Precipio (PRPO) Q3 2025: EBITDA Turns Positive as Gross Margins Rise to 46%
Precipio’s inflection to positive adjusted EBITDA and operational cash generation this quarter marks a pivotal shift from survival mode to strategic reinvestment. Both pathology services and products divisions contributed to double-digit revenue growth, while disciplined cost control and targeted infrastructure investments underpin expanding gross margins. With financial independence secured, management is now focused on leveraging internal cash flows to accelerate growth and enhance competitive agility.
Summary
- Profitability Milestone Achieved: Precipio’s transition to positive EBITDA and cash flow signals a new strategic era.
- Margin Expansion Driven by Scale: Pathology services margin gains highlight operational leverage and disciplined capacity investment.
- Growth Reinvestment Priority: Management is reallocating internally generated resources to fuel further market share gains.
Performance Analysis
Precipio delivered a breakout quarter, achieving positive adjusted EBITDA for the first time in company history and generating over $285,000 in operational cash flow. Total revenue reached $6.8 million, up 30% year-over-year and 20% sequentially, with both the pathology services and products divisions contributing to sustained double-digit growth. Pathology services, the company’s primary revenue engine, recorded a $1 million sequential increase, with new customers driving the majority of this growth. Notably, this expansion occurred without a corresponding rise in fixed costs, allowing gross margin for the division to climb from 43% to 46%.
The products division posted 16% sequential growth, supported by increased utilization from existing customers and the successful launch of new panels. While the division’s gross margin temporarily dipped from 44% to 30% due to strategic investments in lab space and technical support, management emphasized these are foundation-building costs designed to unlock future scalability. Overall, company-wide gross margin improved to 44%, with management projecting continued margin expansion as both divisions scale on existing infrastructure.
- Pathology Services Volume Leverage: Margin expansion reflects efficient absorption of higher case volume without incremental fixed cost escalation.
- Products Division Growth: Existing customer expansion and new panel launches are deepening revenue streams despite short-term margin impact from growth investments.
- Cash Generation Inflection: The swing from cash burn to operational cash generation underscores a structural shift in Precipio’s business model.
These results mark a definitive move from capital dependence to self-sustaining growth, positioning Precipio to reinvest in targeted market share acquisition and operational agility.
Executive Commentary
"For the first time in our company's history, we've achieved positive adjusted EBITDA of nearly half a million dollars, and perhaps even more importantly, we generated over a quarter million dollars of cash from operations. That's not just a financial achievement. It's a validation of our long-term strategy, our disciplined execution, and the incredible dedication of our team. It also begins the transformation of our team's approach and mindset. To use a sports analogy, we're now moving from defense to offense."
Landon Yelly, CEO
"We are two months away from completing our full repayment of changed healthcare, which is $240,000 a quarter, meaning that starting in Q1 2026, cash generated from operations will stay with the company. These results show that we've crossed an important threshold. Number one, we're no longer dependent on outside capital to operate our business and can grow organically. We are now a self-sustaining business and can fuel our own growth."
Landon Yelly, CEO
Strategic Positioning
1. Pathology Services as Core Growth Engine
Precipio’s pathology services division, which now operates at a new revenue baseline of $2 million per month, is the principal driver of both revenue and margin expansion. The division’s ability to win new customers from larger competitors, thanks to personalized service and agility, is translating into sustained top-line growth and improved gross margins.
2. Products Division Scaling Through Customer Engagement
The products division is leveraging deepening customer relationships and new panel launches to drive sequential growth. Recent investments in lab space separation and technical onboarding support are designed to reduce customer time-to-revenue and lay the groundwork for scalable expansion, even as these costs create short-term margin dilution.
3. Distribution Network Emergence
While internal direct sales remain the primary revenue source, the distributor channel is beginning to deliver a meaningful sales funnel. Increased engagement with distributor reps and targeted customer proposals are building a recurring revenue base that management believes will be instrumental for scalable growth going forward.
4. Margin Expansion Through Operating Discipline
Disciplined cost control and infrastructure investments are enabling Precipio to expand gross margins even as volumes rise. The company expects to exceed the 50% gross margin mark by mid-2026 as both divisions scale with minimal incremental overhead required in the next 12 to 24 months.
5. Capital Allocation Shift to Growth Initiatives
With financial independence secured, management is reallocating internally generated cash toward growth investments, market share acquisition, and operational agility. This strategic shift is expected to accelerate Precipio’s competitive positioning and open new partnership opportunities.
Key Considerations
This quarter marks a structural transition for Precipio, as management pivots from break-even focus to proactive growth investment, enabled by operational cash generation and expanding margins.
Key Considerations:
- Scalability of Core Divisions: Both pathology services and products divisions are positioned to scale further on existing infrastructure, supporting margin expansion and operating leverage.
- Distributor Channel Ramp: Early signs of distributor network traction suggest a path to more scalable, recurring revenue beyond direct sales.
- Short-Term Margin Impact from Strategic Investments: Temporary margin compression in the products division is a deliberate tradeoff for future growth capacity and faster customer onboarding.
- Capital Structure Evolution: With debt repayments concluding soon, all operational cash flow will be available for reinvestment or strategic flexibility starting in Q1 2026.
Risks
Precipio’s rapid pivot to self-funded growth introduces new execution risks, particularly around scaling operations without incremental overhead and ensuring distributor channel productivity matches expectations. Margin expansion is contingent on volume growth outpacing fixed cost investments, and competitive pressure from larger labs remains a persistent threat. Any slowdown in customer conversions or distributor ramp could impact growth and margin trajectories.
Forward Outlook
For Q4 2025 and into 2026, Precipio’s management outlined these priorities:
- Continue double-digit revenue growth in both pathology services and products divisions
- Expand company-wide gross margins, targeting 50% by mid-2026
- Reinvest internally generated cash into growth initiatives and operational agility
- Enhance market liquidity and share price through increased investor engagement
Management emphasized that no additional overhead is anticipated for the next 12 to 24 months and that the company will be fully self-sustaining post-debt repayment, enabling further strategic flexibility.
Takeaways
Precipio’s Q3 marks a structural turning point, with profitability and cash generation establishing a foundation for accelerated, self-funded growth.
- Profitability Inflection: The shift to positive EBITDA and operational cash flow validates Precipio’s disciplined execution and sets the stage for strategic reinvestment in growth.
- Margin Expansion Path: Operating leverage in pathology services and targeted investments in products position the company for sustained gross margin improvement as volumes scale.
- Growth Levers to Watch: Investors should monitor the pace of distributor channel ramp, customer onboarding velocity, and the ability to maintain margin expansion as revenue grows.
Conclusion
Precipio’s transition to profitability and internal cash generation marks a new era of self-determined growth and strategic agility. The company’s disciplined investments in infrastructure and customer support are positioning it to scale efficiently, with management’s focus now firmly on market share expansion and operational leverage.
Industry Read-Through
Precipio’s ability to achieve profitability at a relatively modest revenue base is a notable outlier in the diagnostics sector, where many peers remain unprofitable despite larger scale. The company’s operational discipline and focus on customer-centric service over commoditized volume signal a shift in competitive dynamics, as smaller, agile players can win share from entrenched incumbents. The emerging distributor-driven growth model highlights the importance of channel leverage and customer onboarding efficiency across diagnostics and broader medtech segments. Investors in the diagnostics space should closely track margin expansion strategies and scalability of infrastructure investments as key differentiators for sustainable value creation.