Nephros
Q4 2020
By Manuel Maurício
March 04, 2021
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This could be my analysis to Nephros’ fourth quarter results. BBBOOoorrrriiiinnngggg!
But you know what? In the investment world, boring usually means good so let’s take a closer look.
For those who don’t remember, Nephros is our water filtration business. It has several irons in the fire and it could become one of those boring, boring, BOOM companies.
You can read my previous write-up HERE.
As hospitals start getting used to the new normal the company has been increasing its revenue slowly from the second quarter lows.
That still isn’t enough to turn a profit, but as the company stops spending $1.3 Million dollars on R&D for its HDF technology together with higher revenue from the other 2 segments, we should be seeing it turn profitable some day soon. When?
I don’t know, but the CEO believes that the company can become profitable at a run rate of about $15 Million dollars. I would say that we could be one year away from that.
The balance sheet is as strong as it was before, maybe even more so. There was some dilution (issuance of shares) recently and I’ll be trying to figure out why. I don’t believe it was needed, but this might be related to the stock based compensation.
Thoughts and Conclusion
Since the writing of my previous analysis, the new CFO left the company, Andy took the dual-role of CEO and CFO, and Wes Lobo was hired as Chief Marketing Officer.
This shows that the focus is now on increasing sales. 2020 was the first year for the Pathogen Detection segment and sales were negligible. Let’s see how they progress going forward. The management expects this to be a high growth segment once the hospitals get back to normal.
The HDF machine is finally developed and the company has already filed with the FDA. They are now in talks about it being a special 510(K) or a traditional one. Andy expects the FDA clearance somewhere in the middle of the year.
That illusive commercial contract with a big company hasn’t yet materialized so, on this front, everything is still the same.
To sum it all up, investors just need to be patient. The hospitals are slowly getting back to where they were before the pandemic, the CEO has alluded to the market being 80% closed in comparison to 90% in the previous quarter and he expects the first half of the year to be more like 2020 and the second half, maybe, more like 2019 where the company was growing at an average rate of 60%.
Just like with other companies in the Portfolio, investors just need to sit back and wait for the business to develop.
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