NEPH

Image source: The Motley Fool. Thursday, Aug. 6, 2026 at 4:30 p.m. ET Investor Relations - Kirin Smith President and Chief Executive Officer - Robert Banks CFO - Judy Krandel Operator: Good afternoon, and welcome to the Nephros, Inc. Second Quarter 2026 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Kirin Smith, Investor Relations. Please go ahead. Kirin Smith Thank you, operator, and good afternoon, everyone. This is Kirin 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 health care providers; the success of its commercialization efforts and the effect 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 5, 2026. The company 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: Thank you, Kirin, 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 that -- 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 3 mutually reinforcing pillars: 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 the second quarter of 2025. This was largely due to the tariff refund. I will let Judy go into more details 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. The remaining year-over-year pressure reflects the continuing 10% tariff. The strengthening of the euro relative to the U.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 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. For the first 6 months of the year, revenue increased 21% to approximately $11.2 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 Krandel, for a closer look at our financial results. Judy? Judy Krandel: Thank you, Robert. I will now provide a closer look at Nephros' financial performance in the second quarter and first half of 2026. We reported second quarter net revenue of $6 million compared to $4.4 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 3 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 3 months ended June 30, 2026. The benefit resulting from this tariff refund was offset in part by increased costs due to the weakening of the U.S. dollar compared to the euro, an increase in shipping expense and rapid growth in our service revenue, which yields lower gross margins that we realized from product sales. Now with respect to the tariff refund, the refund represents duties paid by us between the period from April 2025 to February 2026 that were imposed by executive order in April 2025 under the U.S. International Emergency Economic Powers Act, also known as IEEPA. The U.S. Supreme Court subsequently ruled in February of 2026 that those tariffs were invalid and approximately $0.5 million of the entire $600,000 tariff refund that we received this past quarter relates to purchase 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 purchase inventory that was converted to revenue during the 3-month period ended June 30, 2026. The $0.5 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 purchase inventory that was converted to revenue during the 3-month period ended June 30, 2025. For that period last year, including the $30,000, the gross profit margin for that 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 basis, which do remain in effect. Accordingly, we expect that our gross profit margin will continue to be impaired as a result of U.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. Selling, general and administrative expenses were approximately $2.4 million, an increase of 10%, reflecting increased headcount and an increase in sales commissions. As a result of the above changes, net income increased over 400% for the quarter to approximately $1.2 million compared to $237,000 in the prior year period. And adjusted EBITDA for the second quarter of 2026 increased 260% to approximately $1.3 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. Moving on to our 6-month results. Sales for the 6 months ending June 30, 2026, increased by 21% to $11.2 million from $9.3 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 6 months ended June 30, 2026, compared to approximately 64% for the corresponding 2025 period. The decrease of approximately 1 percentage point was primarily attributable to increased product costs due to the weakening of the U.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 purchase inventory that we converted to revenue in the first half of 2026, which accounts for approximately 3 percentage point improvement in our gross profit margin for the 6 months ended June 30, 2026. The remaining approximately $300,000 of the refunded tariff correspond to purchase inventory that we converted to revenue in 2025, of which $30,000 corresponds to the 6 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. SG&A expenses increased to $4.9 million or 11% in the first half of 2026 versus the prior year period, primarily due to higher headcount and higher professional fees. As a result of the above changes, net income increased 68% to $1.3 million from $800,000 in the prior year period, and adjusted EBITDA increased 46% to $1.5 million from $1 million in the prior year period. Net cash used in operations for the first 6 months ending June 30, 2026, was $990,000. Our positive net income was more than offset by an increase in accounts receivable and inventory. Net cash provided by operations in the first 6 months ended June 30, 2025, was $1.3 million. That was driven primarily by our positive net income as well as a decline in inventory and an increase in accrued expenses. As of June 30, 2026, we had approximately $4.7 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? Robert Banks: 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 onetime 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. Operator: The first question comes from Bobby Brooks with Northland Capital Markets. Ketith: This is Ketith [indiscernible] on for Bobby. Congratulations on a great quarter. And I just wanted to -- I was curious if any of the new product launches addressing microplastics and PFAS and drinking founds were reflected in the robust 2Q results? Or is it all just the core legacy products accelerating? Robert Banks: 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. 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. We have to first educate the market and then run trials often and then usually that results in increased sales. So we look for those to be drivers in future quarters, maybe 2, 3 out. And further, as regulation also regarding microplastics and nanoplastics increases, they will become a bigger driver as well. More often than not, we get questions and we'll provide our newer products to fill that gap. We haven't quite educated the market yet for them to be drivers, and that's even more exciting. personally, I'd like to see more and more of the growth that's coming in our core business come from newer products. That shows that we're continuously evolving and putting some of those hard R&D dollars to work. Thanks for the question. Ketith: Yes. And then maybe a follow-up. Can we go into some of those products that are gaining traction and maybe the target customers in the PFAS sales or nanoplastics? Robert Banks: Well, that was one of the really good things about this quarter. It was not a single product or family that was gaining traction. 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. We're also finding growth in bottle fillers and drinking fountains where many of these fountains had remained closed for quite some time following COVID and entities are faced with the option of either paying a lot of money to tear them out or contacting us to clean them up and put a filter in place. So often, our solution is cheaper and easier and faster. So are gaining some traction in those areas. So it was really broad across the board in our portfolio, which is a really, really healthy and broad-based growth. And I believe there's another part of your question, if you could repeat that? Ketith: Yes. Just kind of the targeted service audience for your nanoplastic filters. Robert Banks: So again, yes, nanoplastic hasn't gotten the traction yet. Just recently launched some of those capabilities. The flagship product that we sell, the DSU has always had those capabilities through size exclusion. And now we've got those documented, and that's really what that latest press release was about. The target audience for the most part, will likely be more commercial residential type users. When you think about patients in a hospital or patient care, they come in, they are present for a few days, maybe a week or 2 and then they leave, whereas someone living in a home might be raising children who have to drink that water for quite some time. So if I just -- and this is just thinking off the top of my head, the typical use case is going to be those who are exposed or have the opportunity to consume water from the same source over long periods of time. Anyone in that scenario would be concerned with the impact of microplastics and nanoplastics when held over some period. Operator: The next question comes from Anthony Vendetti with Maxim Group. Anthony Vendetti: Maybe just higher level on the revenues. Obviously, a record revenue quarter, significantly ahead of our expectations. Some of that is the tariff revenue. But even without that, it still would have been a significantly higher quarter than expected. So I know there were some emergency services revenue in there. Can you quantify that -- and then whatever else you could break out in terms of revenue, was it more by -- driven more by new sites that you signed up or a combination of that and a little bit of higher revenue per site? Judy Krandel: Robert, if I could just jump in for one second. I'm going to let you answer, but I do want to make a clarification. No, tariff -- we didn't have any tariff revenue. The refund all was a reduction of cost of goods sold. So that was real product revenue that came through. I just want to make sure that's clear. Robert Banks: Yes, no problem. Great question. And as I go back and analyze the orders and where they're coming from, I look for trends. I'm not seeing a trend based on a specific region. I'm not seeing a trend based on a specific customer type. It really was broad-based. And some of the characteristics of that broad-based growth are primarily growth within existing sites. 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. And that's quite impressive that we can do that with customers that we've had for quite some time. Some of the other maybe macro factors impacting some of the growth, there's been a lot of questions and activity around Legionnaires' disease, especially in the New York City area even though that is not related to the potable water, that's an HVAC industrial portion of the system, it still is sparking interest. And I'm thrilled that people call me a couple of times a week, if not almost every day, asking about that situation because they think about Nephros. They think about I've got a Legionnaires' problem or scare or worry. This is a company that can call to get information and support. So that's been fantastic. So a lot of this has been just recognition and education as we've done more and more outreach. We do quite a few webinars, seminars, speaking at trade shows and conferences and getting that name just recognized out there. Our partners are continuously bringing us opportunities, and they're getting smarter. They're starting to recognize different opportunities and how it helps them please their customers more and keep their business. So I want to continue to make sure we nurture that partner network. We don't have as many as we did 3 years ago, but the few that we have are much stronger than ever. So that's also quite nice as well. So I'm not sure if I directly answered your question. Emergency response is nothing exceptional. It's been pretty steady and steady at a low number. So there's been nothing that stands out from that regards. When there are -- when there is something to that nature, I do call it out because I'll have to cite it again the following year about why something didn't repeat. But there's been nothing extremely noteworthy from that front as well. Anthony Vendetti: So it seems like -- yes. No, it seems like, Robert, what you're saying is it's just very high customer retention rate and more services and revenues in each site. You did mention or you mentioned that revenue in the services side tripled. Is that sort of like now the new run rate you've added these services on and they're expected to continue at that new rate? Robert Banks: When we mentioned services, so there's 2 types, the initial installation when the filter gets placed and then maintenance of the filter or changing out of the filter at some point in the future, 3 months, 6 months, as an example. And that is usually the case. Not always, but that is certainly what we're pushing for. The filter tracker app that we implemented some time ago has reached a more mature state. And what that does is it allows us to scan the QR code on the filter once it's installed which then logs the location, the customer, what was installed, when it was installed, who installed it and also creates a database that allows us to more -- to automate the renewal or the reminders that a new filter needs to be in place. So that is really a very nice way to take some of the manual part out of it instead of completely relying on spreadsheets in memory, we're able to kind of automate some of that. So bottom line, I think it's -- I would classify the growth as execution. The sales team has been really honing in their skills, really serving as more of an educational resource. They're the water expert, and they're getting that first call even if it's a product that we don't offer or an area that we don't service. So that execution is really what's driving it, and I think that's going to continue. But we will see. Anthony Vendetti: Okay. Okay. Great. So it sounds like these new services you've added on have resonated with the customers and there is an expectation that these kind of services are services that the clients either need or want and an expectation for them to continue at a similar level. Robert Banks: And just one final thought on your questions. As customers do come to us with questions and have problems and different challenges, that also prompts us to look at designing and creating new products. So that feeds our pipeline. And when we do solve that problem for one , it often translates in scales to others. So thanks for the questions. Operator: The next question comes from John Dunn with Trinity Health. John Dunn Robert, I just wanted to introduce myself. My name is John Dunn. I am your Water Quality Manager for Trinity Health. I cover approximately 30 million square feet of 34 facilities in the greater Northeast. And to support what Robert is driving for us has been we've collaborated and become partners and basically, everything that Robert is driving home here is work for our facilities tremendously. Their knowledge, as he said, the filter tracker and some of the implementation of some of the new devices that he had, we're utilizing them all. And basically, I just wanted to reach out and thank Robert and his team everybody involved. It's been a good year. It's been a good partnership. So that's basically all I had to say. Robert Banks: 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. And in each of the regions, there's going to be a similar story when someone with a delighted experience. I appreciate you. John Dunn Especially Robert on the education. Especially on the education, we've taken quite advantage of the education today where staffing is so difficult to drive -- not even keep on hand, but keep educated. Some of the recent -- we've partnered with them in videos. We've partnered in them with education. We've partnered with different processes with our ice machines and not just -- even just in the proactive directive of mitigation of potential water pathogens. You guys have been on top of it, and I appreciate once again you guys' efforts. Thank you. Thank you. Thank you so much. I can't thank you enough. We really struggle with getting customers to share. And a lot of times, it's not because they don't like what we do, but they don't want their name necessarily associated with a company that is really an expert at remediating the region. So thank you so much for that information. Operator: And we have a follow-up from Anthony Vendetti with Maxim Group. Anthony Vendetti: Just a real quick follow-up on the education side. Is that something that is also a new service that's resonating with customers? And is that a service that you charge for embed in your overall cost for the filters? How should we look at that from a financial perspective? Robert Banks: Yes, that's a great question, and it's an evolving question. The way I think about Nephros and my vision for quite some time now is to create these 3 pillars. It all starts with products and the filters, which are great, unique, differentiated and awesome and have been for quite some time. The service has been a way to remove barriers and get more of those filters adopted and also make sure that they get changed on a regular basis. The education, the newest piece or newest pillar really was the final cog in now that we've got the product, now that we can help remove barriers, how do I get the notice out that we are solving these problems and can meet the very stringent guidelines and demands out there. We have not decided to monetize that product yet in the way that we have webinars with hundreds of attendees all the time. Often, they come back and result in quote requests and subsequently orders. We offer lots of different ways. We'll come to your site and train you, all for the purpose of trying to get more filter products installed. There might be a point in the future where we do try to monetize that. But at this stage, I think it's really not the point of what Nephros is. We're not a school. We are a company that is creating solutions for water management, water problems. So still determining how that plays out in the future, but I don't immediately see that hitting a revenue stream. Operator: Seeing no further questions at this time, this concludes our question-and-answer session. I would like to turn the conference back over to Robert Banks for any closing remarks. Robert Banks: Thank you, Drew. And it has truly been a great quarter, and the team has worked extremely hard, and they continue to work hard every single day. I just want to thank all the shareholders and people for sticking with us throughout the time as we execute our plan, and I look forward to hearing from you and having you join our next call. Thank you so much, and have a great rest of your day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. 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Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Achieved record quarterly revenue of $6 million, driven by a 27% increase in core programmatic product sales and a near tripling of service-related revenue. Successfully transitioned the business model from a filter product vendor to an integrated water safety platform built on three pillars: products, services, and education. Attributed growth to deeper penetration within the existing customer base of 1,724 sites by offering expanded installation and scheduled replacement services. Leveraged the Nephros Water Institute and educational outreach to drive demand, positioning the company as a technical resource for complex water management issues. Maintained a diversified revenue stream across multiple channels, including emergency response and commercial applications, to enhance long-term business durability. Identified execution by the sales team and the maturation of the Filter Tracker app as key drivers for improving recurring revenue and replacement cycle automation. Anticipates new product launches addressing PFAS, microplastics, and nanoplastics will become meaningful revenue drivers in approximately two to three quarters. Expects gross margins to remain impaired by ongoing U.S. tariffs and the growing mix of lower-margin service and commercial revenue. Focusing second-half priorities on expanding the installed base, increasing scheduled replacement activity, and improving underlying operational efficiencies. Plans to continue evaluating pricing and sourcing strategies to offset external cost pressures from shipping and currency fluctuations. Aims to capitalize on emerging regulatory trends regarding nanoplastics and microplastics to drive adoption in commercial and residential markets. Recognized a $600,000 one-time tariff refund following a U.S. Supreme Court ruling, which artificially inflated reported gross margins to 67%. Adjusted gross margin, excluding the $0.5 million refund related to prior periods, reflects ongoing pressure from a 10% tariff and a weaker U.S. dollar against the euro. Reported a 400% increase in net income to $1.2 million, though management cautioned that this figure benefited significantly from the non-recurring tariff refund. Noted that service revenue, while driving total profit dollars and product pull-through, carries structurally lower margins than core infection control products. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management clarified that recent record results were driven by core legacy products, as new launches require a longer education and trial cycle. Expects these newer technologies to gain traction in future quarters as market awareness and regulatory requirements increase. Growth was characterized as broad-based across regions and product families rather than driven by a single large event or geography. The increase was primarily fueled by higher revenue per existing site through service adoption rather than a significant surge in new customer count. Management does not currently intend to monetize education as a standalone revenue stream. The education pillar is strategically utilized as a lead-generation tool to remove adoption barriers and drive core filter product sales.

This article first appeared on GuruFocus. Revenue: $6 million in Q2 2026, a 36% increase year-over-year and a 15% sequential increase from the record first quarter. Programmatic Product Revenue: Grew approximately 27% year-over-year in Q2 2026. Service Revenue: Nearly tripled year-over-year in Q2 2026. Gross Margin: Approximately 67% in Q2 2026, up from 63% in Q2 2025, boosted by a $600,000 tariff refund. Net Income: Approximately $1.2 million in Q2 2026, up over 400% from $237,000 in the prior year period. Adjusted EBITDA: Approximately $1.3 million in Q2 2026, up 260% from $355,000 in the prior year period. Operating Cash Flow: Net cash provided by operating activities was $681,000 in Q2 2026, down from $994,000 in the prior year period. First Half Revenue: $11.2 million for the six months ended June 30, 2026, a 21% increase from $9.3 million in the prior year period. First Half Gross Margin: Approximately 63% for the first half of 2026, down from 64% in the prior year period. First Half Net Income: $1.3 million for the first half of 2026, up 68% from $800,000 in the prior year period. First Half Adjusted EBITDA: $1.5 million for the first half of 2026, up 46% from $1 million in the prior year period. Cash Position: Approximately $4.7 million in cash as of June 30, 2026, with no debt. Warning! GuruFocus has detected 5 Warning Signs with NEPH. Is NEPH fairly valued? Test your thesis with our free DCF calculator. Release Date: August 06, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Nephros Inc (NASDAQ:NEPH) reported record quarterly revenue of $6 million, a 36% increase year-over-year and a 15% sequential increase. Core programmatic product revenue grew by double digits year-over-year, demonstrating a strong recurring revenue foundation. Service-only revenue nearly tripled, indicating successful adoption of installation, replacement, and ongoing support services. The company achieved its highest quarterly net income and adjusted EBITDA in history, with net income increasing over 400% to $1.2 million. Growth was broad-based across multiple channels, including infection control filters, service revenue, and emergency response, rather than relying on a single product or region. Nephros Inc (NASDAQ:NEPH) received a $600,000 tariff refund, which positively impacted gross margin and cash flow. The company remains debt-free with a cash balance of $4.7 million, up from $4 million at the end of the first quarter. New product development is progressing, with recent launches addressing PFAS, microplastics, and nanoplastics, which are expected to drive future growth. The company's education-led demand strategy, including the Nephros Water Institute, is resonating with customers and generating interest. Nephros Inc (NASDAQ:NEPH) was added to the Russell Microcap Index, increasing its visibility among investors. Gross margin improvement was significantly aided by a one-time tariff refund; excluding this, underlying margin pressure persists. The company continues to face a 10% tariff on products, which is expected to impair gross profit margins going forward. The weakening of the US dollar against the euro has increased product costs and shipping expenses. Rapid growth in service revenue, which carries lower margins than core infection control products, is diluting overall gross margin. Net cash provided by operating activities declined to $681,000 in Q2 2026 from $994,000 in the prior year period, due to increases in accounts receivable and inventory. For the first half of 2026, the company reported net cash used in operations of $990,000, a significant swing from $1.3 million provided in the prior year. New product launches, such as those for microplastics and nanoplastics, have not yet gained significant traction and are not expected to be major revenue drivers for several quarters. The number of new customers added during the quarter was modest at 1,724, indicating growth is primarily driven by existing customer expansion rather than new customer acquisition. Emergency response revenue, while increased, is inherently volatile and not a reliable component of the long-term growth strategy. Research and development expenses increased by 18% due to higher salary costs, and SG&A expenses rose 10% due to increased headcount and commissions, pressuring profitability. Q: Can you quantify the emergency response revenue and break down whether the record revenue was driven more by new sites or higher revenue per existing site?A: Robert Banks (President and CEO) clarified that the growth was broad-based across regions and customer types, with no single standout driver. The number of new customers was not impressive (1,724, only slightly above last quarter); instead, growth came primarily from expanding sales within existing customers by offering more products and services. Emergency response revenue was steady at a low level and not exceptional. The CEO attributed the performance to execution, including a strong partner network and increased market awareness driven by education efforts and events like the New York City Legionnaires' disease situation, which has sparked interest in water safety. Q: Were the new product launches addressing microplastics, nanoplastics, and PFAS reflected in the robust second-quarter results, or was it all core legacy products?A: Robert Banks (President and CEO) stated that the newer products, such as those for nanoplastics and PFAS, have been recently released but have not yet gained significant traction. Adoption takes time as the company must first educate the market and run trials. He expects these products to become drivers in future quarters, potentially 2-3 quarters out, especially as regulations around microplastics and nanoplastics increase. The current growth is primarily from core products, which he finds exciting as it shows the strength of the existing business. Q: Can you provide more detail on the products gaining traction and the target customers for the PFAS and nanoplastic filters?A: Robert Banks (President and CEO) explained that growth was uniform across the product portfolio, not driven by a single product family. New flow sync adapters and convenience kits contributed, but service-enabled filter purchases were a key driver as customers with limited internal support found it easier to install filters. Growth was also seen in bottle fillers and drinking fountains, where entities are choosing to retrofit with filters rather than pay to remove them. For nanoplastics, the target audience is likely commercial and residential users with long-term exposure, such as families raising children, rather than short-term hospital patients. Q: Is the tripled service revenue a new run rate that is expected to continue?A: Robert Banks (President and CEO) confirmed that the service growth is expected to continue. He distinguished between initial installation services and ongoing maintenance or filter replacement services. The company's filter tracker app, which automates reminders for filter changes, has matured and is driving recurring service revenue. The CEO classified the growth as a result of execution by the sales team, who act as educational resources and water experts, and he expects this trend to persist. Q: Is the education service a new offering that resonates with customers, and is it monetized or embedded in the cost of filters?A: Robert Banks (President and CEO) described education as the third pillar of the company's strategy, alongside products and services. It is not currently monetized; webinars and on-site training are offered to drive filter product adoption and generate quote requests and orders. While there may be a future point where education is monetized, the CEO does not see it becoming a direct revenue stream in the near term, as the company's focus is on providing water management solutions, not being a school. Q: Can you clarify the impact of the tariff refund on the reported gross margin and the expected impact of ongoing tariffs?A: Judy Krandel (CFO) explained that the reported gross margin of 67% was significantly boosted by a one-time tariff refund of approximately $600,000. Of this, only about $100,000 related to inventory sold in the second quarter of 2026, while $500,000 related to prior periods, inflating the quarter's margin by approximately 9 percentage points. The remaining margin pressure is due to the continuing 10% tariff imposed under a different statutory basis, a weaker US dollar versus the euro, higher shipping costs, and the growing mix of lower-margin service and commercial revenue. The company expects gross margin to remain impaired due to the ongoing tariff policy. Q: What were the key drivers of the strong second-quarter financial results, and how should we view the sustainability of the profitability?A: Judy Krandel (CFO) reported that second-quarter net revenue increased 36% year-over-year to $6 million, with programmatic product revenue growing 27%. Net income increased over 400% to approximately $1.2 million, and adjusted EBITDA increased 260% to $1.3 million. The profitability was significantly aided by the one-time tariff refund. However, the underlying growth in programmatic revenue, service revenue, and infection control filter sales was driven by execution, not accounting timing. The company remains debt-free with $4.7 million in cash. Q: Can you elaborate on the company's strategic priorities and investments for the second half of 2026?A: Robert Banks (President and CEO) outlined five key investment areas: expanding presence in important markets like Greater New York and Puerto Rico; increasing adoption of installation and scheduled replacement services; growing education-led demand through the Nephros Water Institute; introducing new products addressing PFAS, microplastics, nanoplastics, and sterile processing; and strengthening investor awareness. The company is also focused on improving underlying margins by evaluating pricing, sourcing, freight, and product mix to offset external cost pressures. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Record Second-Quarter Net Revenue Growth of 36% to $6 million; Core Programmatic Revenue Grew by 27% Year Over Year SOUTH ORANGE, N.J., Aug. 06, 2026 (GLOBE NEWSWIRE) -- Nephros, Inc. (Nasdaq: NEPH), a leading water technology company providing filtration solutions to the medical and commercial markets, today announced financial results for the second quarter ended June 30, 2026. Financial Highlights Net revenue was a record $6 million, compared to $4.4 million in the second quarter of 2025, up 36% Net income was $1.2 million, compared to a net income of $0.2 million in the second quarter of 2025. Net income includes the benefit of a one-time tariff refund of approximately $0.6 million Adjusted EBITDA was $1.3 million, compared to $0.4 million in the second quarter of 2025 "The second quarter of 2026 marks another significant milestone for Nephros, as we delivered the highest quarterly revenue in the Company's history," said Robert Banks, President and Chief Executive Officer of Nephros. "Our results reflect broad-based strength across the business, driven by continued expansion of our core programmatic revenue, accelerating service revenue, growing adoption of our newer product offerings, and disciplined execution throughout the organization." Banks continued, “Perhaps most encouraging is the quality of our growth. Core programmatic revenue increased 27% over the prior year quarter. Programmatic revenue represents the foundation of our business, providing recurring replacement demand, long-term customer relationships, and increasing visibility into future revenue. We also achieved substantial growth in our service offerings, which nearly tripled compared to the prior year, which we believe reflects growing customer demand for installation, replacement, and water management support. Recent product launches addressing microplastics, nanoplastics, PFAS, sterile processing, drinking fountains, and bottle fillers continue to generate encouraging customer interest while expanding our addressable market.” Commenting on the broader outlook, Banks said, “Beyond our financial performance, we continued to elevate the visibility of Nephros within the investment community. During the quarter we hosted our second Virtual Investor Event, participated in the Maxim Health, Wellness & Longevity Conference, announced our inclusion in the Russell Microcap Index, and continued expanding awareness of our differentiated technology through multiple industry-focused announcements. We believe increasing awareness among customers and investors alike is an important component of creating long-term shareholder value.” Banks concluded, “As we enter the second half of 2026, we believe Nephros is stronger than at any point in our history. We have a growing recurring revenue base, expanding commercial opportunities, differentiated technology, an increasingly comprehensive service platform, and an exceptional team executing against a clear strategy. While we remain mindful of the broader economic environment, we believe the investments we have made over the past several years position us well to continue delivering sustainable growth and increasing shareholder value.” Financial Performance for the Quarter Ended June 30, 2026Net revenue for the three months ended June 30, 2026, and 2025 was $6.0 million and $4.4 million, respectively, an increase of 36%. This increase was driven primarily by increased product revenue from programmatic growth, which grew by 27% over the same period in 2025. Cost of goods sold for the second quarter of 2026 was $2.0 million, compared with $1.6 million in the second quarter of 2025, an increase of 23%. Gross margin for the second quarter of 2026 was 67%, compared with 63% in the second quarter of 2025. The increase of approximately 4 percentage points was primarily attributable to our recognition during the period of a refund of approximately $0.6 million for tariffs we previously paid under the International Emergency Economic Powers Act (IEEPA), which were declared invalid in February 2026. Following the Supreme Court’s decision and the establishment of the CBP refund process, we applied for and received approval of our tariff refund claim. We recorded the majority of the tariff refund as a reduction of cost of goods sold during the three months ended June 30, 2026. We have not yet received the refund and therefore have booked a receivable for that amount. The benefit to our gross margin resulting from the tariff refund was offset by increased costs due to the weakening of the U.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. Selling, general and administrative expenses for the second quarter of 2026 were approximately $2.4 million, compared with $2.2 million in 2025, an increase of 10% due to increases in headcount and an increase in sales commissions. Research and development expenses for the second quarter of 2026 were approximately $366,000, compared with $311,000 in the second quarter of 2025, an increase of 18% due to higher salary expense. Depreciation and amortization expenses for the second quarter of 2026 were approximately $29,000, compared with approximately $35,000 in the second quarter of 2025. Net income for the second quarter of 2026 was $1.2 million, compared with $0.2 million during the same period in 2025. Adjusted EBITDA for the second quarter 2026 was approximately $1.3 million, compared with approximately $0.4 million in the second quarter of 2025. Financial Performance for the Six Months Ended June 30, 2026 Net revenue for the six months ended June 30, 2026, and 2025 was $11.2 million, and $9.3 million respectively, an increase of 21%. Our core programmatic revenue grew by 25% over the same period in 2025. The increase in programmatic sales reflects strong reorders, and a number of new active sites. Cost of goods sold for the six months ended June 30, 2026 and 2025 was $4.2 million, and $3.3 million respectively, an increase of 26%. Gross margin for the six months ended June 30, 2026 was 63%, compared with 64% during the same period in 2025. The decrease of approximately one percentage point was primarily attributable to increased product costs due to the weakening of the U.S. dollar compared to the Euro, increased shipping expense and rapid revenue growth from our commercial products offerings and services revenue, both of which yield lower gross margins than our infection control business. However, our gross margins significantly benefited from our recognition during the 2026 period of the IEEPA tariff refund of approximately $0.6 million, which was recorded as a reduction of cost of goods sold during the six months ended June 30, 2026. Selling, general and administrative expenses for the six months ended June 30, 2026 and 2025 were approximately $4.9 million, and $4.5 respectively, an increase of 11% primarily due to an increase in headcount and an increase in professional fees. Research and development expenses for the six months ended June 30, 2026 and 2025 were $0.7 million and $0.6 million respectively. Depreciation and amortization expenses for the six months ended June 30, 2026 and 2025 were approximately $58,000, and $74,000 respectively. As a result of the improved sales and the approximately $0.6 million tariff refund net income for the six months ended June 30, 2026 was $1.3 million compared to $0.8 million during the same period in 2025. Adjusted EBITDA for the six months ended June 30, 2026 was approximately $1.5 million, compared with approximately $1 million in the same period of 2025. As of June 30, 2026, Nephros had cash and cash equivalents of approximately $4.7 million, compared to $5.4 million as of December 31, 2025, and remains debt free. Adjusted EBITDA Definition and Reconciliation to GAAP Financial MeasuresAdjusted EBITDA is calculated by taking net income calculated in accordance with generally accepted accounting principles (“GAAP”) and excluding all interest-related expenses and income, tax-related expenses and income, and non-cash items, including depreciation, amortization, non-cash inventory write-offs, and non-cash compensation. The following tables present a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, for the second quarter of the 2026 fiscal year: Nephros believes that Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to Nephros’ financial condition and results of operations. Management does not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA is that it excludes significant expenses and income that are required by GAAP to be recognized in Nephros’ financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as it reflects the exercise of judgments by management about which expenses and income are excluded or included in determining Adjusted EBITDA. To compensate for these limitations, management presents Adjusted EBITDA in connection with net income, the most directly comparable GAAP financial measure. Nephros urges investors to review the reconciliation of Adjusted EBITDA to net income and not to rely on any single financial measure to evaluate the business. Conference Call Today at 4:30pm Eastern TimeNephros will host a conference call today at 4:30pm ET, during which management will discuss Nephros’ financial results and provide a general business overview. Participants may dial into the call as follows:Domestic access: 1 (844) 808-7106International access: 1 (412) 317-5285 Upon joining, please ask to be joined into the Nephros conference call. An audio archive of the call will be available shortly after the call on the Nephros Investor Relations page. Alternatively, a replay of the call may be accessed until August 13th, 2026 at 1 (877) 669-9658 or 1 (412) 317-0088 for international callers and entering replay access code: 3951894. About Nephros Nephros is committed to improving the human relationship with water through leading, accessible technology. We provide innovative water filtration products and services, along with water-quality education, as part of an integrated approach to water safety. Nephros goods serve the needs of customers within healthcare and commercial markets, offering both proactive and emergency solutions for water management. For more information about Nephros, please visit nephros.com. Forward-Looking StatementsThis release contains forward-looking statements that are subject to various risks and uncertainties. Such statements include statements regarding Nephros’ expected future business, revenue and gross margin growth and the timing of such growth, the drivers of our revenue growth, the effect of new regulations on future revenue growth, the expected competitive advantages and anticipated impact of new product offerings and market expansions, and other statements that are not historical facts, including statements that may be accompanied by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential” or similar words. Actual results could differ materially from those described in these forward-looking statements due to certain factors, including Nephros’ ability to further develop its sales organization and realize increased revenues, the extent to which financial results based on emergency response sales can be outside Nephros’ control, the extent to which U.S. tariffs may increase our expenses, inflationary factors and other economic and competitive conditions, the availability of capital when needed, dependence on third-party manufacturers and researchers, and regulatory reforms. These and other risks and uncertainties are detailed in Nephros’ reports filed with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2025, which it may update in Part II, Item 1A – Risk Factors in its Quarterly Reports on Form 10-Q that it has filed or will file hereafter. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this release, and Nephros does not undertake any responsibility to update any forward-looking statements that it makes, except as may be required by law. Investor Relations Contacts:Kirin Smith, PresidentPCG Advisory, Inc.(646) [email protected] Robert Banks, CEONephros, Inc.(201) 343-5202 [email protected]

Shareholders of Nephros, Inc. (NASDAQ:NEPH) will be pleased this week, given that the stock price is up 15% to US$3.52 following its latest quarterly results. It was a workmanlike result, with revenues of US$5.2m coming in 4.4% ahead of expectations, and statutory earnings per share of US$0.01, in line with analyst appraisals. This is an important time for investors, as they can track a company's performance in its report, look at what expert is forecasting for next year, and see if there has been any change to expectations for the business. With this in mind, we've gathered the latest statutory forecasts to see what the analyst is expecting for next year. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. After the latest results, the one analyst covering Nephros are now predicting revenues of US$21.0m in 2026. If met, this would reflect a meaningful 9.8% improvement in revenue compared to the last 12 months. Statutory earnings per share are expected to decline 18% to US$0.06 in the same period. In the lead-up to this report, the analyst had been modelling revenues of US$20.5m and earnings per share (EPS) of US$0.15 in 2026. So it's pretty clear the analyst has mixed opinions on Nephros after the latest results; even though they upped their revenue numbers, it came at the cost of a large cut to per-share earnings expectations. View our latest analysis for Nephros Curiously, the consensus price target rose 27% to US$7.00. We can only conclude that the forecast revenue growth is expected to offset the impact of the expected fall in earnings. These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Nephros' past performance and to peers in the same industry. We can infer from the latest estimates that forecasts expect a continuation of Nephros'historical trends, as the 13% annualised revenue growth to the end of 2026 is roughly in line with the 15% annual growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 6.1% per year. So it's pretty clear that Nephros is forecast to grow substantially faster than its industry. The biggest concern is that the analyst reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Nephros. Happily, they also upgraded their revenue estimates, and are forecasting them to grow faster than the wider industry. There was also a nice increase in the price target, with the analyst clearly feeling that the intrinsic value of the business is improving. Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At least one analyst has provided forecasts out to 2027, which can be seen for free on our platform here. And what about risks? Every company has them, and we've spotted 1 warning sign for Nephros you should know about. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Image source: The Motley Fool. Thursday, May 7, 2026 at 4:30 p.m. ET Chief Executive Officer — Robert Banks Chief Financial Officer — Judy Krandel Robert Banks: Thank you, Kirin, and good afternoon, everyone. I'm very pleased to welcome you to the call. Q1 2026 was a milestone quarter for Nephros. We delivered $5.2 million in revenue, representing a new all-time high for the company and marking the first time we've crossed the $5 million threshold in a single quarter. This performance reflects continued execution across our core business, expanding adoption of our products in new applications and increasing contribution from our service and installation capabilities. Importantly, this growth was driven by strong programmatic performance, which increased approximately 23% year-over-year. That is the clearest signal that our model is working. Customers are installing, reordering and expanding usage over time. At the same time, we saw a decline in emergency response revenue compared to last year's first quarter, which included an unusually high exit opportunity that did not repeat. Despite the normal fluctuation, we still achieved record revenue, which speaks to the strength and durability of the underlying business. Now let me address margins directly. Gross margin for the first quarter came in at 57% compared to 65% in the prior year, and that decline was driven by 3 very clear factors. First, tariffs created a meaningful headwind, contributing over $200,000 in incremental costs during the quarter. Without the tariffs, our gross margins would have been in the low 60s. We are actively pursuing refund opportunities with respect to tariffs that we paid prior to February 2026 U.S. Supreme Court decision and implementing mitigation strategies to reduce exposure going forward. Just a reminder, our tariff rate declined from 15% to 10% as of the end of February. That improvement will start to help us later this year as our newer inventory gets sold. Second, currency pressure, specifically the strengthening euro increased our product costs year-over-year. And third, product mix. We are intentionally expanding into commercial applications, which carry lower margins than our core infection control business. Let me be very clear. None of these factors reflect deterioration in the business. They reflect external cost pressures and deliberate strategic expansion into larger markets. The shift towards commercial applications is intentional and important. We are expanding into areas such as ice machines, drinking fountains, bottle fillers and other high-use water applications. These represent a much larger addressable market than our traditional segments. While this impacts margin in the near term, it positions us for scale, diversification and long-term growth. Beyond products, we are seeing strong traction across our broader strategy. Number one, our installation and replacement programs are driving recurring revenue and strengthening customer relationships. Two, our service capabilities are expanding our role from product provider to full solution partner. Third, and our education initiatives, including the Nephros Water Institute, are positioning us earlier in the customers' decision cycle. These are not short-term drivers. They are structural advantages that will continue to build over time. Looking forward, we remain highly confident in the trajectory of the business. We expect continued growth driven by expansion in key markets such as New York and Puerto Rico, increasing contribution from programmatic installations and replacements and continued adoption of our broader products, services and education platform. We are building a larger, more durable and scalable business. Near-term margin variability driven by tariffs, currency, product mix does not change that trajectory. I want to thank our employees for their clear execution, our customers for their continued trust and our investors for their ongoing support. With that, I'll turn the call over to our CFO, Judy Krandel, for a closer look at the financials. Judy Krandel: Thank you, Robert. I will now provide a closer look at Nephros' financial performance in the first quarter of 2026. We reported first quarter net revenue of $5.2 million compared to $4.9 million in the first quarter of 2025, an increase of 7%. Product revenue related to our programmatic business grew strongly, while emergency response revenue declined compared to an elevated prior year quarter. Cost of goods sold increased to approximately $2.2 million, reflecting growth in sales as well as higher product costs driven by tariffs, currency impacts and product mix. Consequently, gross margin for the quarter was 57% compared to 65% in the prior year period. As Robert mentioned, we expect to see some improvement with our new tariff rate that started at the end of February. Research and development expenses increased to approximately $346,000 or 17%, primarily due to higher headcount. Selling, general and administrative expenses were approximately $2.5 million, an increase of 12%, reflecting increased headcount and professional fees. As a result of the above changes, net income declined 75% for the quarter to approximately $140,000 compared to $558,000 in the prior year period. And adjusted EBITDA declined 69% to approximately $206,000 compared to $667,000 in the prior year. As of March 31, 2026, we had approximately $4 million in cash and remained debt-free. Our cash balance has declined from December 31, 2025, due to the timing of receiving inventory as well as collections on accounts receivable. Since then, we have received customer payments, which translate right to cash. I will now turn the call back to Robert for closing remarks. Robert? Robert Banks: Thank you, Judy. This quarter demonstrates the strength of what we are building at Nephros. We are growing revenue, expanding into larger markets and strengthening our recurring revenue model, all while navigating external pressures that we believe are temporary and manageable. The fundamentals of the business remain strong, and our strategy is working. We are confident in our ability to continue driving both growth and long-term value. Thank you again for your time and support. Operator, please open the line for questions. Operator: [Operator Instructions] The first question comes from Nick Sherwood with Maxim Group. Nicholas Sherwood: My first question is about the certification for the water management program development as a service. Is that -- how are you charging, by the hour, by the person that holds the certification? Is it based on the whole team? And are you expecting more employees to receive that certification or to hire people that may already have that certification? Robert Banks: So the certification or -- falls under the Nephros Education arm of our pillar. We're not currently charging for services yet. It's something that we're training and getting our partners up to speed on, and we do have an employee or 2 that are capable of creating these water safety management plans. This is new service that we offer, but by and large, our partners offer this service as well. It's in instances where we don't have the coverage from our partner that we can come in and help create those plans. We do see this evolving as we move forward into a service that we're offering more to smaller entities or hospital groups, those who just don't understand the new regulations as they come out. And that's been an area for us to at least have that conversation where we can start the decision-making process and engaging those who are deciding to use Nephros earlier in that process. So the capability of the certifications is just getting started. We are still kind of rolling that out and getting -- formalizing the offering as a product that we offer going forward, and we're pretty excited about it and lots of interest and so far, so good. We hope to report more wins in the future as we get that further developed. Nicholas Sherwood: Understood. And then my next question is about hiring of the sales leader and focus in the New York market. Part of that increased focus was due to sort of increased regulatory focus from the New York itself. Can you kind of explain what that opportunity is in the New York City area or New York region? Robert Banks: Yes. Absolutely. Yes. If you look at New York City, the greater region, 5 boroughs there are a very high density of hospitals and others with infection control needs in that area. In the past, we've broken out our sales force into kind of these 4 or 5 large regions. And the person covering all of New York, [indiscernible], was not able to really focus on the New York City region when it's a completely different, I guess, sales cycle, sales process and value proposition. In addition, there's been a number of outbreaks from Legionella and other in that region that have kind of really got a lot of questions coming to us. So we took the step to look for someone who knows the 5 boroughs extremely well and has been doing business in the healthcare space for quite some time and decided to augment their capabilities by bringing that person on board to be able to focus on that unique and specific direct need in the area. And so far, we're quite pleased. It does take some time to seed and educate and build and sell. So we're still early in the game, early innings. And I look forward to showing that revenue growth. There's no reason that New York City, by itself, can't be as large as any of our other regions combined. So that's the reason we've decided to really put a focused effort in that area. Nicholas Sherwood: Understood. And my last question is, what was the number of active customer sites at the end of the quarter? Robert Banks: Active customer sites is 1,676. It's been growing very steadily, very healthy, not as fast as our revenue, which, in my mind, tells me that we're earning more per customer, which makes sense considering that we're offering services and even expanding commercial filter sales into some of those customers as well. So continued steady active customer site growth, and there's no reason that shouldn't continue past 1,700. So lots of adoption, and we're quite pleased with the results there. Operator: [Operator Instructions] The next question is from [ Ankur Sagar ], who's a private investor. Unknown Attendee: Congratulations to you on this milestone for the company achieving north of $5 million revenue in 1 quarter for the first time. Judy Krandel: Thank you. Robert Banks: That was -- we're quite proud of that. It's been very exciting for us. Unknown Attendee: Yes, it is indeed. Robert, 23% growth, programmatic growth, I mean, is great. I think it [ masculates ] the sort of like the overall growth. Could you -- I know you don't break it out, but could you provide some number on what portion of the revenue came from programmatic and what was emergency response? Because 23% is just really great on year-over-year from what the company did even in '25, in prior year. Robert Banks: Yes. And you're right, we don't typically break that out. In the past, we've been seeing emergency response can average anywhere between 10% and 15% of our sales. In Q1, it was significantly less than that. So it's really a good thing to see. The team really stepped up. But the big difference is, from prior year, emergency response was a big part of that. Now although we don't go out and create the emergency response, we don't create the outbreak, it does take a presence. You have to have your name known, that Nephros is someone that you can call in these situations. That comes from our presence in trade shows and networking and word of mouth, with many of our new customers coming from referrals and even our partners who run into problems, and they call Nephros, "They can solve this." So what we're seeing is that recognition bringing us these emergency response opportunities more and more frequently when it's a really tough situation. So although there's not as many of these opportunities, when they do come, they tend to be a bit larger. And that's -- this particular quarter, there was none of that happening. So it doesn't mean that it's something that we can count on and repeat. But really, if I'm trying to measure how healthy the business is, I really want to know what the core is doing, the things that we are actively going out and selling and closing, and that's when I -- while we turn to that programmatic number. So that's a long-winded answer, not exactly giving you the answer, but at least giving you a flavor that we were one of the few that are able to get that. Unknown Attendee: No, I appreciate that. And just to clarify, I mean, this is great. I mean like -- so normally, the emergency response is up to like 10% to 15%, but you're saying this, over $5 million quarterly number, is entirely or mostly programmatic revenue? Robert Banks: I can't characterize how much of it, just that it was significantly less than what we've been seeing in the past. Unknown Attendee: Okay. Okay. And one part of your strategy has been to really grow beyond the health care vertical over -- since you joined as CEO. Anything you could share in terms of -- I mean, what sort of like subverticals have you been able to penetrate, get some early success within that commercial segment? Robert Banks: Sure. I can characterize that a little bit. Nephros being originally in dialysis, we -- our healthcare is our sweet spot. That's really where we shine, mainly because that's a regulated environment. FDA regulated, in many cases, our medical devices, being Class II, give us an edge. When you've got the competitors who can come in and sell and make claims, they don't have the clearances and FDA certifications to back it up. When I go into other spaces, such as aviation or hospitality or government, municipal buildings, retail, real estate management, large properties, of that nature, schools, universities, they're not regulated in many cases by the FDA. So the competition is a lot more, and there's not any watchdog saying that they can or can't do what they say. So tend to also see a little lower margins in some of these other spaces as the competitive landscape is basically based on results, and people do give a shot before they fail, then they call us. So seeing traction in these other areas that I just mentioned is important and growing. And what we're finding and what we saw in healthcare is, most of our new sales come from referrals, meaning someone who used us somewhere, had great success and then told a friend, or they went and worked somewhere else. Similar occurrences are starting, not happened yet, but just starting to take place in some of the other commercial applications that I mentioned in locations. So one place might use us and then the management team leaves or go somewhere else, but at the same time, some management team comes in, and they're used to using somebody else, so it becomes a bit stiffer competition for holding on to some of those spaces. So some of it, the business is a little less sticky. Much, much larger TAM if we're looking at TAMs and SAMs. But it is more competitive and a lot more churn. So we have to balance what our core sweet spot is, and that still remains where the lion's share of our margins are coming from, the healthcare space, and we'll always probably be that as well. But I do like the large scale, because a margin dollar versus a percent is also very important, especially as we scale to some of these larger numbers. So when we figure out how to conquer those spaces and get the same, similar types of competitive advantage and our name out there, you'll start to see those grow at some of the same paces that we do grow in the healthcare space. So it's exciting. I wouldn't look for quarter 2, quarter 3 for it to be something significantly moving the needle, but it is part of the long-term strategy, especially if there's any ups or downs in the healthcare space that we want to kind of make us a bit immune to. We want other ways to make money and grow, not just the place we're the best at. Unknown Attendee: And a couple of examples that you mentioned like large buildings or airports or airlines. I mean, just -- I assume these would be larger in size compared to what the company has done typically in healthcare? Robert Banks: I would say larger in points of application, but not necessarily large flow rates at one time. I mean we're not doing the entire building. It would be fixture by fixture. And they do seem attractive. But some of those -- they're just -- even though it makes sense, they're not always making a decision that would make sense to us. Say like, cruise ships, for example, when we reach out to them and try to get them to adopt some of the filters, it still comes down to price. And more often than not, our competition is against doing nothing, not a competitor. So it still takes a lot of education, and that's why the education arm of pillar that we're really focusing on now is going to be so important, because it's really going to be kind of creating the market as we're building and growing it. And that's what that blank space, that white space of sales is super exciting. It does take some time, effort in development, but that's -- I see it as another frontier that we can start to open up. Unknown Attendee: Okay. One last one. I'll make it a 2 part. EPA has -- there is a new push on from the EPA with new regulations for PFAS and microplastics. I think you have talked about those 2 in the past where you have some products in the area. Do you expect those regulations, when they come into play, to help? Are you already hearing from customers or new customers about that? And the second part for Judy is, I mean, the gross margin was light due to the external factors, but how do you expect that to trend further out in the year in Q2, Q3, Q4? Robert Banks: I'll answer the first part, and then turn it over to Judy after that. Short answer, yes. As there are drivers such as regulations, guidelines, even if it's not a rule, but it's a suggestion, we do see the activity and the churn. The issue we have now is that there is not enough of a driver to overcome the cost. Adding a filter of any kind is a cost. And when we're talking to the average homeowner, when they're trying to decide between the price of gas or a filter, they start to make certain choices that are pretty clear. But we do get a ton of questions about nanoplastics, microplastics. Every time an article comes out in a different periodic publication, we see that as an opportunity for us to market our product as a solution for that. Right now, it tends to be limited to bigger spenders or people with some other need because the plastics and forever chemicals problem is not such an acute right now problem. It's something that you're preventing injury longer term. So it has to be an education so that people do see the long-term benefit of spending the extra money to have safer water. So I really am excited and looking forward to kind of the discussions that we continue to have. We've got some excellent people in our team who are sharing that message and how to make things change. Brianne McGuire's work with the Water Institute, and all of our sales team, Shane Sullivan and the guys and gals are really good at going in and solving some of these problems for our customers. And a lot of times it's just curiosity plants the seed. And when they decide to make a move, they come to us. So that's a really fun part of our job, and I'm fortunate enough to be able to participate in many of those conversations as well. So for the second part, I'll turn it over to Judy. Judy Krandel: Great. Thank you for the question. First, we do want to point out that last year's first quarter had an unusually high gross margin. The euro was weaker against the dollar, tariffs weren't there. If you look at sort of the gross margin from Q4 of last year to Q1, it was only slightly lower. And so if you think about it, we did mention our tariff cost is over $200,000 this quarter. When tariffs moved from 15% to 10%, 1/3 of that, we would not have experienced. So you can sort of do the math, 1/3 of that tariff would not have been there, which really will improve our margins. I think as most of you know who are familiar with the business, we buy inventory ahead of time to be prepared, and we have been growing inventory to support higher sales. So as the inventory with the 15% tariff flows through and we start seeing the new inventory come through, we will see an improvement in margins, with all other things being equal. As Robert mentioned, we're considering other mitigation factors. Are there -- can we pass on some of this tariff to our customers as we watch what customers or our other competitors are doing. So we're looking for ways to mitigate this as well. And of course, we'll see how successful commercial is as a percent of business, but don't forget every incremental dollar of commercial business drives incremental gross profit dollars. So we are hopeful that we'll see some improvement in margins as we go through the year and these things take effect, but we feel very good about the health of our core product margins. These are just some external factors. Unknown Attendee: Got it. Got it. I know it takes a lot to produce this number. So a great job on this programmatic revenue numbers and turnaround. Operator: At this time, there are no further questions. So this concludes our -- we have a question from Ralph Weil with R. Weil Investment Management. Ralph Weil: Nice quarter in the programmatic business. Have there been any pricing pressures from your competitors in the business that may have been more so than normal? And maybe I missed it, but I heard about the nano, microplastic comments. But what about the PFAS area? Are we able to make any headways in that area? Or is that something that's become too difficult? And can you comment about the potential in the home market. I see a lot of ads about filters for the homes, et cetera. Is that something that we might be looking at? And I'm sure that if we would be doing that, it wouldn't be on our own, maybe with a partner, for all I know. Can you just comment on any of that at this point in time? Robert Banks: I can talk to all 3 of those points. And at the end of this, if I missed any of the point, please just reask. First thing you asked about was price pressures. At Nephros, we've never been seeking the lowest cost per filter. And the price pressures we've always faced has been a purchasing agent that looks at a SKU and compares our filter to the next. Well, that's fine and dandy, but if our filter costs 20% more, but it lasts 100% longer, 60 days instead of 30 or 6 months instead of 3 months, then that price per SKU goes out the window. What we have been seeing is that the low end is getting more competition where we see some entrants come in. But what I've noticed in the field, and I've been getting reports from our friends out in the West Coast and Kelly down in the South, is that the filters start to crack and leak and cause problems, and it's a great opportunity for us to step in with our products. So price pressures, yes. We've been able to incrementally raise prices year-over-year, and we do that each year. It does not keep up with inflation necessarily, but it is something that we try to make sure we try to stay on top of. We really want to talk about value and what we provide with our filters, how much water we filter, the contaminants that we're removing, because there isn't really a filter doing the same thing. So the price comparison becomes inadequate comparison when the 2 filters do and can accomplish different tasks. We're always looking at that market situation and trying to capture price where necessary. We're making sure that we create customers that stay with us for a long time. We have a very high retention rate. And we look -- we're in it for solving their problems and providing them more value than what they pay us in price. So we're always happy to have that discussion when it comes up, and it's easy when you have kind of a product like Nephros to be able to get past that and win the opportunity. As far as PFAS. PFAS, forever chemicals, we do hear a lot about that. We see a lot about that. But it's not too difficult, quite the opposite. PFAS is actually fairly easy. There's quite a few species and more specific types that we're trying to remove. You have to take a look at what we're trying to address at any particular application. Our filters, our solutions for PFAS are slightly different. They also remove other contaminants, iron and some other things as well. So we try to provide some differentiation. But because there are a number of solutions out there, and it just becomes a little bit harder to command the price that we want or to prove it when there's other people making claims as well that maybe don't have as much rigor as we do. So we continue to see PFAS as something where we're opportunistic about. I don't know that it's going to eclipse sales in our infection control product line to that extent. So it's more of a commercial product line. But always happy to address and look at any of the opportunities because at a minimum, it starts the dialogue where I can go and talk to them about infection control and other filters that they have needs for. Now speaking about the home market and the potential there. The home space is huge. There are millions -- tens of millions of people filtering water in their homes, whether they're on well water, city water, whether they're concerned about contaminants coming from surface, lots of different needs and questions. And there's a lot of commodity filters providers out there, anything from the pictures of water filters or the ones that go in your tap. What I started to see more and more today that I have not seen in the past is people concerned about what's coming in their water from a biological perspective. So once the conversation starts turning towards infection control, that's where we shine, and we have great solutions for either point of use -- fixture points, and not yet for the whole home, but that's something that we're exploring. But to your point, when we start dealing with the average homeowner, there's a lot of regulation out there saying that you've got to remove a certain amount of viruses or bacteria or endotoxins from your water. So we rely on an educated customer who can come in and request it. We have partners that do very well and service those homeowners in different markets, typically high-end homes or maybe homebuilders. And we're starting to form more and more arrangements with those partners. And that's how I tend to address the home market. And I hope that, in the quarters to come, maybe a couple, 4, 6 quarters out that we have some meaningful movement in those areas to report and share with you. But that is an exciting market that I hope to figure out how to penetrate without sacrificing our infection control product lines in the healthcare space. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Robert Banks for any closing remarks. Robert Banks: Thanks, Debbie. And guys, it's been a really great quarter, and the team is working really hard. We've got our rockstars across the board. Stacy with dialysis is just phenomenal. Kelly, Nick, shout out to those guys who are just rock solid. I mentioned the Shane in the West. And with Dana's expertise in New York City and Jim with his years and years and years of sales experience, I just feel really comfortable with this team. By adding our service pillar and what Alfred is doing to really help the team install and get safety, it's been a big boost. And now augmenting it with education to kind of grow it and see that market upstream, I have full confidence that Brianne and other webinars and the full team support behind, we'll just do phenomenal things going forward. So look forward to the future growth and more great stuff. So thanks for joining and all the continued support. Bye, everybody. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Before you buy stock in Nephros, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nephros wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. 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As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Nephros (NEPH) Q1 2026 Earnings Transcript was originally published by The Motley Fool

First-Quarter Net Revenue Growth of 7% to $5.2 million; Core Programmatic Revenue Grew by 23% Year Over Year SOUTH ORANGE, N.J., May 07, 2026 (GLOBE NEWSWIRE) -- Nephros, Inc. (Nasdaq: NEPH), a leading water technology company providing filtration solutions to the medical and commercial markets, today announced financial results for the first quarter ended March 31, 2026. Financial Highlights Net revenue was $5.2 million, compared to $4.9 million in the first quarter of 2025, up 7% Net income was $140,000, compared to a net income of $558,000 in the first quarter of 2025 Adjusted EBITDA was $206,000, compared to $667,000 in the first quarter of 2025 “Q1 2026 represents another important milestone for Nephros, as we exceeded $5 million in revenue in a quarter the first time in our company’s history,” said Robert Banks, President and Chief Executive Officer of Nephros. “This performance reflects continued strength in our core programmatic business, increasing adoption of our products across new applications, and growing contributions from our service offerings.” Banks continued, “While we are very pleased with the top-line growth, gross margins in the quarter were impacted by several external and mix-related factors. U.S. tariffs accounted for approximately $200,000 in additional costs during the first quarter, providing a meaningful headwind. We are actively pursuing refund opportunities with respect to tariffs that we paid prior to the February 2026 U.S. Supreme Court decision, and we are also exploring mitigation strategies to reduce future exposure. In addition, the strengthening of the Euro year-over-year increased our product costs, further pressuring margins.” Banks added, “We also saw a higher proportion of revenue coming from our commercial segment, which carries a lower gross margin than our core infection control products. Importantly, this shift reflects intentional expansion into new markets such as ice machines, drinking fountains, and other high-use applications. While this mix impacts margins in the near term, it significantly expands our addressable market and supports long-term growth.” Commenting on the broader outlook, Banks said, “We remain confident in the underlying strength of our business. Our programmatic model continues to drive consistent reorder activity, and we are seeing increasing traction from our installation, replacement, and education initiatives. We believe these efforts are strengthening customer relationships and improving long-term visibility.” Banks concluded, “We are building a larger, more durable business. Near-term margin variability driven by external factors and growth investments does not change the trajectory. With continued expansion in key markets such as New York and Puerto Rico, and increasing contribution from our installation, replacement, and education initiatives, we are well positioned to drive both revenue growth and margin expansion moving forward.” Financial Performance for the Quarter Ended March 31, 2026 Net revenue for the three months ended March 31, 2026, and 2025 was $5.2 million and $4.9 million, respectively, an increase of 7%. This increase was driven primarily by increased product revenue from programmatic growth, which grew by 23% over the same period in 2025. The growth in programmatic revenue was offset somewhat by a decline in emergency response business. We had significant emergency response business in the first quarter of 2025 that did not fully repeat in 2026. Cost of goods sold for the first quarter of 2025 was $2.2 million, compared with $1.7 million in the first quarter of 2025, an increase of 29%. Gross margin for the first quarter of 2026 was 57%, compared with 65% in the first quarter of 2025. The decrease of approximately 8 percentage points was primarily driven by higher product costs due to the decline in the U.S. dollar relative to the Euro and the impact of tariffs implemented in May 2025. Gross margins were also negatively impacted by the mix of revenues, as commercial revenues were a larger part of total revenue in the quarter ended March 31, 2026 versus last year’s comparable quarter. Gross margins are lower on commercial revenues versus our infection control revenues. Selling, general and administrative expenses for the first quarter of 2026 were approximately $2.5 million, compared with $2.3 million in 2025, an increase of 12% due to increases in headcount and professional fees. Research and development expenses for the first quarter of 2026 were approximately $346,000, compared with $295,000 in the first quarter of 2025, an increase of 17% due to higher headcount. Depreciation and amortization expenses for the first quarter of 2026 were approximately $29,000, compared with approximately $39,000 in the first quarter of 2025. Net income for the first quarter of 2026 was $0.1 million, compared with $0.5 million during the same period in 2025. Adjusted EBITDA for the first quarter 2026 was approximately $0.2 million, compared with approximately $0.7 million in the first quarter of 2025. As of March 31, 2026, Nephros had cash and cash equivalents of approximately $4.0 million, compared to $5.4 million as of December 31, 2025, and remains debt free. Adjusted EBITDA Definition and Reconciliation to GAAP Financial Measures Adjusted EBITDA is calculated by taking net income (loss) calculated in accordance with generally accepted accounting principles (“GAAP”) and excluding all interest-related expenses and income, tax-related expenses and income, and non-cash items, including depreciation, amortization, non-cash inventory write-offs, and non-cash compensation. The following tables present a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, for the first quarter of the 2026 fiscal year: Nephros believes that Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to Nephros’ financial condition and results of operations. Management does not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA is that it excludes significant expenses and income that are required by GAAP to be recognized in Nephros’ financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as it reflects the exercise of judgments by management about which expenses and income are excluded or included in determining Adjusted EBITDA. To compensate for these limitations, management presents Adjusted EBITDA in connection with net income, the most directly comparable GAAP financial measure. Nephros urges investors to review the reconciliation of Adjusted EBITDA to net income and not to rely on any single financial measure to evaluate the business. Conference Call Today at 4:30pm Eastern Time Nephros will host a conference call today at 4:30pm ET, during which management will discuss Nephros’ financial results and provide a general business overview. Participants may dial into the call as follows: Domestic access: 1 (844) 808-7106 International access: 1 (412) 317-5285 Upon joining, please ask to be joined into the Nephros conference call. An audio archive of the call will be available shortly after the call on the Nephros Investor Relations page. Alternatively, a replay of the call may be accessed until May 14th, 2026 at 1 (855) 669-9658 or 1 (412) 317-0088 for international callers and entering replay access code: 1329051. About Nephros Nephros is committed to improving the human relationship with water through leading, accessible technology. We provide innovative water filtration products and services, along with water-quality education, as part of an integrated approach to water safety. Nephros goods serve the needs of customers within healthcare and commercial markets, offering both proactive and emergency solutions for water management. For more information about Nephros, please visit nephros.com. Forward-Looking Statements This release contains forward-looking statements that are subject to various risks and uncertainties. Such statements include statements regarding Nephros’ expected future business, revenue and gross margin growth and the timing of such growth, the effect of new regulations on future revenue growth, the expected competitive advantages and anticipated impact of new product offerings and market expansions, Nephros’ ability to obtain refunds for 2025 U.S. tariffs and to otherwise mitigate the impact of U.S. tariffs in the future, and other statements that are not historical facts, including statements that may be accompanied by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential” or similar words. Actual results could differ materially from those described in these forward-looking statements due to certain factors, including Nephros’ ability to further develop its sales organization and realize increased revenues, the extent to which financial results based on emergency response sales can be outside Nephros’ control, the extent to which U.S. tariffs may increase our expenses, inflationary factors and other economic and competitive conditions, the availability of capital when needed, dependence on third-party manufacturers and researchers, and regulatory reforms. These and other risks and uncertainties are detailed in Nephros’ reports filed with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2025, which it may update in Part II, Item 1A – Risk Factors in its Quarterly Reports on Form 10-Q that it has filed or will file hereafter. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this release, and Nephros does not undertake any responsibility to update any forward-looking statements that it makes, except as may be required by law. Investor Relations Contacts: Kirin Smith, President PCG Advisory, Inc. (646) 823-8656 [email protected] Robert Banks, CEO Nephros, Inc. (201) 343-5202 x110 [email protected] Earning

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Achieved record quarterly revenue exceeding $5 million for the first time, primarily driven by a 23% year-over-year increase in programmatic business. Attributed the programmatic growth to a successful recurring revenue model where customers are increasingly installing, reordering, and expanding product usage. Identified three primary headwinds impacting gross margins: incremental tariff costs, currency pressure from a stronger Euro, and a deliberate shift toward lower-margin commercial applications. Emphasized that the expansion into commercial markets like ice machines and drinking fountains is a strategic move to access a significantly larger addressable market and diversify revenue streams. Transitioned the business model from a product provider to a full-solution partner by integrating installation services and educational initiatives through the Nephros Water Institute. Noted that while emergency response revenue declined due to a non-repeating high-exit opportunity from the prior year, the underlying core business remains durable and growing. Anticipates margin improvement later in 2026 as inventory subject to the previous 15% tariff rate is sold through and replaced by inventory at the new 10% rate. Expects continued growth momentum from targeted regional expansions, specifically citing high-density opportunities in the New York City and Puerto Rico markets. Assumes that the 'Education' pillar will serve as a long-term lead generation tool by positioning the company earlier in the customer's decision-making cycle. Plans to further formalize and monetize water management program development as a service, targeting smaller entities and hospital groups struggling with new regulations. Management remains focused on scaling the business to make it 'immune' to potential healthcare-specific downturns through broader commercial market penetration. Tariff headwinds contributed over $200,000 in incremental costs during the quarter; the company is actively pursuing refunds for tariffs paid prior to the February 2026 Supreme Court decision. Increased R&D and SG&A expenses (up 17% and 12% respectively) reflect intentional investments in headcount to support growth and professional fees. The commercial market segment presents higher competition and lower 'stickiness' compared to the healthcare core, leading to higher customer churn; however, management views this segment as a long-term strategic priority due to its significantly larger total addressable market and the importance of growing absolute margin dollars as the company scales. Cash balance decline was attributed to the timing of inventory receipts and accounts receivable collections, though management noted subsequent recovery through customer payments. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management clarified they are not currently charging for these services, using them instead to engage customers earlier in the decision-making process. The service is intended to fill gaps where partners lack coverage, particularly for smaller entities unfamiliar with evolving water regulations. The company hired a dedicated leader for the five boroughs to address the unique sales cycle and high density of hospitals in the region. Management believes the New York City region alone has the potential to match the revenue of other entire multi-state regions. Robert Banks noted that outside of FDA-regulated healthcare, competition is stiffer and often based on price rather than clinical clearances. In many commercial cases, the primary competition is 'doing nothing' rather than a specific rival, requiring significant educational efforts to drive adoption. Management confirmed that while interest is high, the lack of immediate 'acute' drivers often makes customers hesitant to absorb the extra cost of filtration. The company views these emerging contaminants as opportunistic entry points to start broader infection control dialogues with customers.