Good afternoon, everyone, and welcome to the Nephros Incorporated. First Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please also note, that today’s event is being recorded. And at this time, I would like to turn the floor over to Kirin Smith, Investor Relations. Please go ahead..

Good afternoon, everyone. This is Kirin Smith with PCG Advisory. Thank you all for participating in Nephros' first quarter 2023 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 Nephros.

I encourage you to review Nephros' 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 future results include, but are not limited to, Nephros' 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 Nephros' business and other economic and competitive factors.

The contents of this conference call contain time-sensitive information that is accurate only as of the date of the live call today, May 10, 2023. The company undertakes no obligation to revise or update any 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 Nephros' President and Chief Executive Officer, Andy Astor. Andy, please go ahead..

Thank you, Kirin, and good afternoon, everyone, and welcome to the call. I'm pleased to report and comment on our first quarter 2023 results, which reflects significant improvements in our operating performance. I am particularly pleased to report that net revenue for the quarter was $3.7 million, a 71% increase over last year.

Some of the growth was a result of an unusually large emergency response order. However, even without that order, revenue would have been $3.1 million, a 40% increase over last year. A second highlight is that we achieved positive cash flow this quarter, several months earlier than our target of mid-year 2023.

While future net cash flows may fluctuate somewhat, our first quarter results confirm our belief that we are well on those path to financial self-sustainability, coupled with higher revenue growth rates and profitability in the near future thereafter.

As I have commented in prior calls, Nephros took multiple actions over the past year in the pursuit of these results, including broad headcount and other expense reductions, the disposition of our pathogen detection systems business segment and the recent cessation of operations by our subsidiary specialty renal products.

We also implemented two price increases during 2022, doubled the size of our sales team and relaunched our commercial filtration business. With Nephros now in a stronger position, the timing is excellent for us to put in place a succession plan and for me to retire in the coming months.

As we announced on Monday, Robert Banks has joined us and tomorrow will assume the title of President and CEO. I will remain with the company as an adviser and interim CFO until we recruit and train a permanent CFO. And I'm very pleased now to invite Robert to say a few words to you, after which I will return with a financial summary.

Robert, please go ahead..

Good afternoon, everyone. I am very excited to be here today. I'm still new, so I will spend just a few minutes introducing myself with more substantive presentations in the near future.

I spent most of my career at GE and bring 20-plus years of experience in the water industry, along with the consistent record of growing sales in a wide variety of commercial and industrial markets. After obtaining my mechanical engineering degree from the University of Delaware, I began my career as an Applications Engineer.

Soon thereafter, I moved into field solutions where I worked closely with customers to solve water problems such as microbiologic, proliferation, surface at scale and closer propagation using chemical means.

When the options for administering such chemicals were suboptimal have branched into product management where I led efforts to develop technologies for mill [ph] control, monitoring and dosing. I also augmented by wet chemistry expertise by taking on mechanical water filtration with reverse osmosis and ultrafiltration product lines.

My last water-specific role just before crossing into the industrial space, took me through deionization and ultrapure water in semiconductors and commercial applications.

My broad water centered experience along with the rigor of Six Sigma training, an MBA from the University of Maryland and participation and world-class leadership training programs have all prepared me for this leadership role at Nephros.

It is a pleasure and honor to be part of the journey, especially at this juncture when we achieved cash flow positive performance and return to higher growth rates. Nephros is building a reputation for best-in-class technologies and extraordinary relationships with its partners and customers.

This is an exciting time in the company's life cycle, and I look forward to taking it to the next level. Back to you, Andy..

Thank you, Robert, and once again, welcome aboard. I will now turn to our financial results for the quarter ended March 31, 2023. We reported first quarter net revenue, as I said, of $3.1 million, a 71% increase over the corresponding period in 2022.

Net loss for continuing operations for the quarter was $0.3 million compared with a $1.6 million loss during the same period in 2022. Adjusted EBITDA from continuing operations in the quarter was positive $0.1 million compared with negative $1.2 million during the same period in 2022.

Gross margins in the quarter were 57% compared with 49% in 2022 and an 8% increase and a return to our targeted range of 55% to 60%.

Research and development expenses in the quarter were $0.2 million compared to $0.4 million for the same quarter in 2022, and sales, general and administrative expenses in the quarter were $2.1 million, a decrease from $2.2 million for the corresponding period in 2022.

Net cash provided from operating activities was $0.3 million, or $0.3 million for Q1 2023 compared with negative $1.8 million in 2022. And our cash balance on March 31, 2023, increased to $3.8 million from $3.6 million as of December 31, 2022.

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 will be found in our filing on Form 10-Q, which we will -- which actually we filed about 15 minutes ago. That concludes the financial discussion.

And as always, and in this case, in particular, I would like to thank each of our Nephros employees and our strategic partners, fiscal 2022 was not an easy one but it has been an extremely rewarding year for the company, positioning us for success, frankly, more strongly than at any time in the past.

Going forward, we will continue to provide unsurpassed products and services to our customers and partners. This time, however, under new leadership, which I'm very excited about. And of course, thanks also to our devoted investors for your continued confidence.

This concludes our formal presentation remarks, and we will now take questions from the audience. Operator, please open the call for questions. Thank you..

Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Nick Sherwood from Maxim Group. Please go ahead with your question..

Hey, how’s everyone doing? Congrats on the great quarter..

Thanks Nick. Good to hear from you..

Can you tell us a little bit about the number of active customer sites you had at the end of the first quarter, please?.

That is a great question, and I apologize, but we didn't publish that. I can do so. I will do that for you tomorrow..

Okay. Thank you. And then I noticed that there's a large drop in inventory due to the large onetime order.

Do you plan on slowly rebuilding inventory to those -- to back to that level in order to be able to meet some of these large purchases? Or what sort of is your plan going forward about managing that inventory knowing that you might receive these large orders?.

Sure. We have a pretty generous policy about our inventory. We try to keep several months of inventory on certainly our most popular products at all times, just for the event -- just in case there is an event of an outbreak or some such. So, yes, we will absolutely build our inventory back and have already placed orders to do so.

But it's also true, Nick that we had too much inventory. We had bulked up early in the pandemic as some of you will remember to ensure our supply chain. And we allowed that to bleed out quite intentionally to levels that are more appropriate for us. And we've certainly accomplished that.

And so we will be building it back up to appropriate -- to appropriate levels..

Awesome. Thanks for that detail. And then my last question will be, how has the new agreement with Donastar been progressing? And sort of any details that you might have that for the last couple of months..

Thank you. It's a great question. Donastar is a strong partner, and they're doing quite well. We don't break out our sales -- we don't publish publicly our individual market sales between commercial and dialysis and infection control. But suffice it to say that we're really happy to be working with Donastar, and we see great things in the future..

Perfect. Well, thank you again for answering all my questions, and I'll return to the queue..

You are very welcome. Thank you, Nick..

[Operator Instructions] And at this time, and showing no additional questions, I'd like to turn the floor back over to management for any closing remarks..

Thank you, Jamie. I guess, all I will say is that it has been a great pleasure over the last 6.5 years or so in helping to build Nephros to where it is today, and I'm very excited to be turning the reins over to Robert officially tomorrow. And again, I will stay on as interim CFO for some period of time.

So I will -- I'm sure I'll see you all again next quarter have a great spring and early summer, and we'll talk to you soon. Take care, everybody..

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines..