Nephros Q2 2023 Earnings Call Transcript

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August 9, 2023

There are 7 speakers on the call.

Operator

Good afternoon, and welcome to the MedPhros Second Quarter 2023 Financial Results Conference Call. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference turn over to Kieran Smith. Please go ahead.

Speaker 1

Thank you. Good afternoon, everyone. This is Kieran Smith with PCG Advisory. Thank you all for participating in Nephros' Q2 2023 conference call. Before we begin, I would like to caution that comments made during call by management will contain forward looking statements regarding the operations and future results of Nephros.

Speaker 1

I encourage you to review Nephros' filings with the Securities and Exchange Commission, including without limitation, the company's Forms 10 ks and 10 Q, which identify specific factors that may to cause actual results or events to differ materially from those described in the forward looking statements. Factors that may affect the company's future results include, but are not limited to, Nephros' ability to successfully, timely and cost effectively market and sell its products and service offerings of the rate of adoption of its products and services by hospitals and other healthcare providers, the success of its commercialization efforts of the call is being recorded and the effects of existing and new regulatory requirements on Nephros' business and other economic and competitive factors. The content of this conference call contains time sensitive information that is accurate only as of the date of the live call today, August 9, 2023. The company undertakes no obligation to revise or update any statements to reflect events or circumstances After the date of this conference call, except as required by law, I would now like to turn the call over to Nephros' Chief Executive Officer, Robert, thanks. Robert, please go ahead.

Speaker 2

Thank you, Karen, and good afternoon, everyone. I'm very pleased to welcome you to my first earnings call of the call is now open.

Speaker 3

As Nephros' CEO,

Speaker 2

I accepted this position based on my recognition of Nephros' potential to be a dynamic, profitable, of the company as well as my confidence in my abilities to help get it there. I'm pleased to report of that in the 3 months I've been with Nephros, none of that has changed. I will begin with a couple of key financial highlights and follow with a few remarks about the present state of Nephros and our future direction. First, I'm happy to report that second quarter revenues were 3,500,000 of a 24% increase over the same period in 2022. Looking at the year to date performance, of the presentation is even more compelling with the 45% increase over 2022.

Speaker 2

I believe this significant growth demonstrates the of the momentum we have built and the value our solutions bring to the market. The growth is a healthy mix of our core programmatic business as well as emergency response. I'm also quite pleased to report that we achieved of positive cash flows in Q2 for the 2nd consecutive quarter. We have diligently managed our resources and made strategic investments to support our growth initiatives, while simultaneously ensuring financial stability. Another important metric that we monitor is the number of active customer sites, ACS, which increased to 1427, a 6% year over year increase.

Speaker 2

It is important to note that although the number of sites of the call has increased, our revenue grew 4 times faster over the same period last year. This indicates of that we are expanding within our existing sales base. This land and expand strategy is a deliberate one. It is a very efficient way to grow by gaining a deeper penetration with the existing customer base, capturing more market share First, though, I would briefly describe my findings about the current state of Nephros and highlight some of my early plans to drive the company forward. Over the past year, NetFirst transformed itself from stagnant revenues of the financial results and negative cash flows of over $1,000,000 per quarter to strong revenue growth and positive cash flow.

Speaker 2

In the process, the company reduced its staff by 30%, doubled the size of its sales team, jettisoned 2 money losing businesses and retired all of its debt. We believe these steps have readied the company for fast and consistent profitability the Q4 of 2018. This progress reflects the result of the hard work and dedication of our talented employees to the company's unwavering commitment to excellence and its ability to adapt in the face of adversity have been instrumental in our journey towards recovery and growth, of Looking forward, we plan to continue to invest in sales and marketing, both within the company and through our network of strategic partners to who bring extensive relationships in our target markets. A great illustration of this concept is our partnership with DynaStar of Another strategic focus for growth is converting customers experiencing emergency events such as leachnoid outbreaks into long term customers with a contractual relationship to provide ongoing revenue streams. These conversion programs have a great deal of focus within our sales efforts.

Speaker 2

Of our business. In our core healthcare market, we have diligently evaluated our market position and identified specific segments where we believe Nephros can truly differentiate itself. By targeting these segments, we can leverage our unique strengths of the call is being recorded and delivered tailored solutions that meet the specific needs of our customers. This focused approach enables us to to maximize our impact and drive sustainable growth. We acknowledge that our competitors have of the company's business, we are committed to executing our business and our focused sales techniques will be catalysts for success.

Speaker 2

Our commitment to delivering high quality solutions of market leading products is unwavering. We are confident that our differentiated offering will resonate with customers and allow us to continue to gain market share. I will now turn the call over to Andy Astor, our CFO. Andy, please go ahead.

Speaker 3

Thanks, Robert. I will now provide a closer look at Nephros' financial performance in the Q2. We reported 2nd quarter net revenue of $3,500,000 a 24% increase over the corresponding period in 2022. Also as Robert mentioned, Revenues for the 1st 6 months of the year are up by 45%. Net loss from continuing operations for the quarter was $400,000 compared to $700,000 in the same period last year.

Speaker 3

Of adjusted EBITDA in the quarter was negative $200,000 compared with negative $400,000 during the same period last year. Gross margins in the quarter were 59% compared with 49% in 2022, of a 20% increase year over year. Research and development expenses in the quarter were 0 point $2,000,000 compared with $300,000 for the same quarter last year. And sales, general and administrative expenses in the quarter were $2,200,000 compared with $1,900,000 for the corresponding period in 2022. Net cash Provided by operating activities, that is positive cash flow, was $500,000 for the 6 of the year ended June 30, 2023 compared to net cash used that is negative in operating activities of approximately $2,900,000 for the 6 months ended June 30, 2022, an improvement of $3,400,000 Our cash balance on June 30, 2023 increased to $4,100,000 from $3,800,000 as of March 31, 2023.

Speaker 3

Please refer to today's press release for more details about the calculation of adjusted EBITDA and its reconciliation to GAAP net income or loss. Additional information about our results will be found in our filing on Form 10 Q, of the call is being recorded. And I will now turn the call back to Robert for some closing remarks. Robert, please go ahead.

Speaker 2

Thank you, Andy. In conclusion, the 2nd quarter has been a period of significant growth and progress for Nephros with a 24% increase in net revenue over the previous year, of a 45% year to date revenue increase and positive cash flow results, We believe we are well positioned for success. With a larger sales team, we will bolster our relationships. With our focus on our core strengths, we are winning in our targeted market segments. And with our renewed focus on distribution, the call is being recorded.

Speaker 2

We are able to increase the penetration of our superior products across larger market segments. These strategic moves of my drive towards accelerating growth give me a great confidence in our ability to sustain this momentum and drive the growth you expect from us. Thank you for your continued support and confidence in Nephros. We look forward to updating you on our future achievements Please open the call for questions now. Thank you.

Operator

To And our first question comes from Thomas McGovern of Maxim Group. Please go ahead.

Speaker 4

Hey, guys. Thanks for taking my question and congrats on the quarter. So just to get into it, you guys of the revenue came from a combination of some of your core sales as well as emergency sales. I was wondering if you'd be willing to of the question

Speaker 2

is, can you give us a breakdown of

Speaker 4

what percent came from emergency and what percent came from those recurring core business? And then kind of Building off of that, you guys mentioned that one of your focuses has been converting those emergency sales into recurring clients. So I was just kind of wondering, maybe high level, of approximately how many of those have been converted and then kind of how you guys go about doing that? Thank you.

Speaker 3

This is Andy. I'll answer your first part of your question, if that's okay, Robert, and then pass it over to you for the second half. Of the Excellent. We don't describe the precise of the quarter, we have a number of other items that we have in the past. Okay.

Speaker 3

And then, I'll turn it over to of 15%. And when it's exceptionally large, we often will say we did have a big boost like we did that in Q1. But the fact that we're silent on it means that it's within some reasonable distance of normal. And so that's all we'll say on that. I'll turn it over to Robert for the second part of the question.

Speaker 2

Yes. Thank you, Andy, and thank you for the question. And you said it exactly correctly. By sharing best practices in ways that we have been successful in converting that of emergency response to programmatic business. We're getting the entire team up to speed on how to do that.

Speaker 2

And typically, when you have an emergency response, you order a fair amount of of the resources and items to mitigate the situation and those last for some time. So when looking back just one of the quarter, we still are working off of that emergency response supply base and then we are looking forward to converting those into long term contractual just It's a great way for us to grow. We have the established relationship and it has been, of the call is very successful so far in the concentrated efforts in those regards. So I look forward to some more growth resulting from that part of our business. Thank you very much.

Speaker 4

Great. I appreciate you guys taking my question. I'll hop back in the queue. Okay.

Operator

That are in this question will come from Robert Smith of Center For Performing Investing. Please go ahead.

Speaker 5

Hi. Good afternoon and thanks for taking my question. Robert, what is high growth in your terminology? And do you have of And targets that you can share with us, any kind of 3 or 5 year plan?

Speaker 2

Yes. Thank you for the question. And of When I look at high growth, I can't project what that's going to mean or what that's going to equal in that first week. I can look backwards to what I've done in the past in prior roles, and I do expect growth to continue along those lines. Of And where we are today, what you're seeing reported in the results released publicly just now, I would constitute that as high growth.

Speaker 5

All right. That's reasonable. And so you're spending R and D at about $800,000 annual rate. Where are those dollars going now? I mean, that's the lifeblood in the future is the mine, I mean?

Speaker 2

When we have a company such as ours in this space with the clearances that we have required, there's a number of regulations that come up that we have to maintain a certain amount of effort to keep up with those and keep our products compliant. So a good portion of the spend goes along that as well. Andy, if you can speak historically on where some of those spends have gone, that may give some more color to the answer to that question.

Speaker 3

Sure. I'll be happy to. Robert, nice to hear your voice. Thanks for the question. To We're a relatively small company.

Speaker 3

We're about 30 people right now. And where we of And as you know, we've jettisoned a couple of areas of the company that were where the revenue growth just wasn't coming as quick as we wanted it to. So what's left is a company that's at of All I can use is last year's revenue. We're running at about a 10% R and D somewhere between 8% and 12 of R and D expense. And I think that's appropriate.

Speaker 3

To say it's the lifeblood of the company is certainly true, but that doesn't mean that we should to quickly and I think that we're in a phase right now where cash flow positivity is of the most important thing and a march towards profitability, supported by revenue growth and careful cost management. And of So, what we're spending the R and D budget on in filters, filtration system initiatives, what we do for a living. And I think that the number is right about where I'd like to see it. Thanks. How is your Chipotle relationship going?

Speaker 3

Terrific. Okay. Well, that's a nice that's a great word. I love to hear it. Thanks very much.

Speaker 3

Good luck. Okay. Take care.

Speaker 2

Thank you.

Operator

Of the next question is from Ralph Weil of R. Weil Investment Management. Please go ahead.

Speaker 6

Good to talk to you and good quarter. You have A long term relationship with Medica, where there's some End of it, I think in a few years. Could you comment about the relationship and what is of what your restrictions are or what your goals are and what you're doing to Perhaps extend that so that we can just have an easier time going forward.

Speaker 2

Yes, great question, Rob. If you'd like, I'm going to answer the first part of that, the qualitative part. And to whatever extent we're of I'm going to ask Andy to fill in the quantitative part. When I first started and I examined our supplier base and where we get our materials for critical and key components, this was one which got most of my attention. And I'm pleased to say after visiting with them and building a relationship of their current CEO and also their President, I feel more comfortable than ever that we have a very solid partnership and have no doubt that we will continue that of the call is being recorded.

Speaker 2

So all of my initial concerns are no longer there. Of this is a very healthy and happy situation to be in. And Andy, if you may comment on any of the of the other parts of Ralph's question that you might be working on as well.

Speaker 3

Sure. Happy to. Ralph, hello. Yes, we are you are correct. The medical relationship as it's currently written of the agreement expires on Twelvethirty Onetwenty 25.

Speaker 3

As Robert noted, he and I made a trip of Medica just a couple of weeks ago and had an excellent set of meetings with frankly the whole leadership team there. And we are quite confident that that will be extended. And while I can't of Say more than that, I'm not losing any sleep over it. And we'll have more to say on it probably next quarter or the quarter after that.

Speaker 6

Okay. Thanks for that. And could I just elaborate a little on my old friend Bob Smith's Question regarding Chipotle. You say that it's Bob, good to hear you on the You say that it's been terrific. And yes, you've been into Chipotle now for of quite a number of months and I'm thrilled to hear it's terrific.

Speaker 6

And I hear what you're saying that your relationship with DynaStar It's great. And I also realize that in the past you said some things about of the commercial business and it didn't come, so you're gun shy. But can you just elaborate a little bit on what we might expect of the commercial lens?

Speaker 2

Sure, I'd be happy to. So in my background, working with partners and of developing that channel to market is somewhat of a specialty of mine. So I fully engaged with leadership within that company of And develop the pipeline which is very, very healthy. The pipeline is key because you expect a certain amount of wins from that pipeline based on your closing deals. And what started out as somewhat a unique of a pipeline is now extremely healthy and will support the growth targets that we have going forward and we are starting to see some very good traction in that regard.

Speaker 2

When we are looking at the commercial space, to Somewhat of a growth issue where we started to expand very fast and as we ramp up our supply chain to keep up with the the growth that we were seeing. So when Andy says terrific and good, he's kind of hinting at those words. We are seeing the growth that we desired and It's on a track that is quite pleasing in my guidance, but at the very least we'll see what happens and report more on that in the future. But my know that we are going to continue on a path that is good. So aside from giving any more specifics than

Speaker 3

that, I hope that Gives a

Speaker 2

little bit of color and flavor to the relationship where it stands today.

Operator

Included. Thank you for attending today's presentation and you may now disconnect.

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Earnings Conference Call
Nephros Q2 2023
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