Gerry Sweeney: Obviously, the big question is increasing reclaim. But I’m curious, if there is other channels where you can go out and get more capacity, I mean, your inventories are up in the quarter nicely which is positive going into this year. But can you go out and buy inventory from, I don’t know, other participants, et cetera. Just curious if there’s other ways to sort of manage that or take advantage of it? Or is there a secondary market?
Brian Coleman: Well, I mean, we have many suppliers. So I don’t know that, we really have limitations based on suppliers. The thing that we are trying to spend a lot more time on than we might have in the past is with contractors around recovery. So, it’s recovery that leads to increases in reclamation, simply put. If contractors don’t recover the gas then there isn’t gas to reclaim. So, we talked about a lot of different initiatives, and if you heard some of the descriptions, a lot of it was centered at the contractor level and training on recovery as well as the importance of reclamation. So, we think that, as we begin to take a more proactive role at that level, we could stimulate more recovery, which hopefully then, as we expect will lead to more reclamation pounds.
Gerry Sweeney: And on that front, stimulating more recovery also goes hand-in-hand with sort of paying for that gas and making sure that money gets into the hands of the contractor because there is a time and value of time associated with the collection that could be potentially otherwise going on to another sort of job. Is anything working around that or some of these EPA regulations that you’re alluding to maybe help increase that opportunity?
Brian Coleman: I’d say from an economics point of view, last year, we were able to eliminate all fees. So prior to last year, the sale price of HFCs was relatively low. And there would be refrigerants that are recovered, that are in our industry will refer to as cross contaminated or co-mingled. In low economic times, those refrigerants are really more of a cost than an asset. But now with the value of HFC being as high as they are and with our robust fractional distillation capacity, we’re able to pay for even the poorer quality refrigerants. So hopefully, economics isn’t a barrier any longer for contractors to do the recovery. We think the barrier though is changing behavior. We think the barrier is lack of training, maybe even poor equipment. So, we’re supporting new recovery techniques and training. And if necessary, we’ll support new recovery equipment. Whatever we can do to help stimulate the recovery will lead to further growth and reclamation.
Gerry Sweeney: Got it. Any way you could develop a direct contact with the contractors to get it back? Or does that sort of, I know, you don’t want to — you have different ways to go to mark, but you also don’t want to upset some of your supply houses and distribution counter, but I’m just curious if there’s an option there as well?
Brian Coleman: We could get cylinders basically anywhere coast to coast in the United States. There’s a tremendous infrastructure of LTL that we could pick up cylinders just about anywhere. So, I don’t think logistics and freight is going to be an issue or its capacity. We definitely have access to capacity to handle more cylinders. I think, handling cylinders and more importantly, returning cylinders on a timely basis can be difficult for other reclaimers, particularly with long lead times on cylinder manufacturing, things like that. So again, we try to plan to be ahead of the game as we go into any particular season to be able to pick up additional capacity and volume.
Gerry Sweeney: That is it for me. I am looking forward to ’23. Hopefully it’s hot, dry, and fun, so thanks.
Brian Coleman: We’re looking forward to it too. Thank you.
Operator: Thank you. Your next question is coming from Chip Moore from EF Hutton. Your line is live.
Chip Moore: Congrats on the great year as well, and I’ll echo my wishes for a good cooling season. Brian and Nat, maybe if you could talk update us on maybe any state level initiatives which you’re seeing out there, and then on the OEM equipment dealer side progress there and some of the trends?
Brian Coleman: So, there’s probably at this point 25 states that are in different advanced stages of regulating HFC refrigerants. Most of the focus now is headed towards equipment and GOP and charge sizes, so that they’re advancing the idea that to enter commerce into their particular state, you’re likely going to have to sell equipment with very low GDPs. Most of those state level regulations legislation are close to the federal and the AIM act. Some are a little bit different. The industry, Hudson are trying to tie some state initiatives backwards towards what the AIM Act provides so that we have one solution throughout the United States. At the end of the day, it’s possible though some of the states will go beyond and have more restrictions than what the federal AIM Act provides currently.
But that’s probably going to take a handful of more years to develop from where we’re today. We do like the idea of the California mode regarding requiring OEMs to use a certain portion of the factory charge of reclaim refrigerants. We certainly encourage that thought process as other states implement their particular legislation. We certainly encourage thinking in that vein as well at the federal level. It’s difficult to say what the EPA may or may not do, but we’re hopeful that as the EPA deals with the equipment transition rule and then leads into the refrigerant management rule, which may come out the proposed rule may come out in September, may begin to address issues like that.
Chip Moore: Got it. That’s helpful. And maybe one more from me more on the capital allocation side, I think, Brian, you mentioned, kind of actively reviewing acquisition targets. Are you seeing a pickup in activity and are you seeing sort of that complexity and some of those issues out there? Is that leading to more of these mom and pop-type entities potentially seeking exits? Are you starting to see some of that trend or is it still a bit early for that?
Brian Coleman: I do think there’s folks out there, they’re seeing the writing on the wall sort of, not that it’s here and now, some of the restrictions really are not going to take effect until, like, say 2025 and beyond. We still don’t know where the particular lawsuits going to land regarding the current EPA requirements for the industry to move towards reusable cylinders versus one way or disposable cylinders. I don’t know when that case will be determined, but probably could be maybe as early as June could be as late as September. That also will give some visibility about whether or not people in our industry are going to have to invest in reusable cylinders. We do have a large reusable cylinder fleet just because of the dynamics of our business.
But that’s something that could impact others, whether they’ll have the ability to invest in the seal. So I think it’s a little early for folks to panic per se. But certainly, I think people are beginning to think about what they might need to do in say 2025 and beyond.
Chip Moore: Interesting. Some sort of the Worthington concerns on cylinder some that could be an issue for some folks. Regardless, just you’re de-levering and your position, and even any macro slow down, you’d like your potential to scoop up some targets. Is that fair?
Brian Coleman: Yes, no, we’re definitely active. We’re certainly speaking to folks. But to your question, I don’t think anyone feels like they have a gun to their head at this point, and certainly, most of these transactions do take time.
Chip Moore: Yes. And longer term on more of that sort of service opportunity. Is that an area you’re investigating as well?
Brian Coleman: Yes, and there is already a lot of private equity money in this area and a lot of consolidation. So, it is something that we would want to try to be as disciplined as possible on valuations, but recognizing there may be competition.
Operator: Thank you. Your next question is coming from Ryan Sigdahl from Craig-Hallum. Your line is live.
