Britain's James Ward was beaten 7-5 6-7 (4-7) 6-3 at the Zagreb Indoors tournament by fifth-seed Andreas Seppi.
The Italian came back from 2-0 down to win the first set over the British number two, then blew a 4-2 lead in the second.
In the third, Seppi overcame another break in serve to win.
It's the Italian's eighth victory of the year and follows a fourth-round run at the Australian Open, which included a win over Roger Federer.
Ward, 27, is currently ranked 109th in the world tour rankings.