Q1 2024 Fortrea Holdings Inc Earnings Call - Q&A

Okay.

Unknown Executive: Ladies and gentlemen, thank you for standing by. Welcome to Fortrea's First Quarter 2024 Earnings Conference Call.

Speaker Change: Ladies and gentlemen, thank you for standing by welcome to for Korea first quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.

Unknown Executive: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you would need to press star 11 on your telephone. You would then hear an automated message advising that your hand is raised.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

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Speaker Change: Today's conference is being recorded I would like now to turn the conference over to your speaker today have my into the head of Investor Relations and corporate development. Please go ahead.

Unknown Executive: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Hima Inguva, Head of Investor Relations and Corporate Development. Please go ahead.

Hima B. Inguva: Good morning, and thank you for joining Fortrea's first quarter 2024 Earnings Conference call. I am Hima Inguva, Head of Investor Relations and Corporate Development at Fortrea. On the call with me today are our CEO, Tom Pike, and CFO, Jill McConnell.

Heidi Joy: Good morning, and thank you for joining for T. S first quarter 'twenty 'twenty four earnings conference call I am he might enjoy head of Investor Relations and corporate development and talk to you on the call with me today are our CEO, Tom Pike, and CFO Mcconnell the colleagues being the captain and the slides accompanying today's presentation have been posted to the Investor Relations website.

Hima B. Inguva: The call is being webcast, and the slides accompanying today's presentation have been posted on the Investor Relations website, Fortrea.com. During this call, we'll make certain forward-looking statements within the meaning of the Private We strongly encourage you to review the reports we filed with the SEC regarding these risks and uncertainties, in particular those that are described in the cautionary statement concerning forward-looking statements and risk factors in our press release and presentation that we posted on the website.

Well to your Dot com.

Heidi Joy: During this call will make certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations.

Heidi Joy: Strongly encourage you to review the reports we filed with the SEC regarding these risks and uncertainties in particular those that are described in the cautionary statement concerning forward looking statements and risk factors in our press release and presentation that we posted on the website. Please note that any forward looking statements represent our views as of today March 13th 2020.

Hima B. Inguva: Please note that any forward-looking statements represent our views as of today, March 13, 2024, and that we assume no obligation to update the forward-looking statements, even if estimates change during this call. We'll also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or replacements for the comparable GAAP measures, but we believe these help investors gain a more complete understanding of our results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. With that, I'd like to turn it over to our CEO, Tom Pike. Tom?

Heidi Joy: And that we assume no obligation to update the forward looking statements. Even if estimates change. During this call will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or replacement for the comparable GAAP measures, but we believe these help investors gain a more complete understanding of our results.

Heidi Joy: Conciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call that I'd like to turn it over to our CEO Tom Pike Tom.

Thomas H. Pike: Good morning. I appreciate everyone joining us this morning. We have a good deal of ground to cover, so let's get into it. In summary, the environment for and reception of Fortrea's clinical services offerings remains strong and is good enough to meet our growth ambitions. Post-spin book-to-bills are adequate for growth so far, and our pipeline is good. However, revenues are returning more slowly than planned, and we're addressing that

Thomas H. Pike: Good morning, I appreciate everyone. Joining this morning, we have a good deal of ground to cover so let's get into it.

Thomas H. Pike: In summary, the environment for and reception of portray as clinical services offerings remains strong and is.

Thomas H. Pike: Good enough to meet our growth ambitions.

Thomas H. Pike: Spin book to bills are adequate for growth, so far and our pipeline is good.

Thomas H. Pike: Revenues are returning more slowly than planned and were addressing it there.

Thomas H. Pike: The rest of our transformation is on track. The work we're doing transforming the business is building momentum for 2025. We expect to be beyond the complexities of the spin and historical challenges. So let's dive deeper into the growth environment.

Thomas H. Pike: Rest of our transformation is on track.

Thomas H. Pike: Work, we're doing transforming the business is building momentum for 2025, we expect to be beyond the complexities of the spin and historical challenges.

Thomas H. Pike: Let's dive deeper into the growth environment the.

Thomas H. Pike: The Drug Development Landscape Remains Attractive. Biotech funding had a nice first quarter, leading to optimism for the sector, which is good for CROs. The demand for Fortrea's services is good and improving.

Thomas H. Pike: The drug development landscape remains attractive.

Thomas H. Pike: Biotech funding had a nice first quarter, leading to optimism for this sector, which is good for crows the.

Thomas H. Pike: The demand for <unk> services is good and improving at <unk>. We are building a distinctive CRO, that's agile and innovative to help our customers with drug development.

Thomas H. Pike: At Fortrea, we are building a distinctive CRO that's agile and innovative to help our customers with drug development. My leadership team and I have spent a lot of time with customers this quarter, and customers are responding well. We're spending time on and improving how we interact with customers of all sizes. We call this our commercial transformation.

Thomas H. Pike: Leadership team and I have spent a lot of time with customers this quarter and customers are responding well.

Thomas H. Pike: Spending time on and improving how we interact with customers of all sizes, we call. This our commercial transformation.

Thomas H. Pike: But the positive response is also due to the investments we're making. Our opportunity pipeline has grown versus the prior quarter, both in terms of quantity of mid single-digits and up solid double digits on a dollar value basis across the clinical business. We are seeing some potential for new or expanded relationships with larger firms. We've had some very attractive wins since we spun out, and interesting ones this quarter. Let me share a few examples of some wins. We won a large phase two neuroscience study with a large pharma customer. This award was meaningful both for its size and patient impact, spanning North America, Europe, and Asia-Pacific.

Thomas H. Pike: But the positive response is also due to the investments we're making.

Our opportunity pipeline has grown versus the prior quarter. Both in terms of quantity up mid single digits and up solid double digits on a dollar value basis across the clinical business.

We're seeing some potential for new or expanded relationships with larger firms.

Thomas H. Pike: We've had some very attractive win since we spun and interesting ones this quarter.

Speaker Change: Let me share a few examples of some wins.

Speaker Change: We won a large phase two neuroscience study with a large pharma customer. This award was meaningful both for its size and patient impact spanning North America, Europe, and Asia Pacific This award and others confirm that our continued investment and commitment to expanding our neuroscience therapeutic area is working.

Thomas H. Pike: This award and others confirm that our continued investment and commitment to expanding our neuroscience therapeutic area is working. We're known for our experience in oncology, and we're earning repeat business. We were awarded a large oncology program by a mid-sized pharma company based on our delivery of its first oncology molecule. We have good access to and large scale to large and mid-sized pharma who understand the advantages of our ideal scale. In clinical pharmacology, we were awarded the largest study since Dr. Oren Cohen joined about seven years ago to lead this business. The award was based on our medical and scientific expertise in a sophisticated, exciting therapeutic area.

Speaker Change: We're known for our experience in oncology and we're earning repeat business.

Speaker Change: We were awarded a large oncology program by midsized Pharma company based on our delivery of its first oncology molecule.

Speaker Change: We have good access to and large to large and mid sized pharma, who understand the advantages of our ideal scale.

In clinical pharmacology, we were awarded the largest studies since Dr. Oren Cohen joined about seven years ago to lead. This business. The award was based on our medical and scientific expertise and a sophisticated exciting therapeutic area. Dr. Cohen is leading from the front with customers.

Thomas H. Pike: Dr. Cohen is leading from the front with customers. There are two other things I should highlight before I move on from our demand situation. First, I want to share that we're at the table in some key partnering discussions. We need to show success this year on these kinds of opportunities to meet our goals. We were already being viewed differently than in the past, competitive with the larger CROs. Second, while the Fortrea brand is relatively young, our pipeline and mix of opportunities is attractive and growing.

Speaker Change: Other things I should highlight before I move on from our demand situation.

Speaker Change: First I want to share that we're at the table and some key partnering discussions we need to show success. This year on these kinds of opportunities to meet our goals.

Speaker Change: We're already being viewed differently than in the past competitive with the larger Crows second while the <unk> brand is relatively young our pipeline and mix of opportunities is attractive and growing our plans are to make the pipeline larger as the brand becomes more widely known.

Thomas H. Pike: Our plans are to make the pipeline larger as the brand becomes more widely known. This quarter, we continue to advance our differentiation in the market. Our Site Advisory Board has grown in membership and globality, providing us with insights that we're applying to improve site performance for customers. Our customers are responding well to our technology, data partnering, and innovation.

Speaker Change: This quarter, we continued to advance our differentiation in the market. Our site Advisory Board has grown in membership and <unk>, providing us with the insights that we are applying to improve site performance for customers. Our customers are responding well to our technology and data partnering and innovation. In addition to these investments and differentiation.

Thomas H. Pike: In addition to these investments in differentiation, we kicked off additional efforts to improve operational effectiveness and operating margins over time. We're excited about these improvements and believe they will also translate into a better experience for our customers. We remain committed to bringing the Fortrea margins in line with peers.

Speaker Change: We kicked off additional efforts to improve operational effectiveness and operating margins over time.

Excited about these improvements and believe they will also translate into a better experience for our customers we remain.

Speaker Change: Committed to bringing the margins for Korea in line with peers.

Thomas H. Pike: While we fell short of our targeted book-to-bill of 1.2 for Q1, I'm still pleased that we're averaging over 1.2 book-to-bills since we spun out, with a good mix. Note that I've said our commercial transformation will take a year. As we told you in January, we had a tough start to the quarter, and we hoped we could still deliver on our target on our last call.

Speaker Change: While we fell short of our targeted book to Bill of one two for Q1 I am still pleased that we're averaging over one two book to Bill since we spun with good mix note that I've said, our commercial transformation will take a year.

Speaker Change: As we told you in January we had a tough start to the quarter and we hope we could still deliver on our target on our last call.

Speaker Change: Unfortunately, a couple of transactions made the difference.

Thomas H. Pike: With Q1 behind us, given the size and quality of our pipeline, we see no reason we cannot achieve a book-to-bill of 1.2 or greater in the coming quarters. As you've seen in our guidance, we believe now we will have slower revenue burn than initially forecast. Our analysis is that this is the timing.

Speaker Change: Q1 behind us given the size and quality of our pipeline. We see no reason, we cannot achieve a book to bill of one two or greater in coming quarters.

Speaker Change: As you've seen in our guidance. We believe now we will have slower revenue burn than initially forecast.

Speaker Change: Our analysis is that this is a timing issue.

Thomas H. Pike: To address this, we put a program in place to track everyone in detail and use the power of our team to accelerate from award to first patient enrolled to drive faster overall delivery. Our team is working hard to minimize the impact of less planned revenue on our organization and financials. While the top priorities are winning business, customer delivery, and getting out of these burdensome TSAs, given our situation, we're pushing even harder on expense controls and cost improvements and operations in SG&A. We continue to analyze options to improve the capital structure we inherited. We made two plan changes this quarter, which we noted in a filing on Thursday.

Speaker Change: To address this we put a program in place to track every one in detail and use the power of our team to accelerate from award to first patient enrolled to drive faster overall delivery.

Our team is working hard to minimize the impact of less planned revenue on our organization and financials.

The top priorities are winning business customer delivery and getting out of these burdensome tsa's.

Speaker Change: Even our situation, we're pushing even harder on expense controls and cost improvements in operations and SG&A.

Speaker Change: We continue to analyze options to improve the capital structure. We inherited we made two plan changes this quarter, which we noted in our filing on Thursday, our lenders are very supportive of us.

Thomas H. Pike: Our lenders are very supportive of us. We continue to methodologically work through the books and accounts we inherited from the spin. Our accounting team, with consultants, went very deep this quarter.

Speaker Change: We continue to methodologically work through the books and accounts, we inherited from the spin our accounting team with consultants went very deep this quarter, we're trying to push that spin related issues behind us.

Thomas H. Pike: We're trying to push such spin-related issues behind us. We feel confident about the progress we're making in transforming the organization and exiting TSAs. We continue to make strong progress and partner with our former parent effectively. Let me ask you to listen closely to Jill as we have a lot going on this quarter. Listen, knowing that our pipeline of opportunities is strong. We're on track with our operations and cost structure improvements. Our hardworking team expects to build momentum through the year and to be clear of spin-related tactical issues in 2025. We not only expect better results in 2025, but greater clarity, and predictability. Jill, it's over to you.

Speaker Change: We feel confident about the progress, we're making transforming the organization and exiting TSA as we continued to make strong progress and partner with our former parent effectively.

Speaker Change: Let me ask you to listen closely to Joel is we had a lot going on this quarter.

Speaker Change: And knowing that our pipeline of opportunities is strong we're on track with our operations and cost structure improvements our hard working team expects to build momentum through the year and to be clear of the spin related tactical issues in 2025, we not only expect better results in 2025.

Greater clarity and predictability Jim over to you.

Jill McConnell: Thank you, Tom. And thank you to everyone for joining us today. The company is in the process of completing its unaudited, interim, condensed, consolidated, and combined financial statements for the first quarter ended March 31st, 2024. Accordingly, the financial information included herein may be subject to further adjustments, which we would expect to be immaterial. Before covering the detailed financial elements of the quarter, I want to take a moment to reinforce some of the things we're doing to position the company for success over the medium to longer term.

Jim: Thank you Tom and thank you to everyone for joining us today the.

Jim: The company is in the process of completing its unaudited interim condensed consolidated and combined financial statements for the first quarter ended March 31 2024.

Jim: Accordingly, the financial information included herein may be subject to further adjustments, which we would expect to be immaterial.

Jim: Before covering the detailed financial elements of the quarter I want to take a moment to reinforce some of the things we're doing to position the company for success over the medium to longer term.

Jill McConnell: We're taking action to improve our capital structure. We're also making progress on our transformation program to enable us to reduce our operating expenses and to deliver projects faster and more efficiently for our customers. All of these initiatives are intended to position us to deliver the financial performance we want as we move forward. I'll provide more detail on these later. There is a fair amount to cover in my remarks, so I will take you through things in this order.

Jim: We're taking action to improve our capital structure.

Jim: We're also making progress on our transformation program to enable us to reduce our operating expenses and to deliver projects faster and more efficiently for our customers.

Jim: All of these initiatives are intended to position us to deliver the financial performance. We want as we move forward I will provide more detail on these later.

Jim: There is a fair amount to cover in my remarks, So I will take you through things in this order first financial results for the continuing operations of Victoria, including some changes to our financial reporting this quarter.

Jill McConnell: First, financial results for the continuing operations of Fortrea, including some changes to our financial reporting this quarter. Second, a brief summary of the proposed divestiture and progress towards closure. Third, recent actions we have taken to bolster our capital structure. Fourth, our progress on transformation, margin expansion, and expectations for 2025, and finally, our revised outlook for 2024. As you've seen in the press release and heard in Tom's remarks, our first quarter results primarily reflect the softness we have previously indicated relative to the mix and lower net new business awards won during the year prior to the spin in late June of last year. However, our book-to-bill for the trailing nine months since it's been is a solid 1.22 times. In this particular quarter, it fell slightly short of the 1.2 times goal we have been targeting.

Jim: Second a brief summary of the proposed divestiture and progress towards towards closure.

Jim: Third recent actions, we have taken to bolster our capital structure for our progress on transformation margin expansion and expectations for 2025, and finally, our revised outlook for 2024.

Jim: As <unk> seen in the press release and heard in Tom's remarks, our first quarter results primarily reflect the softness we have previously indicated relative to the mix and lower net new business Awards won during the year prior to the spin late in late in June of last year.

Jim: While our book to Bill for the trailing nine months since the spin is a solid one two times this.

Jim: This particular quarter it fell slightly short of the one two times goal we have been targeting.

Jill McConnell: We disclosed some risks to you earlier in the quarter, and outside of one project being rescheduled late in the quarter and one customer who decided to take a project in-house, we expect we would have achieved a 1.2 times revenue multiple for the quarter. Now for this quarter's results. This quarter, as stated previously, was expected to be the nadir of our performance due to lower sales during the spin year, and it generally came in line with the expectations we had shared.

Jim: We disclosed some risks to you earlier in the quarter and outside of one project being rescheduled late in the quarter and one customer who decided to take a project in house. We expect we would have achieved a one two times for the quarter.

Jim: Now for this quarter's results.

Jim: This quarter as stated previously was expected to be the nadir of our performance due to the lower sales during the spin here and in generally came in line with the expectations we had shared.

Jill McConnell: Our backlog, which you will recall we calculated differently post-spin to demonstrate a measure that will more appropriately signal future growth, has grown approximately 6% since the spin and 0.4% sequentially, ending the quarter at $7.4 billion. The continued spin your headwinds of lower full-service clinical sales, elevated infrastructure costs, and the resources associated with the transition services agreement have continued to weigh on our results. We expected the elevated costs, and we are making progress on exiting the TSA and working to mitigate other headwinds.

Jim: Our backlog, which you will recall, we are calculated differently post spin to demonstrate a measure that will more appropriately signal future growth has grown approximately 6% since the spin and 4% sequentially ending the quarter at $7 4 billion.

Jim: The continued spend your headwinds of lower full service clinical sales.

Jim: Elevated infrastructure costs and the resources associated with the transition services agreement have continued to weigh on our results.

Jim: We expected the elevated costs and we are making progress on exiting the TSA and working to mitigate other headwinds.

Jill McConnell: I will provide an update later on the key actions we are taking to achieve our target performance. In my remarks, and as you will see in our accompanying presentation, we are focusing on the results of continuing operations, which excludes the impact of the endpoint and patient access businesses that are intended for divestiture later this quarter. Clinical services revenues of $662.1 million declined 4.6% year-on-year.

Jim: I will provide an update later on the key actions, we are taking to achieve our target performance.

Jim: In my remarks, and as you will see in our accompanying presentation. We are focusing on the results of continuing operations, which excludes the impact of the endpoint and patient access businesses. They are intended for divestiture later this quarter.

Jim: Clinical services revenues of $662 $1 million declined four 6% year on year.

Jill McConnell: This was driven by higher pass-through revenues, which were more than offset by lower service fee revenues. The lower service fee revenues were due to the reduced quantity of new business wins prior to the spin, along with a mixed shift including studies moving to longer durations. Let me provide more detail on our cost base. As shared previously, we have recast first quarter 2024 and first quarter 2023 direct costs and SG&A expenses to be more consistent with our peer set for comparison purposes.

Jim: This was driven by higher pass through revenues, which were more than offset by lower service fee revenues.

Jim: Our service fee revenues were due to the reduced quantity of new business wins prior to the spin along with the mix shift, including studies moving to longer duration.

Jim: Let me provide more detail on our cost base.

Jim: As shared previously we have recast first quarter 2024, and first quarter 2023 direct costs and SG&A expenses to be more consistent with our peer set for comparison purposes.

Jill McConnell: We believe this will allow you to see the significant opportunity we have to improve margins post-full TSA exit by reducing our SG&A cost as a percent of revenue over time. On a gap basis, direct costs in the quarter increased 2.3% year-over-year, primarily due to higher pass-through costs and stock compensation awards.

We believe this will allow you to see the significant opportunity we have to improve margins post full TSA exit by reducing our SG&A cost as a percent of revenue over time.

Jim: On a GAAP basis direct costs in the quarter increased two 3% year over year, primarily due to higher pass through costs and stock compensation Awards.

Jill McConnell: SG&A in the quarter was lower year over year by 1.7%, due primarily to the removal of former parent corporate allocations, partially offset by the cost of stand-alone operations, TSA costs, and one-time spin costs, as well as additional stock compensation awards. The company reclassified $45.4 million from direct costs to SG&A expenses primarily related to information technology costs and certain non-clinic facility charges. For the fourth quarter, you will see SG&A as a percent of revenue at around 18%. However, it includes $17 million of one-time costs.

Jim: SG&A in the quarter was lower year over year by one 7% due primarily to the removal of former parent corporate allocations, partially offset by the cost of Standalone operation TSA costs, and onetime spin costs as well as additional stock compensation Awards.

Jim: The company reclassified $45 4 million from direct cost to SG&A expenses, primarily related to information technology costs and certain non clinic facility charges.

Jim: For the fourth quarter, you will see SG&A as a percent of revenue at around 18%. However, it contained $17 million of one time costs.

Jill McConnell: You can see that even excluding the one-time cost, there is a significant opportunity for margin expansion to reduce SG&A costs over time. Net interest expense for the quarter was $34.3 million. Turning to our tax rate. The effective tax rate for continuing operations for the quarter was negative 5.3%, primarily due to the combined effect of a forecasted pre-tax loss in 2024, given our large one-time costs, a change in the valuation allowance, and earnings mix.

Jim: You can see that even excluding the onetime costs there is significant opportunity for margin expansion to reducing SG&A costs over time.

Jim: Net interest expense for the quarter was $34 3 million.

Jim: Turning to our tax rate.

Jim: The effective tax rate for continuing operations for the quarter was negative five 3% primarily due to the combined effect of a forecasted pre tax loss in 2024, given our large onetime costs are.

Jim: Change in the valuation allowance and earnings mix.

Jill McConnell: During the first quarter, we recognized tax expense of $4.1 million in continuing operations primarily due to a forecasted valuation allowance on our deferred tax asset related to disallowed interest expense. We have plans that we expect could reduce the impact of disallowed interest expense over time. As part of our work to make enhancements to our control framework and disentangle the endpoint and patient access businesses for reporting as discontinued operations, we became aware of historical misstatements of certain financial line items which we have identified. The overall impact of these adjustments is not considered material for any given year.

Jim: During the first quarter, we recognized tax expense of $4 $1 million and continuing operations, primarily due to a forecasted valuation allowance on our deferred tax asset related to disallowed interest expense we.

We have plans that we expect could reduce the impact of disallowed interest expense over time.

Jim: As part of our work to make enhancements to our control framework and disentangle, the endpoint and patient access businesses for reporting as discontinued operation.

Jim: We became aware of historical misstatements or certain financial line items, which we have identified.

Jim: The overall impact of these adjustments is not considered material to any given year.

Jill McConnell: The adjustments, in the aggregate, would be material if all years of adjustments were made in the first quarter of 2024. In light of this, these adjustments will be recorded in a footnote to our first quarter Form 10-Q, which we plan to issue within the extended filing period. As a result of these findings, we are continuing to bolster our financial control environment. Continuing operations adjusted EBITDA for the quarter of $29.5 million decreased 29.3% year-over-year compared to adjusted EBITDA of $41.7 million in the prior year period.

Jim: Adjustments in the aggregate would be material. If all years of adjustments were made in the first quarter of 2024.

Jim: In light of this these adjustments will be reported in a footnote to our first quarter Form 10-Q, which we plan to issue within the extended filing period.

Jim: As a result of these findings we are continuing to bolster our financial control environment.

Jim: Continuing operations adjusted EBITDA for the quarter of $29 5 million decreased 29, 3% year over year compared to adjusted EBITDA of $41 7 million in the prior year period.

Jill McConnell: Adjusted EBITDA margin for the first quarter was 4.5% compared to 6% in the prior year period. Adjusted EBITDA margin in the quarter was negatively impacted by lower service-free revenues from lower awards during the pre-spin year.

Jim: Adjusted EBITDA margin for the first quarter was four 5% compared to 6% in the prior year period.

Jim: Adjusted EBITDA margin in the quarter was negatively impacted by lower service fee revenues from the lower awards during the pre spin year.

Jill McConnell: Mixed to Longer-Duration Studies, Higher PASU Revenues, and Higher SG&A Costs Post-Spin to Support Standalone Operations. These were partially offset by the benefit from the restructuring program we initiated in the third quarter of 2020. In the first quarter of 2024, adjusted net loss of $3.5 million decreased 112% compared to adjusted net income of $29.1 million in the prior year. Adjusted net loss per basic and diluted share for the quarter was $0.04 compared to adjusted net income of $0.33 in the prior year period.

Jim: Mixed to longer duration studies higher pass through revenues and higher SG&A costs post spend to support Standalone operations.

Jim: These were partially offset by the benefit from the restructuring program, we initiated in the third quarter of 2023.

Jim: In the first quarter of 2024, adjusted net loss of $3 $5 million decreased 112% compared to adjusted net income of $29 1 million in the prior year period adjusted.

Jim: Adjusted net loss for both basic and diluted share for the quarter was <unk>.

Jim: Compared to adjusted net income of 33 in the prior year period.

Jill McConnell: Turning to customer concentration, in our continuing operations post divestiture, our top 10 customers represented slightly more than half of our first quarter 2024 revenue. One customer accounted for 14% of revenues, and another customer accounted for 13% of revenues.

Jim: Turning to customer concentration in our continuing operations post divestiture, our top 10 customers represented slightly more than half of our first quarter 2020 for revenues.

Jim: One customer accounted for 14% of revenues and another customer accounted for 13% of revenues.

Jill McConnell: In my comments on cash flows, note these relate to Fortrea in total, as we have not segregated cash flows from discontinued operations. In the first quarter, we reported negative $25.6 million in cash flow from operating activities compared to negative $1.6 million generated in the prior year. The primary drivers of the negative cash flow from operating activities were annual tax resets, spending to support TSA exits, interest expense, and other items, including a bonus earned as part of our former parent.

Jim: In my comments on cash flows note. These relate to 40 <unk> in total as we have not segregated cash flows from discontinued operations.

Jim: In the first quarter, we reported negative $25 $6 million in cash flow from operating activities compared to negative $1 $6 million generated in the prior year.

Jim: The primary drivers of the negative cash flow from operating activities were annual tax resets.

Jim: <unk> support TSA exit interest expense and other items, including our bonus earned as part of our former parent.

Jill McConnell: Free cash flow was negative $34.9 million compared to negative $17.8 million in 2020. Cash flows used for operations decreased due to the reduction in net income, offset by an improvement in unbilled services and deferred revenue, and lower cash used for accrued expenses.

Jim: Free cash flow was negative $34 9 million compared to negative $17 8 million in 2023.

Jim: Cash flows used for operations decreased due to the reduction in net income offset by an improvement in Unbilled services and deferred revenue and lower cash used for accrued expenses.

Jill McConnell: Due to process and contracting changes we have been implementing, we are seeing initial improvements in unbilled and unearned balances. Net accounts receivable and unbilled services for continuing operations were $941 million as of March 31, 2020, compared to $988.5 million as of December 31, 2023. Day sales outstanding from continuing operations were 97 days as of March 31st, 2024, four days lower than December 31st, 2023.

Jim: Due to process and contracting changes we have been implementing we are seeing initial improvements in unbilled and unearned balances.

Jim: Net accounts receivable and Unbilled services for continuing operations were $941 million as of March 31, 2024, compared to $988 5 million as of December 31, 2023.

Jim: Days sales outstanding from continuing operations was 97 days as of March 31, 2024, four days lower than December 31, 2023.

Jill McConnell: The reduction versus the prior year end is primarily due to improvements in cash collections and an increase in advances. We continue to make these changes to our contracting in order to cash processes to enable further improvement in our DSO profile over time. Because our contracts provide services over multiple years, there is a lag in seeing those changes reflected in our performance while we work through the historic portfolio. Now, I will briefly touch on progress towards the previously announced divestiture of our endpoint and patient access businesses. These businesses' results are now being accounted for as discontinued operations, the details of which will be included in our Form 10-Q.

Jim: The reduction versus the prior year and is primarily due to improvements in cash collections and an increase in advances.

Jim: We continue to make these changes to our contracting in order to cash processes to enable to further improvement in our DSO profile overtime.

Jim: Because our contracts provide services over multiple years, there is a lag and seen those changes reflected in our performance, while we work through the historic portfolio.

Jim: Now I will briefly touch on progress towards the previously announced divestiture of our endpoint and patient access businesses.

Jim: These businesses results are now being accounted for as discontinued operations.

Jim: The details of which will be included in our Form 10-Q.

Jill McConnell: We continue to make progress towards closing the transaction in the second quarter. Consistent with our internal planning, we recently made two adjustments to our capital structure. We worked with our lenders to amend our credit agreement and create temporary adjustments to our financial covenant. Our maximum total leverage ratio was increased from 5.3 times to 6 times, and our minimum interest coverage ratio was reduced from 2 times to 1.7 times.

Jim: We continue to make progress towards closing the transaction in the second quarter.

Jill McConnell: In both cases, the new ratios are effective in the second quarter of 2024 and step down over time until reverting to prior levels as of the third quarter of 2025. We intend to update the presentation posted on our website in connection with this call to include the trailing 12 months adjusted EBITDA measure used for leverage calculations for continuing operations after we file our Form 10-Q. Recall that under our credit agreement, we have additional guarantees beyond our adjusted EBITDA results, including public company costs, spin-related costs, and the pro forma benefits from cost savings initiatives.

Jim: Consistent with our internal planning, we recently made two adjustments to our capital structure.

Jim: We worked with our lenders to amend our credit agreement and create temporary adjustments to our financial covenants or.

Jim: Our maximum total leverage ratio was increased from five three times to six times and our minimum interest coverage ratio was reduced from two times to one seven times.

Jim: In both cases, the new ratios are effective in the second quarter of 2024 and step down over time until reverting to prior levels as of the third quarter of 2025.

Jim: We intend to update the presentation posted on our website in connection with this call to include the trailing 12 months adjusted EBITDA measure used for leverage calculations for continuing operations. After we file our Form 10-Q.

Jim: Recall that under our credit agreement, we have additional add backs beyond our adjusted EBITDA results, including public company costs spin related costs and the pro forma benefits from cost savings initiatives.

Jill McConnell: We expect that we will remain fully compliant for the first quarter of 2024 and for the foreseeable future. We have also executed a Receivables Purchase Agreement to sell a portion of our receivables on a recurring basis and will use the proceeds to pay down higher-rate term loan debt to reduce our ongoing interest expense. We expect this arrangement would reduce our effective net annual interest expense by approximately $7 million. We intend to fully utilize this facility, with the initial sale occurring before the end of the second quarter. Note that in connection with entering into this facility, we terminated our existing factoring arrangement.

Jim: We expect that we will remain fully compliant for the first quarter of 2024 and for the foreseeable future.

We have also executed a receivables purchase agreement to sell a portion of our receivables on a recurring basis and we'll use the proceeds to pay down higher rate term loan debt to reduce our ongoing interest expense.

Jim: We expect this arrangement would reduce our effective net annual interest expense by approximately $7 million.

Jim: We intend to fully utilize this facility with the initial sale occurring before the end of the second quarter.

Jim: Note that in connection with entering this facility, we terminated our existing factoring arrangement.

Jill McConnell: Upon closure of the proposed divestiture, we will apply 100% of the net proceeds from the sale of the endpoint and patient access businesses to pay down a portion of our term loan debt, which will also improve our covenant ratios and reduce the ongoing interest expense. Our capital allocation priorities are unchanged, focusing on infrastructure investments for the timely exit of the Transition Services Agreement and targeted investments to drive organic growth and debt repayment.

Jim: Upon closure of the proposed divestiture, we will apply a 100% of the net proceeds from the sale of the endpoint and patient access businesses to pay down a portion of our term loan debt, which will also improve our covenant ratios and reduce ongoing interest expense.

Jim: Our capital allocation priorities are unchanged focusing on infrastructure investments for the timely exit of the transition services agreement.

Jim: <unk> investments to drive organic growth and debt repayment.

Jill McConnell: Our target for the net leverage ratio continues to be two and a half times to three times over the medium term. Now, I will provide an update on our transformation program. It is a multifaceted program that requires thoughtful execution as we balance improving financial results with making changes to increase the longer-term health and performance of Fortrea. We've now exited roughly half of our TSAs with our former parent, and we have robust plans in place to exit the majority of the remaining TSAs around the end of 2024.

Jim: Our target for net leverage ratio continues to be two five times to three times over the medium term.

Jim: Now I will provide an update on our transformation program it.

Jim: It is a multifaceted program that requires thoughtful execution as we balance improving financial results with making changes to increase the longer term health and performance of <unk> <unk>.

Jim: We've now exited roughly half of our TSA with our former parent and we have robust plans in place to exit the majority of the remaining TSA is around the end of 2024.

Jill McConnell: Let me remind you about other initiatives we have commenced to propel our transformation and deliver results that are more in line with peers. First, we have targeted programs to selectively reduce pockets of excess costs, areas of lower productivity, and to flatten the organization. The first one began in the third quarter of 2023, and a second one is planned for 2024.

Jim: Let me remind you about other initiatives, we have commenced to propel our transformation and deliver results that are more in line with peers.

Jim: First we have targeted programs to selectively reduce pockets of excess costs.

Jim: Areas of lower productivity and to flatten the organization.

The first one began in the third quarter of 2023 and the second one is planned for 2020 for these.

Jill McConnell: These programs are intended to show benefits over time. Also, as previously discussed, we have benchmarked our SG&A against our peers and are building more efficient supporting organizations. In some key areas, we expect to begin to see benefits emerge later this year, with others planned for next year as we fully exit the TSA.

Jim: These programs are intended to show benefits over time.

Jim: Also as previously discussed we have benchmarked, our SG&A against our peers and are building more efficient supporting organizations.

Jim: Some key areas, we expect to begin to see benefits emerge later this year with others planned for next year as we fully exit the TSA.

Jill McConnell: As you can see from our recasted SG&A expense line item, this is critical for us to be competitive with our peers. In addition, this quarter, we identified and started setting targets in some key areas to drive operating margin improvement. In addition to the cost structure improvements, we remain laser focused on building our backlog with the right mix and volume of new business awards. We literally have everyone in sales at Fortrea and have granted more than 80 spot awards for individuals outside of our sales organization who have brought in qualified RFPs for us to pursue.

Jim: As you can see from our recast that SG&A expense line item. This is critical for us to be competitive with our peers and.

Jim: In addition, this quarter, we identified and started setting targets in some key areas to drive operating margin improvement.

Jim: In addition to the cost structure improvements, we remain laser focused on building our backlog with the right mix and volume of New business Awards, we literally have everyone in sales in poultry and have granted more than 80 spot awards for individuals outside of our sales organization, who have brought in qualified rfps for us to pursue.

Jill McConnell: Putting more revenue through the global footprint we require to be competitive will improve our operating leverage. Most of these changes will start to benefit us in 2025, when we expect to realize margin improvement arising from revenue growth and operational productivity, as well as our post-TSA streamlined SG&A cost infrastructure. We believe this transformation will enable us to reduce our expenses and to deliver projects faster and more efficiently for our customers, while assuming our ability to continue to drive trailing book-to-bill metrics of at least 1.2 times for the remainder of 2020.

Jim: More revenue through the global footprint, we required to be competitive we will improve our operating leverage.

Jim: Most of these changes will start to benefit us in 2025, where we expect to realize margin improvement arising from revenue growth and operational productivity as well as our post TSA streamlined SG&A cost infrastructure.

Jim: We believe this transformation will enable us to reduce our expenses and to deliver projects faster and more efficiently for our customers.

Jim: Assuming our ability to continue to drive trailing book to Bill metrics of at least one two times for the remainder of 2024 and exited our remaining TSA as per our current plan. We continue to target full year 2025, adjusted EBITDA margins at least consistent with 2022 at approximately 13%.

Jill McConnell: And exiting our remaining TSAs for our current plans, we continue to target full year 2025 adjusted EBITDA margins at least consistent with 2022 at approximately 13%. The improved revenues and margins will also enhance our debt to EBITDA ratio. Finally, I will cover our updated guidance for continuing operations. For full year 2024, we now target revenues to be in the range of $2.785 billion to $2.855 billion. This adjustment reflects slower study startup due to the therapeutic mix, and certain biotech programs have lower than anticipated first quarter book to bill and lower recent pass-through trend.

Jim: The improved revenues and margins will also enhance our debt to EBITDA ratios.

Jim: Finally, I will cover our updated guidance for continuing operations.

Jim: For full year 2024, we now target revenues to be in the range of $2 785 billion to $2 85 5 billion.

Jim: This adjustment reflects slower study start up due to the therapeutic mix and certain biotech programs are lower than anticipated first quarter book to Bill and lower recent pass through trends.

Jill McConnell: As a result of these headwinds, we now expect overall revenue growth broadly flat versus 2023, although the second half is targeted to be modestly positive at around 3%. Our updated adjusted EBITDA target is in the range of $240 million to $260 million. We have taken a number of actions to reduce the typical drop-through of revenue reductions, as I mentioned earlier. However, note that our former recommendation of assuming approximately $250 million in revenue and $30 million in adjusted EBITDA for full year 2024 for the businesses to be divested still applies.

Jim: As a result of these headwinds we now expect to have overall revenue growth broadly flat versus 2023, although the second half is targeted to be modestly positive at around 3%.

Jim: Our updated adjusted EBIT target is in the range of 240 million to $260 million.

Jim: We have taken a number of actions to reduce the typical drop through of revenue reductions as I mentioned earlier.

Jim: Note that our former recommendation on assuming approximately $250 million in revenue and $30 million and adjusted EBITDA for full year 2024 for the businesses to be divested still applies.

Jill McConnell: Fortrea's leadership team brings a wealth of experience and is delivering innovative solutions to improve efficiency and clinical development. Our clinical services offerings are responding with our customers, where we are being invited to conversations that weren't available previously. As a Pure Place CRO, we will be focused on implementing our transformation initiatives and are poised to become a leader in the industry to capture the substantial margin expansion opportunity that lies in. Now I'll turn it back to Tom for the remainder of his remarks.

Jim: For trio leadership team brings a wealth of experience and is delivering innovative solutions to improve efficiency in clinical development. Our clinical services offer any offerings are resonating with our customers, where we are being invited to conversations that weren't available previously.

Jim: As a pure play zero, we will be focused on implementing our transformation initiatives and are poised to become a leader in the industry to capture the substantial margin expansion opportunity that lies in front of us now.

Jim: Now I'll turn it back to Tom for the remainder of his remarks.

Thomas H. Pike: Thanks, Joe.

Thomas H. Pike: We're roughly at the midpoint of an 18 month transition period after our spin-off. While there are challenges, the returns for going on this journey, whether as a customer, an employee, or an investor, are very attractive. Fortrea can deliver innovations to customers while growing and improving margins in ways unmatched in our segment of the industry. We have a good pipeline that should deliver solid book-to-bills in the future and will enable a return to growth.

Thomas H. Pike: We're roughly at the midpoint of an 18 month transition period. After our spin while there are challenges returns for going on this journey, whether as a customer and employee or an investor are very attractive for Korea can deliver innovations to customers, while growing and improving margins in ways unmatched in our segment of the industry.

Thomas H. Pike: We have a good pipeline that should deliver a solid book to bills in the future and will enable a return to growth customers are responding well to our offerings. We have a strong team, making progress with our transformation that includes more innovation better customer delivery exiting the TSA with our former parent.

Thomas H. Pike: Customers are responding well to our offerings. We have a strong team making progress with our transformation. That includes more innovation, better customer delivery, exiting the TSAs with our former parent, reducing SG&A costs, and ensuring we have strong financial internal controls. We are getting it done. We're taking a solid division of a larger company with historical roots in one of the leading CROs, Covance, and transforming it into a distinctive CRO that becomes the favorite choice for customers.

Thomas H. Pike: <unk> SG&A costs, and ensuring we have strong financial internal controls.

Thomas H. Pike: We are getting it done.

Thomas H. Pike: We're taking a solid division of a larger company with historical roots in one of the leading zeroes covance and transforming it into a distinctive CRO that becomes the favorite choice for customers.

Thomas H. Pike: I'm encouraged by the tenacity of the Fortrea team. We work very hard. We have great experience and skill. We're attracting great people. On Friday, I met with one of our new executives who said both employees and customers can feel the energy and excitement in the organization. The entire Fortrea team is focused on our mission of delivering solutions that bring life-changing treatments to patients fast. As we do that, we're committed to and will create value for all of our stakeholders. We will build momentum and enter 2025 with growing strength. If I had one theme for you, it would be this: we're making real progress on the important stuff. With that, Operator, let's open it up for questions.

Thomas H. Pike: I am encouraged by the tenacity of the <unk> team, we work very hard we have great experience and skill, we're attracting great people.

Thomas H. Pike: Just Friday I met with one of our new executives, who said both employees and customers can feel the energy and excitement in the organization.

Thomas H. Pike: The entire portrait team is focused on our mission of delivering solutions that bring life changing treatments to patients faster.

As we do that we're committed to and we will create value for all of our stakeholders.

Thomas H. Pike: We will build momentum and enter 2025 with growing strength.

Speaker Change: I had one theme for you is.

Speaker Change: This we're.

Speaker Change: We're making real progress on the important stuff.

Speaker Change: With that operator, let's open it up for questions.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Standby for our first question, which comes from David Windley with Jeffries. Your line is open.

Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Your question. Please press star one again.

David Howard Windley: Hi, good morning. Thanks for taking my questions.

Speaker Change: Standby for our first question comes from David Windley with Jefferies. Your line is open hi, good.

David Howard Windley: I want to focus on demand, Tom. You talked about the pipeline of opportunities booked a little below what you were hoping to get to this quarter, and it sounds like a couple of opportunities made the difference. If you could talk about win rate, and you know I guess I'm getting that win rate versus maybe opportunities that didn't go to decisions in the first quarter, then I've got a follow-up after that.

David Howard Windley: Morning, Thanks for taking my questions I want to focus on demand Tom So.

David Howard Windley: You talked about the pipeline of opportunities book to Bill a little below what you were hoping to get to this this quarter and it sounds like a couple of of opportunities and made the difference.

David Howard Windley: If you could talk about.

David Howard Windley: Win rate and.

David Howard Windley: I guess I'm getting that win rate versus maybe opportunities that didn't go to decision in the first quarter and then I've got a follow up after that.

Thomas H. Pike: Yeah, actually, good morning, Dave. Our win rate's strong. We had a strong win rate for this quarter. It's the best one since we spun.

Speaker Change: Yeah actually good morning, Dave.

Speaker Change: Our win rate is strong we had a strong win rate for that this quarter. It's the best one since we spun I think the challenge really was that we had one fairly sizable opportunity rescheduled, which we've signed to startup agreement now and we expect we will not be a problem, but it got rescheduled and then we also.

Thomas H. Pike: I think the challenge really was that we had one fairly sizable opportunity rescheduled, which we've signed a startup agreement now and we expect will not be a problem, but it got rescheduled. And then we also had a cancellation that was fairly large that came in right at the end. And as you know, you know this industry well, it only takes a couple of those this size, and you lose that point one.

Speaker Change: Had a cancellation that was fairly large that came in right at the end and as you know you know this industry well it only takes a couple of those the size and you lose that one I will say, though Dave I mean, the two things I really like about our demand situation. One is we are at the table with some large customers.

Thomas H. Pike: I will say, though, Dave, there are two things I really like about our demand situation. One is that we are at the table with some large customers who are thinking about how they're going to proceed with providers. And we're being viewed as a peers. And then the other one is just the pure number of opportunities. That solid, really strong double-digit growth in the dollar value of our pipeline is really a good thing for us. So, you know, I think we're just in a situation where we need to execute against the opportunities in front of us because we're getting the at-bats now.

Mers, who are thinking about how they're going to proceed with providers and we're being being viewed as a peer and then the other one is just the pure number of opportunities that solid really strong double digit growth in dollar value of our pipeline is really a good thing for.

Speaker Change: US so.

Speaker Change: I think we're just in a situation, where we need to execute against the opportunities in front of us because we are getting the AD that's now.

David Howard Windley: That maybe segues nicely into my second question, which is, What is getting you those at bats? So I hear you talking about, You know, more modern CRO differentiation. I guess I'm, I'm listening closely for what are the elements of that differentiation, partnerships that you're striking, things like that. What, you know, what maybe overarching themes would you put over the top of that, and maybe give some specific examples of what you're doing to create that differentiation? Thank you.

Speaker Change: That maybe segways nicely into mine.

Speaker Change: Second question wishes.

Speaker Change: What is getting you those at that so I hear you talking about.

Speaker Change: More modern CRO differentiation, I guess I'm I'm listening closely for what are the elements of that differentiation.

Speaker Change: Partnerships that youre striking things like that.

Speaker Change: What maybe overarching themes would you put over the top of that and maybe give some specific examples of what youre doing.

Speaker Change: To create that differentiation. Thank you.

Thomas H. Pike: A few things, Dave. One, the way we're thinking about sites, and I mentioned the Site Advisory Board, but there's really much more there, is really responding to customers. I think they know that the last mile issue in our industry, that making sure the sites are productive, that we've kind of gone beyond simply trying to understand whether there are patients in the local geography or in the electronic medical records of the site. And now we're talking about how do you really execute on bringing people through enrollment in a study in innovative ways. And so we're pushing on that.

Speaker Change: Yes, a few things Dave one.

Speaker Change: The way, we're thinking about sites and I mentioned, the site Advisory board, but theres really much more there is really resonating with customers I think they know that that last mile issue in our industry that making sure. The sites are productive that we're we've kind of gone beyond simply trying to understand whether there.

Speaker Change: Patients in the local geography or in the electronic medical records of the site and now we're talking about how do you really execute on bringing people through enrollment in a study in innovative ways and so we're pushing on that they like the way, we're thinking about data and technology.

Thomas H. Pike: They like the way we're thinking about data and technology. I think the notion that we have here of partnering with some of the leaders like VIVA, ADVARA, and MetiData, leveraging what they're doing, partnering with some of the leaders in data, you know, Trinetics and Comodos and others, those kinds of partnerships are the way to go.

Speaker Change: I think the notion that we have here of partnering with some of the leaders like Veeva <unk>, many data leveraging what theyre doing partnering some of the leaders in data.

The <unk> and <unk> and others those kind of partnerships are the way to go and then how do we use.

Thomas H. Pike: And then, how do we use our tools to access even more value than those providers create? And then, I have to say some of the innovations we're doing. We had a session right in the room that we're sitting in today with a leading pharmaceutical firm where we talked about how we view artificial intelligence impacting clinical services. You know, this is an industry where we have to make sure that patients stay safe, the data has to be high quality, and we can't make bad decisions.

Speaker Change: Our tools to access even more value than those providers create and then I have to say some of the innovations. We're doing we had a session right in the room that we're sitting in today with a leading pharmaceutical firm will be talked about how we view artificial intelligence impacting clinical services.

Speaker Change: We have to this is a industry, where we have to make sure.

Speaker Change: The patient stay safe the data has to be high quality, we can't make bad decisions, but we do see a number of areas where our operational intelligence.

Thomas H. Pike: But we do see a number of areas where our operational intelligence that we've gained over the years can help us simplify processes and make better decisions in the process. And so really, Dave, they're responding to that. I think they feel the difference when they meet with us, you'll meet with Jill, me, other executives. I think they feel the difference in this organization in terms of how we have our hands really deeply in what makes this industry tick.

Speaker Change: Gained over the years can help us simplify processes makes better decisions in the process and so really Dave they're responding to that I think they feel the difference when they meet with US meet with Jill me other executives I think they feel the difference in this organization in terms of how we have our hands.

Speaker Change: Deeply into what makes us industry tick.

David Howard Windley: Great, thank you. I appreciate the answers.

Speaker Change: Great. Thank you I appreciate the answers.

Speaker Change: Thank you Dave.

Operator: One moment for the next question. The next question comes from Elizabeth Anderson with Evercore. Your line is open.

Speaker Change: One moment for the next question.

The next question comes from Elizabeth Anderson with Evercore. Your line is open.

Elizabeth Hammell Anderson: Hi guys, thanks so much for the question. I was wondering if you could talk about the burn rate. I think you talked about that a little bit in the prepared remarks, but could you talk a little bit more about how that assumption tracks as we go through the year and what the specific drivers are of that increase in burn rate.

Elizabeth Hammell Anderson: Hi, guys. Thanks, so much for the question I was wondering if you could talk about the burn rate I think you, obviously talked about that a little bit.

Elizabeth Hammell Anderson: The prepared remarks, but if you could talk about.

Elizabeth Hammell Anderson: A little bit about more and more detail about how that assumption tracks as we go through the year and what the specific drivers are of that increase in burn rate.

Thomas H. Pike: Yeah, let me give a little overview and then Jill can add some comments. I think, you know, I've been in this industry for a long time, and we use heuristics to think about how quickly new opportunities burn that are based on the experiences we all have, and there's this general view that new business burns in six to nine months. I think what we have here with the mix we have, with the amount of oncology that we do here, plus we do a lot of biotech.

Speaker Change: Yes, let me give a little overview and then Joe can add some comments I think.

Joe: I've been in this industry for a long time, and we use heuristics to think about how quickly new opportunities burn that are based on the experiences. We all have and there is this general view that new sold business Burns in six to nine months I think what we found here with the mix we have with the amount of.

<unk> that we do here plus we do a lot of biotech we've talked about it before lizbeth that were 50% biotechs and some of the biotechs are not quite as far along there are more changes to the protocols more elements of startup that need to be worked through in terms of responsibilities in detail and so.

Thomas H. Pike: You know, we've talked about it before, Elizabeth, that we're 50% biotechs, and some of the biotechs are not quite as far along. There are more changes to the protocols, more elements of startup that need to be worked through in terms of responsibilities and detail. And so what we've found is that some of the traditional metrics for those first few months of business after we spun out that we sold aren't quite right, and the burn is a little bit slower. The good news is that it looks like it's just a timing issue. I would be worried if there were cancellations or other things that were causing that.

So what we've found is that some of the traditional metrics for those first few months of business. After we spun that we sold arent quite right in the burn is a little bit slower. The good news is that it looks like it's a timing issue I would be worried if there were cancellations or other things that were causing that but.

Thomas H. Pike: But it looks like it's more timing and startup. And so what we're doing is we're working as a group to do what we do here. You know, now we have a call every other Friday looking at exactly what we've won and then how it's starting to progress. And, you know, we will try to do what we can to help teams, whether it's through leadership relationships or tactical changes to help them speed things up. So, Jill, I don't know if there's much to add to that. I don't think there is, Tom.

Joe: It looks like its more timing and startup and so what we're doing is we're working as a group to do what we do here now we have a call every other Friday looking at exactly what we've won and then how it is starting to progress and we will try to do we can to help teams whether it's through leadership.

Relationships, whether it's through tactical changes to help them speed things up so Joe I don't know if there's much to add to that I think there as Tom I think it's I think that you would describe the environment well and we do expect as we continue to build the net new business awards over time, it way a mill start to pickup in the momentum will pick up and thats probably going to.

Elizabeth Hammell Anderson: I think you've described the environment well. And we do expect, as we continue to build the net new business awards over time, it will start to pick up, and the momentum will pick up. And it's probably going to take a little bit for us, later next year, more so into 2020.

Joe: A little bit for us to get to that point later next year more so into 2025.

Thomas H. Pike: Got it, that makes sense, and I appreciate your comments about the timing impact and the sizable agreement that got rescheduled and is now signed. Would you say, in terms of if we're thinking about like the second quarter in April and May, those comments, in terms of like the broadly increasing momentum and what you said about the RFP flow, how would you characterize that as having flowed into the second quarter? Yeah, I mean,

Speaker Change: Got it that makes sense and I appreciate your comments about the timing impact and the sizeable agreement that got rescheduled and is now signed.

Speaker Change: Would you say in terms of if we're thinking about like the second quarter in April and May that that those comments in terms of like the broadly increasing.

Speaker Change: Momentum in what you said about the RFP flow how would you characterize that have having flowed into the second quarter.

Elizabeth Hammell Anderson: Yeah, I mean, we'll probably say the same words if we execute against the pipeline we have. We should be able to meet our targets. And it's a little earlier than the last time we talked to Elizabeth in the quarter, but we should be able to meet our targets if we execute against the pipeline we have. I will say the commercial team and our operations team are doing a very good job with these relationships. And it's an important quarter for us, obviously, to demonstrate that we can deliver what we want to deliver.

Speaker Change: Yes, I mean, we would probably say the same words, if we execute against the pipeline. We have we should be able to meet our targets and so a little earlier than last time, we talked to list in the quarter, but we should be able to meet our targets. If we execute against the pipeline. We have I will say the commercial team and our operation.

Speaker Change: <unk> team are doing a very good job with these relationships and it's an important quarter for us obviously to demonstrate that we can deliver what we'd like to deliver.

Speaker Change: Makes sense thanks for the color. Thank you.

Speaker Change: One moment for the next question.

Operator: Thank you. One moment for the next question. The next question comes from Patrick Donnelly with Civi. Your line is open.

Speaker Change: Next question comes from Patrick Donnelly with Citi. Your line is open.

Patrick Bernard Donnelly: Hey guys, thanks for taking the questions. Jill, maybe one for you first, just on the margin side, you're still talking about the exit rate of 13% getting into year end. Can you just talk about the path there, both on the gross margin side and, you know, SG&A and just the confidence level given, given that, obviously, the score came in a little light, but the margins still look pretty good? Yeah, sure.

Patrick Bernard Donnelly: Hey, guys. Thanks for taking the questions Joe maybe one for you first.

Patrick Bernard Donnelly: On the margin side, you are still talking about the exit rate.

Patrick Bernard Donnelly: Percent getting into year end can you just.

Patrick Bernard Donnelly: On the gross margin side.

Patrick Bernard Donnelly: SG&A and just the confidence level of dividend.

For this quarter came in a little light, but the margins will fall a bit.

Patrick Bernard Donnelly: Could you just talk about that.

Speaker Change: Thank you.

Jill McConnell: We, you know, it's really about a quarter, one quarter, that's going to come through on the cost actions, particularly around SG&A, some of the changes that we've made there and the programs that we've put in place to improve productivity. And the other three quarters is going to come from leverage on the modest revenue growth that we see in the second half because we don't believe that we need to add resources to support that growth to any great extent, given that we've, as we've said before, held on to the, you know, the infrastructure that we have; you need that to be competitive on a global basis. So most of that revenue can drop through pretty strongly. So that's how we'll see us get from where we are this quarter to the end.

Jill McConnell: Yeah, sure. Thanks for the question.

Speaker Change: Yes sure. Thanks for the question.

Speaker Change: It's really about quarter, one quarter, that's going to come through on the cost actions, particularly around SG&A. Some of the changes that we've made there and the programs that we've put in place to improve the productivity and the other three quarters, it's going to come from leverage on the modest revenue growth that we see in the second half because we don't believe that we need to add.

Speaker Change: Resource to support that growth in any great to any great extent given that we've as we've said before we've held on to the.

Speaker Change: Structure that we have you need that to be competitive on a global basis. So most of that revenue can drop through pretty strongly. So that's how we'll see us get from where we are this quarter to the end of the year.

Patrick Bernard Donnelly: Okay, that's helpful. And then, Tom, maybe just one more on the demand side. It sounds like, again, RFPs were pretty healthy. The wind rate seems like it's in a good place.

Speaker Change: Okay. That's helpful.

Speaker Change: Paul maybe just one more on the demand side.

Paul: It sounds like again rfps are pretty healthy.

Paul: The win rate.

Paul: Good good place to your point equal in this industry a long time could you just come down. So again, that's kind of one contract to contract. Yes, we started pretty good in mid March about hitting that one soon.

Thomas H. Pike: And to your point, you've been in this industry a long time, but it's just cut down. So again, that's kind of one contract, two contracts. And again, you sounded pretty good in mid-March about hitting that one soon. So again, just back to the books, you're still a smaller company relative to others. It's just a little lumpier with one or two contracts. But generally, you sound pretty good at the demand environment in the past, staying above one or two going forward. So I just wanted to talk to you about that. Thanks. Yeah, Patrick, I think you've characterized it well.

Speaker Change: So got it.

Speaker Change: The book to Bill there is still a smaller company relative to some others.

Speaker Change: Lumpier with one or two contracts it sounds like you guys sound pretty difficult demand environment in the past those available once you going forward once talks about.

Thomas H. Pike: So I still do feel good about the environment we're in; we still are in that commercial transformation. So we've talked with our chief commercial officer about scheduling and estimating. And, you know, he and his team are really doing an excellent job. But obviously, we didn't quite get to where we hope to be by mid March. And, you know, we're doing what we do here. So we're going to getbetterateratit.com. So this is an important quarter, and it's going to be an important summer as well. These next two quarters are going to be very important for us to show everybody what we can do here.

Thomas H. Pike: Yeah, Patrick, I think you've characterized it well. We are a little smaller, so when we have a couple of larger transactions, it can influence that number in the way it did, you know, by a tenth of a point there.

Speaker Change: Yes, Patrick I think you've characterized it well we are a little smaller so when we have a couple of larger transactions that can influence that number and the way it did by.

Speaker Change: A 10th of point there so.

Speaker Change: I still I do feel good about the environment. We're in we still are in the commercial transformation. So we've talked with our chief commercial officer about scheduling and estimating and.

Speaker Change: He and his team are really doing an excellent job, but obviously, we didn't quite get to where we hope to get mid March and.

Speaker Change: We're doing what we do here, so we're going to get better at it. So I do feel good as we said this solid double digit growth of dollar value of pipeline is great. Some of the partnering discussions are really exciting I spent a week in Europe, a couple of weeks ago and met with many customers.

Speaker Change: And I'll tell you, we're having some great discussions we're in the mix. So this is an important quarter and it's going to be an important summer as well as these next two quarters are going to be very important for us to show everybody. What we can do here.

Speaker Change: That's helpful. Thank you guys.

Speaker Change: Thank you.

Operator: One moment for the next question. The next question comes from Eric Caldwell with Baird. Your line is open.

Speaker Change: One moment for the next question.

Speaker Change: The next question comes from Eric Coldwell with Baird. Your line is open.

Eric White Coldwell: Thanks very much and good morning. I wanted to come back to the cancellations. I have a few questions. So on the cancellations, you did mention the one fairly large cancellation at the end of the quarter. Other than that, how were cancellations tracking in the period? Were they normal, below normal? Just trying to get a sense of the overall magnitude of cancellations.

Eric Coldwell: Thanks, very much and good morning.

Eric Coldwell: I wanted to come back to the <unk>.

Eric Coldwell: The cancellation I have a few just a housekeeping question.

Eric Coldwell: Question.

Eric Coldwell: So on the change you did mentioned the one fairly large cancel at the end of the quarter other than that how were cancellations tracking in the period, where they normal below normal just trying to get a sense on the overall magnitude of cancellations yes.

Thomas H. Pike: Yeah, they were normal during the quarter. They were normal in the fourth quarter. Great

Eric Coldwell: Yes, there were normal in the quarter they were a normal quarter, great and then.

Eric White Coldwell: Great. And then on the mix of awards, could you talk a little bit about direct versus indirect revenue and then also functional versus

Eric Coldwell: On the mix of awards could you talk a little bit about.

Eric Coldwell: Direct versus indirect revenue and then also functional versus full service mix.

Eric White Coldwell: We're going to talk about the pass-throughs versus others. Yeah, I think... By direct versus indirect.

Eric Coldwell: But talk about the pass throughs versus other yeah, I think by direct versus indirect.

Eric Coldwell: Yes, yes, yes, let's limited so yes. So we have we are continuing to see if you. If you look year on year for the quarter the percent of pass throughs as a percent of total revenue did increase year on year, having said that we are part of our call down in the revenue guide is because we have seen it.

Jill McConnell: Yes, yeah, let's assume it is. So yes, so we have, and we are continuing to see if you look year on year for the quarters, the percent of passers as a percent of total revenue did increase year on year. Having said that, part of our call down in on the revenue guide is because we have seen it come down a bit lower than it was in the fourth quarter of. And, you know, pass-throughs are incredibly hard to predict.

Eric Coldwell: Come down a bit lower than it was in the fourth quarter of last year.

Eric Coldwell: And pass throughs are incredibly hard to predict we had a few studies last year that were big drivers that seem to be a bit more moderated at the moment, we're not sure if that's going to going to come back. So we took a little bit of caution in setting up the revenue for the rest of the year, but we are seeing pass throughs via higher.

Jill McConnell: We had a few studies last year that were big drivers that seem to be a bit more moderated at the moment. We're not sure if that's going to come back. So we took a little bit of caution in setting the revenue for the rest of the year, but we are seeing pass-throughs be a higher percentage year-on-year.

Eric Coldwell: Higher percentage year on year.

Jill McConnell: And I thank you for that. Was that the same comment on bookings this quarter that the direct fee bookings continued to improve and pass through or indirect? I think we've actually seen fairly consistent between the 605 and the 606 on bookings in the quarter.

Eric Coldwell: And.

Speaker Change: Thank you for that.

Speaker Change: Was that the same comment on bookings this quarter that the.

Speaker Change: The direct fee bookings continued to improve in pass through or indirect.

Speaker Change: Well I think we've actually I think we've actually seen fairly consistent between the 605 and the 606 on bookings in the quarter.

Thomas H. Pike: Yeah, nothing out there. And our mix is good. I mean, it represents the business overall, Eric. It's not, I will say it's very consistent with our clinical pharmacology, which had a strong performance, the kind of normal rate of FSP, and then a normal rate of what we call GCD here, or full service outsourcing. You know, obviously, we would have liked to have done more, but the mix itself was solid.

Speaker Change: Out there and our mix is our mix is good I mean, it represents the business overall, Eric it's not I will say, it's very consistent with our clinical pharmacology, which had a strong performance.

Speaker Change: Kind of a normal rate of FSP and then our normal rate of what we call GCD here or full service outsourcing.

Speaker Change: Obviously, we would have liked to have done more but the mix itself was solid.

Eric White Coldwell: And then, if I could just do one last one. You made a number of comments about how the pipeline and opportunity set are out there. I am curious, halfway through 2Q to date. How do you stand on awards and cancels at the halfway point in terms of what you might've seen, say just not very many quarters since this been, but recent experience or expectations? Are you at, below, above, where you feel like you need to be at the 1.2?

Speaker Change: And then if I could just do one last one.

Speaker Change: You made a number of comments about how the pipeline and opportunity set is out there I am curious halfway through <unk> to date.

Speaker Change: How do you how do you stand on awards and cancels at the halfway point in terms of what you might have seen say just now.

Speaker Change: Not very many quarters since the spin, but recent experience our expectations are you.

Speaker Change: At below or above where you feel like you need to be at the $1 two.

Jill McConnell: I think it's consistent with what we would expect to see at this point in the quarter. And, as Tom shared in his remarks, the pipeline is really strong. We've been pleased to see the growth in it, and we feel good about where we are at this point in the quarter. But, as you know, it always comes down to the last few weeks of the last month. But at this point, we feel good about where we sit.

Speaker Change: I think it's.

Speaker Change: With consistent with what we would expect to see at this point in the quarter as Tom shared in his remarks. The pipeline is really strong we've been pleased to see the growth in it and we feel good about where we are at this point in the quarter as you know it always comes down to the last few weeks of the last month.

Speaker Change: But at this point, we feel good about where we sit okay.

Eric White Coldwell: Okay, thanks very much.

Speaker Change: Thanks very much.

Operator: One moment for the next question. The next question comes from Max Smock with William Blair. Your line is open.

Speaker Change: One moment for the next question.

Speaker Change: The next question comes from Max Smock with William Blair. Your line is open.

Maxwell Andrew Smock: Good morning. Thanks for taking our questions. Tom, over the last couple of quarters, it felt like you were maybe moving away from large pharma a bit or at least being a little bit more selective about those opportunities and really talking about biotech. I didn't hear as much of that today. So wondering if there's been any change in terms of how you're thinking about prioritizing opportunities here in the near term, and then any incremental color you can give us around demand trends for biotech and how those compare to large pharma. Thank you.

Maxwell Andrew Smock: Hey, good morning, Thanks for taking our questions.

Maxwell Andrew Smock: Tom over the last couple of quarters. It felt like you were maybe moving away from large pharma or at least being a little bit more selective about those opportunities and really talking about biotech I didnt hear as much of that today. So wondering if there's been any change in terms of how youre thinking about prioritizing opportunities near term and then any incremental color you can give us around demand trends or biotech.

Maxwell Andrew Smock: And how those compared to large pharma. Thank you.

Thomas H. Pike: Yeah, you know, I may have miscommunicated Max, but if that's the case, I think of this as a very 50-50 business. So we do want to make progress with large pharma. And what I like about large pharma is that you get that consistency of being allocated projects, whether you have to compete for them, or whether they're just allocated to you. And so we like that.

Maxwell Andrew Smock: Yes.

Thomas H. Pike: I may have missed communicated Max if thats. The case I think of this as a very 50 50 business. So we do want to make progress with large pharma and what I like about large pharma as we you get that consistency of being allocated projects, whether you have to compete for them or whether they're just Alan.

Thomas H. Pike: <unk> to you and so wed like that and we know that we need to expand that that being said. This organization. Historically has done a lot of biotech and you all know the growth I mean, there are statistics out there that as much as 65% of the innovative drug development is coming out of biotech now and thats growing over the next.

Thomas H. Pike: And we know that we need to expand that. That being said, this organization historically has done a lot of biotech, and you all know the growth.

Thomas H. Pike: <unk> few years, not not shrinking and generally in my conversations with industry executives. They all believe the same thing and they are acting accordingly, so we're going to keep going after biotech in fact, we're trying to enhance our biotech offering I hope to have some something to announce on that I'm going to be.

Thomas H. Pike: I mean, there are statistics out there that as much as 65% of innovative drug development is coming out of biotech now, and that's growing over the next few years, not shrinking. And generally, in my conversations with industry executives, they all believe the same thing, and they're acting accordingly. So we're going to keep going after biotech. In fact, we're trying to enhance our biotech offering. I hope to have something to announce about that.

Thomas H. Pike: I'm going to be doing a panel at Bio and hope to have something to announce about that over the next few weeks. So it really is a very balanced look. I think the reason why I'm mentioning it this quarter is we do have some partnering opportunities that we are hopeful for. At a minimum, we're going to learn a ton from them. And at a maximum, you know, it could be very good for Fortaleza. So that's part of the reason why I'm emphasizing it today. Does that make sense, Max?

Thomas H. Pike: Doing a panel at Bayou and hope to have something to announce on that over the next few weeks. So it really is a very balanced look I think the reason why I'm mentioning it this quarter as we do have some partnering opportunities that we.

Our hopeful for at a minimum we're going to learn a ton from them.

Thomas H. Pike: And at a maximum it could be very good for for Korea. So that's part of the reason why I'm emphasizing it today.

Speaker Change: Does that makes sense. Thanks.

Maxwell Andrew Smock: Yeah, it does, and apologies for some of that misunderstanding that was probably on my end as well. But in terms of the demand trends, the second part of that question, have you seen an uptick from biotech? Is large pharma still strong? What do you think about demand trends for each of those buckets?

Speaker Change: And apologies if some of that Miss misunderstand and it was probably on my end as well, but in terms of the demand trends. The second part of that question have you seen an uptick from biotech large pharma. So strong how do you think about demand trends for each of those buckets.

Thomas H. Pike: Yeah, I tell you, it's very consistent with the reports, you know, coming out of whenever you do these calls, you take a look at what the third parties are producing, what Windley's producing, what others are producing on biotech, and it's very consistent with what I think, for instance, Dave is reporting that it's a solid picture. It's not something where every box is being checked in terms of financing.

Speaker Change: I would tell you it's very consistent with the reports coming out of whenever you do these calls you you take.

Speaker Change: Take a look at what the third parties are producing what when lease producing what others are producing on biotech is very consistent what I think for instance, Dave is reporting that it's a solid picture its not something where every box is being checked in terms of financing.

Speaker Change: But we certainly are seeing biotechs that we work with get funded.

Speaker Change: And we're seeing continuing opportunities, we're still screening them carefully we've talked about that quite a bit because.

Speaker Change: Some of them.

Speaker Change: We will want to work with us contingent on funding and so we're reluctant to do that but we we are seeing a solid funding picture and solid health and opportunity there and it's a very innovative products to be Frank about it too so.

Thomas H. Pike: But we certainly are seeing biotechs that we work with get funded, and we're seeing continuing opportunities; we're still screening them carefully. We talk about that quite a bit because, you know, there Some of them will want to work with us contingent on funding. And so we're reluctant to do that. But we, you know, we are seeing a solid funding picture and solid health and opportunity there and some very innovative products, to be frank about it, too.

Maxwell Andrew Smock: Thank you, Tom. And maybe just a quick follow-up on pricing dynamics, any commentary around how those have changed over the last couple months? Are you seeing customers become even more price sensitive? And do you have competitors out there that are starting to compete more aggressively on price here over the last couple months?

Speaker Change: That's helpful. Thank you, Tom and maybe just sneaking a quick follow up on pricing dynamics any commentary around how those have changed over the last couple of months are you seeing customers become even more price sensitive and do you have competitors out there that are starting to compete more aggressively on price here over the last couple of months.

Thomas H. Pike: You know, it's funny; customers have been price competitive since I've been in this industry. So it makes me smile to hear that.

Speaker Change: It's funny.

Thomas H. Pike: Customers have been price competitive since I've been in this industry. So so it makes me smile to hear that so there are always price competitive and very proud of it.

Thomas H. Pike: So they're always price competitive and very proud of it. But that being said, and I'm talking about big pharma in particular there, there's nothing particularly new there.

Thomas H. Pike: But that being said and I am talking big pharma in particular, there, but that being said there is nothing particularly new there.

Thomas H. Pike: Do think the largest FSP is becoming very competitive so I will say that sometimes we participate in larger FSP, sometimes we don't but it's becoming very competitive.

Thomas H. Pike: I do think the largest FSP is becoming very competitive. So I will say that sometimes we participate in larger FSPs, sometimes we don't, but you know, it's becoming very competitive. And certainly, you know, we're all keeping an eye on the private CROs. What we're hoping is that everyone understands that disciplined pricing is good for the entire industry. But we're keeping a close eye on it, Max. Because we've, you know, we've seen a couple of examples where it looks like works are being purchased or bought. So we're keeping a close eye on it.

Thomas H. Pike: And certainly we're all keeping an eye on the private crows.

Thomas H. Pike: What we're hoping is that everyone understands that disciplined pricing is good for the entire industry, but we're keeping a close eye on it Max.

Thomas H. Pike: Because we've seen a couple of examples where it looks like works being purchased or bought so we're keeping a close eye on it.

Maxwell Andrew Smock: What Jill and I always say, though, is in general, a lot of our customers will throw out the highest bid and the lowest bid if they're too far off because they feel like something may be wrong. And so there's this band that I think we all want to optimally price in, where we can be successful financially, and we can deliver them a good result without a lot of change orders. And so, you know, that's the band that we try to be in, one where both sides win, and where we don't have to change our way out of some project.

Maxwell Andrew Smock: Jillian I always say, though is in general a lot of our customers will throw out the highest bid and the lowest bid if they're too far off because they feel like something may be wrong and so there's this band that I think we all want to optimally pricing, where we can be successful financially and we can deliver them. A good result, without a lot of change orders.

Maxwell Andrew Smock: And so that that's the band that we try to be in the one where we both sides when and where we don't have to change our way out of some project.

Maxwell Andrew Smock: Got it. Thank you again for taking our question. Thank you, Max.

Speaker Change: Got it thank you again for taking our questions.

Speaker Change: You Max.

Operator: One moment for the next question. The next question comes from Michael Riskin with Bank of America. Your line is open.

Speaker Change: The next question.

Speaker Change: The next question comes from Michael Ross Skin with Bank of America. Your line is open.

Michael Riskin: Great, thanks for taking the questions, guys. One quick one for you, Tom, to start, and then I'll follow with Jill. On the big project delay in the quarter that you called out, obviously, I think timing's probably hard to call here, but is that, you know, a couple weeks, a couple months delay, or is that flipping it to 2025? Do you have any clarity on when that might come through just because it seems, you know, relatively material on its own?

Speaker Change: Great. Thanks for taking the question guys.

Speaker Change: One quick one for you Tom I'll start and then I'll follow up for Joe.

Speaker Change: On the Big project delay in the quarter that you called out obviously I think timing is probably hard to call here, but is that a couple of weeks a couple of months delay or is that slipping into 2025 do you have any clarity on when that might come through just because it seems relatively material on its own.

Thomas H. Pike: Well, the one the one is, you know, I think that we would expect that we would sign the one that slipped out of last quarter this quarter and complete it. And as I said, we signed a startup agreement with them. So, I think that's progressing along.

Speaker Change: Well the one the one.

Speaker Change: Is.

Speaker Change: I think that we would expect that we would sign the one that slipped out of last quarter this quarter.

Speaker Change: And as I said, we signed to startup agreement with them. So so I think that's progressing along.

Speaker Change: And again, one deal doesn't make or break this place. So it's not as if it's so large that it makes it Brexit, but but it was enough that between that and that fairly large cancellation.

Speaker Change: Just the two numbers alone caused that miss so those two transactions alone. So that's why we call it out because generally the health of the pipeline is good and we're doing a lot of transactions. It's just that when you have a couple of larger ones that you thought were on track.

Michael Riskin: And, you know, again, what one deal doesn't make or break this place. So it's not as if it's so large that it makes or breaks it. But, but it was enough that between that and that fairly large cancellation, just the two numbers alone caused that miss. So those two transactions alone. So that's why we call it out because, generally, the health of the pipeline is good, and we're doing a lot of transactions. It's just that when you have a couple of larger ones that you thought were on track, you know, that's what happens.

Speaker Change: That's what happens.

Michael Riskin: Okay, great, that's helpful. And Jill, a follow-up for you, I think just kind of going back to the point, something that Patrick I think asked you about earlier, just the, you know, with all the moving pieces, with the fact that the divested assets are now out of the model, and you talked about, you know, reclassifying some of the costs, just thinking about the difference in the gross margin, you know, SG&A and EBITDA lines as we go through the year, obviously you've got that steep ramp to sort of hit that exiting the year at roughly 13%.

Okay, Great that's helpful.

Jill: And Jill.

Speaker Change: Follow up for you I think just kind of going back to the point.

Jill: Patrick I think asked about earlier just.

With all the moving pieces with the fact that the.

Jill: The divested assets are now out of the model and you talked about reclassifying some of the costs just thinking about the difference in the gross margin.

Jill: G&A and EBITDA lines as we go through the year, obviously, you've got that steep ramp to sort of hit that exiting the year at roughly 13%. So.

Michael Riskin: So, you know, should we be thinking that gross profit gets you part of the way there, but the majority should really be coming from the SG&A line? And any commentary on pacing through the year? It seems like it's a little bit more back and loaded than it would have been before, just to true up the dollar amounts, but any clarity there would be helpful. Thanks.

Should we should we be thinking that gross profit.

Jill: Gets you part of the way there, but the majority is really should be coming from the SG&A line.

Speaker Change: And just any commentary on pacing through the year. It seems like it's a little bit more backend loaded than would have been before just to true up the dollar amounts, but any clarity there would be helpful. Thanks, Yeah of course, so actually we do think that we think it will actually come more from gross margin improvements, which are which are kind of driven from the <unk>.

Jill McConnell: Yeah, of course. So actually, we do think that it will actually come more from growth margin improvements, which are kind of driven from a modest increase in revenue growth. So you know, getting to about 3% in the back compared to where we are in the first half with essentially the same size of operational footprint. Most of that increase then drops through, and only about a quarter of it will come from SG&A because, as you may remember from earlier calls, we are able to make some improvements and changes this year, but until we fully exit all of the TSAs, which won't be really until right at the end of the year, you know, maybe even just into 2025.

Speaker Change: Modest increase in revenue growth, so getting to about 3% in the back half compared to where we are in the first half with essentially the same size of operational footprint. Most of that increase then drop through and only about a quarter of it will come from SG&A because you may remember from earlier calls.

Speaker Change: We are able to make some improvements and changes this year, but until we fully exit all of the TSA, which won't be really until right at the end of the year.

Speaker Change: Maybe even just into 2025, but the majority by the end of this year you really can't change some of the cost base you have in SG&A until you fully exit because youre kind of stuck with that cost base in supporting the existing processes and systems. So it actually comes more from top line than it does from just cost cuts.

Jill McConnell: But the majority by the end of this year, you really can't change some of the cost base with that cost base and supporting the existing processes and systems. So it actually comes more from the top line than it does from just cost and to get there in the back half. And in terms of confidence and ramp, you're right, we talked before about it being, you know, still a bit of a tale of two halves, with the first half being, you know, slightly down from a revenue perspective. We talked about, you know, in totality for the business, when we had the different guidance, a third and two-thirds, and it's, it's still roughly the same when we look at that

Speaker Change: Get to there in the back half and in terms of confidence in ramp Youre right, we talked before of it being still a bit of a tale of two halves with the first half been.

Speaker Change: Slightly down from a revenue perspective, we had talked about.

Speaker Change: In totality for the business.

When we had the different guidance, a third and two thirds in its still roughly the same when we look at that even for continuing operations and where we landed for the first quarter for continuing operations is in line exactly in line with where we expected it to be.

Michael Riskin: Okay, that's that's really helpful. Thanks so much.

Speaker Change: Okay, that's fair.

Speaker Change: Really helpful. Thanks, so much.

Operator: One moment for the next question. The next question comes from Rishi Parekh, with J.P. Morgan. Your line is open.

Speaker Change: One moment for the next question.

Speaker Change: The next question comes from Rishi Parekh.

Rishi Parekh: With J P. Morgan your line is open.

Rishi Surendra Parekh: Thanks for taking my questions. Earlier you noted that you're at the table with some of these large customers and viewed as a peer. As you're thinking about these contracts that you're competing for, what are some of the factors that may potentially allow you to win these contracts? Is it that these contracts are FSP? Are you taking on incremental risk? Any details would help.

Rishi Parekh: Thanks for taking my questions earlier, you noted that you were at the table with some of these large customers and viewed as appear.

Rishi Parekh: As Youre thinking about these contracts that you are competing for what are some of the factors that may potentially allow you to win. These contracts is it that these contracts are FSP or are you taking on incremental risk any details would help.

Thomas H. Pike: on the last one. No incremental risk, just to be clear on that one. But Rishi, they're actually mixed.

Rishi Parekh: And the last one no incremental risk just to be clear on that one.

Rishi Parekh: But ratio Theyre actually mix. So there are some I think we've talked in prior calls that we're seeing some evolution towards this notion of hybrid full service and FSP and we continue to see that and so in general a lot of the larger customers are asking for some full service support but then also.

Rishi Surendra Parekh: So there's some, I think we talked in prior calls that we're seeing some evolution toward this notion of hybrid full service and FSP. And we continue to see that. And so, in general, a lot of the larger customers are asking for some full service support but then also enhanced or evolved FSP support. So we're seeing both of those types of opportunities as we go forward. So I mean, they're just good opportunities, and we're working hard to try to satisfy those customers' interests. So we'll see how things go.

Rishi Parekh: Enhanced or or evolved FSP support.

Rishi Parekh: So we're seeing both of those types of opportunities as we go forward. So I mean, they're just good opportunities and we're working hard to try to satisfy those customers interest. So we'll see how things go.

Jill McConnell: Okay, and then on the cap structure, was the amendment to your maintenance covenants mostly or entirely due to the asset sale, or was there a meaningful percentage of the adjustment due to the Q1 contract issues and any other future or further operational headwinds? And then, sorry, if you could just remind me, are the borrowings under the ARM facility included in your total leverage test?

Rishi Parekh: Okay, and then on the cap structure was the amendment to your maintenance covenants, mostly or entirely due to the <unk> was there a meaningful percentage of the adjustment due to the.

Rishi Parekh: Q1 contract issues and any other future further operational headwinds.

Rishi Parekh: Can you just remind me sorry, if you could just remind me on the borrowings under the facility is that included in your total leverage test.

Rishi Surendra Parekh: Yes, so you're right about the reason, the rationale, the main rationale, you know, out of an abundance of caution, recognizing that the way the trailing 12-month measures are calculated post-investiture, we felt that it was prudent to go, and it's a relatively low cost to secure those additional amendments to get us through that period while we work through those changes in the trailing measures. Bowers. And then on the latter, if you look at the presentation and you see the gross debt, that does include some borrowings from the revolver. We did have borrowings in the revolver at the end of the quarter, and that is included in the capital.

Speaker Change: Yes so.

Speaker Change: You are right and the reason and the rationale the main rationale out of abundance of caution recognizing that the the way the trailing 12 months measures are calculated post divestiture we lead.

Speaker Change: We felt that it was prudent to go and it's a relatively low cost to secure those additional amendments to get us through that period, while we work through those changes in the trailing measures. So that was one of the primary drivers for that and then on the ladder.

Speaker Change: That when you if you look at the presentation and you see the growth that that does include some borrowings from the revolver.

Speaker Change: We did have borrowings on the revolver at the end of the quarter.

Speaker Change: That is included.

Jill McConnell: Okay, and then free cash flow, you said it was negative in the quarter. What are your free cash flow expectations for the year? And, if negative, do you expect to use the AR facility to fund that shortfall? Thank you.

Speaker Change: Okay and then your free cash flow you said it was negative in the quarter what are your free cash flow expectations for the year positive or negative and its negative do you expect to use the facility to fund that shortfall. Thank you.

Rishi Surendra Parekh: So we're expecting it probably to be slightly negative for the full year. It will improve as we go through the course of the year and should be positive by the time we get to the end of the year, but it's possible that for the full year it will be slightly negative, and yes, we would just probably use the revolver or the AR facility to help support that. But we would expect it to come back positive.

So we're expecting it probably to be.

Speaker Change: Slightly negative for the full year it will improve as we go through the course of the year and should be positive by the time, we get to the end of the year, but it is possible that for the full year. It was slightly negative and yes, we would just probably use the revolver or they are facility to help support that.

Speaker Change: So we would expect it to come back to positive. So it's a temporary it's really it's a timing issue. It's just it's a function quite frankly of all the one time costs that were incurring related to the spin being so significant that significant this year.

Rishi Surendra Parekh: So it's a temporary it's really just a timing issue. It's just the function, quite frankly, of all the one-time costs that we're incurring related to the spin being so significant this year. And you'll recall that those are revolving.

Jill McConnell: And you'll recall that our revolver is of a scale that's good for this situation.

Speaker Change: And Youll recall that our revolver is of a scale that's good for this situation.

Speaker Change: Situation here.

Speaker Change: Okay.

Operator: I have no further questions at this time. I would now like to turn the call back to Tom Pike for closing remarks.

Speaker Change: I show no further questions at this time I would now like to turn the call back to Tom <unk> for closing remarks.

Thomas H. Pike: I'll just close by saying we're making solid progress toward our goal of being the best choice among clinical research organizations for customers, large and small, trying to create a positive and distinctive experience for those customers as well as our employees. So we appreciate your support, and we'll talk to you soon. Thank you.

Thomas H. Pike: Thank you I will just close by saying, we're making solid progress toward our goal of being the best choice among clinical research organizations for customers large and small trying to create a positive and distinctive experience for those customers customers as well as our employees. So we appreciate your support and we will.

Speaker Change: Talk to you soon thank you.

Operator: This does conclude today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: This does conclude today's conference call. Thank you for your participation you may now disconnect.

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