Nephros Q4 2024 Earnings Report

Nephros EPS Results

• Actual EPS: $0.03
• Consensus EPS: -$0.01
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: N/A

Nephros Revenue Results

• Actual Revenue: $3.87 million
• Expected Revenue: $3.67 million
• Beat/Miss: Beat by +$198.00 thousand
• YoY Revenue Growth: N/A

Nephros Announcement Details

• Quarter: Q4 2024
• Date: 3/24/2025
• Time: Before Market Opens
• Conference Call Date: N/A
• Conference Call Time: N/A

Nephros (NASDAQ:NEPH), a commercial-stage company, develops and sells water solutions to the medical and commercial markets in the United States. It offers ultrafiltration products that are used in dialysis centers for the removal of biological contaminants from water and bicarbonate concentrate; and in hospitals for the prevention of infection from waterborne pathogens, such as legionella and pseudomonas, as well as in military and outdoor recreation, commercial, and other healthcare facilities. The company also manufactures and sells water filters that enhance the taste and odor of water, as well as reduce biofilm, cysts, particulates, and scale build-up in downstream equipment. It markets its products to food service, hospitality, convenience store, and health care markets, as well as medical institutions. The company was incorporated in 1997 and is headquartered in South Orange, New Jersey.

Nephros Q4 2024 Earnings Call Transcript

Key Takeaways

• Nephros reported fourth quarter net revenue of $3.9 million (up 19% YoY) and flat full-year revenue of $14.2 million, as 9% growth in programmatic sales offset a decline in emergency response.
• The company achieved first-time profitability in Q3 ’24, posting Q4 net income of $349,000 and full-year net income of $74,000, with positive adjusted EBITDA of $466,000 in Q4 and $533,000 for the year.
• Nephros launched the 20-inch HydroGuard Ultra Filter to address higher-volume sterile processing needs and meet the new ANSI AAMI ST108 endotoxin removal standard.
• By adding nearly 600 new customer sites (totaling over 1,500 active locations), Nephros generated $2 million in new sales, accounting for more than 13% of annual revenue.
• Operational improvements drove gross margin to 64% in Q4 (62% for the full year) while SG&A expenses fell 22% in Q4, and the company remained debt-free with $3.8 million in cash at year-end.

Presentation

[Operator]

Good day, and welcome to the Nephos Inc. Fourth Quarter twenty twenty four Financial Results Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Kieran Smith with PCG Advisory.

[Operator]

Please go ahead.

[Kirin Smith, President at PCG Advisory]

Good afternoon, everyone. Thank you all for participating in Nephros' fourth quarter and fiscal year twenty twenty four conference call. Before we begin, I would like to caution that comments made during this conference call by management will contain forward looking statements regarding the operations and future results of Nephros. I encourage you to review Nephros' filings with the Securities and Exchange Commission, including without limitation the company's Forms 10 K and 10 Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward looking statements. Factors that may affect the company's results include, but are not limited to, Nephros' ability to successfully, timely and cost effectively market and sell its product service offerings the rate of adoption of its products and services by hospitals and other healthcare providers the success of its commercialization efforts and the effect of existing and new regulatory requirements on Nephros' business and other economic and competitive factors.

[Kirin Smith, President at PCG Advisory]

The content of this conference call contains time sensitive information that is accurate only as of the date above the call today, 03/06/2025. 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' President and Chief Executive Officer, Robert Banks. Robert, please go ahead.

[Robert Banks, President & CEO at Nephros]

Thank you, Karen, and good afternoon, everyone. I am very pleased to welcome you to the call. Today, we reported the fourth quarter and full year results for 2024. Nephros finished Q4 'twenty four on a high note, demonstrating solid growth in our core business and achieving key strategic milestones, While our annual revenue results were approximately flat compared to 2023, we showed consistent growth throughout the year, especially as our core programmatic revenues steadily increased. Netledge demonstrated the ability to adapt, innovate and expand, putting it on a trajectory towards even greater success.

[Robert Banks, President & CEO at Nephros]

One of the biggest challenges we faced in 2024 was a significant decline in our emergency response business in the first half of the year. Historically, emergency response sales have comprised a notable portion of our total revenue. In Q1 and Q2, those contributions dropped to single digits. However, we successfully navigated this headwind in the second half of twenty twenty four, culminating in a 19% year over year growth in total sales during the fourth quarter. Beyond stabilizing our revenue streams, Netflix has taken important steps in expanding our product lineup and diversifying our market reach.

[Robert Banks, President & CEO at Nephros]

One of our most notable developments has been the launch of our 20 inches hydrocar ultra filter designed to support higher volume water applications. This product will be new opportunities for us in still processing, laboratories and manufacturing areas where stringent water quality regulations demand the highest level of filtration. The release of ANSI AAMI ST108 standard in late twenty twenty three has further reinforced our competitive advantage. This standard outlines strict guidance for water quality and stealth processing and we believe the HydroGuard Ultra Filter is uniquely positioned to meet and exceed those requirements. Its industry leading ability to remove bacteria and endotoxin makes it essential as a solution for hospitals and healthcare facilities that prioritize compliance and patient safety.

[Robert Banks, President & CEO at Nephros]

Even with the revenue hurdles we faced early in the year, we achieved profitability for the first time in Q3, a major milestone that underscores our commitment to operational excellence and financial discipline. Additionally, we added nearly 600 new customer sites, which contributed almost $2,000,000 in sales and accounted for more than 13% of our annual revenue. These accounts provide a solid foundation for growth in 2025 and beyond. Looking ahead, we remain committed to expanding into new markets, leveraging regulatory challenges and strengthening our financial performance. The foundation we built in 2024 has set us up for a transformational '25 and beyond.

[Robert Banks, President & CEO at Nephros]

I'm incredibly proud of our team's dedication and resilience. I thank the entire Nephros team for their hard work and commitment. Now let me turn it over to our CFO, Judy Crandall to go over the financials. Judy?

[Judy Krandel, Chief Financial Officer at Nephros]

Thanks, Robert. I will now provide a closer look at Nephros' financial performance in the fourth quarter and full year of 2024. We reported fourth quarter net revenue of $3,900,000 a 19% increase over the corresponding period in 2023, reflecting strong growth in our programmatic business, offset by a decline in our emergency response business. For the full year 2024, net revenue remained steady at $14,200,000 reflecting 9% growth in our programmatic business, offset by a decline in our emergency response business. Active customer sites continue to grow and were just over 1,500 as of 12/31/2024 as compared to just under $1,300 as of 12/31/2023.

[Judy Krandel, Chief Financial Officer at Nephros]

Gross margins in the quarter also increased to 64% compared to 62% in the fourth quarter of twenty twenty three, an improvement of two percentage points. For the full year 2024, gross margins increased to 62% versus 59% for 2023, a three percentage point improvement from the prior year. The improvement in gross margins in 2024 relates primarily to more favorable terms with our largest supplier. Research and development expenses in the quarter were $252,000 compared to $208,000 for the same quarter in 2023. For the full year 2024, research and development expenses were $906,000 versus $873,000 in the prior year.

[Judy Krandel, Chief Financial Officer at Nephros]

R and D expenses were higher in 2024 due to an increase in headcount. Sales, general and administrative expenses in the quarter were $1,900,000 compared to $2,400,000 for the corresponding period in 2023, a decrease of 22% due to a decline in bonuses, commissions and stock compensation expense. For the full year of 2024, SG and A expenses were $7,700,000 versus $8,900,000 in the prior year. The decrease was primarily due to a decrease in bonuses, commissions and professional fees. We are pleased to report positive net income for the quarter of $349,000 compared to a net loss of $654,000 in the same period last year.

[Judy Krandel, Chief Financial Officer at Nephros]

For the full year 2024, we had net income of $74,000 versus a net loss of $1,600,000 for 2023. Adjusted EBITDA in the quarter was positive $466,000 compared to a loss of $51,000 during the same period in the prior year. For the full year 2024, adjusted EBITDA was positive 533,000 versus a loss of $76,000 in 2023. Net cash provided by operating activities was $1,300,000 in the fourth quarter of 'twenty four versus net cash used of $200,000 in the prior year period, an improvement of $1,500,000 Net cash provided in the fourth quarter of twenty twenty four reflects primarily our positive net income, a decrease in inventory, an increase in accounts payable and accrued expenses. Net cash used in the fourth quarter of twenty twenty three reflects primarily an increase in inventory.

[Judy Krandel, Chief Financial Officer at Nephros]

Net cash used in operations for the full year 2024 was $492,000 versus net cash provided by operations of $827,000 for the full year 2023, a decrease of 1,300,000 Net cash used in 2024 reflects primarily an increase in inventory and accounts receivable and a decrease in accounts payable and accrued expenses. Net cash provided by operations in 2023 was primarily due to a decline in inventory and an increase in accrued expenses. Our cash balance on 12/31/2024 was $3,800,000 compared to $2,500,000 as of 09/30/2024 and $4,300,000 as of 12/31/2023. Nephros continues to be debt free. 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.

[Judy Krandel, Chief Financial Officer at Nephros]

Additional information about our results can be found in our filing on Form 10 K, which we will file soon. I will now turn the call back to Robert for some closing remarks. Robert, please go ahead.

[Robert Banks, President & CEO at Nephros]

Thank you, Judy. I want to close by reiterating my confidence in Nephros' growth strategy. Our team's resilience and adaptability has helped us navigate challenging market conditions and we are well positioned for sustained growth in 2025 and beyond. As we look ahead, we will focus on expanding our presence in new markets, leveraging regulatory challenges to drive demand and enhancing operational efficiencies to sustain profitability. I want to personally thank our employees, customers and investors for their continued support.

[Robert Banks, President & CEO at Nephros]

We are excited about the future and we appreciate your trust in Nephros. This concludes our full presentation, Mark. I'll take questions from the audience. Operator, can you please open the call for questions?

[Operator]

Thank you. We will now begin the question and answer session. And the first question will come from Jeremy Perlman with Maxim Group. Please go ahead.

[Jeremy Pearlman, Equity Analyst at Maxim Group]

Hi, good afternoon. Thank you for taking the question and congrats on a great quarter and a strong finish to 2024. So just the first question, the new 20 inches Ultra Filter, what do you estimate that opportunity is for the company? And I guess in terms of revenue in the top line and how are you positioning yourself in that market?

[Robert Banks, President & CEO at Nephros]

Yes, good question. The 20 inches hydro guard opens up a new market for us. So we are first attempting to figure out what that market opportunity is. But based on the new requirement for regulations in the scale processing space, it now allows us to address those higher flow rates. So exactly what that means from a dollar conversion perspective, we have a very healthy pipeline of opportunities.

[Robert Banks, President & CEO at Nephros]

And once they get realized and we have some great clarity on our closure rates, we'll share that in the upcoming quarters. But I do expect it to be a pretty good part of our programmatic growth business going forward as we look towards patient safety.

[Jeremy Pearlman, Equity Analyst at Maxim Group]

Okay, understood. Thank you. And then you mentioned on the last call, you had that beta launch of the digital tracking tool. I think and we had expected that to launch fully in the first quarter of this year. So maybe if you

[Jeremy Pearlman, Equity Analyst at Maxim Group]

could just give us if

[Jeremy Pearlman, Equity Analyst at Maxim Group]

you have any update on that, how is that helping the reorders and has it launched into full launch or is it still you're still working out the kinks in the beta?

[Robert Banks, President & CEO at Nephros]

Sure. No good question. That application has really been a good way for us to have visibility to the same site sales. That programmatic loss of business I was referring to way back in Q1 and Q2 last year was largely due to customers that were with us but not reordering at the rate that they should be ordering. By applying this tracking app, we're able to now have a digital representation of the life of that filter when it was actually installed.

[Robert Banks, President & CEO at Nephros]

And we've actually added some more components to it, including pictures of the install, the conditions with which ones are installed and all that's being tracked digitally. The anticipated launch date was Q1. We actually launched that earlier than we anticipated. So we implemented it about midway through last quarter. We have about 300 plus sites on our applications where that's being tracked currently.

[Robert Banks, President & CEO at Nephros]

And as soon as it performs, we add those to the site as well. It's largely an internal tool. We're getting the most benefit from it. But with the help of our distribution partners and end users, we're getting that continuously launched. So very pleased with this progress and it's doing what we expected it to do as we have greater than the site to those same site sales and that's probably one of the big contributors for our programmatic business being growing as fast as it has been on a steady basis.

[Jeremy Pearlman, Equity Analyst at Maxim Group]

Okay, great. And then just a

[Jeremy Pearlman, Equity Analyst at Maxim Group]

final question. When you mentioned operationally, you still have I mean, you still have room to make some costs or some streamline processes. Is that correct? I mean, what else do you see that could be done from an operational perspective to help keep costs low and keep profits up?

[Robert Banks, President & CEO at Nephros]

Well, we have done most of the 2024, that's what it was about. Judy and team have really spent a lot of time on that. I've got some bits and pieces of attitude. I'll let you, since you guys have done most of the work there. I'll talk about that and then turn it back over to me for final thoughts, Judy.

[Judy Krandel, Chief Financial Officer at Nephros]

Sure. Thank you. Thank you for the question. So we have really tried to manage costs relative to revenue. There are certainly investments that we'd like to make in the business as opposed to looking for ways to streamline costs, which we've done.

[Judy Krandel, Chief Financial Officer at Nephros]

We are about as lean frankly as we possibly could go. We are looking to make select investments in the business in areas of R and D, a little bit more financial support and marketing, but we're going to have to do that carefully along with revenue growth. We want to maintain cash positive as much as we can. So I think we have streamlined what we could. And at this point, it's more incremental investments that will be covered by incremental sales.

[Judy Krandel, Chief Financial Officer at Nephros]

And we have a select hires focused for this year, a little bit more marketing money. And then we'll see as the year progresses what it allows us to do.

[Robert Banks, President & CEO at Nephros]

And the other part of your question referring to the sustained growth, there's been a lot of analysis done in 2024 on which products are generating the most product revenue. And no surprise, they're also the products that have the greatest differentiation. So by focusing our efforts on growing those infection control products, which are also well aligned with some of the regulations that are coming and have been launched, we've been able to continue to sustain that growth and get market share in that patient infection control space. So that's been the growth driver and expect that to continue both for us.

[Jeremy Pearlman, Equity Analyst at Maxim Group]

Okay, great. Thank you for taking my questions. I'll hop back in the queue.

[Robert Banks, President & CEO at Nephros]

Thank you.

[Operator]

It looks like our next question will come from Nick Fairwell with Arbor Group. Please go ahead.

[Nick Farwell, Analyst at Arbor Group]

I'm very curious whether the 20 inches HydraGard is focused initially and entirely on healthcare or is it broadening your customer verticals over time or starting at this particular point in time?

[Robert Banks, President & CEO at Nephros]

The 20 inches HydraGard was developed for a specific targeted market in the sterile processing. This is either instrument rinsing and after you do headscopes and probes that need to be cleaned, you need a higher flow rate of water. And specifically, the regulations talk about endotoxins in that space. That's not a microbiology or cultural cure. So the HydroGuard does satisfy that, meaning those requirements, which is pretty meaningful and unsatisfying that.

[Robert Banks, President & CEO at Nephros]

This was not a focus before for hospitals, not really anything on the radar. So it's generally, it's a new market. But by getting this product developed and meeting those flow rates, we can able to satisfy that need. So I'm pretty excited about what it's going to do for us. And yes, I

[Robert Banks, President & CEO at Nephros]

don't think that there's a lot

[Robert Banks, President & CEO at Nephros]

of competition that can meet the needs there. So great question, Nick, and I don't want to put too much emphasis on the 20 inches hydro guard. But it's something that Netflix has done over the years and continues to do. When we see a need and there's a gap based on products not out there currently that can fit it, we pit it pretty quickly and we can provide a solution. So that's what we've been doing and we look to do more of that in the future.

[Nick Farwell, Analyst at Arbor Group]

Yes. To what degree have you broadened your customer verticals this last year or so, Robert? Or are you still primarily healthcare?

[Robert Banks, President & CEO at Nephros]

We are primarily healthcare and that's mainly because the regulation has driven and asked different facilities to create water management teams to have a water management plan to test. And that regulation does drive them towards coming up with some solution for what happens when those tests don't turn out so good. But that being said, we're not stopping there. We're looking at other verticals where people are interested in not having bacteria and epoxins in those waters. So think about places like airports, correctional facilities, schools, large office buildings, outside of the patient care space.

[Robert Banks, President & CEO at Nephros]

And that really was evident in 'twenty for the back half as we looked at some of those new customer sites, started to create that market for having safe water. Everyone talks about water quality, making sure it smells good, it's clear, the quality of the water. And only now is the conversation pivoting more towards the safety of the water. So it's not just good looking, but also safe to drink. And that's really where we saw and can come in and take care of problems that they didn't know there were solutions out there for.

[Robert Banks, President & CEO at Nephros]

So I'm really excited about going into other verticals and looking at other spaces to go beyond patient care.

[Nick Farwell, Analyst at Arbor Group]

Okay. On a financial question, Judy, to what degree were fourth quarter gross margins influenced by the stronger health, by the stronger dollar mix or other factors year end adjustments turned positive for the perhaps your reserve accruals? And is it sustained do you feel something in that 63% or 64% range is sustainable for the current year?

[Judy Krandel, Chief Financial Officer at Nephros]

So the improvement in gross margin really reflects a continued strong product margin and very reasonable shipping expenses. Sometimes we have more shipments in one quarter than another. Sometimes we need to do more of an air versus sea of shipping expenses reasonable. But year over year, the entire year in 2024, we benefited from our new agreement with our largest supplier, and we had improved terms. So we won't see that year over year improvement automatically because we had that this entire year.

[Judy Krandel, Chief Financial Officer at Nephros]

But we do feel good about our product and yes, mix affects it. Certain customers are based on their volumes at certain discounts, some direct versus indirect. But we don't have a reason to believe that there's a big hit coming to margins. And so within that kind of low 60s, we're hoping that it's very sustainable.

[Nick Farwell, Analyst at Arbor Group]

Were there any factors that influenced the fourth quarter like the spike in the dollar? Or is that so lag that you captured in the usage in the burn of inventory?

[Judy Krandel, Chief Financial Officer at Nephros]

Yes. It really isn't a dramatic effect on the results.

[Nick Farwell, Analyst at Arbor Group]

Okay. And then the last question, I'll let someone else ask some questions, is given all the uncertainty that The U. S. Economy and the world's economy is facing right now, especially with the new administration, have you seen that yet or either heard about it manifesting itself in your bookings or your business or your expectations of the business or is it too early to make any comments in that regard?

[Robert Banks, President & CEO at Nephros]

When I look at the macro environment in the market and the patient care states, it isn't necessarily driven by how much money is in one's pocket or entity. It's usually driven by having an issue with people getting sick or avoiding lawsuit where they need some solution. And that has less of an impact based on the stock market prices in general. And even when it comes to tariffs, most of our components coming from Europe, that's not in the crosshairs right now. It's not to say that it won't be in the future as I know that there was legislation proposed in February regarding medical devices sorry, regarding tariffs from Europe, but medical devices weren't specifically called out as far as I could see anywhere.

[Robert Banks, President & CEO at Nephros]

But we've got to get ready for that as well. So worst case, myself and competitors are impacted by that by some of those influence those situations. But I think that we are much better positioned with our long term agreements and location of our suppliers that not sure of us, but make the impact more bearable. But it's a great question. We look at that very often, try to see what is coming and how we might mitigate against any of those impacts.

[Robert Banks, President & CEO at Nephros]

But as you know, the world is extremely volatile today and so far we've been doing a decent job and continue to keep an eye on that.

[Nick Farwell, Analyst at Arbor Group]

Thank you.

[Operator]

With no further questions, this will conclude our question and answer session and thus concludes today's conference call. Thank you for attending today's presentation. You may now

Participants

Executives

• Robert Banks, President & CEO
• Judy Krandel, Chief Financial Officer

Analysts

• Kirin Smith, President at PCG Advisory
• Jeremy Pearlman, Equity Analyst at Maxim Group
• Nick Farwell, Analyst at Arbor Group