Refrigerants, Recycling & Energy Efficiency NASDAQ: HDSN 1 Investor Presentation: August 2017
Safe Harbor Statement Statements contained herein, which are not historical facts constitute forwardlooking 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 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 Freon and non-freon based refrigerants, regulatory and economic factors, seasonality, competition, litigation, the nature of supplier or customer arrangements which 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 and other risks detailed in the Company s periodic reports filed with the Securities and Exchange Commission. 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. 2
What We Do Non-disruptive growth; working with producers and industry participants 3
Leading National Provider of Full Range of Refrigerant and Engineered Solutions Refrigerants Reclaimed and virgin refrigerants including CFCs, R-22, HFCs One of the largest independent distributors Markets served: air conditioning and refrigeration industry Reclamation Industry leader in refrigerant reclamation ~25% market share ~14% volume growth in 2016 Customers beginning to experience supply constraints One stop service 4 Locations AHRI Certified Lab Cylinder Recertification Separation of mixed refrigerants Product Offerings (90% of Revenue) Patented and proprietary capacities enables Hudson to reclaim all refrigerants Service Offerings (10% of Revenue) Industrial and Large Commercial Remediation solutions Energy Engineering Integrated monitoring systems Engineered interpretation 4
Airgas-Refrigerants Transaction Overview Air Liquide Airgas- Refrigerants Business Overview LTM Revenue as of 3/31/17 Offerings Size and Scale Refrigerants Reclamation Remediation Services Global Energy Services HQ Pearl River, NY 4 Reclamation Facilities throughout the U.S. and Puerto Rico ~140 employees AHRI certified laboratory ~$250 million Refrigerants Reclamation Remediation Services Airgas- Refrigerants HQ Lawrenceville, GA; regional sales offices across the U.S. 1 Reclamation Facility 30+ facilities and stocking points ~125 employees AHRI certified laboratory 5
Transformational Acquisition Combining two businesses with complementary offerings and best-in-class employees in the refrigerant industry ARI s large customer base for HFCs positions Hudson to better serve an expanded customer base during the future phase down of HFCs Expanded customer network increases access to refrigerants and strengthens distribution capabilities Anticipated cross-selling of Hudson services to ARI s existing customer base Increased processing capacity to support the anticipated growth in reclamation volume from the ongoing phase-out of HCFC production and expected future phase-outs Enhanced geographic footprint in the U.S. Strategic purchase of valuable refrigerant inventory will more than double Hudson s existing inventory balance Transaction expected to close in 2017 6
Refrigerant Aftermarket Landscape CFCs Virgin production phased out in 1995 HCFCs (R-22) Virgin production phase out underway; vast majority of virgin HCFC production will cease in 2020 HFCs High global warming gases scheduled for phase out beginning 2019 HFOs Producers focusing on next generation offerings of HFOs Potential for large market opportunity as HFC refrigerants are increasingly replaced by HFOs HVAC Aftermarket is Growing at High Single Digit Rate With Phase Out of Virgin Production, HDSN Becomes the Producer 7
Market Opportunity Near-Term Market Opportunity Long-Term Market Opportunity $1 Billion Non-Reclaim Refrigerant Aftermarket HDSN is leading independent distributor selling all available refrigerants HCFCs (R-22) most commonly used; HFCs are the next generation Energy Efficiency is a Multi-Billion Dollar Market Remediation solutions provide predictive, diagnostic services for reliability and emergency response Energy engineering uses real-time monitoring to identify and remediate inefficiencies to calibrate energy consumption to bring down energy costs and meet sustainability requirements $1 Billion Reclamation Opportunity by 2020 2020: Reclaimers become producers with 100% of R-22 supply being served by reclaimed R-22 Implementation of Montreal Protocol provides opportunity for additional reclamation 8
R-22 Market Opportunity 2014 2015 2016 2017 2018 2019 2020 43.5M pounds EPA Final Rule (10/16/14) Production Phase Down Schedule: 22M pounds 18M pounds 13M pounds 9M pounds 4M pounds 0 pounds Virgin R-22 Production Will Be Zero By End of 2019 Despite elimination of virgin production, aftermarket demand expected to continue for approximately 20 years EPA Projects Aftermarket Demand to be Approximately 50M Pounds by 2020 Reclaimed R-22 expected to fulfill a majority of that demand Reclaimed R-22 is best solution for R-22 systems $1B+ Potential Market Opportunity in 2020 Price of R-22 has increased from $7/lb in 2014 to $18/lb in 2016 CFC pricing increased to $30/lb with previous phaseout 9
Sourcing of All Types of Used Refrigerant Contractors capture dirty gas, return to distributors & Hudson HVAC Supply House Price drives reclamation for Hudson All refrigerants, legacy & next generation, follow the same supply path 10
A Leader in a Fragmented Market Reclaimers Airgas National Refrigerants Other ~30 different companies Hudson captures approximately 25% of the reclaim market 11
Phase Out Drives Domestic Job Creation; HFCs Are Next to Go Allocation System Benefits U.S. Producers & Reclaimers R-22 Phase Out Advances U.S. competitiveness Domestic production grows with introduction of next gen products and restrictions on foreign imports Increased infrastructure spending spurs product and service sales Expansion In Sectors Developing & Manufacturing non-ods Chemicals and Technologies Has Created Employment Opportunities Jobs created in training programs for managers and skilled technicians working with the respective technologies Opportunities created by activities such as recycling, containment and retrofitting 12
Expansion of Energy Services & Remediation Remediation Solutions Reliability & Emergency Services U.S.: $500 million land-based/$75+ million marine International opportunity similar to U.S. currently in UK and RSA Have served more than 50 of Fortune 500, including 15 of Fortune 50 Energy Engineering Services Performance Optimization A/C Systems are the first or second largest users of energy; Estimated annual energy costs of $35 Billion Steam Energy Usage; Estimated annual energy costs of $200 Billion By quantifying energy reduction Hudson assists customers in lowering CO2 emissions; with lower CO2 emissions, customers obtain carbon credits Customers Are Thinking Proactively About Energy Efficiency 13
Energy: $200B Annual Spend Industrial Facility Utility Budget Hudson s Expertise Boilers Chillers Boiler Electric Water Miscellaneous Water Treatment Program Chiller (typically 20% inefficient) Hudson Serves Two of the Larger Spending Areas: Chillers and Boilers 14
Inefficiency Costs Greater Than $20B Annually Annuity-Based Revenues Boilers Air Compressors Chillers Energy Engineers Operations Hudson Software Monitoring Systems Customer Facility Hudson Solutions Refrigerant Sales Field Services Engineers System Data ChillSMART Energy Assessments Monitoring Recommendations Data Acquisition Leads to Engineered Integration, Driving Field Services and Refrigerant Sales 15
Large DoD Contract: Expanded Products & Services Department of Defense Contract With Maximum Value of $400M 5-Year contract with 5-year renewal option from the U.S. Defense Logistics Agency ( DLA ) Fixed price contract for management and supply of refrigerants, compressed gases, cylinders and related items to U.S. Military Commands and Installations, Federal Civilian agencies and Foreign Militaries Contract begins July 2017 Hudson is prime contractor Leverages existing infrastructure Prime Contractor Experience Expected to Lead to Additional Opportunities 16
Growth Opportunities Largest reclaimer with infrastructure and proprietary processes in place 4 1 Further penetration of refrigerant sales; reclamation opportunity and remediation solutions 2 Expansion of energy services business 3 Recent DoD contract provides financial upside Strategic acquisitions and market consolidation Organic and Market Growth Accelerate with Acquisitions 17
18 FINANCIAL REVIEW
Attractive Financial Profile Consistent Revenue Growth Margin Profile at Inflection Point 18.9% 5-year revenue CAGR Revenue growth driven by rising R-22 prices and future refrigerants phase outs Incremental revenue streams poised to drive accretive, high margin sales Global energy services is contract based and highly recurring Proprietary engineered solutions creates additional sales opportunities Margin improvement driven by increasing sales of higher margin reclaimed R-22 Long-term gross margin > 30% Long-term operation margin > 20% Reclamation and aftermarket leveraged to R-22 pricing, EPA driven Operating costs are principally fixed, incremental revenue is highly accretive Solid Balance Sheet Unlevered balance sheet (plus dry powder of $50M bank credit line) Cash from operations supports organic growth (continued purchase of R-22) Price expansion in the R-22 market that extends the trend from the beginning of this year. $12 per Pound As discussed on 1Q16 earnings call on 5/4/16 $18 per Pound As discussed on 2Q17 earnings call on 8/9/17 19
Historical Revenue Growth Quarterly Revenue Annual Revenue $ millions $60 Q1 Q2 Q3 Q4 $ millions $140 Revenue Series1 Series2 EPS $0.35 $50 $40 $30 $20 16.8 15.6 15.3 28.6 22.1 21.7 34.6 34.9 28.2 38.8 52.2 $120 $100 $80 $60 $40 $55.8 $79.7 $105.5 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $10 8.1 7.3 7.8 $20 $0.00 $0 2014 2015 2016 2017 $0 2014 2015 2016 ($0.05) 2014 Was Transition Year to Final EPA R-22 Phase-Out Rule 20
Contact Us Company Contact: Brian Coleman, President & COO Hudson Technologies, Inc. (845) 735-6000 ext. 6007 Investor Contact: John Nesbett/Jennifer Belodeau Institutional Marketing Services (IMS) (203) 972-9200 21