Nephros Reports Second Quarter Financial Results

SOUTH ORANGE, NJ, August 7, 2019 – Nephros, Inc. (OTCQB: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 June 30, 2019.

Second Quarter Financial Highlights

  • Product revenue was $2.3 million, up 88% compared with $1.2 million in 2018
  • Net revenue was also $2.3 million, up 69% compared with $1.4 million in 2018.
  • Net loss in the Water Filtration business segment was $0.5 million, an improvement of 8% compared with a net loss of $0.6 million in Q2 2018.
  • Adjusted EBITDA in the Water Filtration business segment was ($0.1) million, an improvement of 62% compared with ($0.3) million in Q2 2018.

“We are very pleased with our second quarter results, as well as our revenues in July, which exceeded $1 million in a single month for the first time in our history,” said Daron Evans, President and CEO of Nephros. “Thanks to our strategic partners and our supportive customers, quarterly revenues have increased an average of 65% for the past 12 quarters. We look forward to launching our pathogen diagnostic product later this year, expanding support of our customer’s efforts to protect their patients from water borne pathogens. We also reaffirm our full-year revenue guidance of $8.5 to 9.5 million.”

Financial Performance for the Quarter Ended June 30, 2019

Net revenue for the quarter ended June 30, 2019 was $2.3 million, compared with $1.4 million in 2018, an increase of 69%. Product revenues represented approximately 99% of net revenues, and increased 88%, from $1.2 million to $2.3 million.

Cost of goods sold for the quarter ended June 30, 2019 was $0.9 million, compared with $0.5 million in 2018, an increase of 76%. Gross margins for the quarter ended June 30, 2019 were 59%, compared with 61% in 2018. Management expects future gross margins to continue in the range of 55% to 60%.

Research and development expenses for the quarter ended June 30, 2019 were $0.8 million, compared with $0.4 million in 2018, an increase of 125%. The increase was driven primarily by investments in a new water diagnostics product, and also by investments in the second-generation HDF product being developed by our SRP subsidiary.

Depreciation and amortization expenses for the quarter ended June 30, 2019 were approximately $48,000, compared with approximately $40,000 in 2018, an increase of 20%. This increase was driven by the acquisition of fixed assets in the recent Biocon transaction.

Selling, general and administrative expenses for the quarter ended June 30, 2019 were $1.4 million, compared with $1.1 million in 2018, an increase of 29%. This growth rate was driven primarily by new headcount to support our increased product revenue.

As of June 30, 2019, we had cash and cash equivalents of approximately $4.3 million.

Adjusted EBITDA Definition and Reconciliation to GAAP Financial Measure

Adjusted EBITDA is calculated by taking net (loss) income calculated in accordance with 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 Adjusted EBITDA calculations for the second quarter of the 2019 and 2018 fiscal years:

 

  Three Months Ended June 30,
Water Filtration Business Segment 2019 2018
Net loss (532) (578)
Adjustments:
Depreciation of property and equipment 8 7
Amortization of other assets 44 33
Interest expense 46 28
Noncash interest expense
Interest Income (1)
Change in fair value of contingent consideration (9)
Noncash compensation 150 226
Other noncash items 31 (7)
Sub-Total (262) (292)
Non-Recurring Expenses:
Diagnostics Product Development 150
Adjusted EBITDA (112) (292)

We believe that Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our 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 our consolidated financial statements.  In addition, it 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 closest comparable GAAP financial measure. We urge 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.

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