Hudson Technologies, Inc. (HDSN) Earnings

Management highlights

- Strategic Direction and Business Model Shift * Core long-term priority is value creation via operational excellence and diversification to reduce exposure to cyclical spot refrigerant pricing * Invested in talent and technology in Q2 to advance this vision, even amid weaker-than-expected HFC market prices * Positioning the company to be the leading provider of refrigerant lifecycle management solutions during the industry transition to lower GWP refrigerants - Operational Progress and Investments * Reclamation volume grew, demonstrating strong customer commitment to refrigerant lifecycle management and expanded access to recovered refrigerant sources * Completed successful pilot of small recovery trucks (SRTs) in New York City, enabling high-density, low-volume recoveries previously unaddressed by legacy operations, expanding feedstock access and increasing industry recovery rates while remaining EPA compliant * Hudson operates 2 of 7 US reclamation facilities capable of separating mixed refrigerants via fractional distillation, a core proprietary competency. Announced a partnership with Icorium to scale patented extractive distillation technology, enabling efficient separation of complex next-generation azeotropes and HFO refrigerant blends * The company ended the quarter with an unlevered balance sheet: $26 million in cash and no debt, a $6 million sequential increase in cash from Q1 2026 - Key Contract Updates * DLA five-year contract, originally awarded then rescinded after a competitor challenge, was re-awarded during the earnings call. A 4-month bridge contract (extendable for two additional 3-month periods through May 2027) kept existing terms intact during the review period, and management expressed confidence the matter would be resolved * Data center market opportunity: Current business is nascent and not material, but management expects significant growth in 3-5 years as existing data center HVAC systems require resupply, optimization, and decommissioning. Hudson is investing in operational readiness today to capture this future aftermarket demand - Incident Update * The company's Illinois facility sustained extensive structural damage from a tornado in June 2026. No injuries or damage to core separation equipment or product inventory occurred. The facility was idled for 3 weeks, is now fully operational while major repairs proceed. All restoration costs are covered by insurance and were not included in Q2 2026 P&L

Guidance

- Full-year 2026 gross margin guidance was revised downward, from a mid-20% target to a low to mid-20% target, to account for continued soft HFC refrigerant pricing and persistent inflationary pressures - SG&A expenses are expected to continue increasing year-over-year in the second half of 2026, as the company maintains investments in long-term growth initiatives, though the rate of increase will be lower than in the first half of 2026 - ERP optimization investment costs, which totaled over $1 million in the first half of 2026, will be lower in the second half - Management expects current HFC pricing levels to stabilize in the back half of 2026, with a very small uptick in 410A pricing recorded between Q1 and Q2 2026

Segment performance

Hudson Technologies reports total consolidated revenue of $78.3 million for Q2 2026, an 8% increase compared to Q2 2025. Sales volume grew 12% year-over-year, offset by a 6% decline in average refrigerant selling prices. Gross margin for the quarter was 26%, down from 31% in Q2 2025. SG&A expenses totaled $12.4 million, a $3.1 million increase year-over-year. Net income was $4.9 million (12 cents per diluted share), compared to $10.2 million (23 cents per diluted share) in the prior year quarter. No separate segment level financial performance with revenue contribution percentages was disclosed in the call.

Risks & headwinds

- Soft HFC pricing driven by multiple factors: excess channel inventory, illegally imported refrigerants across the southern US border, and lack of prolonged hot weather to stimulate seasonal demand, which reduced profitability in Q2 - Inflationary pressures, most notably elevated freight costs driven by the Middle East conflict, that could not be passed through to customers amid the pricing trough, contributing to gross margin decline - Uncertainty around the timeline and magnitude of improvement for the illegal refrigerant import issue, even though the industry is working to address the problem - The Illinois facility tornado outage temporarily disrupted production in Q2, delaying some customer orders - ERP system implementation and optimization incurred one-time costs in the first half of 2026 - Legal costs associated with the DLA contract appeal process pressured SG&A in Q2

Analyst Q&A

• Q: An analyst asks for an update on ERP implementation progress, the magnitude of Q2 optimization costs, and when these costs will decline. /

  A: Management states ERP optimization progressed well in Q2 after an initial rollout period. Over $1 million in total ERP optimization costs were incurred in the first half of 2026, and these costs will be significantly lower in the second half of 2026.

• Q: An analyst asks what will drive HFC pricing normalization, given the unexpected softness this quarter despite inflation that typically favors aftermarket refrigerant demand. /

  A: Management cites excess channel inventory and larger-than-expected illegal refrigerant imports as the two key factors suppressing prices. Prolonged hot weather through the rest of the selling season would help firm pricing, while inflationary pressures are expected to remain for the full year.

• Q: An analyst asks how the new Icorium extractive distillation partnership will expand Hudson's reclamation capacity and strategic opportunities. /

  A: Management explains the new technology unlocks separation of complex mixed refrigerants and azeotropes that cannot be effectively processed with existing fractional distillation. It also enables access to new high-purity product adjacencies that were previously unreachable. Cost is expected to be comparable to current methods at scale, with more detail to be shared as commercialization progresses.

• Q: An analyst asks what the company's new staffing investments support, given the addition of fixed costs ahead of future growth. /

  A: Management confirms investments are focused on three core growth pillars: expanding the small recovery truck rollout to new major metropolitan areas (already revenue positive after the successful NYC pilot), growing the new predictive modeling services business for HVAC/chiller systems (with four new contracts already awarded in 2026), and building service capacity to support future data center aftermarket demand. Additional consulting investments support undisclosed future initiatives that will create long-term shareholder value.

• Q: An analyst asks if the company is prioritizing volume growth over margin, given strong volume growth but declining gross margins. /

  A: Management states they are strategically balancing volume and margin: when pricing eroded in June, the company pulled back lower-margin volume to focus on higher-margin product mix, intentionally giving up some top-line revenue to preserve profitability. The June production outage at the Illinois facility temporarily delayed some higher-margin R22 orders, pushing them into the third quarter.