Nephros Reports Third Quarter Financial Results

Product Revenue up 85% over Q3 2018
Reiterates Full-Year Revenue Guidance of $9.5-10 Million

SOUTH ORANGE, NJ - (NewMediaWire) - November 06, 2019 - Nephros, Inc. (Nasdaq:NEPH), a commercial stage company that develops and sells high performance water purification products to the medical device and commercial markets, today announced financial results for the three months ended September 30, 2019.

Water Filtration Business Segment Highlights

  • Product revenue was $3.1 million, up 85% compared with $1.6 million in 2018
  • Net loss was $347,000, compared with $246,000 in 2018
  • Adjusted EBITDA was $182,000, compared with ($18,000) in 2018

Consolidated Highlights

  • Net revenue was $3.1 million, up 80% compared with $1.7 million in 2018
  • Net loss was $744,000, compared with $550,000 in 2018
  • Adjusted EBITDA was ($209,000), compared with ($322,000) in 2018

“Our momentum continued in Q3, our 13th consecutive quarter of year-over-year revenue growth averaging over 65%,” said Daron Evans, President and CEO. “Growth came from both an expansion of our base business as well as from increased outbreak support. We are pleased with the development progress of our waterborne pathogen detection system and expect to be in the field helping customers before the end of this year. We also reaffirm our recently increased full-year revenue guidance of $9.5 to $10 million.”

Consolidated Financial Performance for the Quarter Ended September 30, 2019

Net revenue for the quarter ended September 30, 2019 was $3.1 million, compared with $1.7 million in 2018, an increase of 80%. Product revenues represented approximately 99% of net revenues, and increased 85%, from $1.6 million to $3.1 million.

Cost of goods sold for the quarter ended September 30, 2019 was $1.3 million, compared with $0.8 million in 2018, an increase of 65%. Gross margins for the quarter ended September 30, 2019 were 59%, compared with 55% in 2018. Management expects future gross margins to continue in the range of 55% to 60%.

Research and development expenses for the quarter ended September 30, 2019 were $0.8 million, compared with $0.4 million in 2018, an increase of 121%. The increase was driven primarily by investments in a new water pathogen detection system, and also by investments in the second-generation HDF product being developed by Nephros’s SRP subsidiary.

Depreciation and amortization expenses for the quarter ended September 30, 2019 were approximately $44,000, compared with approximately $42,000 in 2018, an increase of 5%. This increase was driven by the fixed assets acquired in the Biocon transaction.

Selling, general and administrative expenses for the quarter ended September 30, 2019 were $1.8 million, compared with $1.1 million in 2018, an increase of 67%. This growth was driven primarily by new headcount to support Nephros’s increased product revenue, as well as non-cash stock compensation expense due to employee option vesting.

As of September 30, 2019, Nephros had cash and cash equivalents of approximately $3.9 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 third quarter of the 2019 and 2018 fiscal years for both Nephros (on a consolidated basis) and the Water Filtration Business Segment:


 3 Months Ended Sep 30,
Water Filtration Business Segment20192018
   
Net loss (347) (246) 
   
Adjustments:   
Depreciation of property and equipment 
Amortization of other assets 44 35 
Interest expense 48 32 
Noncash interest expense 
Interest Income (1) 
Change in fair value of contingent consideration (94) 
Noncash compensation 348 120 
Other noncash items 29 35 
Sub-Total32(18)
Non-Recurring Expenses:     
Pathogen Detection Product Development 150 
   
Adjusted EBITDA182(18)

 3 Months Ended Sep 30,
Consolidated Results20192018
   
Net loss (744) (550) 
   
Adjustments:   
Depreciation of property and equipment 
Amortization of other assets 44 35 
Interest expense 48 32 
Noncash interest expense 
Interest Income (1) 
Change in fair value of contingent consideration (94) 
Noncash compensation 354 120 
Other noncash items 29 35 
Sub-Total(359)(322)
Non-Recurring Expenses:     
Pathogen Detection Product Development 150 
   
Adjusted EBITDA(209)(322)

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 9:00 a.m. EDT

Nephros will host a conference call today at 9:00 AM ET, 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: 1-866-652-5200. International callers may use +1-412-317-6060. Please ask to be joined into the Nephros conference call. A replay of the call can be accessed until November 13, 2019 at 1-877-344-7529 or +1-412-317-0088 for international callers and entering replay access code: 10136668. An audio archive of the call will be available shortly after the call on the Nephros investor relations page at https://www.nephros.com/investor-relations/.

About Nephros

Nephros is a commercial stage company that develops and sells high performance water purification products to the medical device and commercial markets. Nephros ultrafilters are used in hospitals and medical clinics for added protection in retaining bacteria (e.g., Legionella, Pseudomonas) and viruses from water, providing barriers that assist in improving infection control in showers, sinks, and ice machines. Additionally, Nephros ultrafilters are used by dialysis centers for assisting in the added removal of endotoxins and other biological contaminants from the water and bicarbonate concentrate supplied to hemodialysis machines and patients.

Nephros filters, including AETHER™ brand filters, improve the taste and odor of water and reduce biofilm, bacteria, and 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 expected revenue and financial performance in 2019, the potential for further growth and the expected growth in medical, commercial and industrial filter sales, the anticipated launch of a new waterborne pathogen detection system, Nephros’s sales and marketing plans and strategies, management’s expectations regarding future gross margins, Nephros’s ability to respond to outbreaks in water borne pathogens, anticipated investment in the development of a second-generation HDF system 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 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, 2018.  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) 863-6519
ksmith@pcgadvisory.com
www.pcgadvisory.com

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 amounts) 
(Unaudited)

        
  September 30, 2019  December 31, 2018 
ASSETS        
Current assets:        
Cash $3,855  $4,581 
Accounts receivable, net  1,894   1,452 
Inventory, net  2,128   1,864 
Prepaid expenses and other current assets  240   276 
  Total current assets  8,117   8,173 
Property and equipment, net  85   91 
Operating lease right-of-use assets  1,165   - 
Intangible assets, net  559   590 
Goodwill  759   748 
License and supply agreement, net  837   938 
Other assets  32   18 
TOTAL ASSETS $11,554  $10,558 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Secured revolving credit facility $982  $991 
Current portion of secured note payable  207   195 
Accounts payable  690   836 
Accrued expenses  715   396 
Current portion of contingent consideration  271   236 
Current portion of operating lease liabilities  251   - 
  Total current liabilities  3,116   2,654 
Secured note payable, net of current portion  672   843 
Equipment financing debt, net of current portion  10   - 
Contingent consideration, net of current portion  78   263 
Operating lease liabilities, net of current portion  956   - 
TOTAL LIABILITIES  4,832   3,760 

COMMITMENTS AND CONTINGENCIES (Note 16)
        
         
STOCKHOLDERS’ EQUITY        
         
       Preferred stock, $.001 par value; 5,000,000 shares authorized at September 30, 2019 and December 31, 2018; no shares issued and outstanding at September 30, 2019 and December 31, 2018.  -   - 
       Common stock, $.001 par value; 40,000,000 and 10,000,000 shares authorized at September 30, 2019 and December 31, 2018, respectively; 7,784,535 and 7,179,514 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively.  8   7 
       Additional paid-in capital  130,830   127,873 
       Accumulated other comprehensive income  63   71 
       Accumulated deficit  (127,188)   (124,153) 
            Subtotal  3,713   3,798 
       Noncontrolling interest  3,009   3,000 
TOTAL STOCKHOLDERS’ EQUITY  6,722   6,798 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $11,554  $10,558 
              

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,
  Nine Months Ended
September 30,
 
  2019  2018  2019  2018 
Net revenues:                 
  Product revenues $3,054  $1,648  $7,067  $3,822  
  Royalty and other revenues  41   76   106   253  
       Total net revenues  3,095   1,724   7,173   4,075  
Cost of goods sold  1,276   772   2,989   1,826  
       Gross margin  1,819   952   4,184   2,249  
Operating expenses:                 
Research and development  777   352   2,326   993  
Depreciation and amortization  44   42   142   123  
Selling, general and administrative  1,787   1,069   4,693   3,420  
Change in fair value of contingent consideration  (94)   -   (113)   -  
        Total operating expenses  2,514   1,463   7,048   4,536  
Loss from operations  (695)   (511)   (2,864)   (2,287)  
Other income (expense):                 
  Loss on extinguishment of debt  -   -   -   (199)  
  Interest expense  (48)   (32)   (140)   (146)  
  Interest income  -   1   -   3  
  Other expense, net  (1)   (8)   (31)   (32)  
Net loss  (744)   (550)   (3,035)   (2,661)  
Less: Undeclared deemed dividend attributable to noncontrolling interest  (60)   (16)   (180)   (16)  
Net loss attributable to Nephros, Inc. shareholders $(804)  $(566)  $(3,215)  $(2,677)  



 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, 
    Nine Months Ended
September 30, 
  
Net loss per common share, basic and diluted   (0.10)   (0.08)   (0.43)   (0.40)   
Weighted average common shares outstanding, basic and diluted     7,703,033       7,129,617       7,408,569       6,751,317     
                                    
Comprehensive loss:                                   
Net loss   (744)    $ (550)    $ (3,035)    $ (2,661)   
  Other comprehensive loss, foreign currency translation adjustments, net of tax     (7)     (1)     (8)     (4)   
Comprehensive loss     (751)     (551)     (3,043)     (2,665)   
Comprehensive loss attributable to noncontrolling interest     (60)     (16)     (180)     (16)   
Comprehensive loss attributable to Nephros, Inc. shareholders   (811)   (567)   (3,223)   (2,681)