Nephros (NASDAQ:NEPH) reported record second-quarter revenue and sharply higher profitability, as growth in its recurring programmatic product business and service offerings helped drive results.
Revenue for the three months ended June 30 rose 36% year over year to $6 million, compared with $4.4 million in the prior-year period. The company said revenue also increased about 15% sequentially from its previous quarterly record. For the first six months of 2026, revenue increased 21% to $11.2 million from $9.3 million a year earlier.
Recurring products and services drive growth
Banks said Nephros’ programmatic business remains the recurring base of its operations, as customers install the company’s water-safety products and continue purchasing replacement filters over time. The company is also seeking to increase adoption of installation and scheduled replacement services, which Banks said help reduce operational barriers for customers and can support recurring filter purchases.
During the question-and-answer session, Banks said the quarter’s growth was primarily generated within existing customer sites. Nephros counted 1,724 customers, only modestly above the prior quarter, he said, indicating that existing customers were purchasing more products and services.
The company has been using its Filter Tracker application to scan and log installed filters, including their location, installation date and installer. Banks said the system allows Nephros to automate reminders and renewals for replacement filters, reducing reliance on manual tracking processes.
Banks also cited demand involving bottle fillers and drinking fountains. He said some facilities have faced the choice of removing fountains that had remained closed after COVID or using Nephros’ cleanup and filtration solutions, which he described as potentially cheaper, faster and easier.
Emergency-response revenue also increased during the quarter, though Banks said that business was not unusually large and remains inherently variable based on outbreaks, infrastructure issues and urgent customer needs. Nephros does not base its long-term strategy on that revenue source, he said.
Tariff refund lifted reported margin and income
Chief Financial Officer Judy Krandel said second-quarter gross margin was approximately 67%, up from 63% a year earlier. However, the reported figure included approximately $600,000 in tariff refunds, recognized primarily as a reduction in cost of goods sold.
Of the $600,000 refund, about $500,000 related to inventory converted into revenue between the second quarter of 2025 and the first quarter of 2026. Krandel said that portion increased second-quarter 2026 gross margin by approximately 9 percentage points because it related to sales in earlier periods. About $100,000 of the refund related to inventory sold during the second quarter.
The refunds stemmed from duties Nephros paid from April 2025 through February 2026 under tariffs imposed through the International Emergency Economic Powers Act. Krandel said the U.S. Supreme Court ruled in February 2026 that those tariffs were invalid. She added that tariffs imposed under other statutory authorities remain in effect, and Nephros expects U.S. tariff policy to continue affecting gross margin.
Margin also faced pressure from a weaker U.S. dollar against the euro, higher shipping costs, and the growing contribution of commercial and service revenue, which carry lower margins than the company’s infection-control product sales.
For the first half, gross margin was approximately 63%, compared with 64% a year earlier. The first-half result included a roughly 3-percentage-point benefit from tariff refunds tied to inventory sold during the period, Krandel said.
Profitability and cash position
Second-quarter net income rose more than 400% to approximately $1.2 million from $237,000 in the prior-year quarter. Adjusted EBITDA increased 260% to about $1.3 million, compared with $355,000 a year earlier.
Research and development expense increased approximately 18% to reflect higher salary costs, while selling, general and administrative expense increased 10%, primarily due to additional headcount and higher sales commissions.
For the first six months of 2026, net income increased 68% to $1.3 million, while adjusted EBITDA increased 46% to $1.5 million. R&D expense rose 17% and SG&A expense increased 11% during the six-month period.
Nephros generated $681,000 in operating cash flow in the second quarter, compared with $994,000 in the year-earlier period. For the first half, the company used $990,000 in operations, as increases in accounts receivable and inventory more than offset positive net income. As of June 30, Nephros had approximately $4.7 million in cash, up from $4 million at March 31, and remained debt-free.
New products remain early in adoption cycle
Nephros has introduced or is pursuing products addressing PFAS, microplastics, nanoplastics, sterile processing and broader commercial applications. Banks said the newer PFAS and nanoplastics offerings have not yet made a material contribution to second-quarter results because they were recently released and require market education, trials and adoption.
He said the company expects those products could become growth drivers in future quarters, potentially two to three quarters ahead, and that regulation related to microplastics and nanoplastics could support demand over time. Banks said potential nanoplastics customers may include commercial and residential users with long-term exposure to water from the same source.
Nephros is also expanding its presence in Greater New York and Puerto Rico, investing in customer-support capabilities and using the Nephros Water Institute for education-led engagement. Banks said education is currently intended to support product adoption rather than serve as a separately monetized revenue stream.
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.
