form 10-Q, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, changes in the laws and regulations affecting the industry, changes in the demand and price for refrigerants (including unfavorable market conditions adversely affecting the demand for, and the price of refrigerants), the Company's ability to source refrigerants, regulatory and economic factors, seasonality, competition, litigation, the nature of supplier or customer arrangements that become available to the Company in the future, adverse weather conditions, possible technological obsolescence of existing products and services, possible reduction in the carrying value of long-lived assets, estimates of the useful life of its assets, potential environmental liability, customer concentration, the ability to obtain financing, the ability to meet financial covenants under our financing facility, any delays or interruptions in bringing products and services to market, the timely availability of any requisite permits and authorizations from governmental entities and third parties as well as factors relating to doing business outside the United States, including changes in the laws, regulations, policies, and political, financial and economic conditions, including inflation, interest and currency exchange rates, of countries in which the Company may seek to conduct business, the Company's ability to successfully integrate any assets it acquires from third parties into its operations, and other risks detailed in the Company's Form 10-K for the year ended December 31, 2024, and in the Company's other subsequent filings with the Securities and Exchange Commission ("SEC"). The words "believe", "expect", "anticipate", "may", "plan", "should" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

Critical Accounting Estimates

The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. 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 inventory reserves, goodwill and intangible assets.

Inventory

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. Net realizable value represents the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal. The determination if a write-down to net realizable value is necessary is primarily affected by the market prices for the refrigerant gases we sell. Commodity prices generally are affected by a wide range of factors beyond our control, including weather, seasonality, the availability and adequacy of supply, government regulation and policies and general political and economic conditions. At any time, our inventory levels may be substantial and fluctuate, which will materially impact our estimates of net realizable value.

Overview

The Company is a leading provider of sustainable refrigerant products and services to the Heating Ventilation Air Conditioning and Refrigeration ("HVACR") industry. For over three decades, we have demonstrated our commitment to our customers and the environment by becoming one of the United States' largest refrigerant reclaimers through multimillion dollar investments in the plants and advanced separation technology required to recover a wide variety of refrigerants and restoring them to Air-Conditioning, Heating, and Refrigeration Institute ("AHRI") standard for reuse as certified EMERALD Refrigerants™.

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, which include system decontamination to remove moisture, oils and other contaminants.

Sales of refrigerants continue to represent a significant majority of the Company's revenues.

The Company also sells industrial gases to a variety of industry customers, predominantly to users in, or involved with, the US Military. In July 2016, the Company was awarded, as prime contractor, a five-year fixed price contract, including a five-year renewal option which has been exercised, awarded to it by the United States Defense Logistics Agency ("DLA") for the management and supply of refrigerants, compressed gases, cylinders and related items to US Military commands and installations, Federal civilian agencies and foreign militaries. Primary users include the US Army, Navy, Air Force, Marine Corps and Coast Guard. Our contract with DLA expires in July 2026.

On October 22, 2025, the Company announced that it has been awarded, as prime contractor, a new contract with the DLA. Hudson has served as prime contractor since 2016 and retained this contract following a standard periodic competitive review and rebidding process.

The five-year indefinite delivery, indefinite quantity ("IDIQ") contract includes a five-year renewal option and consists of the management and supply of refrigerants, compressed gases, cylinders and related items to U.S. Military Commands and Installations and Federal civilian agencies. Primary users include the US Army, Navy, Air Force and Marine Corps.

Results of Operations

Three-month period ended September 30, 2025 as compared to the three-month period ended September 30, 2024

Revenues for the three-month period ended September 30, 2025 were $74.0 million, an increase of $12.1 million or 20% from the $61.9 million reported during the comparable 2024 period. The increase was attributable to increased sales volume and higher selling prices of refrigerants sold.

Gross profit and gross margin for the three-month period ended September 30, 2025, were $23.7 million and 32% respectively, an increase of $7.8 million and 6% respectively from the $15.9 million and 26% reported during the comparable 2024 period. The increase was primarily driven by an increase in the average sales price of refrigerants.

Selling, general and administrative ("SG&A") expenses for the three-month period ended September 30, 2025 were $8.9 million, an increase of $0.8 million from the $8.1 million reported during the comparable 2024 period. The increase was primarily driven by higher sales personnel costs.

Amortization expense for the three-month periods ended September 30, 2025 and 2024 were $0.8 million and $0.9 million, respectively.

Net interest income for the three-month period ended September 30, 2025 was $0.8 million, compared to the net interest income of $0.3 million reported during the comparable 2024 period reflecting the Company's unlevered balance sheet and higher cash position.

Other income for the three-month period ended September 30, 2025, was $1.6 million, compared to $2.3 million reported during the same period in 2024. In the third quarter of 2025, the Company recognized $1.6 million in other income from the reversal of earn-out liabilities related to the recent acquisition of USA Refrigerants. Other income of $2.3 million for the same period in 2024 was primarily driven by litigation settlement proceeds and a lease opt-out associated with the Atlanta facility.

The income tax expense for the three-month period ended September 30, 2025 was $4.0 million compared to income tax expense of $1.7 million for the three-month period ended September 30, 2024. Income tax expense for federal and state income tax purposes was determined by applying statutory income tax rates to pre-tax income after adjusting for certain items.

The net income for the three-month period ended September 30, 2025 was $12.4 million, an increase of $4.6 million from the $7.8 million of net income reported during the comparable 2024 period, primarily due to the increased revenue and gross profit, offset slightly by the higher selling, general and administrative expenses.

Nine-month period ended September 30, 2025 as compared to the nine-month period ended September 30, 2024

Revenues for the nine-month period ended September 30, 2025 of $202.2 million, were consistent with the $202.5 million reported during the comparable 2024 period. The Company recognized a 3% increase in sales volume which was offset by a 3% decline in selling prices of refrigerant sold.

Gross profit and gross margin for the nine-month period ended September 30, 2025, were $58.6 million and 29% respectively, a decrease of $1.3 million and 1% respectively from the $59.9 million and 30% reported during the comparable 2024 period. The gross margin reduction in the 2025 period was primarily a result of the lower average selling prices of refrigerants sold.

Selling, general and administrative ("SG&A") expenses for the nine-month period ended September 30, 2025 were $26.3 million, an increase of $1.3 million from the $25.0 million reported during the comparable 2024 period. The increase in SG&A was primarily driven by higher sales personnel costs.

Amortization expense for the nine-month periods ended September 30, 2025 and 2024 were $2.5 million and $2.4 million, respectively.

Net interest income for the nine-month period ended September 30, 2025 was 2.0 million, compared to the net interest expense of $0.1 million reported during the comparable 2024 period reflecting the Company's unlevered balance sheet and higher cash position.

Other income for the nine-month period ended September 30, 2025, was $1.6 million, compared to $2.3 million reported during the same period in 2024. In the third quarter of 2025, the Company recognized $1.6 million in other income from the reversal of earn-out liabilities related to the recent acquisition of USA Refrigerants. Other income of $2.3 million for the same period in 2024 was primarily driven by litigation settlement proceeds and a lease opt-out associated with the Atlanta facility.

The income tax expense for the nine-month period ended September 30, 2025 was $8.1 million compared to income tax expense of $7.8 million for the nine-month period ended September 30, 2024. Income tax expense for federal and state income tax purposes was determined by applying statutory income tax rates to pre-tax income after adjusting for certain items.

Net income for the nine-month period ended September 30, 2025 was $25.3 million, a decrease of $1.7 million from the $27.0 million of net income reported during the comparable 2024 period. The decrease was attributable to both lower gross profit and margin and higher SG&A costs, as described above.

Liquidity and Capital Resources

At September 30, 2025, the Company had working capital, which represents current assets less current liabilities, of $170.3 million, an increase of $22.6 million from the working capital of $147.7 million at December 31, 2024. The increase in working capital is primarily attributable to a rise in cash.

Inventories and trade receivables are principal components of current assets. At September 30, 2025, the Company had inventories of $97.4 million, an increase of $1.2 million from $96.2 million at December 31, 2024. The Company's ability to sell and replace its inventory on a timely basis and the prices at which it can be sold are subject, among other things, to current market conditions and the nature of supplier or customer arrangements and the Company's ability to source CFC and HCFC based refrigerants (which are no longer being produced) and HFC refrigerants (with newly manufactured production currently in the process of being phased down) and HFO refrigerants.

At September 30, 2025, the Company had trade receivables, net of allowance for credit losses, of $25.4 million, an increase of $11.8 million from $13.6 million at December 31, 2024, mainly due to seasonal timing. The Company typically generates its most significant revenue during the second and third quarters of any given year. The Company's trade receivables are concentrated with various wholesalers, brokers, contractors and end-users within the refrigeration industry that are primarily located in the continental United States. The Company has historically financed its working capital requirements through cash flows from operations, debt, and the issuance of equity securities.

Net cash provided by operating activities for the nine-month period ended September 30, 2025 was $29.4 million, when compared to net cash provided by operating activities of $71.1 million for the comparable 2024 period, mainly due to the timing of inventories, accounts receivable, accounts payable and accrued expenses.

Net cash used in investing activities for the nine-month period ended September 30, 2025 was $3.9 million compared with net cash used in investing activities of $24.4 million for the comparable 2024 period, mainly due to recent acquisition of USA Refrigerants as previously discussed in Note 10 above and timing of capital expenditures related to capitalization of the Company's replacement ERP system.

Net cash used in financing activities for the nine-month period ended September 30, 2025 was $5.9 million compared with net cash used in financing activities of $2.6 million for the comparable 2024 period. For the period ended September 30, 2025, the Company repurchased 939,259 shares of its common stock, at a cost of $5.8 million.

At September 30, 2025, cash and cash equivalents were $89.7 million, or approximately $19.6 million higher than the $70.1 million of cash and cash equivalents at December 31, 2024.

Revolving Credit Facility

On March 2, 2022, Hudson Technologies Company ("HTC") and Hudson Holdings, Inc. ("Holdings"), as borrowers (collectively, the "Borrowers"), and Hudson Technologies, Inc. (the "Company") as a guarantor, entered into an Amended and Restated Credit Agreement (the "Amended Wells Fargo Facility") with Wells Fargo Bank, National Association, as administrative agent and lender ("Agent" or "Wells Fargo") and such other lenders as have or may thereafter become a party to the Amended Wells Fargo Facility. The Amended Wells Fargo facility amended and restated the prior Wells Fargo Facility entered into on December 19, 2019.

Under the terms of the Amended Wells Fargo Facility, the Borrowers: (i) immediately borrowed $15 million in the form of a "first in last out" term loan (the "FILO Tranche") and (ii) could initially borrow from time to time, up to $75 million at any time consisting of revolving loans (the "Revolving Loans") in a maximum amount up to the lesser of $75 million and a borrowing base that is calculated based on the outstanding amount of the Borrowers' eligible receivables and eligible inventory, as described in the Amended Wells Fargo Facility. The Amended Wells Fargo Facility also initially contained a sublimit of $9 million for swing line loans and $2 million for letters of credit. The Company currently has a $0.9 million letter of credit outstanding. The FILO Tranche was repaid in full in July 2023 and may not be reborrowed.

Amounts borrowed under the Amended Wells Fargo Facility may be used for working capital needs, certain permitted acquisitions, and to reimburse drawings under letters of credit.

Interest under the Amended Wells Fargo Facility is payable in arrears on the first day of each month. Interest charges with respect to Revolving Loans are computed on the actual principal amount of Revolving Loans outstanding at a rate per annum equal to (A) with respect to Base Rate loans, the sum of (i) a rate per annum equal to the higher of (1) 1.0%, (2) the federal funds rate plus 0.5%, (3) one month term SOFR plus 1.0%, and (4) the prime commercial lending rate of Wells Fargo, plus (ii) between 1.25% and 1.75% depending on average monthly undrawn availability and (B) with respect to SOFR loans, the sum of the applicable SOFR rate plus between 2.36% and 2.86% depending on average quarterly undrawn availability. The Amended Wells Fargo Facility also includes a monthly unused line fee ranging from 0.35% to 0.75% per annum determined based upon the level of average Revolving Loans outstanding during the immediately preceding month measured against the total Revolving Loans that may be borrowed under the Amended Wells Fargo Facility.

In connection with the closing of the Amended Wells Fargo Facility, the Company also entered into a First Amendment to Guaranty and Security Agreement, dated as of March 2, 2022 (the "Amended Revolver Guaranty and Security Agreement"), pursuant to which the Company and certain subsidiaries are continuing to unconditionally guarantee the payment and performance of all obligations owing by Borrowers to Wells Fargo, as Agent for the benefit of the revolving lenders. Pursuant to the Amended Revolver Guaranty and Security Agreement, Borrowers, the Company and certain other subsidiaries are continuing to grant to the Agent, for the benefit of the Wells Fargo Facility lenders, a security interest in substantially all of their respective assets, including receivables, equipment, general intangibles (including intellectual property), inventory, subsidiary stock, real property, and certain other assets.

The Amended Wells Fargo Facility contains a financial covenant requiring the Company to maintain at all times minimum liquidity (defined as availability under the Amended Wells Fargo Facility plus unrestricted cash) of at least $5 million, of which at least $3 million must be derived from availability. The Amended Wells Fargo Facility also contains a springing covenant, which takes effect only upon a failure to maintain undrawn availability of at least $11.25 million or upon an election by the Borrowers to increase the inventory component of the borrowing base, requiring the Company to maintain a Fixed Charge Coverage Ratio (FCCR) of not less than 1.00 to 1.00, as of the end of each trailing period of twelve consecutive months commencing with the month prior to the triggering of the covenant. The FCCR (as defined in the Wells Fargo Facility) is the ratio of (a) EBITDA for such period, minus unfinanced capital expenditures made during such period, to (b) the aggregate amount of (i) interest expense required to be paid (other than interest paid-in-kind, amortization of financing fees, and other non-cash interest expense) during such period, (ii) scheduled principal payments (but excluding principal payments relating to outstanding Revolving Loans under the Amended Wells Fargo Facility), (iii) all net federal, state, and local income taxes required to be paid during such period (provided, that any tax refunds received shall be applied to the period in which the cash outlay for such taxes was made), (iv) all restricted payments paid (as defined in the Amended Wells Fargo Facility) during such period, and (v) to the extent not otherwise deducted from EBITDA for such period, all payments required to be made during such period in respect of any funding deficiency or funding shortfall with respect to any pension plan. The FCCR covenant ceases after the Borrowers have been in compliance therewith for two consecutive months.

The Amended Wells Fargo Facility also contains customary non-financial covenants relating to the Company and the Borrowers, including limitations on the Borrowers' ability to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, impairments to guarantees and a change of control.

On June 6, 2024, the Borrowers and the Company entered into a First Amendment to Amended and Restated Credit Agreement and Limited Consent (the "First Amendment") with Wells Fargo and the lenders under the Amended Wells Fargo Facility. Pursuant to the First Amendment, Wells Fargo and the other lenders consented to the consummation of the USA Refrigerants Acquisition and made certain other technical amendments to the existing Amended Wells Fargo Facility, including the calculation of the borrowing base thereunder. The First Amendment also provided for permitted stock repurchases by the Company in an amount not to exceed $5 million per calendar year, and $15 million in aggregate over the term of the Amended Wells Fargo Facility, upon satisfaction of certain conditions.

On October 23, 2024, the Borrowers and the Company entered into a Second Amendment to Amended and Restated Credit Agreement (the "Second Amendment") with Wells Fargo and the lenders under the Amended Wells Fargo Facility. The Second Amendment amends the provision relating to permitted stock repurchases by the Company, to permit stock repurchases in an amount not to exceed $10 million per calendar year in each of 2024 and 2025 and $5 million in any calendar year thereafter during the term of the Amended Wells Fargo Facility, upon satisfaction of certain conditions, subject to an aggregate cap of $25 million.

On June 23, 2025, the Borrowers and the Company entered into a Third Amendment to Amended and Restated Credit Agreement (the "Third Amendment") with Wells Fargo and the lenders under the Amended Wells Fargo Facility. The Third Amendment reduced the amount of Revolving Loans that may be made under the Amended Wells Fargo Facility from $75 million to $40 million, and also provided for the reduction of the letter of credit sublimit from $2 million to $1.5 million. The Third Amendment also amended certain other thresholds and sub-limits in the Amended Wells Fargo Facility, as further specified therein.

At September 30, 2025, the Company had borrowing availability of approximately $40 million from the Amended Wells Fargo Facility and no balance was outstanding.

The commitments under the Amended Wells Fargo Facility will expire and the full outstanding principal amount of the loans, together with accrued and unpaid interest, are due and payable in full on March 2, 2027, unless the commitments are terminated and the outstanding principal amount of the loans are accelerated sooner following an event of default or in the event of certain other cross-defaults.

The Company was in compliance with all covenants under the Amended Wells Fargo Facility as of September 30, 2025.

The Company's ability to comply with these covenants in future quarters may be affected by events beyond the Company's control, including general economic conditions, weather conditions, regulations and refrigerant pricing. Therefore, the Company cannot make any assurance that it will continue to be in compliance during future periods.

The Company believes that it will be able to satisfy its working capital requirements for the foreseeable future from anticipated cash flows from operations and available funds under the Amended Wells Fargo Facility. Any unanticipated expenses, including, but not limited to, an increase in the cost of refrigerants purchased by the Company, an increase in operating expenses or failure to achieve expected revenues from the Company's RefrigerantSide® Services and/or refrigerant sales or additional expansion or acquisition costs that may arise in the future would adversely affect the Company's future capital needs. There can be no assurance that any of the Company's proposed or future plans will be successful, and as such, the Company may require additional capital sooner than anticipated, which capital may not be available on acceptable terms, or at all.

Reliance on Suppliers and Customers

The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results. Currently the Company purchases virgin HCFC and HFC refrigerants and reclaimable, primarily HCFC and CFC, refrigerants from suppliers and its customers. Under the Clean Air Act the phase-down of future production of certain virgin HCFC refrigerants commenced in 2010 and has been fully phased out by the year 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by the year 2030. 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 it, the Company could realize reductions in revenue from refrigerant sales, which could have a material adverse effect on the Company's operating results and financial position.

For the nine-month periods ended September 30, 2025 and 2024, the United States Defense Logistics Agency (the "DLA") accounted for greater than 10% of the Company's revenue and over 10% of the outstanding accounts receivable at September 30, 2025 and September 30, 2024. Revenue from the DLA totaled $30.2 million and $28.0 million for the nine-month periods ended September 30, 2025 and September 30, 2024. Accounts receivable from the DLA totaled $6.2 million and $3.5 million as of September 30, 2025 and December 31, 2024, respectively.

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.

Seasonality and Weather Conditions and Fluctuations in Operating Results

The Company's operating results vary from period to period as a result of weather conditions, requirements of potential customers, non-recurring refrigerant and service sales, availability and price of refrigerant products (virgin or reclaimable), changes in reclamation technology and regulations, timing in introduction and/or retrofit or replacement of refrigeration equipment, the rate of expansion of the Company's operations, and by other factors. The Company's business is seasonal in nature with peak sales of refrigerants occurring in the first nine months of each year. During past years, the seasonal decrease in sales of refrigerants has resulted in losses particularly in the fourth quarter of the year. In addition, to the extent that there is unseasonably cool weather throughout the spring and summer months, which would adversely affect the demand for refrigerants, there would be a corresponding negative impact on the Company. Delays or inability in securing adequate supplies of refrigerants at peak demand periods, lack of refrigerant demand, increased expenses, declining refrigerant prices and a loss of a principal customer could result in significant losses. There can be no assurance that the foregoing factors will not occur and result in a material adverse effect on the Company's financial position and significant losses. The Company believes that to a lesser extent there is a similar seasonal element to RefrigerantSide® Service revenues as refrigerant sales.

Recent Accounting Pronouncements

See recent accounting pronouncements set forth in Note 1 of the financial statements contained in this report.

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