What specific products or customer types are driving the broad-based growth, and what is the target audience for nanoplastic filters?

Growth was broad-based across the portfolio, not concentrated in a single product or region. It was primarily driven by increased sales within existing customers, especially as more products and services are offered. The target audience for nanoplastic filters is likely commercial residential users with long-term exposure to water sources, rather than short-term hospital patients. “It was pretty uniform across the board. We have introduced some new flow sync adapters and some other convenience kits. But by and large, the service enabled more filter purchases as customers that are limited in support and internal abilities to install found no more excuses not to take care of those problems.”

Beyond the tariff refund, what drove the record revenue? Was it new sites or higher revenue per existing site, and is the tripled service revenue a new run rate?

The record revenue was driven by broad-based growth within existing sites and customers, not a significant increase in new customers. The tripled service revenue is expected to continue at a similar level, supported by the filter tracker app automating renewals. The tariff refund was a reduction of COGS, not revenue. “The number of new customers is not impressive. 1,724 was the count, just a few more than last quarter. So it really is sales within existing customers, especially as we offer every existing customer more products and more services.”

A customer, John Dunn from Trinity Health, provided unsolicited positive feedback on Nephros' products, services, and educational support.

Robert Banks expressed gratitude for the positive feedback, emphasizing that this experience is what Nephros strives to replicate with all customers. He highlighted the importance of the personal touch, responsiveness, and educational efforts, especially given the challenges of getting customers to share their positive experiences publicly. “Thank you, John, and I greatly appreciate that reflection. And I would say that the experience you have is one that we try to mimic and duplicate with all of our customers. We work hard to create that personal touch and responsiveness.”

NEPH

Nephros (NEPH) Q2 FY26 earnings call: the analyst Q&A

Earnings call· Jun 2026 (Q2 FY26)· Health Care· Aug 6, 2026

Source: earnings call transcript

Executive summary

Nephros Q2 FY26 — Record Revenue and Profitability Driven by Broad-Based Growth

Nephros delivered a record-breaking quarter, showcasing broad-based growth across products and services, underpinned by strong execution and customer retention. While a significant tariff refund boosted reported profitability, the underlying business demonstrated robust expansion, particularly in recurring programmatic revenue and service offerings. The company continues to invest in market expansion, new product development, and educational initiatives to drive future growth, despite ongoing tariff and currency headwinds.

Highlights

Record quarterly revenue of $6 million, up 36% year-over-year.
Core programmatic product revenue grew approximately 27% year-over-year.
Service-only revenue nearly tripled.
Net income increased over 400% to $1.2 million for the quarter.
Adjusted EBITDA increased 260% to $1.3 million for the quarter.

Concerns

Gross margin continues to be impaired by the ongoing 10% tariff.
Weakening U.S. dollar relative to the Euro increased shipping costs.
Growing contribution from lower-margin commercial and service revenue impacted blended gross margin.
Net cash provided by operating activities declined by $313,000 year-over-year in Q2.
Net cash used in operations for the first half of FY26 was $990,000.

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Core Programmatic Product Revenue This represents the recurring foundation of the business, with customers purchasing replacement filters over time.	—	27%	—	—
Service-Only Revenue Customers are increasingly relying on Nephros for installation, replacement, and ongoing support, leading to significant growth. This revenue stream currently carries lower margins than core infection control products.	—	nearly tripled	—	—
Emergency Response Revenue This business can fluctuate based on outbreaks and infrastructure issues. While it increased meaningfully in Q2 FY26, it slightly offset overall growth for H1 FY26 and is not a primary driver of long-term strategy.	—	increased meaningfully	—	—

Product announcements

Product	Type	Timeline	Details
PFAS, Microplastics, Nanoplastics, Sterile Processing, and Broader Commercial Application Products	launch	recently released

Risks & headwinds

Continuing Tariff Policy ongoing

10% tariff

Mitigation:Evaluating pricing, sourcing, freight, product mix, and operational efficiencies to offset costs.

Currency Fluctuations Q2 FY26

Weakening of the U.S. dollar relative to the Euro increased shipping costs.

Mitigation:Evaluating pricing, sourcing, freight, product mix, and operational efficiencies to offset costs.

Product Mix Impact on Gross Margin ongoing

Growing contributions from commercial and service revenue, which currently carry lower margins than core infection control products.

Mitigation:Focus on margin improvement through various operational levers.

Net Cash from Operations Decline Q2 FY26 and H1 FY26

Net cash provided by operating activities declined by $313,000 YoY in Q2 FY26 and was a net use of $990,000 in H1 FY26.

Mitigation:Positive net income was more than offset by increases in accounts receivable and inventory.

What to watch in Q3 FY26

New Product Adoption

next 2-3 quarters

Current not yet gained traction

Target increased sales and market penetration

Why it matters

New products for PFAS, microplastics, nanoplastics, and sterile processing are expected to be future growth drivers, indicating the company's ability to evolve and leverage R&D.

The microplastics or more importantly, nanoplastics as well as PFAS and some of the other newer products have recently been released. It's with the exception of sterile processing and maybe the HydraGuard, which were earlier prior year, the new products haven't quite gained traction yet, and it does take some time for adoption to occur.

Find out whether NEPH delivers this. Inve re-checks your case every morning.

Q&A highlights

Were new product launches (microplastics, PFAS) reflected in Q2 results, or was growth primarily from core legacy products?

New products like those addressing microplastics and PFAS have only recently been released and have not yet gained significant traction. They are expected to be future drivers, likely 2-3 quarters out, as market education and regulation increase. Current growth is primarily from core products.

“The microplastics or more importantly, nanoplastics as well as PFAS and some of the other newer products have recently been released. It's with the exception of sterile processing and maybe the HydraGuard, which were earlier prior year, the new products haven't quite gained traction yet, and it does take some time for adoption to occur.”

asked by Unknown Analyst · answered by Robert Banks

2 min read 5 chapters

Detailed narrative

Record Revenue and Profitability

Nephros achieved its highest quarterly revenue in history, reaching $6 million, a 36% increase over Q2 FY25. This growth was broad-based, with core programmatic product revenue increasing by approximately 27% year-over-year and service-only revenue nearly tripling. The company also reported its highest quarterly net income of $1.2 million, up over 400%, and adjusted EBITDA of $1.3 million, up 260%.

Gross Margin Dynamics and Tariff Impact

Reported gross margin for Q2 FY26 was 67%, compared to 63% in Q2 FY25. This increase was primarily due to a $600,000 tariff refund recognized, with $100,000 relating to Q2 FY26 sales and $500,000 to prior periods. The refund boosted Q2 FY26 gross margin by approximately 9 percentage points.

However, ongoing 10% tariffs, increased shipping costs due to a weakening Euro, and a growing mix of lower-margin commercial and service revenue continue to pressure underlying margins.

Strategic Pillars for Growth

The company is building an integrated water safety platform around three pillars: differentiated products, installation and replacement services, and education through the Nephros Water Institute. This strategy aims to deepen customer relationships, ease product adoption, and inform customers about water safety risks. Investments are focused on expanding presence in key markets like Greater New York and Puerto Rico, increasing service adoption, and growing education-led demand.

New Product Development and Market Awareness

Nephros is introducing new products addressing emerging concerns such as PFAS, microplastics, nanoplastics, sterile processing, and broader commercial applications. While these newer products have not yet significantly contributed to current revenue, they are expected to be future growth drivers as market education and regulatory awareness increase. The company is also strengthening investor awareness through events and increased communication around water quality issues.

Operational Investments and Cash Flow

Research and development expenses increased by 18% in Q2 and 17% in H1, driven by higher salary expenses from increased headcount. Selling, general, and administrative expenses rose 10% in Q2 and 11% in H1 due to increased headcount and sales commissions.

Net cash provided by operating activities declined in Q2 and resulted in net cash used in operations for H1 FY26, primarily due to increases in accounts receivable and inventory. The company maintains a strong balance sheet with $4.7 million in cash and no debt.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.