Hello, everyone, and thank you for joining today's Hudson Technologies second quarter 2020 earnings report. All lines are in a listen-only mode, but after today's prepared remarks, instructions on how to share a question will be given to our audience. To get us started with opening remarks and introductions, I am pleased to turn the floor to Ms. Jennifer Belodeau. Welcome, Jennifer.
Thank you. Good evening, and thanks for joining us tonight. Welcome to our conference call to discuss Hudson Technologies financial results for the second quarter of 2020. On the call with me today is Brian Coleman, President and Chief Executive Officer, and Nat Krishnamurti, Chief Financial Officer. I'll now take a moment to read the safe harbor statement. During the course of this conference call, we will make certain forward-looking statements. All statements that address expectations, opinions, or predictions about the future are forward-looking statements. Although they reflect our current expectations and are based on our best view of the industry and of our business as we see them today, they are not guarantees of future performance.
Please understand that these statements involve a number of risks and assumptions, and since those elements can change and in certain cases are not within our control, we would ask that you consider and interpret them in that light. We urge you to review Hudson's most recent Form 10-K and other subsequent SEC filings for a discussion of the principal risks and uncertainties that affect our business and our performance, and of the factors that could cause our actual results to differ materially. With that out of the way, I'd like to turn it over to Brian Coleman.
Thank you, and good evening. This has been a difficult last few weeks at Hudson Technologies as we mourn the unexpected loss of our founder, Kevin J. Zugibe. Many of you reached out to express your condolences, that outreach has been very much appreciated. Professionally, Kevin was an industry pioneer with a love for innovation, who applied his engineering expertise and market knowledge to build this company from the ground up. Personally, Kevin brought his energy, kindness, and sense of humor into our offices every day. Candidly, we are still in the process of adjusting to his absence. However, over the years, Kevin put together a very strong operating team, and each of us is committed to driving the continued success of the company he built. Before we begin with our review of the second quarter, please join me in a brief moment of silence to honor Kevin's memory.
Thank you. Our second quarter results were solid, particularly in light of the challenging landscape that Hudson Technologies , our industry, and the nationwide economy is still contending with due to the persistence of the COVID virus. During the second quarter, closures of public venues such as office buildings, recreation centers, schools, and universities negatively impacted our end markets and the overall demand for refrigerants. While we saw a slight increase in the pricing of certain refrigerants in the quarter, this improvement was offset by lower volumes, which resulted in a revenue decrease compared to the second quarter of last year. Despite the volume headwinds associated with the overall economic downturn, gross margin improved. We achieved solid operating income, and we saw a return to profitability. Notably, Hudson Technologies generated over $6 million of operating cash flow during the second quarter.
Our financial position and liquidity remain strong, with total liquidity at June 30th, 2020, of approximately $39 million, which includes cash and revolver availability. In addition, in the months since the close of the quarter, we have repaid an incremental $7 million of our debt. Finally, we've made certain performance targets set forth in our credit agreement, and as a result of achieving those targets, we have terminated the services of our chief restructuring officer. We are very pleased with the progress made this quarter despite the challenging environment. While there are still many uncertainties associated with this pandemic, we remain focused on the elements of the business that we can control. Our priorities remain in continuing to protect the health and safety of our employees and in keeping our products in supply to best serve our customers across all channels.
We have the benefit of more than 30 years of experience in this industry, that experience has allowed us to adapt to changing economic and industry dynamics while executing our operational strategy. These have been some difficult times, but Hudson Technologies has proven our agility when faced with challenging environments. We're once again relying on that strength. With the business and facility closures across our country, some temporary and some permanent, this has not been a typical selling season. As you know, we look at the sales season as a nine-month season, because in any given quarter, there's the potential for the economy or the weather to have a significant impact, whose gains or losses can be mitigated in another quarter. As we continue to move through the 2020 selling season, we've seen R-22 pricing remain constant.
However, as I mentioned earlier, economic factors resulting from the various government restrictions that have been put in place as a result of the COVID outbreak have negatively impacted demand and may cause continued pressure on demand in the third quarter. This is a fluid economic environment and will take some time until we understand the full impact to our industry. We are encouraged by the improved margin performance in the quarter and believe we have the opportunity to continue to drive improved margins through the balance of 2020 as we replace higher-priced inventory with lower-priced products. We believe that customers' inventories are low. With the elimination of R-22 production and importation in 2020, we expect to see a tightening in the supply of virgin R-22 as we close out the selling season.
Moving forward, we remain confident that the marketplace will likely adopt a phase-out of HFC refrigerants as the development and use of more environmentally friendly products continue. As we mentioned before, the American Innovation and Manufacturing Act of 2020, or the AIM Act, which proposes to phase out HFC production over the next 15 years, is pending further consideration by both the House and Senate. The bill enjoys bipartisan support and, if enacted, would start a regulated phase down of HFCs that will lead to the establishment of an allocation system similar to what we saw with the phased out of R-22. We would then expect to see a tightening in the supply-demand balance for HFC refrigerants, likely resulting in HFC price increases.
As refrigeration systems are upgraded and new construction continues, HFCs represent a long-term growth opportunity, and we expect HFC sales will continue to grow as a percentage of our revenues. These are unprecedented times, but we have a strong management team in place, committed to driving our company's success by leveraging three key competitive advantages. Our strong and established distribution network, which firmly positions us at two key points in the supply chain. Our diverse portfolio of refrigerants, which allows us to be a sales source for all refrigerants, from legacy CFC gases to the HCFCs and HFCs that are commonly used today, and onward to the next generation HFOs. Lastly, our state-of-the-art proprietary reclamation technology that enables us to reclaim all of these refrigerants, becoming the producer and supplier of phased out refrigerants.
Hudson is well positioned in the marketplace with our ability to provide any refrigerant, any place, at any time. We are optimistic about the long-term opportunity in front of us and focused on growing our leadership position in the refrigerant and reclamation space. I'll turn the call over to Nat to review the financials. Go ahead, Nat.
Thank you, Brian. For the second quarter ended June 30th, 2020, Hudson Technologies recorded revenues of $47.7 million, a decrease of 15% as compared to $56 million in the comparable 2019 period, primarily due to a decline in volume, partially offset by an increase in the selling price for certain refrigerants. Gross margin for the second quarter of 2020 was 26.6% compared to negative gross margin in the second quarter of 2019. We reported operating income of $5.2 million in the second quarter of 2020 compared to an operating loss of $10 million in the second quarter of 2019. During the second quarter of 2019, the company recorded a lower cost or net realizable value adjustment to its inventory of $9.2 million, mainly due to declines in selling prices of certain refrigerants at that time.
The company recorded net income of $2.4 million, or $0.06 per basic and diluted share in the second quarter of 2020, compared to a net loss of $13.8 million, or a loss of $0.32 per basic and diluted share in the same period of 2019. SG&A for the second quarter of 2020 was $6.8 million, consistent with the second quarter of 2019. The current SG&A run rate is about $7 million per quarter. Interest expense for the second quarter of 2020 was $3.1 million, a decrease of $1.2 million from the $4.3 million reported during the second quarter of 2019, mainly due to the company paying down $14 million of principal term loan debt in December of 2019. During the second quarter, Hudson generated more than $6 million of operating cash flow.
At June 30th, 2020, we had approximately $39 million of total availability consisting of our cash balance and revolver availability, which is approximately 77% higher than the $22 million of total availability at June 30th, 2019. At June 30th, 2020, our total term loan balance was approximately $87 million, while our revolver balance was approximately $16 million. Since June 30th, 2020, we have repaid an additional $7 million of revolver balance, reducing the revolver balance from $16 million to approximately $9 million as of today. We have strong liquidity, our term loan and revolving loan credit facilities provide us with a solid financial platform and flexibility as we look into the coming years. As Brian mentioned earlier, as a result of our achievement of certain performance targets set forth in our credit agreement, we recently terminated the services of the Chief Restructuring Officer.
Before I close, I'd like to echo the sentiments Brian expressed earlier about Kevin's passing. Kevin was not only a visionary leader for our company and our industry, whom we all admired, but also a brother and friend to all of us and will be greatly missed. As an organization, we're focused on ensuring that his legacy endures. I will now turn the call back over to Brian.
Thank you, Nat. Even in these challenging times, food needs to be kept cold and people value their comfort cooling systems. The longer-term demand for cooling systems and the refrigerants they run on will continue to grow. Hudson Technologies remains a leader in refrigerant and reclamation business with our experience, loyal customer base innovative technology and well-established distribution network in place to drive growth. We are focused on increasing our market position in the refrigerant industry and on capturing new opportunities to provide our essential products and services. Operator, we'll now open the call to questions.
Mr. Coleman. Thank you, Nat. Thank you, Brian, for your remarks today. Ladies and gentlemen standing by on the phones, if you would like to ask a live question at this time, simply press star and one on your telephone keypad. Pressing star and one will place your line into a queue, and we'll take your questions one at a time. As a friendly reminder that if you're joining us today on a speakerphone, please return to your handset prior to pressing star and one to be sure that your signal does reach our equipment. Once again, ladies and gentlemen, that is star and one if you'd like to ask a live question over your phone. We'll take our first question from Mr. Ryan Sigdahl with Craig-Hallum.
Great. Good afternoon, guys, and our condolences on Kevin as well.
Thank you, Ryan.
First, I just wanted to start, you guys mentioned weaker volumes in the quarter. I'm curious if you could break that out into different end markets where you saw more of the weakness? Also if you could remind us kind of the mix between residential versus commercial applications?
I would say it's very difficult for us to really discern where the weaknesses lie, because often when you're selling refrigerants, you're selling to someone who's not going to describe to you how they're going to use that refrigerant or in which application. To kind of go back and try to answer the question a little bit more clearly relative to how the quarter played out, certainly the month of April was extremely slow. Was it economic driven, the slowness? Was it the weather? Because the weather wasn't that great. It was very difficult to just discern that. We started very slowly in the month of April.
What helped quite a bit is towards the latter part of May, and certainly at the end of May into early June, we had warm weather in most of the country, particularly in the north and northeast, where there's a tremendous amount of seasonal comfort cooling. Once those systems were turned on, as is true with any particular year, that's when you have the initial repairs and initial needs for refrigerants, and that's where we saw an exceptional high level of demand. In that particular period of time, we probably saw the highest demand in the company's history, in those number of weeks and so forth. The dust is kind of settling on the year and demand, and it does seem like some of the areas that we talked about, whether it be schools and universities, and small businesses, we're seeing some decline in demand.
It'll be hard to know where we'll end up for the year. We're being a little bit cautious that we might see a little bit lower demand in Q3, although we don't want that to be the outcome. We would therefore try to answer now the last part of your question, where it seems to be the demand is off, is more in the comfort cooling type of refrigerants like HFC-134a, HFC-410A, and even, in some respects, some R-22. It seems to be more on the smaller systems, the residential, light commercial side. Again, it's a nine-month season. If schools and universities open up in the latter part of August and it's hot, and they have to turn their unit on and the unit hasn't been repaired, well, then there's an opportunity for another refrigerant sale.
Brian, just to follow up on that. You said you got into June and you saw the highest demand in company history. I guess, can you help bridge that with the expectation that volumes will be lower in Q3? I guess secondly, what have you seen in July that maybe will help answer that question as well?
What I think we're believing when we say what we just said relative to the month of June is inventory levels are very low down the chain. It was hot, consequently, people had to buy. Therefore, that was the surge in demand in that short period of time. We had the product, we had the locations and availability, and we had the distribution networks to make it all happen. Once that surge occurs and the units are turned on, you're more likely to run into stress failures relative to the operating system. That's the type of refrigerant sales that you'll start to see in July, August, and in some years tail off in September. Like last year, for example, and possibly the year before, we had a somewhat warm September, it helped extend the cooling season.
We're not at the moment predicting or suggesting where we'll end up in volume for the third quarter. We're simply stating the obvious that if more businesses are closed than open, then it's likely we'll miss on volume.
Great. Helpful. Switching over to reclamation. It's been flattish for R-22 the past several years. We had EPA data that confirmed that again last year, which wasn't surprising. Curious what you're seeing from industry activity going on right now, and if you're seeing any improvement or if that's likely kind of out years for that.
I think in the first quarter call, we talked about that we were planning to embark on a new initiative to help us grow our reclaim volumes. You're right, reclaim, in particular R-22 was off 2.5% from 2018 compared to 2019. Unfortunately, with regards to the COVID and the closures, it's made some of the launching that we were planning for, let's say, March and April to get postponed. We're reinvigorating that process relative to what our endeavors were planned to be for this season. It may not result in significant change in our overall return rates, although we think we'll still see some benefit from it this year. We were hoping to have captured some of that earlier in the season, because normally the returns start once the warm weather comes, such as the month of June and so on.
It's difficult to say what the overall growth rate may or may not be for R-22, in terms of reclaim, but we still believe there's levers or strategies that we could apply to increase our market share.
Got you. I think I caught it in the prepared remarks that you said refrigerant pricing R-22 has been stable throughout the selling season. Did I catch that correct? Would that imply something like mid- to -high 10s? I think that's what you said on the last call, but if you could quantify that'd be great.
Yeah. You're correct on both counts. It's been consistent, and I don't know if we would've said high- 10s, but certainly mid-10s . Yes, definitely.
Great. Last one from me, and then I'll hop back in the queue and turn it over to the others. Has the coronavirus changed end customer sentiment and decisions around upgrading HVAC systems versus repairing and recharging an old system with refrigerant?
We've seen industry data that indicates that. Also stating historically, let's say the last three to five years, the replacement rate was much higher than average. Is it because there was a lot of replacement that already occurred or is it the sentiment? It's probably a combination of both, but we are seeing much lower replacement rates so far in this season, which again is a positive thing for demand for 22 this year and the years to come.
Great. That's it for me, guys. Thanks and good luck.
Ryan, thank you. Ladies and gentlemen, once again, that is star and one, if you'd like to ask a live question over your telephone line. We'll hear next from Gerry Sweeney at Roth Capital. Please go ahead. Hi, Gerry.
Hey, Brian and Nat. I just want to express my condolences in Kevin's passing as well. He was great to work with, so my condolences.
Thank you very much, Gerry.
A bunch of my questions have been answered or asked. Just on the last one was, I'm assuming maybe some concerns over economic activity and just dollars, et cetera, are pushing more, we'll say R-22 replenishment as opposed to like a whole system switch out. Is that what you were essentially saying there?
Well, we think, again, it's plausible that because the economy has the uncertainty and maybe there's folks that aren't working or whatever the case may be, that they're not going to spend money on capital improvements. They're going to fix whatever's broke sort of mentality. With that said, it's always far cheaper to fix an R-22 unit versus replacing it. I don't know the exact mathematics, but it could be at least an 8X differential between fixing and replacing. It seems like an obvious choice that you're going to continue to maintain that R-22 unit.
Got it. That's what I've been hearing. Then secondly, I think on the Q1 call, you discussed the inventory, some of the higher priced inventory, I think from the Aspen Refrigerants acquisition being likely depleted during the second quarter. One, did that happen? Two, could you sort of indicate at what point during the quarter that occurs?
Sure. Hi, yeah, it's Nat here to respond. Yeah, obviously due to the shortfall in volume, we're not through all of the high priced R-22 yet. Anticipating sometime later this year.
Okay, great. Not all the way through, but margins were still pretty good, that's pretty interesting. Finally, I think the chief restructuring officer, I think it was a monthly payment of $120,000. You indicated SG&A running at rest of the year, I think about $7 million, which is a slight uptick from this quarter. What's driving that with that CRO going away and that chunk of change going away, what's that additional sort of money being spent on the SG&A front?
I don't know that we're going to spend the money, first off. What we're just simply doing is trying to set expectations that SG&A could be $28 million for the year. Does it have to be? Will it be? No. However, historically, we would've always deferred spending in Q1 and Q2, and this would be the type of discretionary spending, let's say, in Q1 and Q2. Depending on how well the year went, start to spend a little bit more money, mainly in sales and marketing, really to prepare for next season. Let's just say back to, not to say that we specifically will have a $300,000 budget for sales and marketing per se, relative to the CRO costs, but we certainly do have, let's say, a degree of pent-up demand on certain projects that will likely be expensed in Q3 and into Q4.
At the end of the day, though, no desires to spend the $7 million. We'll try to be as judicious as we always have been with our SG&A.
Got it. No, that's helpful. I appreciate the nuance here. That is it from my end. I appreciate it. Thank you.
Ladies and gentlemen, I'd like to thank our leadership team for fielding all the questions today. We have no further questions waiting from our audience. I'll turn the floor back over to Mr. Brian Coleman for any closing or additional remarks.
Thank you, operator. I'd like to thank all of our employees, particularly during these extraordinary times, for their hard work and dedication. I want to thank our longtime shareholders and those that recently joined us for their support. Thank you everyone for participating in today's conference call, and we look forward to speaking with you after the third quarter results. Have a good night, everyone.
Good night.