What is needed to normalize HFC pricing behavior, given it didn't match typical inflationary dynamics?

Excess channel inventory and illegal imports are suppressing prices. Prolonged heat would help. Inflationary pressures are expected to persist. “What it's telling us is that I think, in my opinion, there's excess channel inventory on HFCs that are keeping prices suppressed. I also think, and this is sort of new information, that there is more of an impact on illegal refrigerants coming in than we might have expected previously.”

Where are inflationary pressures being seen, and will they persist in H2?

Primarily in freight costs, which could not be passed on due to trough HFC pricing, impacting gross margin. “So it's across several different areas, but primarily in freight. So freight is where we saw the biggest increase. And unfortunately, in this dynamic, we can typically -- in the past, you could always pass along freight in the pricing. But with this trough in HFC pricing, that didn't happen.”

How much more gas could the new distillation technology open up for reclaim, especially for highly mixed gas?

It will effectively separate complicated blends and highly contaminated gases that fractional distillation cannot, unlocking a critical component for future volume. It also opens up adjacencies for higher purity materials. “There are gases that we are unable to -- or components that we are unable to do effectively with fractional distillation that we will be able to effectively do tomorrow with extractive. That's a key unlock for us.”

HDSN

Hudson Technologies (HDSN) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Materials· Aug 5, 2026

Source: earnings call transcript

Executive summary

Hudson Technologies Q2 FY26 — Strong Volume Growth Amidst HFC Price Softness

Hudson Technologies delivered strong Q2 FY26 sales volume growth and secured a significant DLA contract reaward, despite facing softer HFC market prices and inflationary pressures. The company is strategically investing in new technologies like extractive distillation and expanding its recovery network to diversify revenue and reduce dependency on spot pricing, aiming for long-term value creation.

Highlights

Sales revenue increased 8% to $78.3 million in Q2 FY26.
Sales volume grew strongly by 12% in Q2 FY26.
Reclamation volume continued to grow, demonstrating commitment to refrigerant life cycle management.
Ended the quarter with $26 million in cash and no debt, a sequential $6 million increase.
Awarded a 5-year, $210 million Defense Logistics Agency (DLA) contract reaward.

Concerns

Average refrigerant sales price declined 6% in Q2 FY26.
Gross margin decreased to 26% from 31% in Q2 FY25, impacted by pricing and higher operating expenses.
Net income fell to $4.9 million ($0.12 diluted EPS) from $10.2 million ($0.23 diluted EPS) in Q2 FY25.
Full-year 2026 gross margin target revised from mid-20% to low-to-mid-20%.
Higher operating expenses, primarily due to increased fuel and freight costs, and ERP optimization costs.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 Gross Margin	low-to-mid-20% high materiality	FY26	High
Second Half SG&A Expenses	continue to show increases over 2025, but to a lesser extent than the first half medium materiality	H2 FY26	High

Orderbook & backlog

Defense Logistics Agency (DLA) contract $210 million Q2 FY26

reawarded

5-year annual contract

Product announcements

Product	Type	Timeline	Details
Extractive Distillation Technology	launch	—

Deals & partnerships

Icorium Intent to partner to scale patented extractive distillation technology.

Part of Hudson's advanced operations directive to expand capability and capacity ahead of EPA phase down and data center demand.

Defense Logistics Agency (DLA) Reaward of a 5-year annual contract for refrigerant supply. $210 million 5-year

The contract was previously rescinded due to a competitor's challenge and was under review for 7 months. A bridge contract was in place until resolution.

Risks & headwinds

Weaker-than-expected HFC market prices Q2 FY26, expected to continue

Average refrigerant sales price declined 6% YoY; gross margin reduced to 26% from 31%.

Mitigation:Focus on operational excellence, shifting business model to reduce dependency on spot pricing, strategic investments in diversified revenue sources.

Illegal refrigerant imports Current, expected to persist in near-term

Estimated 'millions of pounds' impacting market.

Mitigation:Industry acting on the issue; optimism for long-term improvement.

Higher operating expenses and inflationary pressures Q2 FY26, expected to continue

Increased fuel and freight costs impacting gross margin; SG&A expenses up $3.1 million.

Mitigation:Focus on higher-margin product mix, ERP optimization to improve efficiency.

Costs related to ERP system optimization H1 2026, expected to be lower in H2

Over $1 million spent in H1 2026.

Mitigation:Optimization efforts are underway, costs expected to reduce.

Illinois facility damage from tornado June 2026

Facility out of service for approximately 3 weeks; no loss of inventory.

Mitigation:Fully functioning now, major repairs underway, expenses covered by insurance.

What to watch in Q3 FY26

Gross margin

Next quarter (Q3 FY26)

Current 26% (Q2 FY26)

Target Low-to-mid 20%s (full-year 2026 revised target)

Why it matters

Gross margin was significantly impacted by HFC pricing and costs; achieving the revised target is crucial for profitability.

At this time, with the trough in refrigerant market pricing and inflationary pressure expected to continue, we are revising our full year 2026 gross margin target from mid-20% to low-to-mid-20%.

Find out whether HDSN delivers this. Inve re-checks your case every morning.

Q&A highlights

How did the ERP implementation progress, what were the costs in Q2, and when will they roll off?

The ERP optimization progressed better in Q2. Over $1 million was invested in H1, and costs are expected to be lower in H2.

“So there's over $1 million in the first half that we've invested in ERP optimization, and it will be lower in the second half.”

asked by Jason Tilchen · answered by Kenneth Gaglione

2 min read 7 chapters

Detailed narrative

HFC Market Dynamics and Illegal Imports

The company observed weaker-than-expected HFC market prices, attributing softness to potential factors like illegally imported refrigerants, excess channel inventory, and lack of prolonged hot weather. Management noted that the industry is addressing illegal imports, which are estimated to be in the millions of pounds, and expressed optimism for improvement.

The forecasted El Niño effect and accompanying warmer weather may also benefit the business as the selling season concludes.

DLA Contract Resolution

The 5-year annual contract with the Defense Logistics Agency (DLA), previously rescinded due to a competitor's challenge, was reawarded during the call. This resolves a 7-month review period, with the contract valued at $210 million over 5 years. A bridge contract had maintained terms through November 2026 with two additional three-month extensions through May 2027, ensuring continuity during the review.

Data Center Market Opportunity

Hudson's current business with data centers is nascent but is expected to become a much larger opportunity in 3 to 5 years as HVAC systems in these facilities require optimization, resupply, or decommissioning. The company is actively looking for ways to optimize its presence in this growing segment, viewing it as a significant future demand driver for operational readiness and investment.

Advanced Reclamation Technology

Hudson announced an intent to partner with Icorium to scale patented extractive distillation technology. This aims to increase the ability to separate complicated next-generation azeotropes and HFO refrigerant blends, unlocking traditionally difficult separation capabilities and improving yield from recovered gases. This initiative is a core competency, enabling faster feedstock conversion and producing a sustainable competitive advantage.

Illinois Facility Tornado Impact

The Illinois facility experienced extensive damage from a tornado on June 11, causing a temporary shutdown for approximately three weeks. Damage was primarily to the building structure, with no injuries or detectable damage to separation columns or product inventory. The facility is now fully functioning while major repairs are underway, with expenses for restoration covered by insurance and not reflected in Q2 P&L.

ERP System Optimization and Strategic Investments

The company incurred costs related to the optimization of its recently launched ERP system, with over $1 million spent in the first half of 2026, though these costs are expected to reduce in the second half. Hudson is also increasing staffing and consulting resources to support longer-term initiatives, including predictive modeling services (winning four contracts) and the rollout of small recovery trucks (SRT), which has shown a revenue-positive pilot in New York City.

Capital Allocation and Share Repurchases

Hudson maintains an unlevered balance sheet, ending the quarter with $26 million in cash and no debt, reflecting a sequential $6 million increase. The capital allocation strategy focuses on organic and strategic growth, as well as opportunistic share repurchases. The company did not purchase shares in Q2 FY26 but had purchased $2.5 million in shares year-to-date 2026.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.