Hudson Technologies reaffirms 2026 gross margin at low-to-mid-20% range while advancing Icorium partnership and $210M DLA contract

• "Third quarter revenue and volume fell below expectations as ample channel inventory kept HFC market prices low." (President, CEO & Chairman Kenneth Gaglione) "In this soft pricing environment, Hudson elected to concentrate on profitable sales and cost reductions to deliver gross margin that exceeded expectations." (President, CEO & Chairman Gaglione)
• "This period, the EPA released data showing that U.S. HFC inventory declined 3% year-over-year in 2025." (President, CEO & Chairman Gaglione) "From 2022, when the AIM Act took effect through 2025, reported total HFC inventories have declined approximately 27%." (President, CEO & Chairman Gaglione)
• "We signed a joint development agreement during the quarter with Icorium." (President, CEO & Chairman Gaglione) "This patented extractive distillation technology is expected to complement our existing fractional distillation systems by processing complex refrigerant mixtures, including those difficult next-generation blends and azeotropes with greater speed, recovery and efficiency." (President, CEO & Chairman Gaglione)
• "In August 2026, Hudson was reawarded the $210 million DLA contract." (President, CEO & Chairman Gaglione) "During the third quarter, the DLA contract contributed $11 million in revenue." (President, CEO & Chairman Gaglione)
• "Hudson generated $59.4 million in revenue, a 20% decrease from the 2025 quarter." (CFO & Secretary Brian Bertaux) "Gross margin was 25%, better than expected." (CFO & Secretary Bertaux) "Hudson reported net income of $2 million or $0.05 per diluted share." (CFO & Secretary Bertaux)

Outlook

• "We are reaffirming our 2026 gross margin target at the low to mid-20% range." (CFO & Secretary Bertaux)
• "Pricing has stabilized this year." (CFO & Secretary Bertaux) "I would tell you right now that we would expect pricing next year to be about the same as 2026." (CFO & Secretary Bertaux)
• "At current levels, channel inventories could continue to moderate pricing and demand for reclaimed refrigerant as the industry approaches the next phase down in 2029." (President, CEO & Chairman Gaglione)

Financial Results

• "Sales volume declined 9% and average prices fell 17%." (CFO & Secretary Bertaux) "SG&A expenses increased by $1.9 million to $10.8 million." (CFO & Secretary Bertaux) "The increase was driven by 2 factors." (CFO & Secretary Bertaux)
• "Third quarter ERP expense was 50% lower than in the second quarter." (CFO & Secretary Bertaux) "Other income also differed significantly from the prior year quarter." (CFO & Secretary Bertaux) "In 2025, the company recognized $1.6 million of other income from a potential earn-out related to the 2024 acquisition of USA Refrigerants that ultimately did not materialize." (CFO & Secretary Bertaux)
• "The company ended the quarter debt-free with $35.3 million in cash, a $10 million increase from June 30, 2026." (CFO & Secretary Bertaux) "We did not repurchase shares during the 2026 third quarter because investing in the business remains our near-term priority." (CFO & Secretary Bertaux)

Q&A

• Matthew Raab, Craig-Hallum Capital Group LLC, Research Division: "Volume has been up 9% year-to-date. It was down 9% in Q3. It seems like you guys leaned into margin a little bit, pulled back on volume. Was that an intentional shift?" President, CEO & Chairman Gaglione: "Yes, that's exactly what happened. It's not industry-wide. We intentionally focused more on profitable sales this quarter than volume."
• Matthew Raab, Craig-Hallum Capital Group LLC, Research Division: "And then any color on reclaimed volume within that?" CFO & Secretary Bertaux: "Reclaimed volume is trending about the same growth as last year."
• Matthew Raab, Craig-Hallum Capital Group LLC, Research Division: "Do you have any view on demand that would change materially from what the EPA has said?" President, CEO & Chairman Gaglione: "We also think that the EPA model underrepresents some of the additional demand from other markets that they did not consider."
• Jason Tilchen, Canaccord Genuity Corp., Research Division: "Just wondering if there's any update you can share" on illegal imports and enforcement. President, CEO & Chairman Gaglione: "We still continue to see that kind of activity, although we have nothing new to report for the quarter."
• Jason Tilchen, Canaccord Genuity Corp., Research Division: asked about services investments and a services manager hire. President, CEO & Chairman Gaglione: "We are basically at capacity with our services business."
• Matthew Maus, B. Riley Securities, Inc., Research Division: "You described customer demand as muted. Is that mostly residential and light commercial?" President, CEO & Chairman Gaglione: "We're seeing it pretty much across the board, but I would say most -- I would say more in residential light commercial."
• Matthew Maus, B. Riley Securities, Inc., Research Division: asked about 2027 gross margin focus and whether the shift was sudden. President, CEO & Chairman Gaglione: "It's a product mix shift for us."
• Matthew Maus, B. Riley Securities, Inc., Research Division: asked about pricing exiting the quarter and 2027 direction. CFO & Secretary Bertaux: "Pricing in the third quarter was very similar to the second quarter."
• Matthew Maus, B. Riley Securities, Inc., Research Division: asked about buybacks vs. investing given cash balance. CFO & Secretary Bertaux: "Even though the stock is at an attractive price, we've been holding on purchases because we are going to lean into a lot more strategic and operational efficiency growth."

Sentiment Analysis

• Analysts: slightly negative to pressing, centered on demand and pricing drivers, illegal imports enforcement progress, and the durability of the company’s margin-over-volume stance, including "what can we expect?" (Matthew Maus, B. Riley Securities, Inc., Research Division) and "any update" on illegal imports. (Jason Tilchen, Canaccord Genuity Corp., Research Division)
• Management: neutral to slightly positive in prepared remarks about long-term positioning, with firm language on tactical shifts and limited new detail on enforcement, including "we have nothing new to report for the quarter." (President, CEO & Chairman Gaglione) and "we would expect pricing next year to be about the same as 2026." (CFO & Secretary Bertaux)
• Versus last quarter: management in Q3 used more definitive language on deliberate volume pullback ("Yes, that's exactly what happened." (President, CEO & Chairman Gaglione)) while Q2 featured more conditional framing around pricing drivers ("we can only speculate" (President, CEO & Chairman Gaglione)) and more active discussion of illegal imports magnitude and seasonal weather.

Quarter-over-Quarter Comparison

• Q3 emphasized channel inventory as the primary near-term explanation for soft pricing and described a more explicit tactical shift: "We intentionally focused more on profitable sales this quarter than volume." (President, CEO & Chairman Gaglione) In Q2, management described balancing volume and margin and said it had already "pulled back volume" in June as prices eroded. (President, CEO & Chairman Gaglione)
• The DLA contract moved from uncertainty in Q2 (a reaward "still in review" and a bridge contract) to a confirmed extension in Q3: "in August 2026, Hudson was reawarded the $210 million DLA contract" with a 5-year term through July 2031. (President, CEO & Chairman Gaglione)
• Illegal imports were a larger focal point in Q2 (management discussed industry action and described magnitude as "in the millions of pounds") versus Q3, where management reiterated persistence but said there was "nothing new to report." (President, CEO & Chairman Gaglione)

Risks and Concerns

• "Ample channel inventory kept HFC market prices low." (President, CEO & Chairman Gaglione) "At current levels, channel inventories could continue to moderate pricing and demand for reclaimed refrigerant" ahead of the 2029 phasedown. (President, CEO & Chairman Gaglione)
• "We still continue to see that kind of activity" regarding illegal imports, with "no new developments with respect to enforcement." (President, CEO & Chairman Gaglione)
• The Icorium initiative remained framed as contingent execution: "If successfully commercialized, this technology will help convert more recovered refrigerant into salable product." (President, CEO & Chairman Gaglione)

Final Takeaway

Management described a Q3 operating environment where channel inventory and muted demand pressured revenue and volumes, and said the company deliberately prioritized profitable sales and cost actions to protect margin. Leadership highlighted the reawarded $210 million DLA contract and a joint development agreement with Icorium as key strategic building blocks, while reaffirming a 2026 gross margin target in the low-to-mid-20% range and stating an expectation that 2027 pricing would be about the same as 2026, alongside continued investment in ERP optimization, operating efficiency, and higher-value reclaimed and specialty refrigerants.

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