NEPHROS INC Q4 FY2023 earnings call

• Capitalized on execution of new distributor agreements to strategically develop relationships with strong partners, with some partners seeing record growth in 2023.
• Opened a new facility with a larger warehouse in Q4 to address inefficient off-site storage footprint due to significant growth, consolidating sites and expanding footage while achieving solid growth numbers.
• Publication of ASHRAE 514 standard spurred greater demand for Nephros' solutions as its infection control filters, cleared by FDA 510(k) as Class II medical devices, satisfy the guidance. Fourth quarter sales up 27% to $3.3 million, and full year 2023 revenue reached $14.2 million, a 43% growth over 2022.

Fourth quarter net revenue was $3.3 million, a 27% increase over the corresponding period in 2022. Full year 2023 net revenue was up 43% to $14.2 million. Active customer sites were 1,285 as of December 31, 2023, compared to 1,172 as of December 31, 2022. Net loss from continuing operations for the quarter improved to $654,000 compared to $719,000 in the same period last year; for the full year 2023, net loss from continuing operations improved to $1.6 million versus a loss of $4.3 million for 2022. Adjusted EBITDA from continuing operations in the quarter was a loss of $51,000 compared to a loss of $460,000 during the same period in 2022; for the full year 2023, adjusted EBITDA from continuing operations was a loss of $76,000 versus a loss of $2.4 million in 2022. Gross margins in the quarter increased to 62% compared with 59% in the fourth quarter of 2022; for the full year 2023, gross margins increased significantly to 59% versus 47% for 2022. Research and development expenses in the quarter were $208,000 compared to $359,000 for the same quarter in 2022; for the full year 2023, research and development expenses were $873,000 versus $1.3 million in the prior year. Sales, general and administrative expenses in the quarter were $2.4 million compared to $1.8 million for the corresponding period in 2022; for the full year 2023, sales, general and administrative expenses were $8.9 million versus $7.6 million in the prior year. Net cash used in operating activities was $234,000 in the fourth quarter of 2023 and net cash provided by operations for the full year 2023 was $827,000. Cash balance on December 31, 2023, was $4.3 million and the company continues to be debt-free.

• ASHRAE 514 guidance release has spurred more opportunities, with education phase ongoing and expected to translate into quotes and visits as industry works to comply.
• Anticipates continued growth potential driven by factors like the ASHRAE standard and operational improvements.

• Impact of COVID-19 pandemic.
• Nephros' ability to successfully, timely and cost effectively market and sell its products and service offerings.
• Rate of adoption of its products and services by hospitals and other healthcare providers.
• Success of its commercialization efforts.
• Effect of existing and new regulatory requirements on Nephros' business and other economic and competitive factors.

Q: Have you seen an increase in deal pipeline with ASHRAE? Can you quantify any changes in your deal pipeline with the new ASHRAE regulations?

A: Yes. When talking about the deal pipeline, especially around mid-August when the ASHRAE 514 guidance was released, there's been a difference. Mainly up to this date, it's been a lot of education with people trying to understand what it means, how to comply and what will it take to mitigate against microbial packaging. Nephros has been educating customers and expects this to translate into quotes and visits as the industry works to comply.

Q: Have you seen any significant trends in either order size, or customer penetration in the fourth quarter or in the first half, or I guess the first two-thirds of this first quarter of the year?

A: Haven't seen too much differences as far as the order size. This business does tend to be a little lumpy. There are peaks and troughs based on how long filters last and when they need to be replaced.

Q: Can you provide us any update on your agreement with Donastar and how that went over the fourth quarter?

A: The agreement with Donastar was multiyear. No changes expected at this point. The commercial market takes time to penetrate as many customers have existing inventory. We've executed a new facility move and Donastar is ramping up with great opportunities, and momentum is expected to accelerate in the future.