Nephros (NASDAQ:NEPH) reported first-quarter 2026 revenue of $5.2 million, a company record and the first time it has surpassed $5 million in a single quarter, as growth in its core “programmatic” business offset a decline in emergency response-related sales.
“Q1 2026 was a milestone quarter for Nephros,” President and CEO Robert Banks said on the company’s earnings call, citing continued execution in the core business, expanding adoption of products and new applications, and increased contribution from service and installation capabilities.
Revenue rises 7% as programmatic growth offsets emergency response variability
Chief Financial Officer Judy Krandel said net revenue increased 7% to $5.2 million from $4.9 million in the first quarter of 2025. She attributed the increase to strong product revenue tied to the programmatic business, while confirming that emergency response revenue was lower compared with an elevated year-ago quarter.
During the Q&A, Banks reiterated that the company does not typically break out programmatic versus emergency response revenue, but said emergency response has averaged 10% to 15% of sales in the past and was “significantly less than that” in the first quarter. Banks emphasized that Nephros does not “create the outbreak,” but said increased awareness through trade shows, partner networks, and referrals has helped the company be called in when difficult situations arise.
Gross margin declines to 57% amid tariffs, currency, and mix shift
Nephros reported gross margin of 57% in the first quarter, down from 65% a year earlier. Banks said the decline was driven by three factors:
- Tariffs: Banks said tariffs created “over $200,000 in incremental costs” during the quarter, adding that absent tariffs, gross margin would have been “in the low 60s.” He said the company is pursuing refund opportunities tied to tariffs paid prior to a February 2026 U.S. Supreme Court decision and implementing mitigation strategies. Banks also noted the tariff rate declined from 15% to 10% at the end of February, which he expects will help later in the year as newer inventory is sold.
- Currency: Banks cited a strengthening euro as a year-over-year cost headwind.
- Product mix: Banks said the company is intentionally expanding into commercial applications, which carry lower margins than its core infection control business.
Krandel said cost of goods sold rose to about $2.2 million due to higher sales volume and the same external cost factors. She also pointed out that first-quarter 2025 gross margin benefited from a weaker euro and the absence of tariffs, calling the prior-year quarter “unusually high.”
Looking ahead, Krandel said the shift in tariff rates should improve margins as older, higher-tariff inventory is worked through. She added the company is considering mitigation steps, including evaluating whether it can pass some tariff costs through to customers while watching competitor actions. Krandel also noted that even with lower-margin commercial mix, “every incremental dollar of commercial business drives incremental gross profit dollars.”
Expenses rise; net income and adjusted EBITDA fall year-over-year
On the expense line, Krandel said research and development spending increased to approximately $346,000, up 17%, “primarily due to higher headcount.” Selling, general, and administrative expenses were approximately $2.5 million, up 12%, reflecting increased headcount and professional fees.
Net income declined about 75% to roughly $140,000, compared with $558,000 in the prior-year quarter. Adjusted EBITDA declined about 69% to approximately $206,000, compared with $667,000 a year ago.
As of March 31, 2026, Krandel said Nephros had approximately $4 million in cash and “remained debt-free.” She attributed a decline in cash from year-end 2025 to the timing of inventory receipts and accounts receivable collections, adding that the company had since received customer payments that “translate right to cash.”
New York focus, service expansion, and education initiatives
Banks said Nephros is expanding beyond product sales with a broader strategy that includes installation and replacement programs, expanded service capabilities, and education initiatives such as the Nephros Water Institute. He described these efforts as “structural advantages” designed to move the company earlier into customers’ decision cycles.
Responding to a question about New York, Banks said the company has increased focus on the New York City region due to the density of hospitals and infection control needs, as well as a backdrop of Legionella and other outbreaks that have generated inbound inquiries. He said Nephros hired a sales leader with deep local healthcare experience because the prior regional structure did not allow sufficient focus on the area. Banks said it is still “early innings,” but added, “There’s no reason that New York City by itself can’t be as large as any of our other regions combined.”
Banks also provided an operating metric update, saying Nephros ended the quarter with 1,676 active customer sites. He described site growth as “very steady” and said revenue has grown faster than site count, which he interpreted as earning more per customer as services expand and commercial filter sales are added into existing accounts.
On water management program development and certifications, Banks said the offering currently sits under the company’s education pillar and Nephros is “not currently charging for services yet.” He said the company has “an employee or two” capable of creating water safety management plans and views the capability as a developing service that could expand to smaller entities or hospital groups seeking help navigating new regulations.
Commercial markets, PFAS, and home opportunities discussed
Banks said Nephros is intentionally expanding into commercial applications including “ice machines, drinking fountains, bottle fillers, and other high-use water applications,” which he called a larger addressable market than the company’s traditional segments. He also discussed broader commercial verticals such as aviation, hospitality, government and municipal buildings, retail and real estate management, schools, and universities, while acknowledging these markets can be more competitive and less “sticky” than healthcare.
Asked about EPA-related interest in PFAS and microplastics, Banks said regulatory drivers and guidelines can increase activity, but added that costs and the need for education remain obstacles in consumer markets. He said the company receives “a ton of questions” about microplastics and nanoplastics and views each new article on the topic as a marketing opportunity. On PFAS, Banks said, “PFAS is actually fairly easy,” while noting that Nephros’ solutions can vary depending on the specific application and that the market can be competitive due to other solutions and claims. He described PFAS as more aligned with the company’s commercial product line and said the company remains opportunistic.
Banks also addressed potential in the home filtration market, calling it “huge,” and said he is seeing increased consumer concern about biological contamination. He said Nephros has point-of-use solutions but not yet whole-home, which the company is exploring. Banks said he expects to address the home market through partners—often serving high-end homes or home builders—and expressed hope to share “meaningful movement” over the next several quarters without sacrificing focus on the healthcare infection control business.
In closing remarks, Banks said Nephros is “growing revenue, expanding into larger markets, and strengthening our recurring revenue model,” while navigating external pressures that management believes are “temporary and manageable.”
About Nephros (NASDAQ:NEPH)
Nephros, Inc is a development-stage company specializing in advanced water filtration and purification technologies for medical, laboratory, industrial and defense applications. The company’s core offering centers on proprietary hollow fiber ultrafilters designed to remove bacteria, viruses, endotoxins and particulates from water streams. These ultrafilters are used in hemodialysis systems to protect patient treatment, in pharmaceutical and laboratory environments to ensure water quality and in critical field-deployable units for military and emergency response.
The company’s product portfolio includes standalone filtration cartridges for point-of-use and point-of-entry installations in dialysis clinics and hospitals, as well as bench-top and portable water purification systems.
