Harvard Bioscience, Inc. Stock

Good day and welcome to the Second Quarter 2026 Harvard Bioscience Earnings Conference Call. [Operator Instructions] Please note this call is being recorded. I would like to turn the call over to Taylor Krafchik, Senior Vice President at Ellipsis. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining the Harvard Bioscience Second Quarter 2026 Earnings Conference Call. Leading the call today will be John Duke, President and Chief Executive Officer, and Mark Frost, Chief Financial Officer. In conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks and is posted to our investor relations section of our website at investors.harvardbioscience.com.

Please note that statements made in today's discussion that are not historical facts, including statements on management's expectations of future events or future financial performance, are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the current views of Harvard Bioscience Management and Harvard Bioscience assumes no obligation to update or revise any forward-looking statements. Actual results may differ materially from those expressed or implied.

Please refer to today's press release, the Harvard Bioscience Form 10-Q, and other filings with the Securities and Exchange Commission for additional disclosures on forward-looking statements and the risks, uncertainties, and contingencies associated therewith. During the call, management will also reference certain non-GAAP financial measures which can be useful in evaluating the company's operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release. I will now turn the call over to John. John, please go ahead.

Thank you, Taylor, and good morning, everyone. Since becoming CEO a year ago, our team has focused on sharpening our strategy, commercial alignment, and operational discipline, from optimizing our sales organization and distribution channels to executing footprint consolidation through Project Viking. That disciplined focus and execution helped us deliver strong second quarter performance, highlighted by double-digit revenue growth across our CMT and preclinical portfolios and solid operational execution that reinforced our confidence in raising our full-year revenue outlook.

To give a high-level summary before Mark dives into the detailed financials, revenue came in strong at $22.7 million, representing 11% year-over-year growth. This performance was driven by solid demand, particularly from CRO customers, and healthy sales across our CMT portfolio. Adjusted gross margin was 57% for the quarter, slightly lower than anticipated due to higher-than-expected sales from our CMT products and sales in China, both of which carried lower relative gross margin. Adjusted EBITDA came in at $1.7 million, up 11% year-over-year. We are increasingly seeing our execution across our strategic focus translate into tangible operational progress across our customer mix, product portfolio, and recurring revenue profile.

Researchers are adopting our products to generate more predictive, human-relevant data and address key preclinical translational challenges. We remain focused on our highest growth customer opportunities and continue to strengthen our position with pharmaceutical, biotech, and CRO accounts. We also saw an improvement over the first quarter in our academic segment. Looking at our product mix, we are seeing solid commercial traction and saw double-digit growth within our telemetry and CMT businesses, highlighted by growth in our AAA bioprocessing and electroporation products. Customers continue to show strong engagement across both preclinical and CMT platforms.

Increasing high-margin recurring revenue remains a key long-term focus. Our recurring revenue strategy is anchored around high-margin single-use consumables, such as telemetry implants and electroporation reagents, complemented by annual software licenses and service contracts. As our instrument installed base expands with platforms like SoHo and BTX, we're generating a steady recurring revenue stream quarter after quarter. We saw our recurring revenue increase to 55% of total revenue in the first half as we continue to work towards our long-term target of 60%.

Looking at broader industry demand patterns, preclinical drug candidate pipelines are growing, biopharma spending continues to increase, and CRO activity is expanding. Additionally, our distribution agreement with Fisher Scientific continues to deliver strong commercial returns, generating double-digit growth in Q2 while broadening our customer reach. To build on this momentum, our recently appointed SVP of Commercial, Dave Panzarella, is optimizing our commercial teams to focus on our highest growth opportunities, specifically NPI platforms, AAA bioprocessing, and growing our market share within biopharma and CRO accounts.

Our Project Viking manufacturing footprint consolidation remains on track. We successfully transitioned two product lines out of our Holliston facility in Q2 and are prepared to move two more in Q3. As a reminder, we expect Project Viking will deliver $3 million in cost savings in 2027, and $4 million annually thereafter. Our Made in China localization initiative is progressing well and contributing to strong regional performance. Following the launch of our localized BTX line, we are actively shipping units and capturing domestic demand. Looking ahead, we continue to expand our BTX product line and are advancing certifications on additional products in the second half of the year, positioning us for growth in 2027.

Turning to our outlook, based on our strong performance in Q2 and expanding commercial momentum within our CMT product portfolio, we are raising our full-year revenue growth guidance to 3% to 5%. To account for the Q2 top-line performance and the near-term mix shift towards our CMT product lines and higher China sales, we are revising our full-year adjusted gross margin range by one percentage point to 57% to 59%. Longer term, we remain confident that our strategic focus on higher-margin NPI platforms and expanding recurring revenue will drive gross margin expansion beyond our 2026 baseline. This trajectory will be further strengthened by structural cost savings from Project Viking beginning in 2027.

Lastly, we are reaffirming our full-year adjusted EBITDA growth guidance of 6% to 10%, supported by continued cost discipline, operational improvements, and operating leverage as revenue scales. Over the past year, we strengthened our balance sheet, put a plan in place to simplify our operational footprint, and sharpened our strategic focus. We're seeing these deliberate actions reflected in meaningful top-line growth, a more differentiated product portfolio, stronger market engagement from our key customer segments, and improving operating performance. We believe Harvard Bioscience is becoming a fundamentally stronger, more profitable company.

With that, I'll turn the call over to Mark for a deeper review of the financials. Mark?

Thank you, John, and good morning, everyone. I will start my comments with our second quarter of 2026 financial results, the details of which can be found in the description, starting on Slide 4 of the earnings presentation posted to our IR site. Revenue of $22.7 million was up 11% year-over-year, 10% on a constant currency basis, and exceeded our guidance range. The growth was driven by increased demand from CRO customers alongside solid execution through Fisher Scientific and other distributors. Our telemetry business was up double digits within the quarter and solid mid-single-digit growth for the half.

We saw strong performance across our AAA bioprocessing and electroporation platforms. NPI revenue continued to deliver per our expectation with an 11% contribution versus 3% of revenue last year. Lastly on revenue, as John mentioned, we're continuing to focus on expanding our recurring revenue opportunities, which consist of our consumables, service and software, which improved its contribution by 1% within the half to 55% of revenue. GAAP gross margin was 55.6% and adding back restructuring for the quarter of 20 basis points brought our gross margin to 55.8% compared to 56.4% in Q2 last year.

The decline was caused by a product and geographic mix shift with higher-than-expected CMT sales and strong demand in China, both of which carry relative lower gross margins. Going forward, we continue to focus on driving sales of our higher-margin NPI products, but we're not going to downplay sales opportunities. Additionally, we expect to realize significant margin benefit from the completion of our manufacturing consolidation in early 2027. We have provided adjusted gross margin reconciliation in the release, to show the impact of restructuring, which is in the other line. Our point for our investors is we operate our business assuming the impact of depreciation, amortization, and stock compensation costs.

Now, OpEx increased by $1.2 million in the quarter. As we mentioned on the last call, we restored salaries and merit, which is the primary reason for higher OpEx, and it reflects a normalized cost structure. This investment is offsetting our improvements in gross margin, but we will see higher leverage in our returns in the fourth quarter and in 2027. Operating loss was $1 million compared to a loss of $0.8 million in Q2 2025. Adjusted operating income was $1.1 million, 4.9% operating margin, up from $1 million, 5.1% operating margin in quarter 2 last year.

Now, adjusted EBITDA came in at $1.7 million, 7.3% return, reaching the high end of our outlook range and growing 11% year-over-year from $1.5 million in the second quarter 2 2025. The EBITDA margin remained flat given the normalized OpEx actions as well as some investment we did in the first half in sales and marketing. Now moving to Slide 5 for results by geography. Geographically, second quarter revenue in the Americas was $11.4 million, up 13% year-over-year, driven by strong telemetry growth at CRO customers. The academic funding environment is beginning to improve, and as we discussed last quarter, we expect to see stronger sales to these customers in the second half.

In Europe, quarter 2 revenues were $6.8 million, up 3% year-over-year, 1.5% on a constant currency basis. Declines in academic and government channels were offset by growth across CRO, pharma, and distribution partners. In APAC, quarter 2 revenues were $4.6 million, up 24% year-over-year, primarily driven by strong sales of our BTX electroporation and respiratory lines. Within APAC, China revenues were $3.1 million, up 29% year-over-year, driven primarily by CRO demand. Our Made in China localization initiative also continues to progress nicely, and we expect a strong regional tailwind as we roll out additional localized product lines throughout the rest of the year.

I'll now move to Slide 6 to discuss further financial metrics. GAAP diluted EPS in the quarter 2 was negative $0.64 compared to negative $0.52 in the second quarter of 2025. Quarter 2 adjusted EPS was negative $0.14 compared to negative $0.05 in the quarter 2 2025. All per share numbers retroactively reflect the 1-for-10 reverse stock split completed in March. Now, as I mentioned in the past, the difference between GAAP EPS and adjusted EPS are typically the impact of stock compensation, amortization, depreciation, as well now our restructuring charges related to Project Viking. These differences between net loss and adjusted EBITDA are highlighted in the reconciliation tables on Slide 12 and 13 and are all non-cash items except Project Viking costs.

Now, cash used in operations for the first 6 months was $0.3 million compared to cash generated of $5.7 million in year-to-date 2025. This change was primarily driven by inventory builds to improve product lead times and support manufacturing pre-build requirements for Project Viking transitions, as well as higher interest costs from our debt deal. Now, we closed the quarter with $6.5 million in cash and cash equivalents. Net debt stood at $33.5 million, up roughly $5.6 million year-over-year. Total debt was $36.7 million, reduced by $3.3 million in unamortized deferred financing costs associated with our December 2025 debt refinancing, which will be amortized over the life of the facility. Non-cash deferred financing amortization was $0.3 million in the quarter 1 and quarter 2, with non-cash exit fee accruals running at $0.2 million per quarter.

Now I'll move to Slide 8 to discuss our outlook for the third quarter and full year 2026. Now in the third quarter, we expect revenue between $21 million and $22.6 million at the midpoint of $21.8 million. This represents mid-single-digit year-over-year revenue growth. Adjusted gross margin is expected to be between 56% to 58%, and adjusted EBITDA is expected to be between $1.5 million and $2.5 million. Now, turning to the full year, based on first half top-line strength and ongoing commercial momentum in our NPI, telemetry, and CMT portfolios, we are updating our full year 2026 guidance. We are raising our full-year revenue growth guidance to 3% to 5%, up from 2% to 4%.

Now, to account for higher CMT portfolio volume and strong China demand, we are adjusting our full-year adjusted gross margin target by 100 basis points to 57% to 59% from 58% to 60% to reflect product mix dynamics. We are reaffirming our full-year adjusted EBITDA growth guidance of 6% to 10%. Now, to paint a clearer picture of how we believe this will look in the second half, we expect adjusted EBITDA expansion versus the first half, particularly as we enter the fourth quarter. The fourth quarter historically has been our strongest revenue and EBITDA quarter. We expect this acceleration will be driven primarily by revenue growth in the second half generating strong flow-through over a fixed cost base as well as ongoing operational discipline, including modest commercial restructuring actions we executed in July.

We're pleased with the progress we've made since this time last year. The improvements we've made to date are the result of structural changes we've made in line with our strategic focus areas, which leaves us confident our results in the first half of this year are setting the stage for sustainable improvement in the business. We want to thank all of our shareholders for their support, and we look forward to updating you on our progress next quarter.

With that, I'll turn the call back to Michelle, our operator, to take questions. Michelle?

[Operator Instructions] Our first question comes from Paul Knight with KeyBanc Capital Markets.

Congratulations on the quarter. The electroporation business grew to what level in the quarter, and then also same kind of question on the organoid Mesh MEA product.

Yes, so thanks, Paul. And first, in terms of the electroporation, it grew strong double digits, and we're seeing the same in our year-to-date strong performance in our organoids or Multi Channel Systems products.

And with the China demand that we're seeing, could you talk a little bit about it specifically? Is it electroporation products? Is it the Mesh MEA, and then how do you control your China sales? Is it distributors or direct?

In terms of -- first of all, as a reminder, last year in Q2, there were the retaliatory tariffs, so we had a lower baseline. That being said, we had very strong sales into China, and in terms of the product categories that drove that growth, I'll just mention several: organoids or the Multi Channel Systems, BTX for electroporation, as well as telemetry and respiratory inhalation. Those were all strong sales in China. In terms of how it's sold, much of our sales in China are sold through distributors.

Yes, that's our largest contribution to revenues through distributors as a lot of companies in China.

And your Q3 is implying what? Mid-single-digit growth? And what are you implying in 4Q?

Yes, mid-single digits and probably slightly lower in Q4. Obviously, we hope to overachieve. That's why we raised the guidance, Paul. But we obviously had a very strong fourth quarter last year.

So the midpoint of the range that we provided is $21.8 million in revenue, which would be a 6% revenue growth over last year.

Right, and I think Q4 then would indicate 4% to 6% as well.

Our next question comes from Bruce Jackson with StoneX. Your line is open.

I'm sorry if I missed this, but what was the percentage of revenue that was due to the new product innovation products?

Yes. It was similar to the quarter 1, Bruce. It was 11% versus 3% last year.

Okay, got it. And then with the release of the NIH funding in the academic market, so that's certainly a relief in terms of the academic sales. Maybe you could comment on the outlook for that market going forward. Have there been any changes in just general budget level or research projects and the types of research projects being done? And how do you feel like you're positioned to go after that market in the future?

Thanks for the question, Bruce. The academic market in the U.S. is gradually improving. And what we have done and continue to do is look at those pockets where funds have been released to actively and aggressively go after that. And we put our salespeople as well as, as you can imagine, our distributors as well, are into those accounts, and we believe we're well positioned for year-over-year growth there in the second half.

Okay. Then last question for me. With Project Viking, have you found a sub-tenant for the Holliston lease yet?

We have, as I think we mentioned last quarter, engaged a broker. We are marketing it now. We've had a few folks on site, but we have not got to a point yet where we have a new lease. I'll be honest, Bruce, we probably don't expect anything to the fourth quarter or first quarter as far as getting something done because we won't really move out of the space until the first quarter of next year.

This concludes our question and answer session. Thank you for your participation. You may now disconnect. Everyone, have a great day.

Good day, and welcome to the Q1 2026 Harvard Biosciences, Inc. Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded.

I would now like to turn the call over to Taylor Krafchik, Senior Vice President at Ellipsis TA. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining the Harvard Bioscience First Quarter 2026 Earnings Conference Call. Leading the call today will be John Duke, President and Chief Executive Officer; and Mark Frost, Chief Financial Officer. In conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks that is posted to the Investor Relations section of our website at investor.harvardbioscience.com. Please note that statements made in today's discussion that are not historical facts, including statements on management's expectations of future events or future financial performance and forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements reflect the current views of Harvard Biosciences management, and Harvard Bioscience assumes no obligation to update or revise any forward-looking statements. Actual results may differ materially from those expressed or implied. Please refer to today's press release, the Harvard Bioscience Form 10-Q and other filings with the Securities and Exchange Commission for additional disclosures on forward-looking statements and the risks, uncertainties and contingencies associated there within.

During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company's operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered as a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release.

I will now turn the call over to John. John, please go ahead.

Thanks, Taylor. Good morning, everyone, and thank you for joining us. Overall, Q1 reflected continued progress on transforming Harvard Bioscience from a traditional tool provider into a leading supplier of the emerging translational science market. To summarize our Q1 financial performance, revenue was $20.8 million, in line with their expectations. Adjusted gross margin was 59%, growing nearly 300 basis points year-over-year, and adjusted EBITDA came in at $0.8 million, which was flat with Q1 last year.

Our Q1 results were driven by growth in sales of our new product innovation pipeline, including Mesh MEA for organoids, BTX Electroporation and SoHo Telemetry products. We expect this suite of products will deliver double-digit revenue growth for the full year. These products are the centerpieces of our evolution into a leading supplier of translational products.

As anticipated, growth in consumables and software products and our NPI portfolio is translating into higher margins. This puts us on a path toward consistent gross margins greater than 60% and recurring revenue approaching 60%. Our NPI products are also increasing opportunities with pharma and large biotech customers. Sales to these customers grew more than 20% in the quarter versus prior year. A key driver of sales to biopharma is an accelerating adoption of the new approach methodologies. As biopharma customers seek more predictive human-relevant outcomes, demand is shifting towards technologies that can deliver deeper, more actionable insights and help form a stronger translational science bridge to traditional animal models.

Our NPI portfolio is directly aligned with this shift. Mesh MEA enables high resolution, long-term electrical recording of organoids and 3D tissue models, allowing researchers to study complex human biology in vitro with the level of fidelity not previously possible. BTX provides electroporation-enabled cell engineering and transfection solutions, supporting everything from gene editing to advanced cell-based development. critical tools for building and manipulating next-gen biological models. SoHo Telemetry delivers continuous real-time physiological monitoring and preclinical settings, generating rich data sets that help bridge in vivo insights with emerging in vitro approaches, improving the translational relevance of preclinical research.

The industry's growing need for more predictive models reinforces our confidence in the strategy and long-term growth trajectory of the company. We are pleased with the early results of the enhanced distribution agreement we signed in August of last year with Fisher North America. Sales through Fisher North America grew by high single digits in Q1. We strengthened our leadership team by adding Dave Panzarella as our new SVP of Commercial. With 30 years of industry experience as a global growth-oriented sales leader across multiple life science tools companies, we believe he will be instrumental in driving overall revenue expansion and sales of our translational science platforms. We're excited to have him on board. We've done much work in the past year to strengthen our leadership team and Board, and we're pleased with the deep expertise we've added as we work to scale the business.

In China, Q1 revenue grew 3%, driven by increased CRO revenue. Incentives exist for Chinese companies to source domestically. As a result, we launched our Made in China initiative, beginning with our BTX Electroporation products. We plan to expand this initiative to other products in 2026. Project Viking, our manufacturing consolidation initiative remains on track. As a reminder, this initiative includes the phased closure of our Holliston, Massachusetts facility into our sites in Minneapolis and Europe. In Q1, we moved one product line and are on track to move several product lines in Q2. We remain confident Project Viking will generate $3 million in savings in 2027 and $4 million annually thereafter.

Looking ahead, Mark will provide additional details on our guidance. At a high level, in the second quarter, at the midpoint of our guidance, we anticipate mid-single-digit year-over-year revenue growth, continued margin expansion and flat adjusted EBITDA on a year-over-year basis. We are reaffirming our full year 2026 guidance. For the full year, we expect continued growth of NPI with our Mesh MEA, BTX and SoHo platforms. We expect continued growth with pharma and biotech customers and growth in China. We remain committed to improving our operational efficiency and driving profitability. In summary, we're excited about path ahead and remain laser-focused on executing our translational science strategy to create long-term shareholder value.

I will now turn the call over to Mark, who will go through the financials and our guidance in more detail. Mark?

Thank you, John. I will start my comments with our first quarter 2026 financial results, the details of which will be found starting on Slide 4 of the earnings presentation posted to our IR site. We had strong growth from pharma and biotech customers, as John mentioned, reflecting momentum from new products. Revenue was $20.8 million, in line with our $20 million to $22 million guidance and below the $21.8 million we reported in the first quarter of 2025.

The year-over-year decline was primarily due to lower sales from academic institutions in the Americas and distributors in APAC, although our Chinese business rebounded to growth in the first quarter. With regard to academics, we expect university level approvals to increase in quarter 2 with the passage of the NIH budget on February 3, setting the stage for improved Q2 and Q3 results in the U.S. academic sector. These are use it or lose it funds and must be committed by the September 30 fiscal year-end, and we are seeing increased proposal activity.

Gross margin of 59% was at the high end of our 57% to 59% guidance range and up 300 basis points from 56% in the first quarter of 2025. The improvement is attributable to cost actions related to employee costs and operational efficiencies that were implemented at the end of 2024 and in 2025 as well -- as well as higher-margin NPI revenue, which grew to more than 12% of total revenue in the quarter from approximately 4% in the prior year quarter. Operating loss was $1.2 million compared to a loss of $49.7 million last year, which included $48 million from goodwill impairment.

Adjusted operating income of $0.2 million was slightly down from $0.3 million last year. Adjusted EBITDA of $0.8 million was flat year-over-year and came in slightly below our expectations due to higher investment in sales and marketing activities, which we believe will pay dividends in later quarters. A significant portion of the cost came in at the end of the quarter.

Now moving to Slide 5, results by -- for revenue results by geography. Geographically, quarter 1 revenues in the Americas were down 9% year-over-year due to lower academic and government sales. In Europe, quarter 1 revenues were up 7% year-over-year, thanks to increased sales from our distribution partners and pharma customers. And in APAC, quarter 1 revenues were down 9% year-over-year due to lower distributor sales in a number of our Asian markets. That said, as John noted, we saw 3% year-over-year growth in China, driven primarily by CRO sales. We also piloted our Made in China initiative, which we anticipate will be a tailwind in this region as we implement additional products throughout the year.

Now I will now move to Slide 6 to discuss further financial metrics. GAAP diluted EPS in quarter 1 was negative $0.77 compared to a loss $11.42 last year. And quarter 1 adjusted EPS was negative $0.33 compared to negative $1.25 last year. The year-over-year comparisons have been retroactively presented to reflect the 1 for 10 reverse split that took effect in March. Last year's figures reflect the $48 million goodwill impairment we recorded in the quarter.

Now as I've mentioned in the past, the differences between GAAP EPS and adjusted EPS are typically the impact of stock compensation, amortization and depreciation as well as now our restructuring charges related to Project Viking. These differences between net loss and adjusted EBITDA are highlighted in the reconciliation tables on Slide 10 and 11 and are all noncash items except Project Viking costs. Now cash used in operations was $0.7 million in the quarter compared to cash generation from operations of $3 million in quarter 1 last year due primarily to higher inventory. The increase in inventory stems from inventories built to support improving lead times for certain products and prebuild for Project Viking.

There are also onetime administrative costs related to our reverse split and S3 filing to meet regulatory compliance around these corporate actions, which reduced operating cash. The cash balance itself decreased in the quarter by $1.5 million reflecting payment of strategic debt costs from 2025. Now net debt is up roughly $1.9 million from prior year due to the recording of deferred finance costs related to December 2025 debt deal including fees, debt legal expense, warrant fair value costs and debt discount with a debt balance reduced by principal payments made last year. The deferred financing costs will be amortized over the life of the credit facility. The amortization will be reflected in our interest expense each quarter through the end of the debt facility. In quarter 1, the amortization interest expense was $300,000 in noncash. In addition, we are recording exit fees each quarter of approximately $200,000 which will start being paid 2 years from the initiation of our credit facility. These are noncash for the first 2 years.

I'll now move to Slide 8 to discuss our outlook for the second quarter and full year 2026. In the second quarter, we expect revenue between $20.5 million and $22.5 million, adjusted gross margin between 57% and 59% and adjusted EBITDA between $1 million and $2 million. Midpoint of these ranges implies revenue growth of 5% margin expansion of 160 basis points and flat EBITDA. Now as a reminder, with the expected growth in the business in 2026, we have reinstated bonuses and merit-based compensation for our employees, which was suspended in 2025 due to macro headwind impacts.

In addition, as the business has stabilized, we have increased sales activities to help drive the business, including trade shows and T&E to get in front of customers and build relationships. These will have an impact on our operating expenses and are built into our year-over-year adjusted EBITDA guidance. We're maintaining our full year 2026 guidance of revenue growth of 2% to 4%, gross margin of 58% to 60% and adjusted EBITDA growth of 6% to 10%. Our performance in the quarter as well as our line of sight to accelerated sales growth in the second half of the year, driven by high-margin NPI revenue growth driving bottom line improvement gives us confidence in our outlook for the full year. We look forward to updating you on our progress next quarter.

Now before I turn it over, I want to mention that John and I will be attending and presenting at both the Sidoti Microcap Conference next week and Benchmark's Virtual Healthcare Conference the following week.

With that, I'll turn the call back to our operator to take questions. Michelle?

[Operator Instructions] Our first question comes from Paul Knight with KeyBanc.

John, I think you had mentioned that Mesh MEA, SoHo and BTX, you said those three product lines would grow double digits in the year.

Yes. That's right, Paul.

Yes, how are you -- and what portion of the company is -- are those three businesses, 1/4, 1/3, 20% or a range?

Yes, Paul, this is Mark. It's about 15% to 20% of our revenue right now.

Okay. And how -- when I look at your comments around academia, you got -- they have to spend it by the end of this federal fiscal year. Are you seeing activity on bidding going up? What are your clues as you look here or sit here in 2Q?

Yes. So we're definitely seeing what I would call an unthawing where -- basically funds, as you know, the reconciliation bill got approved February 3. And until then, many academics were unsure if they were going to be able to spend their money. So now that the budgets were locked in, we have seen orders come through. And as you know, our sales cycle is such that if we get many of the orders, would say, which come in March, those would translate into revenue in Q2. So we have a significant sales presence in North America, and that's fairly consistent across the country.

Are you seeing CROs starting to spend due to the financing we're seeing from biotech?

Yes. So our sales to our contract research organizations increased. And Mark mentioned both in China, but we're also seeing that in the Americas and Europe.

Our next question comes from Bruce Jackson with StoneX.

So the Asian numbers were pretty encouraging. It's been kind of a tough spot for you over the past few years. What is the outlook for this particular region this year. Can it actually start to move back up or is flat the new up for you? How does that look?

Yes, Bruce, based on the Made in China initiative as well as we're getting some progress as well on some of our NPI products, we do expect to be able to get it flat to growth in Asia for the year.

And then in terms of the types of projects that are being initiated or that they're purchasing for, would you say that -- are these like new development projects? Or are these restarted development projects? What are the characteristics of the business that they're purchasing for?

So for APAC, it's both. It's restarting of business, but also we have some clients who have opened new facilities, expanded and as a result, need more of our products.

Okay. Great. And then same question for the United States with the CRO business. Are these new projects that are coming in? Are these the continuation of maybe previous projects that were slowed down a bit?

It is mostly what I call a restarting of projects which had slowed. And from all indications that we have that their spending in North America and Europe will be up versus prior year.

Okay. Great. And then last question for me. The expense control and the gross margins looked quite good. So if we were to get a lift in revenue, would those continue to be sustainable?

Yes, Bruce, because of our new products and they're all at higher margins as well as there's a larger portion of recurring revenue, disposable service and software. we believe this is a cornerstone of how we're going to be able to push gross margins into the 60% plus range as we move forward over the next couple of years, Bruce.

Thank you. That's all the questions we have for today. Please proceed with any closing comments.

Thank you for joining today.

Thank you. This does conclude the program, and you may now disconnect. Everyone, have a great day.

Good day, and welcome to the Fourth Quarter and Full Year 2025 Harvard Bioscience Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Taylor Krafchik, Senior Vice President at Ellipsis TA. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining the Harvard Bioscience Fourth Quarter and Full Year 2025 Earnings Conference Call. Leading the call today will be John Duke, President and Chief Executive Officer; and Mark Frost, Chief Financial Officer. In conjunction with today's call, we have provided a presentation that will be referenced during our remarks that is posted to the Investor Relations section of our website at investor.harvordbioscience.com.

Please note that statements made in today's discussion that are not historical facts, including statements on management, expectations or future events or future financial performance are forward-looking statements and are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements reflect the current views of Harvard Bioscience management and Harvard Bioscience assumes no obligation to update or revise any forward-looking statements. Actual results may differ materially from those expressed or implied.

Please refer to today's press release, the Harvard Bioscience Form 10-K, which we expect will be filed within 24 hours of this call and other filings with the Securities and Exchange Commission for additional disclosures on forward-looking statements and the risks, uncertainties and contingencies associated therewith.

During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company's operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered as a substitute.

Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release. I will now turn 8:03 AM the call over to John. John, please go ahead.

Thanks, Taylor, and good morning, everyone. Thank you for joining us for our fourth quarter and full year 2025 earnings call. On today's call, I'll review our recent actions, provide a brief overview of our fourth quarter financial results and then discuss our priorities and outlook for 2026.

2025 was a pivotal year of foundation building. Over the past 8 months, we improved our financial flexibility, took action to reorganize operations and clarified our long-term strategic direction. To recap, we took several key actions to improve the health of the business. In December, we completed our comprehensive refinancing.

This transaction extended our debt maturity to 2021. We reduced annual debt service to $5 million, generating $3 million in annual cash savings and strengthen liquidity and financial flexibility. Shortly thereafter, we announced a strategic consolidation of our manufacturing footprint with the phased closure of the Holliston facility and consolidation into Minneapolis and European centers of excellence.

This is expected to generate $3 million in savings in 2027 and $4 million of savings thereafter. Since June, we have strengthened our governance by appointing 4 new Board members and we are in the process of establishing a product and Scientific Advisory Board of experienced industry leaders. We also further solidified our executive leadership as we officially named Mark Frost as Chief Financial Officer.

As many of you know, Mark is an experienced CFO and has held that role with several public companies. While we have more work to do, these actions are structural improvements to simplify our operating model and provide the foundation required to scale our business.

All of these actions were driven to take -- to drive improved financial results, which is what we saw in the fourth quarter. Revenue of $23.7 million was above the midpoint of our guidance range. Gross margin of 60% at the high end of guidance and adjusted EBITDA of $3.8 million, reflecting 27% year-over-year growth.

The drivers of this performance were favorable mix shift toward higher-margin product lines, benefits from cost reductions, disciplined expense management and sharpened operational execution. We exited the year a leaner and more focused organization with a fortified balance sheet and a clear path to drive sustainable growth.

Since I joined as CEO, I've spent considerable time engaging with customers, partners and employees. What became clear is the life science industry is undergoing a fundamental shift.

Drug development remains inefficient, nearly 90% of candidates that succeed in animal models ultimately fail in human trials. Researchers, regulators and biopharma customers -- companies are increasingly embracing new approach methodologies or NAMS to improve translational relevance. Harvard Bioscience is uniquely positioned to bridge this gap.

We're evolving from a traditional life science tools provider into a leading enabler of translational science, connecting in vivo and in vitro research and helping customers generate more predictive human relevant data earlier in the development cycle.

This represents an evolution for a company's products into the $10 billion translational science market. To capitalize on this opportunity, we are focused on executing against our 4 priorities. First, leading the translational science bridge. We are strengthening our position at the intersection of preclinical and organoid-based research.

Our gold standard telemetry capabilities provide a natural extension into organoids and 3D biology platforms; second, accelerating high-margin innovation. Our new product innovation or NPI pipeline is centered on scalable, differentiated platforms such as SoHo telemetry, BTX for bioproduction, Mesh MEA and Incub8.

These platforms modernize preclinical and translational workflows and reinforce our evolution into a platform-based technology provider. Third, expanding consumables and recurring revenue. Today, approximately 55% of revenue is recurring.

We are intentionally prioritizing higher-margin consumables, service and software to improve revenue visibility, increase gross margins and create a more durable and predictable business model. This mix shift is already contributing to margin expansion as evidenced by our Q4 performance and our outlook for 2026.

And fourth, operational excellence and disciplined growth. Finally, we remain laser-focused on cost discipline and operational efficiency. The manufacturing consolidation and refinancing enabled us to improve profitability, fund innovation and continued deleveraging over time. Looking ahead, we are introducing full year guidance for 2026 that forecast low single-digit growth in revenue and high single-digit growth in adjusted EBITDA, which will be driven by higher-margin NPI growth as we focus on the translational science market.

We continue to monitor NIH funding timing and global macro conditions. We believe our cost structure and diversified geographic footprint put us in a position to manage volatility. 2025 was a strategic reset and 2026 will be a year of top and bottom line growth.

With a technically deep global team, a refreshed board, improved financial flexibility and a focused translational science strategy, Harvard Bioscience is well positioned to create long-term shareholder value. I want to thank our employees for their dedication, our customers for their trust and our shareholders for their continued support.

With that, I'll turn the call over to Mark to review the financial results and outlook in more detail.

Thank you, John. I'll start my comments with our fourth quarter 2025 financial results. The details of which can be found in our Form 10-K, which we expect to be filed within the next 24 hours and in the earnings presentation that we posted to our IR site.

Starting on Slide 4 of the presentation. Revenue was $23.7 million, just above the midpoint of our $22.5 million to $24.5 million guidance and below the $24.6 million we reported in the fourth quarter of 2024. The government shutdown of 43 days impacted our ability to overachieve within the quarter.

Gross margin of 59.7% was at the high end of our 58% to 60% guidance range and is up 260 basis points from 57.1% in the fourth quarter of 2024. This is the highest gross margin we recorded over the last 7 quarters. We continue to improve our gross margin returns based on cost actions we took at the end of 2024 and in 2025 as well. As well As the increasing benefit we are receiving from higher-margin NPI revenue.

Operating income of $1.7 million was up from flat last year, and adjusted operating income of $3.3 million was up from $2.5 million last year. The improvement in GAAP and adjusted operating income was primarily from cost reductions in manufacturing and SG&A. Now adjusted EBITDA was up 27% year-over-year to $3.8 million in the fourth quarter driven by cost reductions, including decreased costs related to manufacturing and SG&A headcount as well as expense management.

Now moving to Slide 5 for full year results. Revenue of $86.6 million was down from $94.1 million, primarily from the impact of tariffs and the delayed NIH funding. Tariff impact started to subside later in the year while NIH funding delays continued to impact timing of some orders, in particular, our preclinical telemetry products.

Gross margin of 57.7% was down from 58.2% last year due to lower revenue in 2025, but a larger margin impact was partially offset by our cost actions in manufacturing. Operating income of negative $48.6 million was down from negative $6.2 million last year, adjusted operating income of $6.2 million was up from $5.3 million last year.

The GAAP difference stems from the goodwill impairment we took earlier in the year and the improvement in adjusted operating income was due to cost reductions improved expense management and favorable mix of higher-margin products.

Now adjusted EBITDA increased 12.5% to $8.1 million from $7.2 million in 2024, as mentioned, due to cost reductions, improved expense management and strong execution throughout the year.

Now looking at Slide 6, I will outline the revenue results for the quarter and year by product family and region. Overall revenues in the fourth quarter were up 15% sequentially and down 3% year-over-year. Full year revenue was down 8% year-over-year.

Geographically, quarter 4 revenues in the Americas were down 2%, year-over-year, driven by lower pharma sales for preclinical and lower academic sales in CMT. Full year revenues in the Americas were down 7% year-over-year, driven primarily by academic sales.

In Europe, quarter 4 revenues were down 12% year-over-year due to lower academic sales. Full year revenues in Europe were down 6% year-over-year due to distribution and academic sales. And in China and the Asia Pacific, Quarter 4 revenues were up 10% year-over-year, thanks to growth in preclinical distribution.

Full year revenues in China and Asia Pacific were down to lower distribution revenue. And I'll now move to Slide 7 to discuss further financial metrics. GAAP EPS in quarter 4 was negative $0.06 compared to flat last year and quarter 4 adjusted EPS was flat compared to $0.06 last year.

As I've mentioned in the past, the differences between GAAP EPS and adjusted EPS are typically the impact of stock compensation, amortization and depreciation. These differences between net loss and adjusted EBITDA are highlighted in the reconciliation tables on Slide 10 and are all noncash items.

For the full year, GAAP loss per share was $1.28 compared to negative $0.28 in 2024. Adjusted loss per share was negative $0.02 compared to adjusted earnings per share of $0.03 in 2024.

The majority of the higher GAAP loss was from the goodwill charge we took in the first quarter. Now cash flow from operations ended the year at $6.7 million, up from $1.4 million at the end of 2024. The significant improvement in the year is due to disciplined working capital management improved operating income and our efforts on payroll tax refunds.

Net debt is down $1.8 million from last year to $31.4 million reflecting payments made on our prior syndicated debt facility as well as additional liquidity we gained as part of the new agreement.

Now as John discussed in the fourth quarter, we were pleased to announce the completion of our debt refinancing with a structured deal. The deal completed repayment of our prior credit facility, extended the maturity of our debt and enhance our financial flexibility as we work to position the company for growth, including reducing our debt service in the first 2 years by $3 million.

Full details on the deal can be found in our December 17 press release and accompanying SEC filing. Now another significant accomplishment during 2025 was the successful remediation of material weaknesses in the one significant deficiency. This is another step in building the foundation of a healthier business.

I'll now move to Slide 9 to discuss our outlook for the first quarter and full year 2026. Now first, a few call-outs. We are introducing full year guidance as we are taking a more long-term oriented view of the business and helping us manage our broader expectations as we go through the year.

We are also introducing adjusted EBITDA guidance on both a quarterly and a full year basis. This is a key metric for us and is one that we believe helps demonstrate our core operating performance. This metric is also linked to a key covenant in our recently structured debt agreement that we thought would be helpful for investors to have visibility.

We were reporting GAAP and adjusted gross margin in 2026 due to the restructuring impact from our manufacturing consolidation. Now lastly, with the expected growth in the business in 2026, we have reinstated bonuses and merit-based compensation for our employees, which was suspended in 2025 due to macro headwind impacts.

This reinstatement will have an impact on our year-over-year adjusted EBITDA comparison, which is already built into our full year guidance. We appreciate our employees and all their hard work as they have supported us through a difficult time for the business.

With that, let's dive into the outlook. In the first quarter, we expect revenue between $20 million and $22 million, adjusted gross margin between 57% and 59% and adjusted EBITDA between $1 million and $2.2 million. I would note that Q1 of last year only saw minimal impact from NIH challenges.

For the full year 2026, we expect revenue growth of 2% to 4%, gross margin of 58% to 60% and adjusted EBITDA growth of 6% to 10%. Additional color is we expect revenue to ramp throughout the year on a year-over-year percentage basis, supported by stronger NPI revenue.

Now to sum up the performance, we're pleased with the fourth quarter and believe the improvements we've made to date with our operational efficiency sets us up well for the future with streamlined costs and a focus on high-margin products in an emerging market.

We expect to realize increased profitability going forward, and we're proud to have been able to demonstrate a glimpse of that in the year where macro conditions were challenging. Lastly, I'm excited to have been appointed CFO on a permanent basis and look forward to continuing to work with John, the Harvard Bioscience team, our board, engaging further with our customers and investors.

To that point, we will be attending the KeyBanc Healthcare Forum next week and I look forward to seeing some of you there. I'll now turn the call back to our operator to take questions. Operator?

[Operator Instructions] Our first question comes from Paul Knight with KeyBanc Capital Markets.

Regarding the NIH, that was finally approved February 3 or so. How quickly do you think that approval turns into a better academic environment for you?

Yes, Paul, thanks for the question. As you could imagine, it would love for it to turn into a better academic environment in 1 day. We have, as you know, about 20 salespeople in North America who call on biopharma as well as academic customers. And from what we have heard is there was a lot of grant submissions, which were waiting to be approved. And we expect to start to see a positive impact both towards the end of Q1 as well as going into Q2.

And NIH is what about 40% of the company now? .

No, I'll clarify. It is about -- NIH revenue is about 20% of our U.S. revenue, Paul. And one point I'll just build on John's point is we are a build-to-order business. So we're starting to see improvement in orders, but in order to get the revenue, it actually needs to come in, in the first half of the quarter. So most of the benefit will start seeing probably in second quarter from the NIH release.

Yes. Okay. And then I know BTX and Mesh MEA or some of your key products. Could you talk about your growth there? And specifically, what's your expected growth for these focused businesses in 2026.

Yes. So you are correct. They are a key part of our NPI, and we expect both of them to grow in double digits this year.

Okay. And then that schedule, is there a quarterly paydown you're targeting? Or what do you want to do? .

A quarterly pay down. Could you clarify, Paul?

Pay down your debt this year? Or are you...

Yes. No, the structure of the deck was structured in a couple of ways. One, to allow us flexibility that there's no amortization in the first 2 years of the deal.

We also, Paul, have the ability to convert term loan A to an ABL, which will give us likely a lower interest rate and more flexibility. And then the Term Loan C is structure that potentially could be converted to equity, which will reduce -- which would deleverage us in the future.

Our next question comes from Bruce Jackson with StoneX.

We got a nice pop in the Asia Pac revenue this quarter. I was wondering if -- and you've had some issues in the past with Asia Pac. Is this the sign of a turnaround? Can you tell us a little bit about what your expectations are for 2026?

Yes. It's a good question, Bruce. You're well aware last year when the tariffs hit, the China business ground to a halt. And we started to definitely see improvement. And those orders came in and were filled in, in the fourth quarter.

So we had a fair amount of catch-up, not fully. So our expectation is we will get back to a normal cadence in Asia, notwithstanding, obviously, if there's further news on the tariff front that changes that situation, Bruce. .

Okay. Got it. And then last quarter, you spoke about a backlog. Have you seen any changes in that during the fourth quarter?

Yes. We actually ended up the year, Bruce, with the highest backlog we've had in over 2 years, and we've continued to maintain that. So yes, we're pretty positive of where we are on our backlog.

Okay. And then last question around the pharmaceutical biotech CRO side of the business. How would you characterize that business? We've been hearing that, for example, some of the large cap pharma companies are kind of back to normal while some of the smaller biotech type companies are not due to the uncertainty around the pharmaceutical reimbursement.

Where are you seeing the demand right now for your products on the pharmaceutical drug development side of the business?

So Bruce, thanks for asking that. year-to-date, we are seeing that portion of the market, the pharma and biotech, that business is up. And we expect that to continue which clearly factored into our guidance for the year.

I'm showing no further questions. This does conclude the question-and-answer session, and you may now disconnect. Everyone, have a great day.

Good day, and welcome to the Third Quarter 2025 Harvard Bioscience Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Taylor Krafchik, Senior Vice President at Ellipsis TA. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining the Harvard Bioscience Third Quarter 2025 Earnings Conference Call. Leading the call today will be John Duke, President and Chief Executive Officer; and Mark Frost, Interim Chief Financial Officer. In conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks that is posted to the Investor Relations section of our website at investor.harvardbioscience.com.

Please note that statements made in today's discussion that are not historical facts, including statements on management's expectations of future events or future financial performance are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the current views of Harvard Bioscience's management, and Harvard Bioscience assumes no obligation to update or revise any forward-looking statements. Actual results may differ materially from those expressed or implied. Please refer to today's press release, the Harvard Bioscience Form 10-Q and other filings with the Securities and Exchange Commission for additional disclosures on forward-looking statements and the risks, uncertainties and contingencies associated therewith.

During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company's operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release.

I will now turn the call over to John. John, please go ahead.

Thanks, Taylor, and good morning, everyone. I'm pleased to speak with you again as we report our third quarter results and continue to execute on our 2025 priorities. This quarter reflects operational progress, consistent execution and tangible improvement in several key areas of our business.

After being appointed CEO in late July, I outlined 3 priorities for 2025: number one, maintain financial discipline and positive cash generation; two, accelerate product adoption across our core growth platforms; and three, strengthen our capital structure through a successful debt refinancing. I'm encouraged to report that we've advanced meaningfully on each front.

First, the financial results. We delivered revenue of $20.6 million at the high end of our guidance range and with a slight sequential increase in what historically is a cyclically soft quarter. Gross margin of 58.4% improved sequentially and exceeded our guidance range. This margin expansion reflects disciplined execution, operational efficiency and an improved mix towards higher-margin products. Adjusted EBITDA was also up sequentially to $2 million. Our cost structure remains lean, and we generated another quarter of positive operating cash flow.

Customer engagement remains high across our platforms. Q3 marked the first time in more than 12 months that we saw a quarterly order growth on a year-over-year basis. Going into the fourth quarter, our backlog has reached its highest level in nearly 2 years as demand has picked up considerably heading into the end of the year.

Turning to our products. The SoHo Telemetry rollout has expanded into additional key accounts, and we've begun to see increased recurring consumable demand. Our Biochrom amino acid analyzer for bioproduction continues to perform well, and we remain on pace to exceed last year's consumable revenue.

This quarter, we announced the launch of the Incub8 Multiwell System, our new smart microelectrode array platform designed to bring real-time monitoring to organoid and cell culture workflows with precise environmental control. Incub8 further strengthens the growth of our existing electrophysiology portfolio by expanding our reach into high-throughput applications, including drug screening, safety pharmacology and disease research modeling research. Initial customer response has been positive as we have already received orders and shipped our first system.

In addition, we expanded our distribution agreement with Fisher Scientific, significantly broadening access to Harvard Bioscience products across North America. This partnership deepens our commercial reach within academic and pharmaceutical research markets and enhances visibility for our full portfolio, particularly our cellular and molecular technology products through one of the most trusted laboratory distribution channels in the world.

Adoption of our Mesh MEA organoid platform continues to build momentum, supported by regulatory initiatives promoting new approach methodologies. On our capital structure, we continue to make constructive progress and remain in active discussions with our lenders and advisers regarding our assessment of the potential options and proposals that we have received.

The process remains on track to complete the refinancing or repayment of the existing credit agreement in the fourth quarter. Our operating performance and consistent cash generation have improved our position as we move toward completion. The management team and the Board of Directors are aligned and remain committed to strengthening the balance sheet and positioning the business for long-term success.

NIH funding for the 2025, 2026 budget is taking shape. We're also monitoring the ongoing government shutdown, which may impact the timing of NIH funding distribution. In the coming weeks, we'll have more clarity.

In China, orders were flat sequentially. The most recent developments in trade talks late last week give us optimism that the worst of the tariff disruption is behind us, and we'll see increased activity moving forward. We also saw a strong uptick in order volume in Europe, contributing to our increased backlog heading into the fourth quarter.

Looking ahead, we anticipate continued momentum in the fourth quarter as product adoption and the demand uptick support revenues into the end of the year. Our priorities continue to be financial discipline, driving demand in our high-value products and strengthening our capital structure.

Harvard Bioscience is a fundamentally stronger company today than it was to start the year, leaner, more focused and better aligned with long-term growth opportunities. Our third quarter results demonstrate solid improvement over the first half of the year, and we look forward to continued improvement heading into 2026. I'm proud of our team's progress and grateful for the continued partnership of our customers, shareholders and employees. We appreciate your support as we continue to execute our plan.

And with that, I'll turn it over to Mark, who will go into more detail on the financials. Mark?

Thank you, John. I'll start my remarks with our third quarter 2025 financial results, the details of which can be found on Slide 4 of the earnings presentation that we posted to our IR site. Revenue was $20.6 million at the high end of our $19 million to $21 million guidance and below the $22 million we reported in the prior year's third quarter. Gross margin was 58.4% versus 58.1% in the third quarter of 2024 and exceeded our guidance of 56% to 58%. Operating expenses declined $1.4 million from prior year, driven by actions taken in 2024 and the first quarter of 2025 to: one, move to one U.S. ERP system; two, lean out our SG&A organization; and three, reprioritize NPI projects. These actions led to an improvement in adjusted operating income of $1.5 million versus $0.8 million in quarter 3 '24. Adjusted EBITDA was $2 million versus $1.3 million in quarter 3 '24, with the major driver being the reduction in operating expenses, which more than offset the volume impact from the lower year-over-year revenue.

Now looking at Slide 5, I will outline the revenue results for the quarter by product family and region. Overall revenues in the third quarter showed a slight increase from quarter 2, finishing at $20.6 million compared to $20.5 million in the prior quarter '25. Notably, this is a positive trend as we historically see a decline from quarter 2 to quarter 3.

Now turning to the geographical results, starting with the Americas. Revenue in the third quarter increased sequentially by 3.6% and was down 4.4% versus the third quarter of last year. As shown in the light blue on the slide, CMT saw sequential and year-over-year decline. Our preclinical sales increased sequentially and year-over-year due to increases in telemetry and respiratory product lines.

Now moving on to Europe. Overall revenue in Europe in the third quarter increased 0.3% sequentially, reflecting stronger preclinical academic shipments. Compared to quarter 3 last year, European revenues were essentially flat. Cellular and molecular sales decreased sequentially 0.7% and year-over-year 13%. Now our quarter 3 preclinical sales increased sequentially and year-over-year.

Now moving to China and the Asia Pacific. In the third quarter, we saw improvement in APAC, excluding China. With China, revenue was down sequentially 6.3% and year-over-year 19.6%. With last week's news, we expect tariff headwinds to subside going forward. Now cellular and molecular APAC products were flat sequentially and decreased year-over-year. Preclinical APAC products also declined sequentially and year-over-year.

Now I'll move to Slide 6 to discuss further financial metrics. Looking at gross margin first. Gross margin during quarter 3 2025 was 58.4% compared to 58.1% in quarter 3 2024 and up 200 basis points sequentially from 56.4% in quarter 2 '25 despite the flat revenue. The gross margin expansion compared to last year quarter 3 was mainly due to better absorption of fixed manufacturing overhead costs and the leading out of our manufacturing cost structure. The sequential margin increase was due to improved mix of higher-margin revenue, in particular, telemetry as well as better absorption of fixed manufacturing overhead costs.

Now if you refer to the top right graph, our adjusted EBITDA during quarter 3 increased to $2 million versus $1.3 million in last year's third quarter. Compared to the prior year, lower gross profit of $0.7 million was fully offset by the $1.4 million reduction in operating expense.

And moving to the bottom left, where we show both reported and adjusted loss earnings per share. As I've mentioned in the past, typically, the difference between GAAP EPS and adjusted EPS are the impact of stock compensation, amortization and depreciation. These differences between net loss and adjusted EBITDA are highlighted in the reconciliation tables on Slide 10 and are all noncash items.

Now moving to the bottom middle graph. year-to-date cash flow from operations was strong at $6.8 million compared to negative $0.3 million in the same period with $1.1 million of operating cash generated in the third quarter. The primary drivers for the improved cash flow from operations were working capital management and operating expense reductions. We expect to see positive operating cash again in the fourth quarter.

Now net debt was down over $6 million from year-end '24 to $27.5 million from $33.8 million. This reflects our quarterly principal payment of $1 million and improved operating cash flow.

Now with respect to our credit facility, as John noted, we have made progress or in the process of reviewing the multiple proposals we have received. We are negotiating towards the most favorable deal for our company and our shareholders, and we expect to have resolution within the fourth quarter. We will provide more information when we are able to.

Now I'll now move to Slide 8 to discuss our outlook for quarter 4. A key factor supporting our guidance is mid-single-digit order growth in the third quarter year-over-year and 4 consecutive months of year-on-year growth. This result has positioned the company with our strongest backlog since the first quarter of 2023. We are guiding to a range of $22.5 million to $24.5 million revenue, resulting in potentially flat revenue for the fourth quarter at the high end of the range. The lower end of the range reflects the potential risk of a prolonged U.S. government shutdown lasting through year-end. Now we expect a corresponding improvement in gross margin in quarter 4 from the higher volume and are guiding to a gross margin range of 58% to 60%. Improved demand and a strong backlog support our confidence to project continued sequential improvement in the fourth quarter.

And I'll now turn the call back to our operator to take questions.

Our first question comes from Lucas Baranowski with KeyBanc Capital Markets.

This is Lucas on for Paul Knight at KeyBanc. First off, when we look at the uptick that was seen in preclinical systems during the quarter, was that primarily driven by CROs gearing up to run more studies? Or was it some other factor that was driving the uptick?

Thank you for the question. We benefited from broad uptick in demand for our telemetry products, and it was not just in one region, it was across regions as well as across different customer groups.

Excellent. And in the press release, you had a comment about backlog being the highest in 2 years. When you look at that backlog, would you say the mix is similar to your existing product mix? Or is there a product like, say, Mesh MEA that's a disproportionate percentage of it?

Yes, Lucas, as John indicated, we had broad-based increase in orders across geographies and products. And we did see an improved benefit from all the NPIs we've launched in this year. So -- but it wasn't one specific product or region that drove the backlog. It was just uniform increase across our geographies and products.

Excellent. And then maybe just one final question. Some of the larger tools companies have noted that they're seeing early signs of improvement in the academic and government market. What are you seeing on that front?

Yes, we have seen improvement, which is reflected in our Q3 results as well as in our strong backlog going into Q4. Now as we -- as Mark has stated regarding our guidance for the fourth quarter, some academic institutions are dependent upon NIH funding. And we have planned in our guidance depending upon how long the government shutdown goes and how that will flow through to our Q4 results.

Our next question comes from Bruce Jackson with The Benchmark Company.

If we could just dive into the NIH funding a little bit more. So the guidance, do you -- are you contemplating an end of the government shutdown during the fourth quarter?

Yes, Bruce, this is Mark. We have built in to the lower range that if it does go to the year-end, that would be the potential benchmark, no pun intended, benchmark we would get to in the quarter. So we have assumed some impact from that in our guidance, Bruce.

Okay. And then if the funds don't get released in the fourth quarter, then would you anticipate getting that -- those funds flowing through sales in the first quarter of next year?

Yes, Bruce, yes, as you probably well know, the funds are not lost. It's a timing impact that it just moves out of quarter 4 into '26. So we would expect the orders. And depending when the orders come in, it would come in, in first quarter or second quarter next year.

And then last question on NIH. Do the customers have visibility on the funding? So do you feel like you've got good line of sight on the projects and that the customers also have line of sight on the funding?

It's customer-dependent. I mean, some customers have shared with us that there's no one even to talk to at the NIH right now. And so they're still trying to get visibility, whereas others do have visibility and they're just waiting for their funds to be released.

Okay. Great. And then if I may, just one question on the ERP project. Where are you in that project right now? And how should we be thinking about either the spending for additional ERP work or the flow-through from the benefits?

Yes. We actually finished the project in quarter 4 and moved to one U.S. platform. We actually did the same thing in Europe, which I didn't mention, and that was completed in quarter 4. So the benefits have started to roll through both our manufacturing side and our G&A side in '25, and it's contributing to why we've been able to reduce the expenses this year, Bruce.

There are no further questions at this time. This concludes our question-and-answer session. You may now disconnect. Everyone, have a great day.