Nephros
FY 2021
By Manuel Maurício
March 2, 2022
Together with Berry Global, Nephros might just be the most boring company in the Portfolio.
If it weren’t for the 40% drop since it entered the Portfolio, I’d be sleeping by now.
The truth is that, in 2021, the revenue reached a record $10.4 million.
So why has the stock tanked recently?
Probably because of the 2022 guidance of 30% revenue growth. You see, although 30% growth is nothing to sneeze at, the management has mentioned in the past that the business is breakeven at $15 million. That means that we won’t be seeing Nephros turning a profit in 2022.
As it didn’t in 2021.
But a few tidbits came out of the recent Conference Call that deserve mention:
COMMERCIAL SEGMENT
The company began shipping commercial filters to a nationally recognized quick service restaurant chain, which will add about $250.000 in revenue in 2022. Andy (CEO) mentioned that they’re talking to several other QSR chains to scale the commercial segment.
WATER PATHOGEN TESTING
Andy mentioned that they’re in talks with 3 leading companies in the microbiological testing space. I would love to know more about this.
DIALYSIS SEGMENT
Nephros has become a strategic supplier for 2 major dialysis companies, representing, at least half a million dollars per year going forward. They mention that they’re in talks with other major dialysis companies. If they can land a DaVita or Fresenius, the largest dialysis clinic operators in the USA, this might become a huge segment. Having said that, I’m not sure if Nephros isn’t already a supplier of their.
HDF SEGMENT
On the HDF segment, as part of the regulatory approval process, the FDA has asked them to answer 14 questions regarding their HDF machine. They have already replied to 10 of them and are expecting to resubmit to the FDA by end of March, after which the FDA will have 90 days to make a decision. They’re already ramping up their sales efforts ahead of a potential approval by the FDA.
BALANCE SHEET RISK
At the end of the year, Nephros had $6.9 million in cash. With a burn rate of around $6.5 million, the cash in the bank will last them less than 1 year. As mentioned before, it is likely that we’ll be seeing the company issuing more shares in the coming months, especially so if they don’t land a good distribution deal for their HDF machine in the meantime.
CONCLUSION
Nothing material has changed about the business since my last write-up; the management still needs to execute on all fronts, although the growth prospects look better than ever.
Having said that, the recent fall in the share price has made the stock even more tempting.
That’s why I’ve been thinking of adding to my position. I have yet to make up my mind, but if I decide to add more of it, you’ll be the first to know.
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