Nephros Inc (NEPH) Q4 2025 Earnings Call Transcript

Good afternoon, everyone, and welcome to the Nefros Inc. 4th Quarter 2025 Financial Results Conference Conference.

All participants will be in a listener's demo. 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 and then one on your touch-through telephones. To withdraw your questions, you may press star and two. Please also note, today's event is being recorded. At this time, I would like to turn the floor over to Kieran Smith. Best of Relations. Please go ahead.

Thank you, Jamie, and good afternoon, everyone. This is Kieran Smith with PCD Advisory. Thank you all for participating in Mephlos' fourth quarter and fiscal year 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 Nephros. I encourage you to review Nephros' filings with the Securities and Exchange Commission, including without limitation of the company's forms 10-K and 10-Q, which identify specific factors that may cause actual results or events 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 effects of existing and new regulatory requirements on Nefros' business and other economic and competitive factors. The contents of this conference call contains time-sensitive information that is accurate only as of the date of the live call today, March 12, 2026. The company undertakes no obligation to revise or update any statements to reflect eventual circumstances after the date of this conference call, except as required by law. I would now like to turn the call over to NAPLOS's President and Chief Executive Officer, Robert Banks. Robert, please go ahead.

Thank you, Kieran. Good afternoon, everyone, and thank you for taking the time to join us today. 2025 is a great year, and I'm extremely proud of the team and all their amazing accomplishments. I've been excitedly awaiting this day so I can share with you the results of the great things that have happened since our last full year's recap. Clean water is essential for health care, hospitality, food services, and everyday life. We have the right products to address these needs and have been doing so successfully in patient care situations. We've made great progress in non-patient care applications over the past year. We look forward to developing channels to penetrate other markets, such as residential and commercial, through key relationships that we are creating. Over the past several years, we've built a clear strategy to deliver on that message. And today, the strategy is anchored around three core pillars, products, services, and education. Together, these pillars are driving our growth and positioning Necros as a leader in water safety solutions. Our first pillar, products, is our differentiated portfolio. It remains the foundation of our success. Necros developed advanced filtration technologies designed to remove bacteria, viruses, and other contaminants that threaten water safety. These products are trusted in hospitals, laboratories, and commercial facilities where reliability is critical. Innovation continues to expand our reach. Recent product launches allow us to address new high-impact applications, including ice machines, drinking fountains, bottle-filling stations, and still process environments. These are everyday touch points where water safety matters. By delivering filtration solutions that are both high-performance and easy to deploy, we are expanding our addressable market well beyond traditional patient care applications. This product innovation pipeline is a key driver core to our continued growth. In 2025, we launched our second pillar, services. While products start to relationship with customers, services sustain it. Water filtration systems require regular replacement, monitoring, and installation expertise. Historically, this has been fragmented and difficult for facility operators to manage. Networks are solving that problem. Under the leadership of our service organization, these expanded our installation and replacement capabilities, enabling us to provide customers with a complete life cycle solution. This includes rapid product delivery, professional installation, scheduled replacement programs, and ongoing technical support and training. By offering these services directly, we reduce barriers to adoption and strengthen long-term customer relationships. Most importantly, this model supports recurring revenue to programmatic filter replacements, which creates a more predictable and scalable business. Our newest and recently launched pillar is the strategy around education. It represents one of the most exciting developments for our company. We've touched over 1,000 people through our webinar series and conducted numerous site-based training sessions. Water safety is becoming an increasingly important topic across healthcare, hospitality, and public facilities. However, many organizations lack the expertise needed to manage waterborne pathogen risks effectively. Through just this gap, we launched the Nessels Water Institute. This institute is dedicated to expanding knowledge around waterborne pathogen mitigation, facility water safety programs, and compliance-driven filtration solutions. Through education and engagement with industry stakeholders, we are establishing NECOS as a trusted authority in water safety. This initiative does more than just share knowledge. It builds a long-term demand for filtration services and compliance solutions. In other words, education strengthens our entire ecosystem. The impact of this three-toler strategy is already visible in our financial performance. In 2025, NEPROS delivered 33% revenue growth, reaching $18.8 million total revenue, while continuing to scale our operations. We also reported net income of approximately $1.2 million, marking our second consecutive the year of profitability, a significant milestone for the company. These results reflect strong order reactivity, growth in active customer sites, expansion of service capabilities, and increasing demand for our solutions. At the same time, we remain debt-free and financially disciplined, with approximately $5.4 million in cash at the year end. Looking forward, we believe network is positioned at the intersection of several powerful trends. increased awareness of waterborne pathogens, rising regulatory expectations around water safety, aging infrastructure and healthcare and hospitality, and a growing need for a reliable filtration solution. Our integrated strategy, products, services, and education, allows us to address all three challenges simultaneously. It also creates a business model built not just on filter sales, but on long-term relationships and recurring value creation. I'd like to thank the entire Netverse team for their hard-working commitment. Now let me turn it over to our CFO, Judy Crandall, to go over the financials.

Thanks, Robert. I will now provide a closer look at Netverse's financial performance in the fourth quarter and full year of 2025. We reported fourth quarter 2025 net revenue of $4.7 million, a 22% increase over the corresponding period in 2024. And for the full year of 2025, net revenue grew 33% to $18.8 million from $14.2 million. This increase was primarily driven by higher programmatic revenue, reflecting strong reorder activity, and the addition of several new active sites. In addition, we experienced solid growth in our emergency response business, as well as significant growth in service revenue. Active customer sites continued to grow and were just over 1,680 as of the end of 2025, as compared to just over 1,500 as of December 31st, 2024. Gross margin was 62% for both of the years ending December 31st, 2025 and 2024, respectively. Close margins for the fourth quarter of 2025 was 58% compared with 64% in the fourth quarter of 2024. Although we achieved higher margins during the first half of fiscal 2025, those margins eroded somewhat during the second half of the year, primarily due to the impact of tariffs. Since April 2025, we have been subject to a 15% tariff on all goods imported from Italy, which was reduced to 10% as of February 22, 2026. While this reduction provides some near-term relief, U.S. tariff policy remains unpredictable, creating uncertainty about potential future margin impacts. Research and development expenses for the years ended December 31, 2025, and 2024 were $1.3 million and $0.9 million, respectively. R&D expenses for the fourth quarter of 2025 were $0.4 million compared with $0.3 million in the fourth quarter of 2024, an increase of 57%, primarily due to higher headcounts and bonuses. Selling general and administrative expenses for the year ended 2025 were $9 million compared with $7.7 million in 2024, an increase of 17% due to an increase in bonuses and sales commissions. Selling general and administrative expenses for the fourth quarter of 2025 were approximately $2.3 million compared with $1.9 million in 2024, an increase of 24% due primarily to an increase in bonuses and sales commissions. SG&A expenses in the fourth quarter also had some one-time expenses associated with product development and market analysis work. Net income for the year ended December 31, 2025 with $1.2 million, compared with $0.1 million in 2024. Net income for the fourth quarter of 2025 was $0.1 million, compared with $0.3 million during the same period in 2024. primarily reflecting the decline in growth margins and increase in bonuses and sales commissions. Our improvement in 2025 net income was largely due to our increased sales revenue. We are extremely pleased to report positive net income for the second consecutive year, the only two in the company's history. Adjusted EBITDA in the fourth quarter was a positive $131,000, compared to positive $481,000 during the same period in 2024. For the full year 2025, suggested EBITDA was a positive $1.6 million versus positive $548,000 in 2024. Net cash provided by operating activities was $1.6 million for the year ended December 31, 2025 compared to net cash used in operating activities of approximately half a million for the year ended December 31st, 2024. Net cash provided by operating activities in 2025 is primarily due to net income of approximately $1.2 million and increase in accrued expenses of approximately $1 million, an increase in accounts payable of approximately $0.3 million, offset by an increase in accounts receivable of approximately $0.6 million, and an increase in inventory of approximately $0.7 million. NetCask used in operating activities in 2024 was primarily due to an increase in accounts receivable of approximately $0.3 million, a decrease in accounts payable and accrued expenses of approximately $0.2 million each, offset by an increase in inventory impairments and write-offs of approximately $0.3 million. Our cash balance on December 31, 2025 was $5.4 million compared to $5.22 million as of September 30, 2025 and $3.8 million as of December 31, 2024. And we continue to be debt-free. Please refer to today's press release for more details about the calculation of adjusted EBTA and its reconciliation to gap, net income, or loss. And additional information about our results can be found in our filing on Form 10-K, which we filed earlier today. I will now turn the call back to Robert for some closing remarks. Robert, please go ahead.

Thank you, Judy. In closing, Meproos is proving that a focused, disciplined company with the right technology and strategy can create meaningful impact. We are improving water safety. We are expanding into new markets. And we are building a durable platform for long-term growth. Thank you for your time today and your continued interest in Meproos. This concludes our formal presentation remarks. We'll now take time for questions from the audience. Operator, please open the call for questions.

And at this time, we'll begin that question-and-answer session. To ask a question, you may press star and then 1 on your touch-turn phones. If you are using a speakerphone, we do ask you to please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and 2.

At this time, we'll pause over fairly to assemble the raw screen. And our first question today comes from Anthony Vendetti from Maxim Group.

Please go ahead with your question. Thank you.

Yes, a couple questions. One is on the programmatic sales, what percent of revenues for the fourth quarter and the full year were programmatic sales? And do you have an outlook on how you expect that to evolve in 2026? And then your active customer sites, do you have accounts on that number as of 1231, 25?

Yeah, certainly. I'll answer the second part first and then hand it over to Judy for the first part of your question. Programmatic sales, just under 1,700. So that was 1,681 sites. And that's a significant and steady growth, well above what we were when we finished a year ahead. And it's really due to some efforts that we're making for customer retention and also outreach in areas of conferences, trade shows. but most of that new business is coming from customers who tell a friend, who are happy and delightful with what they've experienced with us, the problems we've solved, and then they have a neighboring facility or related, and they let them know, so we pick up that business as well. So really proud of that Active Sites number, and as it continues to grow, it just reflects the excellent work from our sales women and men who have been doing a great job of side effects. Eugene?

Yeah, we don't give out exact numbers, but, Anthony, the fourth quarter, let's programmatic, was certainly 90% plus of our business, which is similar for the year. Emergency response was helpful and did grow, but it was sort of high single-digit type number.

High single-digit growth in programmatic sales?

No, no, you talked. I mean, I think you wanted to know what percent, if I recall. Apologize if our sales were programmatic versus emergency response.

Yes, yes. And emergency response, what was the number you cut out for a second?

Oh, okay, yeah. You know, high single digits round figures was a little less in the fourth quarter than it was for the full year, but somewhat similar.

Okay, great. And then just maybe just on an even higher level, just as, you know, I think, obviously, I'm sure you agree, clean water, whether it's hospital-based or outside of the hospital, is probably a growing trend and a growing need worldwide. I'm just wondering, as you look towards the other opportunities, you know, outside of medical, in the commercial space, whether that's hospitality or restaurant. Can you talk a little bit about that pipeline potential and how you see that sort of evolving either in 26 or over the next couple years?

Sure, certainly. When you think about the business, the core business of Nefros, getting its start in dialysis and then really focusing on the hospital market, patient care, Those are areas that are highly regulated. We've got different rules and joint commissions and inspections. All those drive action. Testing occurs, and there are results and problems that need to be solved. Once you step outside of the patient care world, you don't have those same regulatory environments that are driving the growth. And that's why this pillar I introduced recently, the education, is so important. We've got to let different people in different markets know why it's important, why it matters, the impact to their facilities, and really the return on investment for investing in a network filtration as a medical device in a non-medical application. So I see that growth happening as the education improves, as we get more and more people that we touch via outreach, and that's the main barriers. We're selling against doing nothing. The second barrier that we have to overcome is what may be perceived complexity around installation. It's not just as simple as when you walk up to your refrigerator or a filter on the end, you're seeing where you twist it off and put a new one on. There's some cleaning and sanitation involved. So that's why our services group and portfolio is so important. We start to remove the barriers for why someone might be interested in a solution because they may not be interested in going through some of the work required in order to get an effective result from the filtration system. So as we grow and build those markets, we create an ecosystem of people that understand that there is a solution, they don't have to handle and deal with microplastics or other problems they might be dealing with, and we have the answers to those. So building that whole solution from just you've got a problem, here's your problem, here's how you can solve it to let us implement that solution for you and take care of it going forward is how we're growing that business. If you remember, it took a while even after some of the regulations in the hospital market for us to really capitalize on that and grow that hospital business. And I anticipate it will take the same after going into the non-patient care market as we work to build those markets up.

Okay, so if I had to sum it up, you would say this is a multi-year strategy to build these other verticals.

Yes, but we've been starting on this for some time already. We're not entering it fresh in 26. So as those markets and paths mature, we already have seen a few of those in some of the big areas. It's not a significant part of our business right now. I anticipate it will be a larger and larger portion going forward.

Okay, great. Thanks for all that call. I'll jump back in the queue.

Once again, if you would like to ask a question, please press star and then one. Our next question comes from Ralph Weal from Our Weal Investment Management. Please go ahead with your question.

I really, it must have been an accident or a butt call, but since I didn't have a question prepared, can you just, I know you're talking about the new markets and what you're doing there and how you're going about it with the education, et cetera, et cetera. Can you elaborate a little more on some of the successes that you may have had so far? And I know that it doesn't come easily when you're trying to penetrate new markets, but can you just comment a little about the successes so far?

Yes, from referring to the education successes or just in anything in general?

Yeah, we're in the newer markets. I mean, hospitals have been your big market and medical facilities. In the newer markets that you've entered, can you comment just a little more on where you may have seen successes on which you're basing your optimism going forward? And I really didn't touch the button, but it was a butt call.

I understand, Rob. So I can try to address that. If you think about where we've been focusing, we're in hospital, in patient care, so non-patient care applications where we've found some successes. We were looking at areas where there's large populations of people. We've got a party that's interested in keeping the map of people under them healthy. If you think of correctional facilities where if someone gets sick or ill, they can spread incontent to other places. schools and universities where there are groups of people in one room or one area, not to say that a school is similar to a jail, but where you've got large groups of people who might be susceptible to different pathogens spreading. We've also seen in some aviation facilities where governments are concerned about what might be passed through water there. And I'm really surprised at the number of just drinking water fountain applications where people have fountains that may have been shut down since COVID, where they're facing the situation where they either rip them off the wall, which is very expensive, or try to get them running again. We're able to go in, clean them up, and reopen fountains that have been shut down for quite some while. So wherever you see large numbers of bottle fillers and drinking fountains, those are also good targets. I think some of the newer non-patient has also been cell processing. Facilities that have instruments and probes and other stuff that come in contact with humans. By rinsing them with water that's free of viruses, endotoxins, and other potential contaminants, we are finding a good amount of success there. Some of the newer areas which are starting to gain traction are eyewash stations, emergency showers, those types of applications that are found outside of patient care as well. And we have water sitting stagnant where bacteria have a chance to grow. So it's very numerous. It's not one area. It's lots of topics here and there, which is why the education part of what we're doing is so important, really getting the word out and letting people know where and how what we're doing can help with what they're trying to do and the mission that they're trying to accomplish. I mean, we've had hundreds, over 1,000 people attending these seminars that we're hosting, and I encourage anyone who is interested to listen and find out. you'll see an interaction and a level of transparency and information sharing that you don't get from any of the other related types of talks. So it really does showcase networks of being experts in the field and willing to talk agnostically about how to solve some of these problems, which people really appreciate to come back. They trust us, whether it's a property management company or others who have just people under their responsibility that they don't want to get in a situation where they're contaminated. So it's really exciting. It's been really refreshing and fun. It's been us learning how to speak something other than hospital language. And I think the team has really risen to the occasion and been doing a fantastic job of making that education in roads and penetrating other areas.

Thank you. Then once again, if you would like to ask a question, please press star and one.

So it looks like there's not any other calls in the queue. so just to close it out I just want everyone to know I'm extremely excited about Nefros products and what the future holds so thank you so much for your support and believing in Nefros please stay tuned and give us a call and reach out if you do have any questions or want to know more thank you and have a great rest of your evening and with that everyone we'll be concluding today's conference calling and presentation we do thank you for joining you may now disconnect your lines