Nephros, Inc.

Hello, and welcome to the NetPro Sync first quarter 2025 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. Now I turn the conference over to our host today, Karen Smith with BCG Advisory. Please go ahead.

Thank you, Keith, and good afternoon, everyone. Thank you all for participating in NEFROS' first quarter 2025 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 NEFROS. I encourage you to review NEFROS' 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 results include, but are not limited to, Nefros' 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 healthcare providers, the success of its commercialization efforts, and the effect of existing and new regulatory requirements on Nefros' 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, May 8, 2025. The company undertakes no obligation to revise or update any of the 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 NEFROS's President and Chief Executive Officer, Robert Banks. Robert, please go ahead.

Thank you, Kieran, and good afternoon, everyone. I'm very pleased to welcome you to the call. Today marks not only the reporting of our Q1 2025 results, but also a personal milestone. It's the two-year anniversary of my time as CEO of NEFROS. I couldn't be prouder of the progress we've made and the momentum we've built together. When I stepped into this role in May of 2023, our trailing 12-month revenue stood at $11.5 million. Two years later, we've grown that figure to $15.5 million, an impressive 34% increase that speaks to the strength of our strategy and consistent execution by our team. 400 new active customer sites over the past two years speaks to our value creation capability. Q1 has been a standout quarter. our best quarterly revenue in company history, reaching $4.9 million, a 38% increase over Q1 last year. This performance reflects powerful growth in both our core programmatic business and our emergency response channel, each reaching all-time highs. Much of our programmatic success this quarter was driven by strong reorder patterns, a new customer service site applications, and some pre-purchasing ahead of a February price increase. These signals reinforce that our value proposition continues to resonate with our customers and that we are executing well in the field. On the emergency response front, we saw an especially large surge in demand across several regions. That said, given recent changes in federal administration, we don't necessarily expect this level of activity to be sustained throughout the year. Instead, we remain focused on the steady, dependable growth of our programmatic business. This quarter also saw significant innovation milestones. In addition to our successful 2024 launch of the 20-inch HydroGuard Ultra filter, which allows us to address higher volume applications in steel processing, labs, and manufacturing, we recently introduced the S100 inline microfilter, This product opens entirely new market opportunities in places like emergency eyewash stations, dental offices, and recreational vehicles, while maintaining the high standard Mefros is known for. Perhaps most importantly, we've now achieved profitability for two consecutive quarters, achieving $558,000 in net income and $667,000 in adjusted EBITDA and Q1. This success reflects the operational discipline we've worked hard to instill across the business. We've also surpassed 1,600 active customer sites, logged hundreds of filter locations in our digital support app, and maintained strong margins and healthy cash flow, all while remaining debt-free. Heading into the rest of 2025, our strategy is clear. Expand into new, high-impact verticals, continue innovating to address unmet needs, and scale smartly while protecting profitability. I want to thank our employees, our partners, and our investors for helping us make this progress possible. I'm excited about the road ahead. Now I'll turn the call over to Judy, our CFO, Judy Crandall, for a closer look at our financials. Judy?

Thanks, Robert. I will now provide a closer look at NetBus' financial performance in the first quarter of 2025. We reported first quarter net revenue of $4.9 million, a 38% increase over the corresponding period in 2024, reflecting strong growth in our programmatic business and emergency response business. Active customer sites continued to grow and were just over 1,600 as of March 31, 2025, as compared to just over 1,500 as of December 31st, 2024. Gross margins in the quarter also increased to 65% compared with 62% in the first quarter of 2024, an improvement of three percentage points. The improvement in gross margins in 2025 was primarily driven by a more favorable product mix and a price increase implemented during the first quarter of 2025 coupled with lower inventory reserves and write-offs compared to the prior period. Research and development expenses in the quarter were $295,000. That's compared to $212,000 for the same quarter in 2024. R&D expenses were higher in 2025 due to an increase in headcount. Sales general and administrative expenses in the quarter were $2.3 million compared to 2.1 million for the corresponding period in 2024, an increase of 5% due to higher sales commissions resulting from increased revenue and higher stock compensation expense. We are pleased to report positive net income for the quarter of $558,000 compared to a net loss of $169,000 in the same period last year. Adjusted EBITDA in the quarter was positive $667,000 compared to a loss of $95,000 during the same period in 2024. Net cash provided by operating activities was $322,000 in the first quarter of 2025 versus net cash used of $672,000 in the prior year period, an improvement of $994,000. Net cash provided in the first quarter of 2025 reflects primarily our positive net income, a decrease in inventory, and an increase in accrued expenses. Net cash used in the first quarter of 2024 reflects primarily a net loss and an increase in inventory. Our cash balance on March 31st, 2025 was $4.1 million compared to $3.8 million as of December 31st, 2024. and we continue to be 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 can be found in our filing on Form 10-Q, which we will file soon. I would now like to turn the call back over to Robert for some closing remarks. Robert, please go ahead.

Thank you, Judy. As we close out today's call, I want to again reflect on the strength of Nefros' team and the business we're building together. From product launches to record-breaking sales and a return to profitability, we are proving that small, focused companies can punch far above their weight. Thank you to our customers for your trust, to our investors for your support, and to every Nefros team member for the passion and execution that brought us here. With that, we'll open the line for questions. Operator, please go ahead.

Yes, thank you. As mentioned, we will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. At any time your question has been addressed and you would like to withdraw it, please press star then two.

At this time, we will pause momentarily to assemble the roster. And once again, pressing star then one will allow you to speak.

And we have a question from Anthony Vendetti with the Maximum Group.

Yes, hi. Good afternoon. So very strong revenue for the quarter. You mentioned in the press release that it was record emergency revenues that contributed to that. Do you have that breakout? How much was it? How much was emergency? I know that's not a number that is necessarily – but I was just curious what it was for the quarter.

Well, for the quarter, it was a record amount because the revenue was so high. So it was coupled with record programmatic business as well. But it was not too significantly higher than the average as a percentage. And we don't typically break that out, but it's been something that I don't think is going to be sustainable. I really want everyone to focus on that programmatic business, which continues to grow at a healthy pace. But the emergency response has been north of 15% this past quarter.

North of 15%. Okay. And so programmatic was also strong. Maybe if you could just provide a little bit more color on that, Robert, because I know you've done some things to try to make the reorder process smoother for you as well as the customers. So maybe just give us a little color on that. what changes you've made over the last several quarters to get that reorder rate up?

Absolutely. No, it's a great question. Thanks for asking. If you remember, maybe about a year ago, this call like this, or maybe it was just three quarters ago, I talked about how we were not getting what we felt we were entitled to when it comes to the reorder on the programmatic business. If the filter is supposed to be changed every six months or supposed to be changed every three months, The customers were just letting it ride for a number of reasons. Usually it wasn't because they were trying to avoid buying a new filter. It just was something that was forgotten about, or they didn't have the hands to go and change it, or it just was still doing its job, so they felt like they'd leave it in. So what we did was just double down, took a look at what was happening, and instead of using some of the more manual methods in the past, the sales team is really focused on using a couple of things, the filter tracker app, a new head count we've added in that place to focus on it, and a number of other things, like maybe putting in contracts to have reorders automatically. So just by really focusing on that and putting a lot of attention to making sure that we do get those reordered in order to, one, stay compliant with the FDA regulatory way for using our filtration process, but also get the results they expect from protection and pathogen mitigation. So that's really helped educating the patients or the customers a lot on the pathogens so that they understand why it's important to keep that filter changed and scheduled also really helps. So it's been definitely showing up in our reorder rates and getting that number to something more acceptable has been a big driver for some of that programmatic reorder.

And then just on the tariffs, I know you mentioned them in the... in the press release, are your filters made here in the U.S.? And specifically, what impact do you think tariffs could have on your business?

Yeah, so the filters are made, well, country of record for manufacturers, the U.S. We do get a significant portion of that filter from Italy. And like the rest of the world, there's a 10% tariff on filters coming in, in parts and components and pieces. So we are being impacted by that. but it has not been significant enough for us to take action on that. We are taking a look and monitoring the charges we're being charged, how it affects our product margins, and making sure that we stay ahead of anything that does happen. And should they continue or rise or start to have some impact on that margin, we would take appropriate actions and work to mitigate the impact to our margins. But we've had extremely healthy margins, and you can see it even in this latest quarter. And we are in a much better shape than much of our competition, which gets the filters from China. So far, we are not suffering any impacts, and it's not making me think that I need to give any warnings about how that may impact us in the future.

Excellent. Okay, great. And then lastly, just on the launch of your new ultrafilter, maybe just talk about what the opportunity is there.

But you're referring to the 20-inch HydroGard or the S100? I can talk about both.

Maybe both. You talk about both. That'd be great.

Yeah. So I've been really focused on getting nephros outside of the hospital. What does that mean? Yes, we are very strong in the hospital setting. And when you have a population that's susceptible to viruses, bacteria, endotoxins, that's really a good sweet spot for where we do well. But there are lots of other places where pathogens in the water can cause many problems. So by creating a 20-inch HydroGard Ultra filter, that gives us a filter with a higher flow rate where we can now tackle applications like stale processing or sunlight manufacturing in labs where the volume and flow rates are higher and require a different set of operational conditions. So we're pretty excited about what that gives us and allows us to step even further away from patient care and more into other areas. And with some of the new guidelines like ST-108, where sterile processing becomes more and more of a recommended issue in setting up different treatment programs, we're just positioning ourselves to be able to meet those needs. The one more recently introduced and a press release, VS-100, is very exciting because now we've got additional applications such as emergency eyewash stations, showers, dental offices, other places where even like recreational vehicles where you need a different form factor and a certain level of microbiological filtration. So again, it's another way for us to take great technology and deploy it in other applications that follow the same model of a programmatic change every certain period of time and and the cost-dimensional benefit from how nephros has operational excellence in those regards.

Okay, great. Thanks so much for that call. I'll hop back in the queue. Very good. Thank you.

Thank you. And once again, please press star and then 1 if you would like to ask a question.

One more time, pressing star then 1 will allow you to speak. Okay, well, this concludes our question and answer session as well as the conference call.

Thank you so much for dialing in, and you may now disconnect your lines.