Nephros (NASDAQ:NEPH) reported third-quarter revenue growth of 18% and higher profit, although its gross margin narrowed as shipping costs, tariffs and a shift toward lower-margin services weighed on profitability.
The water filtration company generated approximately $5.6 million in revenue for the quarter, up from $4.8 million a year earlier. Net income rose to about $500,000 from $300,000, while adjusted EBITDA increased to roughly $600,000 from $400,000.
President and CEO Robert Banks said the results followed a record $6 million in second-quarter revenue and provided evidence of the durability of the company’s growth. Trailing 12-month revenue surpassed $21 million, he said.
Recurring Business and Emergency Response Drive Growth
Core programmatic revenue, which includes products customers incorporate into their operations and replace over time, rose approximately 8% in the third quarter from a year earlier. CFO Judy Krandel said product revenue was the primary driver of overall growth, with significant growth in emergency response revenue and continued gains in services.
Banks cautioned that emergency response revenue can fluctuate with outbreaks, infrastructure problems and other urgent water-quality events. “We don’t build our long-term growth strategy around emergencies,” he said, while adding that the ability to respond quickly remains important to the company.
Nephros ended the quarter with a record 1,766 active customer sites, adding approximately 31 during the period. Healthcare accounted for 64% of new sites, while commercial and industrial customers represented approximately 17%. The rest came from government, military, hospitality, residential, retail and other applications.
Banks said all 1,766 active sites were programmatic customers under the company’s definition, which requires customers to have reordered within a period of time. One-time emergency response customers are excluded. Nephros also tracks customers who have not reordered and follows up with them, he said.
Margins Narrow Despite Higher Profit
Third-quarter gross margin fell to approximately 58% from 61% a year earlier. Krandel attributed the decline primarily to higher inventory, shipping and handling costs, including tariff expense, and growth in service revenue, which currently carries a lower gross margin than product sales.
Selling, general and administrative expenses increased about 9% to $2.4 million, primarily because of higher headcount and professional fees. Research and development expense fell about 2% to approximately $331,000.
For the first nine months of 2026, revenue rose 20% to approximately $16.9 million, while core programmatic revenue increased about 19%. Net income grew to approximately $1.8 million from $1.1 million, and adjusted EBITDA rose to about $2 million from $1.4 million.
Nine-month gross margin was approximately 61%, down from 63% a year earlier. Krandel said the 2026 figure benefited from approximately $600,000 in IEEPA tariff refunds recognized in the second quarter. Margins also faced pressure from foreign currency movements, tariffs, shipping expenses and growth in commercial products and services, she said.
Nephros had approximately $4.5 million in cash and cash equivalents at Sept. 30 and remained debt-free, Krandel said.
Commercial Expansion and Education
Banks said Nephros often works through partners in commercial markets. Enterprise-level deals can take six months to a year to close, he said, with adoption across sites then occurring over several months. Direct sales to commercial or light-industrial customers are almost always made alongside infection-prevention products, he added.
Healthcare remains the company’s largest market, but Nephros is pursuing additional applications for its technology, including sterile processing, PFAS, microplastics and nanoplastics, Banks said. He described products, services and education as the three pillars of the company’s strategy.
The Nephros Water Institute continued its educational webinars during the quarter. Banks said the company tracks webinar attendance and asks new customers how they found Nephros, but is still developing more quantifiable measures of the education initiative’s return.
Asked about growth plans for 2027, Banks said current strategies are multiyear efforts. Feedback from industry professionals helps inform research and development, he said, while proposed new products require a business case demonstrating an attractive potential return.
About Nephros (NASDAQ:NEPH)
Nephros, Inc is a medical device company that develops and sells filtration products designed to improve water quality and reduce the risk of waterborne contamination. Its technologies are based primarily on ultrafiltration membranes that remove bacteria, viruses, endotoxins, cysts and other impurities from water.
The company serves the healthcare market with filtration systems for hemodialysis and infection-control applications. Its products are designed for use in hospitals, dialysis centers and other healthcare facilities where purified water is important for patient care and clinical operations.
Nephros also offers commercial water-filtration products for applications such as foodservice, hospitality, commercial buildings and healthcare facilities.
