Nephros Reports First Quarter Financial Results
Product Revenue up 43% over Q1 2019
SOUTH ORANGE, NJ - 
(NewMediaWire) - May 06, 2020 - Nephros, Inc. (Nasdaq:NEPH), a commercial-stage company that develops and sells high performance water purification products and pathogen detection systems to the medical and commercial markets, today announced financial results for the three months ended March 31, 2020.
Financial Highlights
Water Filtration Business Segment Highlights
- Net revenue was $2.5 million, up 43% compared with $1.8 million in 2019
- Net loss was $0.6 million, compared with $0.8 million in 2019
- Adjusted EBITDA was ($0.4 million) compared with ($0.5 million) in 2019
Consolidated Highlights
- Net revenue was $2.5 million, up 43% compared with $1.8 million in 2019
- Net loss was $1.1 million, compared with $1.3 million in 2019
- Adjusted EBITDA was ($0.8 million), compared with ($0.9 million) in 2019
“We would like to take this opportunity to thank all the health care workers supporting COVID-19 patients,” said Daron Evans, President and CEO of Nephros. “We are always grateful to be part of an infrastructure of people and equipment that protects patients from waterborne pathogens, and in these challenging times, our purpose is even more resolute. To that end, we have accelerated our pathogen detection efforts to better support our water treatment partners. As America transitions back to work over the coming months, our partners will be working tirelessly to help them ensure that under-used buildings are safe to reoccupy.”
Consolidated Financial Performance for the Quarter Ended March 31, 2020
Net revenue for the quarter ended March 31, 2020 was $2.5 million, compared with $1.8 million in 2019, an increase of 43%.
Net loss for the quarter ended March 31, 2020 was $1.1 million, compared with a net loss of $1.3 million in 2019, a 19% improvement.
Adjusted EBITDA for the quarter ended March 31, 2020 was ($0.8 million), compared with ($0.9 million) in 2019, a 7% improvement.
Cost of goods sold for the quarter ended March 31, 2020 was $1.0 million, compared with $0.8 million in 2019, an increase of 35%. Gross margins for the quarter ended March 31, 2020 were 59%, compared with 56% in 2019. Management expects future gross margins to continue in the range of 55% to 60%.
Research and development expenses for the quarter ended March 31, 2020 were $0.6 million, compared with $0.8 million in 2019, a decrease of 26%.
Depreciation and amortization expenses for the quarter ended March 31, 2020 were approximately $46,000, compared with approximately $50,000 in 2019, a decrease of 8%.
Selling, general and administrative expenses for the quarter ended March 31, 2020 were $1.9 million, compared with $1.5 million in 2019, an increase of 30%.
As of March 31, 2020, Nephros had cash and cash equivalents of $9.0 million.
Adjusted EBITDA Definition and Reconciliation to GAAP Financial Measures
Adjusted EBITDA is calculated by taking net (loss) income calculated in accordance with generally accepted accounting principles (“GAAP”) and excluding all interest-related expenses and income, tax-related expenses and income, non-recurring expenses and income, and non-cash items, including depreciation and amortization and non-cash compensation. The following table presents a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP financial measure, for the first quarter of the 2020 and 2019 fiscal years for both Nephros (on a consolidated basis) and the Water Filtration Business Segment:
| 3 Months Ended Mar 31, | |||
| Water Filtration Business Segment | 2020 | 2019 | |
| Net loss | (620) | (778) | |
| Adjustments: | |||
| Depreciation of property and equipment | 5 | 8 | |
| Amortization of other assets | 45 | 44 | |
| Interest expense | 43 | 46 | |
| Noncash interest expense | - | - | |
| Interest income | (1) | - | |
| Change in fair value of contingent consideration | (42) | (10) | |
| Noncash compensation | 190 | 158 | |
| Other noncash items | 11 | 35 | |
| Adjusted EBITDA | (369) | (497) | |
| 3 Months Ended Mar 31, | ||
| Consolidated Results | 2020 | 2019 |
| Net loss | (1,098) | (1,349) |
| Adjustments: | ||
| Depreciation of property and equipment | 5 | 8 |
| Amortization of other assets | 45 | 44 |
| Interest expense | 43 | 46 |
| Noncash interest expense | - | - |
| Interest Income | (1) | - |
| Change in fair value of contingent consideration | (42) | (10) |
| Noncash compensation | 222 | 158 |
| Other noncash items | 11 | 35 |
| Sub-Total | (815) | (1,068) |
| Non-recurring pathogen detection product development | - | 188 |
| Adjusted EBITDA | (815) | (880) |
Nephros believes that Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to Nephros’s financial condition and results of operations. Management does not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA is that it excludes significant expenses and income that are required by GAAP to be recognized in Nephros’s consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as it reflects the exercise of judgments by management about which expenses and income are excluded or included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with net (loss) income, the most directly comparable GAAP financial measure. Nephros urges investors to review the reconciliation of Adjusted EBITDA to net (loss) income and not to rely on any single financial measure to evaluate the business.
Conference Call Today at 4:30 p.m. ET
Nephros will host a conference call today at 4:30 PM Eastern Time, during which management will discuss Nephros’s financial results and provide a general business overview.
Participants may dial into the following number to access the call: 1-888-220-8474. International callers may use 1-323-794-2588. Please ask to be joined into the Nephros conference call. A replay of the call can be accessed until May 20, 2020 at 1-844-512-2921 or 1-412-317-6671 for international callers and entering replay access code: 5796707. An audio archive of the call will be available shortly after the call on the Nephros investor relations page at https://investors.nephros.com/events/.
About Nephros
Nephros is a commercial-stage company that develops and markets high performance water purification products and pathogen detection systems for medical and commercial markets.
Nephros ultrafilters are used in hospitals, medical clinics, and commercial facilities to retain bacteria and viruses from water, providing barriers that aid in infection control for showers, sinks, and ice machines. Nephros ultrafilters are also used in dialysis centers to aid in the removal of endotoxins and other biological contaminants from water and bicarbonate concentrate in hemodialysis machines.
Nephros pathogen detection systems, including the PluraPath™ system, provide real-time data on waterborne bacteria and virus content to medical and water quality professionals. Our products integrate Nephros ultrafilters with quantitative polymerase chain reaction (qPCR) technology to deliver actionable water pathogen information within an hour.
Nephros commercial filters, including AETHER™ brand filters, improve the taste and odor of water, and reduce scale build-up in downstream equipment. Nephros and AETHER™ products are used in the health care, food service, hospitality, and convenience store markets.
For more information about Nephros, please visit its website at www.nephros.com.
Forward-Looking Statements
This release contains forward-looking statements that are subject to various risks and uncertainties. Such statements include statements regarding the potential for further growth and the expected growth in medical, commercial and industrial filter sales, management’s expectations regarding future gross margins, Nephros’s ability to respond to outbreaks in water borne pathogens and other statements that are not historical facts, including statements which may be accompanied by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential” or similar words. Actual results could differ materially from those described in these forward-looking statements due to certain factors, including the impact of Covid-19, uncertainty in clinical outcomes, potential delays in the regulatory approval process, changes in business, economic and competitive conditions, the availability of capital when needed, dependence on third-party manufacturers and researchers, regulatory reforms, uncertainties in litigation or investigative proceedings, and the availability of financing. These and other risks and uncertainties are detailed in our reports filed with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2019. Nephros does not undertake any responsibility to update the forward-looking statements in this release.
Contacts:
Investor Relations
Kirin Smith, President
PCG Advisory, Inc.
(646) 863-6519
ksmith@pcgadvisory.com
www.pcgadvisory.com
Media Relations:
Bill Douglass
Gotham Communications, LLC
(646) 504-0890
bill@gothamcomm.com
www.gothamcomm.com
Company:
Andy Astor, COO & CFO
Nephros, Inc.
(201) 345-0824
andy@nephros.com
www.nephros.com
NEPHROS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| March 31, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 8,962 | $ | 4,166 | ||||
| Accounts receivable, net | 1,597 | 1,045 | ||||||
| Inventory, net | 3,649 | 2,562 | ||||||
| Prepaid expenses and other current assets | 601 | 526 | ||||||
| Total current assets | 14,809 | 8,299 | ||||||
| Property and equipment, net | 76 | 81 | ||||||
| Lease right-of-use assets | 1,253 | 1,106 | ||||||
| Intangible assets, net | 538 | 548 | ||||||
| Goodwill | 759 | 759 | ||||||
| License and supply agreement, net | 770 | 804 | ||||||
| Other assets | 89 | 32 | ||||||
| TOTAL ASSETS | $ | 18,294 | $ | 11,629 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Secured revolving credit facility | $ | 495 | $ | 560 | ||||
| Current portion of secured note payable | 215 | 211 | ||||||
| Accounts payable | 1,575 | 959 | ||||||
| Accrued expenses | 308 | 136 | ||||||
| Contingent consideration | 203 | 300 | ||||||
| Current portion of lease liabilities | 312 | 262 | ||||||
| Total current liabilities | 3,108 | 2,428 | ||||||
| Secured note payable, net of current portion | 553 | 613 | ||||||
| Equipment financing, net of current portion | 9 | 10 | ||||||
| Lease liabilities, net of current portion | 988 | 889 | ||||||
| TOTAL LIABILITIES | 4,658 | 3,940 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 14) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $.001 par value; 5,000,000 shares authorized at March 31, 2020 and December 31, 2019; no shares issued and outstanding at March 31, 2020 and December 31, 2019. | - | - | ||||||
| Common stock, $.001 par value; 40,000,000 shares authorized at March 31, 2020 and December 31, 2019; 9,016,550 and 8,058,850 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively. | 9 | 8 | ||||||
| Additional paid-in capital | 138,953 | 131,934 | ||||||
| Accumulated other comprehensive income | 64 | 65 | ||||||
| Accumulated deficit | (128,430 | ) | (127,332 | ) | ||||
| Subtotal | 10,596 | 4,675 | ||||||
| Noncontrolling interest | 3,040 | 3,014 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | 13,636 | 7,689 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 18,294 | $ | 11,629 | ||||
NEPHROS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Net revenue: | ||||||||
| Product revenues | $ | 2,475 | $ | 1,729 | ||||
| Royalty and other revenues | 54 | 40 | ||||||
| Total net revenues | 2,529 | 1,769 | ||||||
| Cost of goods sold | 1,038 | 771 | ||||||
| Gross margin | 1,491 | 998 | ||||||
| Operating expenses: | ||||||||
| Research and development | 563 | 756 | ||||||
| Depreciation and amortization | 46 | 50 | ||||||
| Selling, general and administrative | 1,950 | 1,503 | ||||||
| Change in fair value of contingent consideration | (42 | ) | (10 | ) | ||||
| Total operating expenses | 2,517 | 2,299 | ||||||
| Loss from operations | (1,026 | ) | (1,301 | ) | ||||
| Other (expense) income: | ||||||||
| Interest expense | (43 | ) | (46 | ) | ||||
| Interest income | 1 | - | ||||||
| Other expense, net | (30 | ) | (2 | ) | ||||
| Net loss | (1,098 | ) | (1,349 | ) | ||||
| Less: Undeclared deemed dividend attributable to noncontrolling interest | (59 | ) | (59 | ) | ||||
| Net loss attributable to Nephros, Inc. shareholders | (1,157 | ) | (1,408 | ) | ||||
| Net loss per common share, basic and diluted | $ | (0.13 | ) | $ | (0.20 | ) | ||
| Weighted avg. common shares outstanding, basic and diluted | 8,590,230 | 7,129,665 | ||||||
| Comprehensive loss: | ||||||||
| Net loss | (1,098 | ) | (1,349 | ) | ||||
| Other comprehensive loss, foreign currency translation adjustments, net of tax | (1 | ) | (3 | ) | ||||
| Comprehensive loss | (1,099 | ) | (1,352 | ) | ||||
| Comprehensive loss attributable to noncontrolling interest | (59 | ) | (59 | ) | ||||
| Comprehensive loss attributable to Nephros, Inc. shareholders | $ | (1,158 | ) | $ | (1,411 | ) | ||
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