Nephros, Inc. (NASDAQ:NEPH) Q3 2023 Earnings Call Transcript
Nephros, Inc. (NASDAQ:NEPH) Q3 2023 Earnings Call Transcript November 10, 2023
Operator: Good afternoon and welcome to the Nephros Inc. Third Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kirin Smith of PCG Advisory. Please go ahead.
Kirin Smith: Good afternoon, everyone. Thank you all for participating in Nephros third quarter 2023 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 future results include, but are not limited to, Nephros' 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 customers, the success of its commercialization efforts and the effect 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, November 8, 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 Banks. Robert, please go ahead.
Robert Banks: Thank you, Kirin, and good afternoon, everyone. I'm very pleased to welcome you to the third quarter earnings call. We are quite happy with our third quarter results, especially our revenue of $3.7 million and a 55% increase over last year. Nephros has delivered high levels of sustained growth over the past three quarters with growth margins up significantly from the same period last year. In addition, our cash flows in 2023 have been consistently positive totaling over $1 million so far this year. We will remain laser focused on financial growth and are committed to offering compelling value proposition for our infection control and dialysis customers. Furthermore, our commercial filtration business continues to mature under the efficient operating model we have in place.
Overall, I am very encouraged. Next I will explain some of the drivers of the growth we have been experiencing. First, we have been tactically focused on strengthening our distribution channels and cultivating deeper, more worthwhile relationships with partners whose goals and priorities align with our own. So far we have seen increased sales within existing sites and larger sales per transaction. Second, we have strengthened our emphasis on converting emergency response customers to ongoing programmatic relations. In other words we are working hard to convert sales that might have otherwise been one-time events into recurring long-term business relationships. We love recurring revenue from programmatic business and our customers enjoy the ongoing protection we provide.
So far we are seeing positive impact from these efforts across our territories. Third, we have maintained inventory resiliency, a meaningful differentiator in the infection control space as our competitors often struggle with product availability. We are confident that our enduring ability to provide products when customers need them while delivering high quality solution and unmatched customer service. This will allow us to continue gaining market share. And finally, we have begun to see growth trends as a result of the ASHRAE 514 standard, which focuses on the risks and actions healthcare institutions should take to protect their patient populations from waterborne pathogens. The ASHRAE organization develops national building standards which may influence the codes and regulations for the built environment.
While the new standard is not a regulation, we believe it positively it is impacting demand for our products. I would now like to welcome Judy Krandel, our new Chief Financial Officer to the call. Judy will present some of our key financial results. Andy Astor is also on the call and will provide historical context and additional color as needed during the Q&A portion of this call. Judy, please go ahead.
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Judy Krandel: Thanks, Robert. I'm very pleased to have joined Nephros and look forward to helping build a terrific company and fast growing business. I will now provide a closer look at Nephros' financial performance in the third quarter. We reported third quarter net revenue of $3.7 million, a 55% increase over the corresponding period in 2022. Also year-to-date revenues for the first nine months of 2023 were up 48%. Net loss from continuing operations for the quarter was $0.2 million compared to $1.3 million in the same period last year. Adjusted EBITDA in the quarter was positive $11,000 compared with negative $0.3 million during the same period in 2022. Gross margins in the quarter were 59% compared with 32% in 2022 and 84% year-over-year increase.
Research and development expenses in the quarter were $0.2 million compared to $0.3 million for the same quarter in 2022. Sales, general and administrative expenses in the quarter were $2.1 million compared to $1.7 million for the corresponding period in 2022. Net cash provided by operating activities was $548,000 in the quarter and $1.1 million for the nine months ended September 30, 2023 compared to net cash used in operating activities of $172,000 in the same quarter last year and approximately $3 million used in the nine months ended September 30, 2022, an improvement of $720,000 and $4.1 million respectively. Our cash balance on September 30, 2023 increased to $4.6 million compared to $4.1 million as of June 30, 2023 and we continue to remain 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. Additional information about our results will be found in our filing on Form 10-K, which we plan to file later this month. I will now turn the call back to Robert for some closing remarks. Robert, please go ahead.
Robert Banks: Thank you, Judy. And I want to touch base briefly on a special topic mentioned in our press release, an important metric we should report each quarter is a number of active customer sites, ACS, which we will define as a number of customers that have purchased products over the past four quarters. We recently made a database change that impacted the calculation of ACS and yielded different results than those previously reported. There is a table in today's press release which shows the revised calculation retroactively over the past two years. While the absolute numbers are slightly lower, our positive growth trend over the past several quarters is not materially impacted. Indeed, for the third quarter, the ACS count increased 7% over the same period last year and increased 3% quarter-over-quarter.
To summarize, the third quarter demonstrated an ongoing trend of significant growth for Nephros. While 55% increase in net revenue over previous year and 4% year-to-date net revenue increase and sustain positive cash flow results, we believe we have achieved a path towards sustained profitable growth. As I mentioned earlier, we have strategically focused on reinforcing appropriate distribution channels and converting emergency response sales into programmatic business and maintaining strong inventory. We believe these efforts combined with the potential impact of the new ASHRAE standard well positioned Nephros for growth and advancement in our customer markets. In conclusion, I want to thank our investors, partners, customers and employees for your continued support and confidence in Nephros.
We look forward to updating you on future achievements and continuing to create long-term value for our investors and stakeholders. Operator, please open the call to questions.
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