Harvard Bioscience, Inc. Aktie

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.

Good day, and welcome to the Second 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 Second 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 today in 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-K 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 Mark. Mark, please go ahead.

Thank you, Taylor. Before discussing our results, I'd like to welcome John, our recently appointed President and CEO. John has significant experience in leading and growing businesses in the life science industry, and I along with the entire Harvard Bioscience team, look forward to working with him to achieve our goals. I will turn it over to him after my remarks, so he can walk through his initial observations and the key priorities that we are focused on.

I'll now move to our second quarter 2025 financial results, the details of which can be found on Slide 3 of the earnings presentation that we posted to our IR site. On Slide 3, revenue was $20.5 million, below $23.1 million in the prior year, but ahead of our guidance of $18 million to $20 million, primarily because of higher Chinese shipments.

Gross margin was 56.4% versus 57.2% in 2024 and was towards the high end of our guidance of 55% to 57%. Operating expenses declined $2 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 our NPI projects. This led to an improvement in adjusted operating income of $1 million versus $0.8 million in quarter 2 '24.

Quarter 2 adjusted EBITDA was $1.5 million versus $1.3 million in quarter 2 '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 4, I will outline the revenue results for the quarter by product family and region.

Overall revenues in the second quarter showed a slight decline from quarter 1, finishing at $20.5 million compared to $21.8 million in the prior quarter. Now turning to the geographical results, starting with the Americas. Revenue in the second quarter declined sequentially by 5.4% and were down 11.7% versus revenues in the second quarter of last year. As shown in the light blue on the slide, CMT had sequential growth driven by MEA's organoids.

The year-over-year decreases were caused primarily by a lack of budget clarity for academics and NIH. Our preclinical sales declined sequentially and year-over-year due to lower academic sales related to the aforementioned budget clarity challenge for NIH academics.

Now moving on to Europe. Overall revenue in Europe in the second quarter increased 9% sequentially, reflecting stronger academic shipments. Compared to last year's Q2, European revenues were largely flat. Cellular and Molecular sales increased sequentially and was flat year-over-year. Our quarter 2 preclinical sales increased sequentially and year-over-year, driven by higher pharma sales.

Now moving to China and the Asia Pacific, which has been negatively impacted by macro uncertainty over tariffs. Overall, in the second quarter, APAC revenue was down both sequentially and year-over-year by over 25% due in large part to the tariff situation with China. Orders and shipments halted in April, but gradually returned to more normal behavior after the tentative agreement of a 10% tariff level.

Cellular and Molecular APAC products declined sequentially and year-over-year. Preclinical APAC products also declined sequentially and year-over-year due to tariffs.

Now I'll move to Slide 5 to discuss further financial metrics. Looking at gross margin first. Gross margin during quarter 2, 2025 was 56.4% compared to 57.2% in quarter 2, 2024, but up 40 basis points from the 56% in the prior quarter despite the lower revenue. The gross margin decline compared to last year quarter 2 was mainly due to lower absorption of fixed manufacturing overhead costs on a reduction in volume.

The sequential margin expansion was due to actions we took to reduce the manufacturing organization for the expected lower revenue volume. Now if you refer to the top right graph, our adjusted EBITDA during quarter 2 increased to $1.5 million versus $1.3 million in last year's second quarter. Compared to the prior year quarter 2, reduced gross profit of $1.7 million was fully offset by lower operating expenses of $2 million.

Now moving to the bottom left, where we both show -- where we show both reported and adjusted loss earnings per share. As mentioned in the past, I'll remind you that typically, the differences between GAAP EPS and adjusted EPS is 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 operations were strong at $5.7 million compared to $0.6 million in the same period with $2.8 million of operating cash generated in the second quarter. The primary driver for improved cash flow from operations was working capital management progress from both AR and inventory as well as operating expense reductions.

Net debt was down over $4 million from year-end to $27.9 million from $32 million. This reflects our quarterly principal payment of $1 million and improved operating cash flow. Now with respect to our credit facility, we negotiated an amendment with our bank group. Key elements of the agreement are: first, an extension of refinance timing to December 5, close to the maturity date of the facility.

Waiver default on refinancing milestones and financial covenants relating to leverage, fixed interest coverage. Thirdly, elimination of testing of financial covenants for quarter 3, except for liquidity, which is now $3 million; and fourth, an increase in the SOFR adder to 700 basis points and an amendment fee of 100 basis points, which is primarily paid once debt is repaid.

We believe the extension provides us with sufficient time to identify and execute a transaction to refinance and pay down the existing debt. More detail is provided in the 10-Q, which will be filed after market today. I'll now move to Slide 7 to discuss our outlook for quarter 3. Now supported by our second quarter revenue performance as well as a strong start on orders in the third quarter, we are guiding to a range of $19 million to $21 million of revenue.

With that, we expect a corresponding improvement in gross margin from the higher volume and are guiding to a gross margin range of 56% to 58%. This guidance shows our continuous progress in stabilizing our business as well as our prudent financial discipline. I'll now turn the call over to John. John?

Thanks, Mark. Good morning, and thank you for joining us today. I'm pleased to be speaking to you for the first time since my recent appointment as President and CEO. On behalf of our Board of Directors and the entire workforce, I would like to thank Jim Green for his leadership and many contributions he's made to the company during the past 6 years.

Let me start by sharing how encouraged I am by what I've seen since stepping into the role 2 weeks ago. Harvard Bioscience has a strong operating team, a culture committed to advancing science and an innovation pipeline that positions us well for long-term growth. Since joining the company, I've actively engaged with employees, customers and partners with the goal of aligning the organization around a clear set of priorities.

Our focus for the remainder of 2025 is clear. Number one, maintain financial discipline by continuing to deliver cost efficiencies and generate positive cash flow. Number two, accelerate product adoption by leveraging our strong product portfolio to position the company for long-term growth; and number three, strengthen our capital structure by completing the refinance process to invest in our future growth.

As Mark indicated in his remarks, we made progress in each area during the second quarter. First, on maintaining financial discipline. The fundamentals of the business remain intact as we delivered second quarter revenue results of $20.5 million, which was above our guidance of $18 million to $20 million. We reported gross margin of 56.4%, reduced operating expenses and managed our costs. These efforts resulted in $1.5 million of adjusted EBITDA and $2.8 million of operating cash flow.

Looking ahead, our third quarter guidance of $19 million to $21 million of revenue and 56% to 58% gross margin reflects continued financial discipline. With respect to how macro conditions may impact our operations, NIH funding delays continue to extend academic purchasing cycles. But budgets remain in place, and we expect improvement into 2026 as procurement normalizes.

As for tariffs, uncertainty remains in the market, but we believe the worst is behind us. We executed well in Q2 and are optimistic that greater clarity will emerge in the second half of the year. Second, on accelerating product adoption. Our new product pipeline covers multiple high-growth platforms. We began shipments of the SoHo Telemetry platform, adding cardiac and neuromonitoring capabilities.

We progressed our VivaMARS automation pilot with Labcorp, opening new CRO opportunities. We achieved a key milestone in BTX bioproduction with $1 million in consumable revenue with additional applications underway. And we continue to expand adoption of our Mesh MEA organoid platform, driven by regulatory support for alternative testing methods and strong interest from academic, CRO and biopharma customers.

All this positions us for future growth in high-value markets with structural tailwinds. Third, on our capital structure. As Mark noted, we entered into an amendment to our credit agreement. This reflects our commitment to strengthening the balance sheet and positioning the business for long-term success. Our priority is to restructure our debt obligations and use our balance sheet to invest in the growth of our business. This amendment provides us with additional time to continue working towards that goal.

In closing, 2025 remains a pivotal year focused on execution and financial discipline. Our priorities are to continue to stabilize our core business and restructure our balance sheet to build sustainable sales and profitability. I'm confident this will position us for revenue growth and margin expansion in 2026 and beyond. I truly appreciate your continued support and look forward to engaging with you going forward.

I'll now turn the call over to the operator so we can take your questions.

Our first question comes from Paul Knight with KeyBanc.

You have until December 5 on a refinance. What do you expect -- what's total debt going to be at that point in time?

Sure, Paul. We would expect to continue to pay down the debt, which is $1 million a quarter. So our debt would likely be around $33 million at that point in time.

Okay. And I'm guessing terms are pretty much what would it be like BB, B type terms?

Yes. To answer that question, that would be our expectation. We think the environment may be slightly improved in view of our better results and seeing more clarity on the macro front from a tariff and NIH standpoint.

And regarding the NIH, it does seem like we may get reprieve like the first year of the Trump administration. And if the budget is actually up 80 bps like the Senate committee may want. What do you think happens? Is there going to be a budget burn through October of this year after a September recess -- this recess is over, and we might have a bill in September? Or do you think that kind of NIH outlay while it improves, would be extending into early next year? What are your thoughts around how a better budget could unfold at NIH?

I think there's a lot of different scenarios how things could unfold at NIH. We -- what we have seen is that the academic purchasing cycles have been extended, but the budgets remain in place. I mean, clearly, government -- sales to government NIH are a reasonable portion of our business in the United States. And if things were to improve into 2026, that would clearly benefit our business. But we have a cost structure in place today, which we feel good about, such that if there were no significant changes, we would be able to manage our business well.

And last would be what's your China exposure today? What -- and again, what did China do in the quarter?

Sure, yes. The China business is about 10% of our revenue. And as I indicated on the call, it did go almost to 0 in April, but we're now back to more normal run rate as we saw in '25. And if we stay at the 10% tariff, that would be our continued expectation.

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

Just to follow up on the NIH questions. Do you have any sense of whether or not there could be any changes to the types of projects getting funded and how you're positioned? So for example, you've got a neuroscience platform that looks really interesting. And do you think that, that could get a boost under the new budget in 2026?

We do have a strong neuroscience platform and specifically our Mesh MEA towards organoids. We would be encouraged clearly, if the NIH budget when it is released for 2026, if there's an emphasis in that there, that would definitely enhance some of our products, which are in the new product portfolio.

Okay. And then also to follow up on China. So you said we've got some sense of clarity on the macro and some stability with regard to tariffs. Are there any other macro factors that you're watching right now in order to gain a higher sense of confidence in the forward macro?

Sure. I'll take that, Bruce. It's Mark. It's a good question. The one open area is the European tariffs. And right now, we can all see we're at 15%, but we are seeing some volatility still in some of the other countries. I think -- we have to see if that settles out. I think the one thing for our business is we do have a number of European operations. So we do have additional options to move country of origin if that holds true or if there's further volatility on the European side.

Okay. Okay. Great. And then last question, getting back to the Mesh MEA products. You've been working with some academic institutions, hoping maybe to get some publications going. Anything to look forward to in the next couple of quarters?

Well, there is a big show, the Society of Neuroscience in November. And at that show, you'll see some information, which we're going to be sharing and look forward to those academic results.

I'm showing no further questions at this time. This does conclude the program. You may now disconnect. Everyone, have a great day.