NEPH · Nephros, Inc.

Nephros reported its first-ever $5+ million quarterly revenue in Q1 2026, with net revenue rising 7% year-over-year to $5.2 million—driven primarily by 23% growth in core programmatic revenue, which reflects consistent reorder activity and expanding adoption across healthcare and commercial accounts. However, this top-line strength was accompanied by meaningful margin compression: gross margin fell 800 basis points to 57%, attributed explicitly to three factors disclosed in Exhibit 99.1—$200,000 in incremental tariff costs, higher product costs from Euro appreciation, and a shift toward commercial segment revenue (e.g., ice machines, drinking fountains), which carries lower margins than infection control products. Management emphasized this mix shift is intentional and strategic, aimed at broadening the addressable market. Operating expenses rose across the board: SG&A increased 12% to $2.5 million due to headcount and professional fees; R&D grew 17% to $346,000 on higher personnel costs; while depreciation and amortization declined slightly. Net income dropped to $140,000 from $558,000, and Adjusted EBITDA fell to $206,000 from $667,000—both outcomes directly tied to the gross margin decline and expense growth. The balance sheet remains strong but shows reduced liquidity: cash fell to $4.0 million from $5.4 million at year-end, with no debt. Management reaffirmed confidence in the underlying programmatic model and long-term trajectory, citing traction in New York and Puerto Rico, and growing contributions from installation, replacement, and education initiatives—though near-term margin variability is expected to persist due to external cost pressures and continued commercial expansion.