Fourth Quarter Net Revenue up 96%; Annual Net Revenue up 82%
Establishes 2020 Revenue Guidance at $14.5 to $15.5 Million
SOUTH ORANGE, N.J., Feb. 27, 2020 (GLOBE NEWSWIRE) -- 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 with our 2019 performance and, as we look into 2020, we believe we are well positioned to maintain the momentum we have generated,” said Daron Evans, President and Chief Executive Officer of Nephros. “As our guidance indicates, 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.
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 https://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
NEPHROS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| December 31, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 4,166 | $ | 4,581 | ||||
| Accounts receivable, net | 1,045 | 1,359 | ||||||
| Inventory, net | 2,562 | 1,864 | ||||||
| Prepaid expenses and other current assets | 526 | 369 | ||||||
| Total current assets | 8,299 | 8,173 | ||||||
| Property and equipment, net | 81 | 91 | ||||||
| Operating lease right-of-use assets | 1,106 | - | ||||||
| Intangible assets, net | 548 | 590 | ||||||
| Goodwill | 759 | 748 | ||||||
| License and supply agreement, net | 804 | 938 | ||||||
| Other assets | 32 | 18 | ||||||
| TOTAL ASSETS | $ | 11,629 | $ | 10,558 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Secured revolving credit facility | $ | 560 | $ | 991 | ||||
| Current portion of secured note payable | 211 | 195 | ||||||
| Accounts payable | 959 | 836 | ||||||
| Accrued expenses | 136 | 396 | ||||||
| Current portion of contingent consideration | 300 | 236 | ||||||
| Current portion of operating lease liabilities | 262 | - | ||||||
| Total current liabilities | 2,428 | 2,654 | ||||||
| Secured note payable, net of current portion | 613 | 843 | ||||||
| Equipment financing, net of current portion | 10 | - | ||||||
| Contingent consideration, net of current portion | - | 263 | ||||||
| Operating lease liabilities, net of current portion | 889 | - | ||||||
| TOTAL LIABILITIES | 3,940 | 3,760 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 20) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $.001 par value; 5,000,000 shares authorized at December 31, 2019 and 2018; no shares issued and outstanding at December 31, 2019 and 2018. | - | - | ||||||
| Common stock, $.001 par value; 40,000,000 and 10,000,000 shares authorized at December 31, 2019 and 2018, respectively; 8,058,850 and 7,134,719 shares issued and outstanding at December 31, 2019 and 2018, respectively. | 8 | 7 | ||||||
| Additional paid-in capital | 131,934 | 127,873 | ||||||
| Accumulated other comprehensive income | 65 | 71 | ||||||
| Accumulated deficit | (127,332 | ) | (124,153 | ) | ||||
| Subtotal | 4,675 | 3,798 | ||||||
| Noncontrolling interest | 3,014 | 3,000 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | 7,689 | 6,798 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 11,629 | $ | 10,558 | ||||
NEPHROS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
| Years Ended December 31, | |||||||||
| 2019 | 2018 | ||||||||
| Net revenue: | |||||||||
| Product revenues | $ | 10,182 | $ | 5,457 | |||||
| Royalty and other revenues | 152 | 230 | |||||||
| Total net revenues | 10,334 | 5,687 | |||||||
| Cost of goods sold | 4,250 | 2,484 | |||||||
| Gross margin | 6,084 | 3,203 | |||||||
| Operating expenses: | |||||||||
| Research and development | 3,090 | 1,539 | |||||||
| Depreciation and amortization | 186 | 163 | |||||||
| Selling, general and administrative | 6,119 | 4,517 | |||||||
| Change in fair value of contingent consideration | (156 | ) | - | ||||||
| Total operating expenses | 9,239 | 6,219 | |||||||
| Loss from operations | (3,155 | ) | (3,016 | ) | |||||
| Other income (expense): | |||||||||
| Loss on extinguishment of debt | - | (199 | ) | ||||||
| Interest expense | (195 | ) | (172 | ) | |||||
| Interest income | - | 4 | |||||||
| Other expense, net | (54 | ) | (35 | ) | |||||
| Loss before income taxes | (3,404 | ) | (3,418 | ) | |||||
| Income tax benefit | 225 | 93 | |||||||
| Net loss | (3,179 | ) | (3,325 | ) | |||||
| Less: Undeclared deemed dividend attributable to noncontrolling interest | (241 | ) | (77 | ) | |||||
| Net loss attributable to Nephros, Inc. shareholders | $ | (3,420 | ) | $ | (3,402 | ) | |||
| Net loss per common share, basic and diluted | $ | (0.45 | ) | $ | (0.50 | ) | |||
| Weighted average common shares outstanding, basic and diluted | 7,542,299 | 6,846,669 | |||||||
| Comprehensive loss: | |||||||||
| Net loss | $ | (3,179 | ) | $ | (3,325 | ) | |||
| Other comprehensive loss, foreign currency translation adjustments, net of tax | (6 | ) | (6 | ) | |||||
| Comprehensive loss | (3,185 | ) | (3,331 | ) | |||||
| Comprehensive loss attributable to noncontrolling interest | (241 | ) | (77 | ) | |||||
| Comprehensive loss attributable to Nephros, Inc. shareholders | $ | (3,426 | ) | $ | (3,408 | ) | |||