Nephros Covid-19 Operational Update

Nephros Reports 2019 Fourth Quarter and Full Year Financial Results

Nephros Reports 2019 Fourth Quarter and Full Year Financial Results
Fourth Quarter Net Revenue up 96%; Annual Net Revenue up 82%
Establishes 2020 Revenue Guidance at $14.5 to $15.5 Million

SOUTH ORANGE, NJ, February 27, 2020 – Nephros, Inc. (Nasdaq:NEPH), a commercial stage company that develops and sells high performance water purification products and pathogen detection systems to the medical and commercial markets, today announced financial results for the fourth quarter and full year ended December 31, 2019.

Financial Highlights

Fourth Quarter Ended December 31, 2019 – Water Filtration Business Segment

  • Net revenue was $3.2 million, compared with $1.6 million in 2018, up 96%
  • Net income was $135,000, compared with a net (loss) of ($147,000) in 2018
  • Adjusted EBITDA was $648,000, compared with $136,000 in 2018, up 376%

Fourth Quarter Ended December 31, 2019 – Consolidated

  • Net revenue was $3.2 million, compared with $1.6 million in 2018, up 96%
  • Net (loss) was ($144,000), compared with ($664,000) in 2018, improved 78%
  • Adjusted EBITDA was $376,000, compared with ($256,000) in 2018

Year-End 2019 – Water Filtration Business Segment 

  • Net revenue was $10.3 million, compared with $5.7 million in 2018, up 82%
  • Net (loss) was ($1.6 million), compared with ($2.4 million), improved 32%
  • Adjusted EBITDA was $281,000, compared with ($861,000) in 2018

Year-end 2019 – Consolidated

  • Net revenue was $10.3 million, compared with $5.7 million in 2018, up 82%
  • Net (loss) was ($3.2 million), compared with ($3.3 million) in 2018, improved 4%
  • Adjusted EBITDA was ($1.2 million), compared with ($1.8 million) in 2018, improved 30%

“We are pleased the 2019’s results continued the Company’s consistent multi-year growth trajectory and steady improvement of the bottom line,” said Daron Evans, President and Chief Executive Officer of Nephros.  “As we look forward into 2020, we are well capitalized and believe we are well positioned to maintain the momentum we have generated,” “We expect to grow revenues between 40% and 50%, with additional revenue growth possible depending on the timing and growth trajectory of our pathogen detection system products. We look forward to building on our foundation of engineering and customer service excellence into an exciting 2020.”

Financial Performance for the Fourth Quarter and Year Ended December 31, 2019

Net revenue for the year ended December 31, 2019 was $10.3 million, compared with $5.7 million in 2018, an increase of 82%. Net revenues for the fourth quarter of 2019 were $3.2 million, compared with $1.6 million in the fourth quarter of 2018, an increase of 96%.

Cost of goods sold for the year ended December 31, 2019 was $4.3 million, compared with $2.5 million in 2018, an increase of 71%. Cost of goods sold for the fourth quarter of 2019 was $1.3 million, compared with $0.7 million in the fourth quarter of 2018, an increase of 92%.

Gross margins for the year ended December 31, 2019 were 59%, compared with 56% in 2018. Gross margins for the fourth quarter of 2019 were 60%, compared with 59% in the fourth quarter of 2018.

Research and development expenses for the year ended December 31, 2019 were $3.1 million, compared with $1.5 million in 2018, an increase of 101%. Research and development expenses for the fourth quarter of 2019 were $0.8 million, compared with $0.5 million in the fourth quarter of 2018, an increase of 40%.

Depreciation and amortization expenses for the year ended December 31, 2019 were approximately $186,000, compared with approximately $163,000 in 2018, an increase of 14%. Depreciation and amortization expenses for the fourth quarter of 2019 were approximately $44,000, compared with approximately $40,000 in the fourth quarter of 2018, an increase of 10%.

Selling, general and administrative expenses for the year ended December 31, 2019 were $6.1 million, compared with $4.5 million in 2018, an increase of 35%. Selling, general and administrative expenses for the fourth quarter of 2019 were $1.4 million, compared with $1.1 million in 2018, an increase of 30%.

Net (loss) for the year ended December 31, 2019 was ($3.2 million), compared with a net (loss) of ($3.3 million) in 2018, a 4% reduction in loss. Net (loss) for the fourth quarter of 2019 was approximately ($143,000), compared with a net (loss) of approximately ($664,000) in the fourth quarter of 2018, a 78% reduction.

Adjusted EBITDA for the year ended December 31, 2019 was ($1.2 million), compared with ($1.8 million) in 2018, a 30% reduction. Adjusted EBITDA for the fourth quarter 2019 was approximately $377,000, compared with approximately ($256,000) in the fourth quarter of 2018.

As of December 31, 2019, Nephros had cash and cash equivalents of approximately $4.2 million.  In January 2020, Nephros completed a Common Stock offering which generated approximately $6.7 million of net cash proceeds.

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 income (loss), the most directly comparable GAAP financial measure, for the 2019 and 2018 fiscal years for both Nephros on a consolidated basis and the Water Filtration Business Segment:

2019 Three Month Period Ended Annual
Water Filtration Business Segment 03/31/19 06/30/19 09/30/19 12/31/19 Totals
Net (loss) income             (904)             (532)             (346)             135          (1,647)
Adjustments:
Depreciation of property and equipment                 8                  8                  4                  4                24 
Amortization of other assets                44                 44                 44                 44               176 
Interest expense                46                 46                 48                 55               195 
Interest income                                                                           
Change in FV of contingent consideration               (10)                (9)              (94)              (43)             (156)
Non-cash stock-based compensation              158               147              348               665            1,318 
Income tax benefit (225) (225)
Other non-cash items                35                 31                29                 13               108 
Non-Recurring Adjustments

Aether acquisition

               78                                                                    78
Pathogen detection development              110               150              150                                 410 
Adjusted EBITDA             (435)             (115)             183              648              281
2018 Three Month Period Ended Annual
Water Filtration Business Segment 03/31/18 06/30/18 09/30/18 12/31/18 Totals
Net loss          (1,319)             (578)             (246)             (272)          (2,415)
Adjustments:
Depreciation of property and equipment                 7                  7                  7                  7                 29 
Amortization of other assets                34                 33                 35                 33               134 
Loss on extinguishment of debt              199                                                                        199 
Interest expense                51                 28                 32                 27               138 
Noncash interest expense                34                                                                          34 
Interest income                (1)                (1)                (1)                (1)                (4)
Income tax benefit                                                                        (93)               (93)
Noncash compensation              242               226               120               397               985 
Other noncash items                67                 (7)                35                 38               133 
Adjusted EBITDA             (686)             (292)               (18)              136              (861)
2019 Three Month Period Ended Annual
Consolidated 03/31/19 06/30/19 09/30/19 12/31/19 Totals
Net (loss) income         (1,349)             (942)             (744)            (144)          (3,179)
Adjustments:
Depreciation of property and equipment                 8                  8                  4                   4                 24 
Amortization of other assets                44                 44                 44                 44               176 
Interest expense                46                 46                 48                 55               195 
Interest income                                                                           
Change in FV of contingent consideration               (10)                (9)              (94)              (43)             (156)
Non-cash stock-based compensation              158               150              354               670            1,332 
Income tax benefit (225) (225)
Other non-cash items                35                 31                29                 15               110 
Non-Recurring Adjustments

Aether acquisition

               78                                                                    78
Pathogen detection development              110               150              150                                 410 
Adjusted EBITDA             (880)             (522)           (209) 376          (1,235)
2018 Three Month Period Ended Annual
Consolidated 03/31/18 06/30/18 09/30/18 12/31/18 Totals
Net loss          (1,429)             (682)             (550)             (664)          (3,325)
Adjustments:
Depreciation of property and equipment                 7                  7                  7                  7                 29 
Amortization of other assets                34                 33                34                 33               134 
Loss on extinguishment of debt              199                                                                        199 
Interest expense                51                 28                 32                 27               138 
Noncash interest expense                34                                                                          34 
Interest income                (1)                (1)                (1)                (1)                (4)
Income tax benefit                                                                        (93)               (93)
Noncash compensation              242               226               120               397               985 
Other noncash items                67                 (7)                35                 38               133 
Adjusted EBITDA             (796)             (396)            (323)            (256)          (1,771)

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 4:30pm Eastern Time

Nephros will host a conference call today at 4:30 PM 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 March 5, 2020 at 1-877-344-7529 or +1-412-317-0088 for international callers and entering replay access code: 10139589. An audio archive of the call will be available shortly after the call on the Nephros investor relations page at http://www.nephros.com/investor-relations/.

About Nephros

Nephros is a commercial stage company that develops and sells high performance water purification products and pathogen detection systems to the medical and commercial markets. Nephros ultrafilters and pathogen detection systems are used in hospitals and medical clinics to assess and reduce the infection risks from waterborne pathogens (e.g., Legionella, Pseudomonas) 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 2020, the potential for further growth and the expected growth in medical, commercial and industrial filter sales, the expected future revenue growth 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