Nephros Q2 2026 Earnings Call: Complete Transcript

Nephros (NASDAQ: NEPH ) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. This content is powered APIs. For comprehensive financial data and transcripts, visit Access the full call at Summary Nephros Inc.

reported a record revenue of $6 million for Q2 2026, a 36% increase year-over-year, and a 15% sequential increase from Q1. The company's gross margin improved to 67% from 63% in Q2 2025, primarily due to a $600,000 tariff refund. 3 million. The company is focusing on expanding in key markets, increasing service adoption, and growing education-led demand through the Nephros Water Institute.

Nephros is diversifying its revenue streams and enhancing its water safety platform with new product introductions, including those addressing PFAS and nanoplastics. Despite challenges such as tariffs and rising costs, the company remains committed to improving margins and sustaining growth. 7 million as of June 30, 2026, and remains debt-free. Full Transcript OPERATOR Good afternoon and welcome to the Nephros Inc.

Second Quarter 2026 Financial Results Conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions.

To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr.

Kieran Smith, Investor Relations. Please go ahead. Kieran Smith, Investor Relations (PCG Advisory) Thank you, operator. And good afternoon, everyone.

This is Kieran Smith with PCG Advisory. Thank you all for participating in Nephros' second quarter 2026 conference call. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Nephros. I encourage you to review Nephros' filings with the Securities and Exchange Commission, including, without limitation, the company's Forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Factors that may affect the company's results include, but are not limited to, Nephros' ability to successfully, timely, and cost-effectively market and sell its products and service offerings; the rate of adoption of its products and services by hospitals and other healthcare providers; the success of its commercialization efforts; and the effects of existing and new regulatory requirements on Nephros' business and other economic and competitive factors. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live call today, August 6th.

Undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call, except as required by law. I would now like to turn the call over to Nephros President and Chief Executive Officer Robert Banks. Robert, please go ahead. Robert Banks, President and CEO Thank you, Kieran.

And good afternoon, everyone. I'm very pleased to welcome you to the call. The second quarter of 2026 was an exceptional quarter for Nephros and represents another major step forward in the company's development. We generated 6 million in revenue, the highest quarterly revenue in our history and a 36% increase over the second quarter.

Revenue also increased approximately 15% sequentially from our record first quarter. More important than the headline number is the quality and breadth of the growth. Our core programmatic product revenue increased by double digits year over year. This is the recurring foundation of our business.

Customers install our products, incorporate them into their water management programs, and continue purchasing replacement filters over time. Our service-only revenue nearly tripled as customers increasingly rely on Nephros for installation, replacement, and ongoing support, not simply for the initial product purchase. Emergency response revenue also increased meaningfully during the quarter. That business can naturally fluctuate depending on outbreaks, infrastructure issues, and urgent customer requirements, so we do not build our long-term strategy around it.

However, our ability to respond quickly remains an important differentiator and complements the steady growth of our core programmatic business. Taken together, these results demonstrate that our broad strategy is working. Nephros is increasingly becoming more than a filter product company. We are building an integrated water safety platform around three mutually reinforcing products, services, and education.

Our differentiated products open the door. Our installation and replacement services make adoption easier and deepen the customer relationship. Our education efforts, including the Nephros Water Institute, help customers understand their risks and make more informed water safety decisions. A major topic Judy and I addressed in the last call was our gross margin.

The reported result requires some context. Reported gross margin was 67% compared with 63% in second quarter of 2025. This was largely due to the tariff refund. I will let Judy go into more detail during the financial portion of the call because it's not as straightforward as it seems.

She will talk about the adjusted margin if we place refund in the periods in which the affected inventory was sold. S. dollar, increased shipping costs, and the growing contributions from commercial and service revenue, which currently carry lower margins than our core infection control products. We are pleased to have recovered a meaningful amount of previously paid tariffs, but we recognize that margin improvement remains an important area of focus.

We continue to evaluate pricing, sourcing, freight, product mix, and operational efficiencies as we work to offset the remaining external cost pressures. We also are continuing to invest in the areas that we believe can support the next stage of growth. Number one, expanding our presence in important markets including Greater New York and Puerto Rico. Number two, increasing adoption of installation and scheduled replacement services.

Three, growing education-led demand through the Nephros Water Institute. Four, introducing products addressing PFAS, microplastics, nanoplastics, sterile processing, and broader commercial applications. And then number five, strengthening investor awareness and market visibility. During the quarter we hosted our virtual investor event, participated in the Maxim Health, Wellness and Longevity Conference, announced our inclusion in the Russell Microcap Index, and increased communication around emerging water quality concerns such as microplastics and nanoplastics.

Our investor event attracted attendees from several regions and a range of investment and financial data organizations. These initiatives help broaden awareness of both the company and increasingly important water quality problems that we address. As we enter the second half, I believe Nephros is in the strongest position in its history. 2 million.

We are growing across multiple channels rather than depending on a single product, geography, or revenue source. That diversification makes the business larger, more durable, and more capable of producing sustained long-term growth. I want to thank our employees for their tremendous execution, our customers and partners for their continued trust, and our investors for their support. With that, I will turn the call over to our CFO, Judy Prandle, for a closer look at our financial results.

Judy Prandle (Chief Financial Officer) Judy, thank you. Robert, I will now provide a closer look at Nephros financial performance in the second quarter and first half of 2026. 4 million in the second quarter of 2025, an increase of 36%. Product revenue related to our programmatic business grew approximately 27%.

We also had strong revenue growth in both our emergency response and service revenue. Gross profit margin was approximately 67% for the three months ended June 30, 2026, compared to approximately 63% for the corresponding 2025 period. The increase of approximately 4 percentage points was primarily attributable to our recognition during the period of a tariff refund of about $600,000, which primarily was recognized as a reduction of cost of goods sold during the three months ended June 30, 2026. S.

dollar compared to the euro, an increase in shipping expense, and rapid growth in our service revenue, which yields lower gross margins than we realize from product sales. S. International Emergency Economic Powers Act, also known as IEEPA. S.

Supreme Court subsequently ruled in February of 2026 that those tariffs were invalid, and approximately half a million of the entire $600,000 tariff refund that we received this past quarter relates to purchased inventory that we converted to revenue beginning with the second quarter of 2025 through the first quarter of 2026 and which therefore would have reduced cost of goods sold in such periods. Only approximately $100,000 of the $600,000 tariff refund related to purchased inventory that was converted to revenue during the three-month period ended June 30, 2026.

The half a million of tariff refund corresponding to product sales made in prior periods increased our gross profit margin this past quarter by approximately 9 percentage points, and approximately $30,000 of the total tariff refund related to purchased inventory that was converted to revenue during the three-month period ended June 30, 2025. For that period last year, including the $30,000, the gross profit margin for the second quarter of 2025 would have increased by approximately 1 percentage point. Although the IEEPA tariffs were declared invalid, the current administration has imposed tariffs using other statutory bases which do remain in effect. S.

tariff policy. And again, just to reiterate, as service revenue continues to grow, it helps drive our product sales and adds to our gross profit dollars but does have a lower gross margin than our product revenue. Now moving on to research and development expenses, they increased approximately $366,000, or 18%, primarily due to higher salary expense. 4 million, an increase of 10%, reflecting increased headcount and an increase in sales commissions.

3 million compared to $355,000 in the prior year. Net cash provided by operating activities was $681,000 in the second quarter of 2026 versus net cash provided of $994,000 in the prior-year period. This showed a decline of $313,000. Net cash provided in the second quarter of 2026 reflects primarily our positive net income and a decrease in accounts payable and accrued expenses.

Those were partially offset by an increase in accounts receivable and inventory. Net cash provided by operating activities in the second quarter of 2025 reflects primarily positive net income and a decrease in accounts receivable. 3 million in the prior-year period, reflecting strong growth in our programmatic and our service revenue. This was slightly offset by a decline in our emergency response revenue.

Gross profit margin was approximately 63% for the six months ended June 30, 2026 compared to approximately 64% for the corresponding 2025 period. S. dollar compared to the euro, increased shipping expense, and rapid revenue growth from our commercial product offerings and service revenue, both of which yield lower gross margins than our infection control business. However, our gross margin significantly benefited from our recognition during the 2026 period of the tariff refund of approximately $600,000, which I just mentioned previously.

Of the $600,000, approximately $300,000 of this tariff refund corresponds to purchased inventory that we converted to revenue in the first half of 2026, which accounts for approximately a 3 percentage point improvement in our gross profit margin for the six months ended June 30, 2026. The remaining approximately $300,000 of the refunded tariff correspond to purchased inventory that we converted to revenue in 2025, of which $30,000 corresponds to the six months ended June 30, 2025. Research and development expenses increased to $712,000, or 17%, in the first half of 2026, driven by higher salary expense from increased headcount.

9 million, or 11%, in the first half of 2026 versus the prior-year period, primarily due to higher headcount and higher professional fees. 5 million from $1 million in the prior-year period. Net cash used in operations for the first six months ending June 30, 2026 was $990,000. Our positive net income was more than offset by an increase in accounts receivable and inventory.

3 million. That was driven primarily by our positive net income as well as a decline in inventory and an increase in accrued expenses. 7 million in cash and remain debt-free. Our cash balance increased from $4 million as of March 31, 2026.

I will now turn the call back to Robert for closing remarks. Robert Banks, President and CEO Thank you, Judy. This quarter provides strong evidence of the progress we are making. We delivered record revenue, record programmatic revenue, substantial growth in service, and the highest quarterly net income and adjusted EBITDA in our history.

At the same time, we continued investing in new products, expanded our customer support capabilities, broader market awareness, and future growth. We recognize that a portion of this quarter's reported profitability benefited from the one-time tariff refund. But the larger takeaway is the underlying growth of the business: programmatic revenue increased, infection control filter sales increased, service revenue nearly tripled. Those results weren't created by accounting and timing; they were created by execution.

Our priorities for the second half remain clear: serve our existing customers exceptionally well, expand our installed base, increase service and replacement activity, improve underlying margins, and continue building awareness of Nephros and the markets we address. We believe the opportunity ahead of us is significant, and we remain confident in our ability to create lasting value for our customers and shareholders. Thank you for your time and continued support. OPERATOR Please open the line for questions.

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Again, it is star then one to ask a question at this time. We will pause momentarily to assemble our roster. The first question comes from Bobby Brooks with Northland Capital Markets.

Please go ahead. Keaton Schokey, Analyst at Northland Capital Markets Hi, this is Keaton Schokey on for Bobby. Congratulations on the great quarter, and I was curious if any of the new product launches addressing microplastics and PFAS in drinking fountains were reflected in the robust Q/Q results, or was it all just the core legacy products accelerating? Robert Banks, President and CEO That's a great question, and thank you for asking it.

The microplastics, or more importantly nanoplastics, as well as PFAS and some of the other newer products have recently been released. With the exception of sterile processing and maybe the HydroGuard, which were earlier prior year, the new products haven't quite gained traction yet, and it does take some time for adoption to occur. We have to first educate the market and then run trials often; then usually that results in increased sales. So we look for those to be drivers in future quarters, maybe two, three out and further.

As regulation also regarding microplastics and nanoplastics increases, they'll become a bigger driver as well.