Nephros(US:NEPH)2022-11-06 07:29Financial Data and Key Metrics Changes - Net revenue for Q3 2022 was $2.4 million, a decrease of 7% year-over-year and 16% compared to the previous quarter [10] - Loss from continuing operations increased to $1.3 million from $0.8 million in Q3 2021, primarily due to changes in inventory reserve policy [14] - Consolidated adjusted EBITDA improved to negative $304,000 from negative $394,000 in Q3 2021, reflecting cost-reduction efforts [15] - Consolidated gross margins decreased to 32% from 53% in Q3 2021, impacted by the slow-moving inventory reserve policy [15] Business Line Data and Key Metrics Changes - Active customer sites increased by 18% year-over-year to a record 1,391 sites, with customer retention rates steady at over 90% [10] - Medical water filtration segment showed strong performance with record numbers of active customer sites and strong sales of filter evaluation kits [12] - Specialty Renal Products segment is in development for a commercial launch anticipated by the end of 2022 [13] Market Data and Key Metrics Changes - The company experienced a revenue reduction of approximately $200,000 from a large customer due to unrelated regulatory issues, which have since been resolved [11] - The company noted that competitors are facing supply chain issues, which may have contributed to gaining market share [35] Company Strategy and Development Direction - The company is focused on achieving profitability and positive cash flow by mid-2023, with ongoing cost-saving measures [12] - The sale of the pathogen detection systems business is expected to reduce expenses by more than $300,000 per quarter and allow the company to focus on core operations [12][25] - The company is committed to investments in scalable commercial and operational infrastructures for long-term sustainable growth [18] Management Comments on Operating Environment and Future Outlook - Management acknowledged the impact of the COVID-19 pandemic and regulatory challenges on operations and revenue [5] - The company expects to see a narrowing of cash usage gap as it approaches cash flow breakeven in mid-2023 [26] - Management expressed confidence in the potential future cash generation from the sale of the PDS segment, despite not expecting significant immediate returns [25] Other Important Information - The company reported a cash balance of $3.9 million as of September 30, 2022, which is believed to be sufficient for the foreseeable future [16] - The company is implementing a new slow-moving inventory reserve policy, which has led to increased inventory reserves and net losses [9] Q&A Session Summary Question: Can you explain the charge related to the slow-moving inventory? - Management explained that the change in policy was due to a careful review of the commercial business, leading to a more aggressive reserve for slow-moving inventory [21] Question: How do new customers compare to the existing customer base? - Management indicated a healthy mix of new large customers with potential for significant revenue alongside smaller customers, contributing to an 18% increase in active customers [22] Question: What is the expectation for cash usage until positive cash flow is achieved? - Management expects variability in cash usage but anticipates a narrowing of the gap in operating income as they approach cash flow breakeven [26] Question: Is there any anticipated cash closing costs associated with the PDS sale? - Management confirmed that they have accrued for expected closing costs and do not anticipate significant additional costs in Q4 [55]