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Third-Quarter Net Revenue of $2.4 Million;
Active Customer Sites Increase 18% YoY to a New Record Level
SOUTH ORANGE, NJ, Nov. 02, 2022 (GLOBE NEWSWIRE) -- via NewMediaWire -- Nephros, Inc. (Nasdaq: NEPH), a leading water technology company providing filtration solutions to the medical and commercial markets, today announced financial results for the third quarter ended September 30, 2022.
Financial Highlights
Water Filtration Business Segment Highlights*
Consolidated Highlights*
*Stated performance is relative to same period prior year (third quarter of 2021)
Andy Astor, President and Chief Executive Officer, commented, “Our third-quarter revenue was not at the level we anticipated, representing a decrease of 7% year-over-year. A significant contributor to the revenue growth shortfall was approximately $300,000 of price increase-related pull-ahead business in Q2.”
Mr. Astor continued, “Of promising note, Active Customer Sites (ACS) grew to a record 1,391, a year-over-year increase of 18%. Our work to expand domestic sales coverage will support further growth and development of our customer base. Additionally, we agreed to sell our Pathogen Detection Systems (PDS) business to maximize its value and reduce near-term expenses by approximately $300,000 per quarter. This strategic action bolsters our financial position and offers the potential for new future revenue with a profit-sharing provision. Overall, we believe our cash position stands in good condition with no need to raise capital in the foreseeable future, and we remain confident in our capacity to attain positive cash flow by mid-2023.”
Consolidated Financial Performance for the Quarter Ended September 30, 2022
Net revenue from continuing operations for the quarter ended September 30, 2022, was $2.4 million, compared to $2.6 million in the corresponding period in 2021, a decrease of 7%.
Net loss from continuing operations for the quarter ended September 30, 2022, was $1.3 million, compared to $0.8 million during the same period in 2021. The increase in net loss from continuing operations was driven by changes to inventory reserve estimates.
Adjusted EBITDA loss from continuing operations for the quarter ended September 30, 2022, was ($0.3 million), compared to ($0.4 million) during the same period in 2021.
Cost of goods sold for the quarter ended September 30, 2022 was $1.6 million, compared with $1.2 million for the quarter ended September 30, 2021, an increase of 35%. Gross margins for the quarter ended September 30, 2022 were 32%, compared with 53% in the same period in 2021. The increase in cost of goods sold and decrease in gross margin were driven primarily by a non-recurring charge of approximately $600,000 associated with slow-moving inventory management estimates.
Research and development expenses for the quarter ended September 30, 2022 were $0.3 million, compared with $0.4 million during the quarter ended September 30, 2021.
Depreciation and amortization expenses for the quarter ended September 30, 2022 were approximately $48,000, compared with approximately $49,000 for the corresponding period 2021.
Selling, general and administrative expenses for the quarter ended September 30, 2022 were flat from the same period in 2021 at $1.7 million.
As of September 30, 2022, Nephros had cash and cash equivalents of $3.9 million on a consolidated basis, compared with $4.2 million at the end of the second quarter.
Adjusted EBITDA Definition and Reconciliation to GAAP Financial Measures
Adjusted EBITDA loss from continuing operations is calculated by taking net loss from continuing operations 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, amortization and non-cash compensation. The following table presents a reconciliation of Adjusted EBITDA loss from continuing operations to net loss from continuing operations, the most directly comparable GAAP financial measure, for the third quarter of the 2022 and 2021 fiscal years for both the Nephros Water Filtration Business Segment and consolidated results:
| Three Months Ended Sept 30, | ||||
| Water Filtration Business Segment | 2022 | 2021 | ||
| (in $ thousands) | ||||
| Reconciliation of net loss from continuing operations: | ||||
| Net loss from continuing operations | (1,078) | (730) | ||
| Adjustments: | ||||
| Depreciation of property and equipment | 12 | 7 | ||
| Amortization of other assets | 44 | 46 | ||
| Interest expense | 4 | 10 | ||
| Interest income | (4) | (2) | ||
| Non-cash stock-based compensation | 206 | 257 | ||
| Other non-cash items: | ||||
| Increase in inventory reserve | 665 | 86 | ||
| Loss on foreign currency transactions | - | 4 | ||
| Adjusted EBITDA loss from continuing operations | (151) | (322) | ||
| Three Months Ended Sept 30, | ||||
| Consolidated Results | 2022 | 2021 | ||
| (in $ thousands) | ||||
| Reconciliation of net loss from continuing operations: | ||||
| Net loss from continuing operations | (1,250) | (802) | ||
| Adjustments: | ||||
| Depreciation of property and equipment | 12 | 7 | ||
| Amortization of other assets | 44 | 46 | ||
| Interest expense | 4 | 10 | ||
| Interest income | (4) | (2) | ||
| Non-cash stock-based compensation | 225 | 257 | ||
| Other non-cash items: | ||||
| Increase in inventory reserve | 665 | 86 | ||
| Loss on foreign currency transactions | - | 4 | ||
| Adjusted EBITDA loss from continuing operations | (304) | (394) | ||
Nephros believes that Adjusted EBITDA loss from continuing operations provides useful information to management and investors regarding certain financial and business trends relating to Nephros’ financial condition and results of operations. Management does not consider Adjusted EBITDA loss from continuing operations in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA loss from continuing operations is that it excludes significant expenses and income that are required by GAAP to be recognized in Nephros’ consolidated financial statements. In addition, Adjusted EBITDA loss from continuing operations 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 loss from continuing operations. In order to compensate for these limitations, management presents Adjusted EBITDA loss from continuing operations in connection with net loss from continuing operations, the most directly comparable GAAP financial measure. Nephros urges investors to review the reconciliation of Adjusted EBITDA loss from continuing operations to net loss from continuing operations and not to rely on any single financial measure to evaluate the business.
Conference Call Today at 4:30pm ET
Nephros will host a conference call today at 4:30pm Eastern Time, during which management will discuss Nephros’ financial results and provide a general business overview.
Participants may dial into the call as follows:
Domestic access: 1 (844) 808-7106
International access: 1 (412) 317-5285
Upon joining, please ask to be joined into the Nephros conference call.
An audio archive of the call will be available shortly after the call on the Nephros Investor Relations page.
Alternatively, a replay of the call may be accessed until November 9th, 2022 at 1 (877) 344-7529 or
1 (412) 317-0088 for international callers and entering replay access code: 1478576.
About Nephros
Nephros is committed to improving the human relationship with water through leading, accessible technology. We provide innovative water filtration products and services, along with water-quality education, as part of an integrated approach to water safety. Nephros goods serve the needs of customers within the healthcare and commercial markets, offering both proactive and emergency solutions for water management.
For more information about Nephros, please visit us at nephros.com.
Forward-Looking Statements
This release contains forward-looking statements that are subject to various risks and uncertainties. Such statements include statements regarding Nephros’ expected future revenue, its belief that Active Customer Sites are a leading indicator of revenue growth, its potential to realize future revenue from the sale of its PDS business, its plans regarding capital raising, expectations on achieving positive cash flow and the timing thereof and other future financial performance, and other statements that are not historical facts, including statements that 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 the ongoing COVID-19 pandemic, inflationary factors and general economic conditions, changes in business and competitive conditions, the availability of capital when needed, dependence on third-party manufacturers and researchers, regulatory reforms, and uncertainties in litigation or investigative proceedings. These and other risks and uncertainties are detailed in Nephros’ reports filed with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2021, which it may update in Part II, Item 1A – Risk Factors in its Quarterly Reports on Form 10-Q that it has filed or will file hereafter. Nephros does not undertake any responsibility to update the forward-looking statements in this release.
Investor Relations Contacts:
Kirin Smith, President
PCG Advisory, Inc.
(646) 823-8656
ksmith@pcgadvisory.com
Andy Astor, CEO
Nephros, Inc.
(201) 345-0824
andy.astor@nephros.com
| NEPHROS, INC. AND SUBSIDIARIES | |||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
| (In thousands, except share and per share amounts) | |||||
| (Unaudited) | |||||
| ASSETS | September 30, 2022 | December 31, 2021 | |||
| Current assets: | |||||
| Cash and cash equivalents | $3,940 | $6,973 | |||
| Accounts receivable, net | 1,374 | 1,641 | |||
| Inventory | 3,488 | 4,462 | |||
| Prepaid expenses and other current assets | 186 | 207 | |||
| Current assets held for sale | - | 1,837 | |||
| Total current assets | 8,988 | 15,120 | |||
| Property and equipment, net | 128 | 72 | |||
| Lease right-use-of assets | 404 | 614 | |||
| Intangible assets, net | 433 | 465 | |||
| Goodwill | 759 | 759 | |||
| License and supply agreement, net | 435 | 536 | |||
| Other assets | 58 | 84 | |||
| TOTAL ASSETS | $11,205 | $17,650 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current liabilities: | |||||
| Current portion of secured note payable | 141 | 248 | |||
| Accounts payable | 779 | 1,334 | |||
| Accrued expenses | 272 | 444 | |||
| Current portion of lease liabilities | 229 | 313 | |||
| Current liabilities associated with assets held-for-sale | - | 123 | |||
| Total current liabilities | 1,421 | 2,462 | |||
| Secured note payable, net of current portion | - | 95 | |||
| Equipment financing, net of current portion | 2 | 4 | |||
| Lease liabilities, net of current portion | 201 | 340 | |||
| TOTAL LIABILITIES | 1,624 | 2,901 | |||
| COMMITMENTS AND CONTINGENCIES (Note 15) | |||||
| STOCKHOLDERS' EQUITY: | |||||
| Preferred stock, $.001 par value; 5,000,000 shares authorized at September 30, 2022 and December 31, 2021; no shares issued and outstanding at September 30, 2022 and December 31, 2021. | - | - | |||
| Common stock, $.001 par value; 40,000,000 shares authorized at September 30, 2022 and December 31, 2021; 10,303,818 and 10,258,444 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively. | 10 | 10 | |||
| Additional paid-in capital | 148,275 | 147,346 | |||
| Accumulated other comprehensive income | - | 64 | |||
| Accumulated deficit | (141,983) | (135,725) | |||
| Subtotal | 6,302 | 11,695 | |||
| Noncontrolling interest | 3,279 | 3,054 | |||
| TOTAL STOCKHOLDERS' EQUITY | 9,581 | 14,749 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $11,205 | $17,650 | |||
| NEPHROS, INC. AND SUBSIDIARIES | |||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | |||||||
| (In thousands, except share and per share amounts) | |||||||
| (Unaudited) | |||||||
| Three Months Ended September 30, | |||||||
| 2022 | 2022 | ||||||
| Net revenue: | |||||||
| Product revenues | $ | 2,399 | $ | 2,558 | |||
| Royalty and other revenues | 10 | 20 | |||||
| Total net revenues | 2,409 | 2,578 | |||||
| Cost of goods sold | 1,647 | 1,218 | |||||
| Gross margin | 762 | 1,360 | |||||
| Operating expenses: | |||||||
| Research and development | 252 | 395 | |||||
| Depreciation and amortization | 48 | 49 | |||||
| Selling, general and administrative | 1,743 | 1,718 | |||||
| Total operating expenses | 2,043 | 2,162 | |||||
| Loss from continuing operations | -1,281 | -802 | |||||
| Other (expense) income: | |||||||
| Interest expense | -4 | -10 | |||||
| Interest income | 4 | 2 | |||||
| Extinguishment of PPP Loan | - | - | |||||
| Other income (expense), net | 31 | 8 | |||||
| Total other (expense) income: | 31 | - | |||||
| Loss from continuing operations | -1,250 | -802 | |||||
| Net loss from discontinued operations | -1,904 | -360 | |||||
| Net loss | -3,154 | -1,162 | |||||
| Less: net loss due to undeclared deemed dividend attributable to continuing noncontrolling interest | -77 | -60 | |||||
| Net loss attributable to Nephros Inc. shareholders | -3,231 | -1,222 | |||||
| Net loss per common share , basic and diluted from continuing operations | -0.12 | -0.08 | |||||
| Net loss per common share, basic and diluted, from discontinued operations | -0.18 | -0.03 | |||||
| Net loss per common share, basic and diluted | $ | -0.30 | $ | -0.11 | |||
| Net loss per common share, basic and diluted, attributable to continuing noncontrolling interest | -0.01 | -0.01 | |||||
| Net loss per common share, basic and diluted attributable to Nephros Inc. shareholders | $ | -0.31 | $ | -0.12 | |||
| Weighted average common shares outstanding, basic and diluted | 10,303,818 | 10,044,745 | |||||
| Comprehensive loss: | |||||||
| Net loss | $ | -3,154 | $ | -1,162 | |||
| Other comprehensive income (loss), foreign currency translation adjustments, net of tax | - | -4 | |||||
| Comprehensive loss | -3,134 | -1,166 | |||||
| Comprehensive loss attributable to continuing noncontrolling interest | -77 | -60 | |||||
| Comprehensive loss attributable to Nephros, Inc. shareholders | $ | -3,231 | $ | -1,226 | |||