Nephros Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Strong Q2 performance with net revenue up 36% year-over-year to $4.4 M and third consecutive quarter of profitability with positive adjusted EBITDA.
  • Positive Sentiment: Gross margin expanded to 63% in Q2 from 59% a year ago, driven by reduced shipping costs and favorable inventory reserve adjustments.
  • Positive Sentiment: Net cash provided by operating activities reached $994 K in Q2 versus a $501 K outflow last year, and the company remains debt-free with $5.1 M in cash.
  • Positive Sentiment: Active customer sites grew to over 1,600, with programmatic business up 40% over two years, fueled by the filter tracking app, installation program, and expanded sales team.
  • Negative Sentiment: Operating expenses rose as R&D spending increased due to higher headcount and SG&A climbed 13% on elevated sales commissions and stock-based compensation.
AI Generated. May Contain Errors.
Earnings Conference Call
Nephros Q2 2025
00:00 / 00:00

There are 3 speakers on the call.

Operator

Good day, and welcome to the Nephros Inc. Second Quarter twenty twenty five Financial Results Conference Call. All participants will be in listen only mode. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

Operator

To ask a question, you may press star then one on your telephone keypad. Please note this event is being recorded. I would now like to turn the conference over to Kieran Smith, Investor Relations. Please go ahead.

Speaker 1

Thank you, Megan. Good afternoon, everyone. This is Kieran Smith with PCG Advisory. Thank you all for participating in Nephros' second quarter twenty twenty five 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.

Speaker 1

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, Neplis' ability to successfully, timely, and cost effectively market and sell its products and service offerings, the rate of adoption of its products and services by hospitals and other health care providers, the success of its commercialization efforts, and the effects of existing and new regulatory requirements on Netflix's business and other economic and competitive factors. Content of this conference call contains time sensitive information that is accurate only as of the date of the live call today, 08/07/2025. 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.

Speaker 1

Robert, please go ahead. Thank you, Kieran, and good afternoon, everyone. I'm thrilled to be speaking with you today as we share our q two twenty twenty five results. We've grown our trailing twelve month revenue from $13,800,000 to $16,700,000, added more than 400 new active customer sites over the past two years, and most importantly, I continue to prove our strategy works. Q two was another high achieving quarter.

Speaker 1

Net revenue reached $4,400,000, up 32% 36% over q two last year and marked our third consecutive quarter of profitability. These are not just financial milestones. They are clear signals of durable momentum and strong operational execution. When you zoom out to look at the 2025, the growth becomes even more compelling. The 2025 revenue hit $9,300,000, a 37% increase over the same period in 2024.

Speaker 1

Every region outperformed its first half targets. Overall, we delivered well above our internal target, reinforcing both the resilience and scalability of our business. Much of this success is driven by our core programmatic business, which is now seeing 40% compound growth over the past two years. In fact, Protonight sales reached all time highs, confirming the efficacy of our reoccurring revenue model. We have also seen encouraging traction in other key areas, a thriving installation program, which has accelerated reorder rates and expanded our footprint, a record level of programmatic sales even with lower emergency response volume, The strategic expansion of our sales team into nonhealth care verticals has begun to bear fruit, and growing customer adoption of our filter tracking app, which has improved visibility, compliance, and support with thousands of filters now being tracked.

Speaker 1

This quarter's strong execution reflects the entire team's commitment from sales and operations to product and customer success. We now serve over 1,500 active customer sites and are delighted that our q two brought in the highest retention rate of the past six quarters. Looking ahead, we are focused on three things, expanding into underserved verticals like dental, government, and municipal facilities, bringing new innovations to market like our s 100 micro filter and 20 inch Hydro Guard, which has unlocked opportunities across cell processing, labs, and beyond. And lastly, executing with operational discipline while continuing to protect profitability. To everyone who has supported our journey so far, thank you.

Speaker 1

I am deeply proud of what we've built and even more excited about what's next. With that, I'll turn the call over to our CFO, Judy Krendel, for a more detailed look at our

Speaker 2

financials. Judy? Thanks, Robert. I will now provide a closer look at Nephros' financial performance in the second quarter and 2025. We reported second quarter net revenue of $4,400,000, a 36% increase over the corresponding period in 2024, reflecting strong growth in our programmatic business and emergency response business.

Speaker 2

Active customer sites continue to grow and were over 1,600 as of 06/30/2025, slightly higher than at 03/31/2025. Gross margins in the quarter also increased to 63% compared with 59% in Q2 twenty twenty four, an improvement of four percentage points. The improvement in gross margins in 2025 was primarily driven by a reduction in shipping costs and inventory reserve adjustments. Research and development expenses in the quarter were $311,000 compared to 254,000 for the same quarter in 2024. R and D expenses were higher this year due to an increase in headcount.

Speaker 2

Sales, general and administrative expenses in the quarter were $2,200,000 compared to 1,900,000.0 for the corresponding period in 2024, an increase of 13% due to higher sales commissions resulting from our increased revenue, higher pool of employee bonuses, and higher stock compensation expense. We are very pleased to report positive net income for the quarter of $237,000 compared to a net loss of $289,000 in the same period last year. Adjusted EBITDA in the quarter was positive $355,000 compared to a loss of a $133,000 during the same period in 2024. Net cash provided by operating activities was $994,000 in the 2025 versus net cash used of 501,000 in the prior year period, an improvement of a million $495,000. Net cash provided in the second quarter reflects primarily our positive net income, a decrease in accounts receivable and an increase in accrued expenses.

Speaker 2

Net cash used in the 2024 reflects primarily the net loss in that period and an increase in accounts receivable and inventory. Moving on to the six months, the first half of this year, sales for the six months ending 06/30/2025 increased by 37% to $9,200,000 from the prior year period, reflecting strong growth in our programmatic business and emergency response business. Gross margins improved to 64% in the 2025 from 61% in the prior year period. The increase in gross margin was primarily driven by lower product costs resulting from a more favorable product mix and a reduction in inventory reserve adjustments. SG and A expenses increased by 9% in the 2025 versus the prior year period due to higher sales commission expense, increased bonus accruals and higher stock based compensation expense.

Speaker 2

Net income increased to $795,000 in the 2025 from a net loss of $458,000 in the prior year period. Adjusted EBITDA in the first half of the year was positive $1,022,000 compared to a loss of $228,000 during the same period in 2024. Our past balance on 06/30/2025 was $5,100,000 compared to 3,800,000.0 as of 12/31/2024, and we continue 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. And additional information about our results can be found in our filing in Form 10 Q, which we also filed this afternoon.

Speaker 2

I will now turn the call back to Robert for some closing remarks. Robert, please go ahead.

Speaker 1

Thank you, Judy. With an eye towards the future, we remain focused on scaling our successes and exploring new ways to drive value. The strides we've made operationally, commercially, and financially position efforts to lead in a future where water quality and infection control are more important than ever. This quarter shows what we're capable of when innovation, execution, and purpose come together, and we're just getting started. Thank you to our team, our customers, and our shareholders for being on this journey with us.

Speaker 1

With that, we'll now open the line for questions. Operator, please go ahead.

Operator

We will now begin the question and answer session. Question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your questions, please press star then 2. Our first question comes from Thomas McGovern with Maxim Group.

Operator

So

Speaker 1

congrats on the quarter. Obviously, it's great to see some of the KPIs you discussed in the prepared remarks, high retention rate, all time high, active customer sites. And as noted, it seems to be reflective of several of these initiatives that you implemented, whether that's the installation and replacement program, the app or the expanded sales force. So I just kind of want to understand where you're at with each of those initiatives. Where do you really attribute the bulk of this growth?

Speaker 1

Is it evenly divided amongst those? Or is there one initiative in particular that you think really drove growth in the quarter? And then maybe beyond that, just talk a little bit about how you see the continued rollout of this, particularly as it relates to the app and some of the innovations you guys have recently launched. Just kind of give us an idea of the trajectory of the business moving throughout the rest of the year. Hey, Tom.

Speaker 1

It's great to talk to you again. Good questions. Really good questions. And all of them make me think back to a year ago when I was looking at two quarters of not so high top line performance. When we we were remarking about things that we're doing to try to convert that back into more sustainable growth.

Speaker 1

And one of the things we noted last year was that we weren't losing customers, but our customers were not reordering filters at the rate at which they were supposed to. And that really is how the old filter tracking app and some of the service initiatives were born. We saw that as how do we remind our customers not to just leave it in because it's still flowing water, but actually do and follow the recommended procedures for how we implement. And, really, that's where that came from. So it's a combination of the app allowing us to have visibility to where each filter is being installed.

Speaker 1

The service capability is allowing us to help the customer if they don't have the personnel, the time, or knowledge to be able to change out the filters from once they were first installed. And then really having the sales team focus up and continue to drive those very strong relationships by being present and finding out if they're in trouble and and really giving that customer a great experience. They realize that the filter was giving them a peace of mind and also helping to protect from some of the things that are causing the negative headlines in bacteria and pest infection. So really a combination of those three. I think it started with the app because it just creates visibility, but the service implementation took the visibility and turned it into action.

Speaker 1

So we've created a model that is sustainable, and we can continue to capitalize on that growth because it doesn't do anything any good if you grow 600 customers, but then have existing customers not reorder as they're supposed to, especially in a time when the number of hospital beds has been flat over the past five to ten years. So that growth is deliberate, intentional, and I believe sustainable based on a lot of the the actions that we've been talking about for the past few months here. Understood. I appreciate that response. And just, you know, maybe second question for me.

Speaker 1

Looking at your expanded Salesforce, you know, you guys are obviously, as you just noted, looking to expand your app. The customer side, you mentioned in your prepared remarks that one of the big growth catalysts you see in the near term is pursuing additional verticals. So I'm just curious with as it stands now, do you believe that you have an efficient sales force and you could leverage both maintaining your current active customers by keeping them happy, know, keeping kind of hands on as well as pursuing these growth avenues in, you know, verticals outside of healthcare? Or do you expect to have to add additional sales force as you guys kind of continue to move along with your growth strategy? Another great question.

Speaker 1

Did you really actually hit the only hindrance I see right now for our growth? We don't have the Salesforce we need in every place, location to grow. So we've been pretty strategic about where we've deployed resources, people, hands, and expertise. So in the past, we've had to had to really focus on maybe areas where there is high population densities or higher probability. Whereas now, we're able to go into areas and locations and states and regions where there haven't been much attention being paid.

Speaker 1

And what we're finding is that a lot of these people just don't understand the importance of pathological mitigation or biological remediation. So it starts with education. So we've been able to reach more of these different opportunities and central customers through different speaking engagements, different posts on LinkedIn, other social media outlets, and really getting the name known so that we are using our existing staff to cover where we can, but also having to augment with junior associates and others who can come in and and help take care of what we got while these more seasoned experts go out and and get new business. So that under gatherer type model has really been quite effective, and what we're noticing is that we're just gonna have to keep expanding it. It's it's working very well.

Speaker 1

Great. I appreciate those responses. Very helpful. As always, I can hand the call off to the next next person in queue. Thank you.

Speaker 1

Thank you.

Operator

This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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