Q2 2024 Fortrea Holdings Inc Earnings Call - Q&A

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Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Fortrea's second quarter 2024 Earnings Conference Call.

Speaker Change: 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 the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.

Hima Inguva: 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 Inguva, Head of Investor Relations and Corporate Development, Fortrea To

Hima Inguva: Good morning, and thank you for joining Fortrea's second quarter 2024 Earnings Conference Call.

Hima Inguva: I am Hima Inguva, Head of Investor Relations and Corporate Development at Fortrea.

Speaker Change: On the call with me today are our CEO , Tom Pike, and CFO , Jill McConnell. The call is being webcasted and the slides accompanying today's presentation have been posted to our investor relations page.

Speaker Change: During this call, we will make certain forward-looking statements within the meaning of the Private Security Education Reform Act of 1995.

Speaker Change: These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations.

Speaker Change: 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 regarding forward-looking statements and risk factors in our press release and presentation that we posted on the website.

Speaker Change: Please note that any forward-looking statements represent our views as of today, August 12, 2024, and that we assume no obligation to update the forward-looking statements, even if estimates change. During this call, we will also be referring to certain non-GAAP financial measures.

Speaker Change: These non-GAAP measures are not superior to or replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results.

Speaker Change: A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures 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.

Tom Pike: Good morning, everyone. Welcome to the call. Let me start by saying that Fortrea had a solid quarter of execution and progress on our strategy.

Tom Pike: The following are strategic objectives, despite some difficulty predicting when biotech opportunities would contract that impacted our book to bill.

Speaker Change: As you know, Fortrea is a pure-play CRO that offers end-to-end solutions for clinical trials across phases 1 through 4. We have a strong track record of delivering high-quality services to our customers, ranging from small biotech startups to large pharma companies.

Speaker Change: We believe we have a strong value proposition in the market as we combine 30 years of experience, deep scientific expertise, operational excellence, and innovative technology to deliver faster, better, more cost-effective outcomes for our customers.

Speaker Change: We also have a diversified and balanced portfolio of projects, and a healthy mix of short and long term contracts, as well as broad exposure to different geographies and indications.

Speaker Change: In the second quarter, we saw some positive signs of improvements in our business. Let me share with you some of the highs and lows of the quarter, and then we'll talk in more detail about what we see for our second half bookings.

Speaker Change: First the highlights. We signed several deals and partnerships with top 20 pharma customers including one new full-service outsourcing partnership. The other deals are solid footholds into larger customers.

Speaker Change: Our pipeline of opportunities continues to improve in both value and mix and our win rates are solid. More on that in a couple of minutes.

Speaker Change: We've exited about 60% of the TSA agreements with our former parent and are making good progress on the most difficult part, the transition of software, servers, and other technology.

signing by.

Speaker Change: We de-levered the balance sheet, and finally, we have a clearer line of sight to improving our margins while delivering quality work and started planning for 2025.

Speaker Change: I will give you some detail on some of these highlights and Jill will fill in on others.

Speaker Change: Our new offerings and approaches to partnering with large pharma are gaining traction. This quarter we beat out four of the big six CROs to be selected as one of only two providers in an attractive full-service partnership with a larger pharmaceutical firm.

Jill McConnell: The customer noted how Fortrea showed up differently to the opportunities than others under consideration.

Hima Inguva: Welcome to Fortrea's second quarter of 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Hima Inguva: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you would need to press Star 1-1 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press Star 1-1 again.

Jill McConnell: The increased bookings and revenue from this win should be felt in 2025.

Hima Inguva: Please be advised that today's conference is being recorded.

Jill McConnell: As I mentioned, we had some nice wins in a couple of other large pharma firms, too.

Jill McConnell: In one situation would be two larger incumbents take over an important clinical services opportunity and consolidate what was three vendors into one. We also got a nice win in foothold in a third, even larger pharmaceutical firm.

Jill McConnell: We've begun to see additional opportunities from these customers.

Jill McConnell: Our clinical pharmacology business continues to be strong with attractive book-to-bills, customers, and indications.

Jill McConnell: We're also seeing increasing momentum in transferring the impressive relationships we have in clinical pharmacology into Phase I, B, and II. We have a significant number of opportunities and have increased our win rate where decisions have been made.

Jill McConnell: These relationships are based on the deep scientific knowledge we've brought to the table working in some inspiring new modalities that include metabolic, neurodegenerative, immunology, and more.

Speaker Change: We had some good wins in biotech in areas such as oncology, ophthalmology, and dermatology.

Speaker Change: Recently, I met with the CEO of an ophthalmology biotech who has a great product and they raved about our success to date with an important and challenging trial.

Speaker Change: In the second quarter, we also announced two offerings that reflect areas of strength for Fortrea. The first was our diversity and inclusion solution, which is designed to expand patient access to clinical trials and address the USFDA requirements to increase enrollment of underrepresented populations in clinical trials.

Hima Inguva: I would like now to turn the conference over to your speaker today, Hima Inguva, Head of Invest Relations and Corporate Development. Please go ahead.

Hima Inguva: Good morning, and thank you for joining Fortrea's second quarter of 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 CSO Jill McConnell. The call is being webcasted, and the slides accompanying today's presentation have been posted to our Investor Relations page. Fortrea.com. During this call, we'll make certain forward-looking statements within the meaning of private security certification reform act of 1995.

Hima Inguva: These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties. In particular, those that are described in the cautionary statement regarding forward-looking statements and risk factors in our press release and presentation that we posted on the West Side. Please note that any forward-looking statements represent our views as of today, over 12, 2024, and that we assume no application to update the forward-looking statements even if estimates change.

Speaker Change: The solution incorporates our consulting expertise, real-world evidence data, comprehensive planning, implementation, and measurement methodology.

Hima Inguva: During this call, we'll also be referring to certain non-gap financial measures. These non-gap measures are not superior to or replacement for the comparable gap measures, but we believe these measures help investors gain a more complete understanding of results. Reconciliation of such non-gap financial measures to the most directly comparable gap measures available in the earnings facilities and earnings call presentation slides provided in connection with today's call.

Speaker Change: We've had a very nice response to this solution and have gained significant experience in this area, working on more than 40 diversity action plans in the past year.

Tom Pike: With that, I'd like to turn it over to our CEO Tom Pike. Good morning, everyone. Welcome to the call. Let me start by saying that Portria had a solid quarter of execution progress on our strategic objectives, despite some difficulty predicting when biotech opportunities would contract that impact that are booked to bill. As you know, Portria is a pure play zero that offers end-to-end solutions for clinical trials cross phases one through four.

Speaker Change: Greater productivity in clinical trials has become critical for the industry and Fortrea is centering itself on this value proposition.

Tom Pike: We have a strong track record of delivering high-quality services to our customers ranging from small biotech startups to large farm companies. We believe we have a strong value proposition in the market as we combined 30 years of experience deep scientific expertise operational excellence and innovative technology to deliver faster, better, more cost effective outcomes for our customers. We also have a diversified and balanced portfolio of projects and a healthy mix of short and long-term contracts, as well as broad exposure to different geographies and indications.

Speaker Change: We are developing changes to roles, processes, partnerships, and technology.

Speaker Change: As part of this effort, another offering that we announced in the second quarter

Speaker Change: was the launch of their AI Innovation Studio, which will develop and deploy AI and ML technologies to drive productivity, quality, and enhance site and patient experiences, as well as safety in clinical research.

Tom Pike: In the second quarter, we saw some positive signs of improvements in our business. Let me share with you some of the highs and lows of the quarter, and then we'll talk in more detail about what we see for our second half booking.

Speaker Change: Fortrea's Innovation Studio is a fresh take on AI for CROs. Very forward-looking and collaborative, yet still cost-effective. I'm looking forward to seeing what productivity ideas emerge from the studio in collaboration with our forward-leaning customers. We're hoping to share some of this with investors and analysts later this year.

Tom Pike: Kings. First, the highlights. We signed several deals and partnerships with top 20 pharma customers, including one new full-service outsourcing partnership. The other deals are solid footholds into larger customers. Our pipeline of opportunities continues to improve in both value and mix and our win rates are solid. More on that in a couple of minutes. We've exited about 60% of the TSA agreements with our former parent and are making good progress on the most difficult part, the transition of software, servers and other technology.

Speaker Change: In another development, our therapeutic strategy leaders

Speaker Change: who are some of our key medical doctors, now prepare strategies for increasing our impact and share in various therapeutic areas. They identify the movers and shakers, interesting mechanisms, as well as what we need to do and offerings we need to have to increase our share of the pie with biotechs and large pharma.

Speaker Change: Overall, we're strengthening our offerings and it's getting noticed. Fortrea was recognized in the second quarter for the first time as an independent company with CRO Leadership Awards.

Tom Pike: We de-lever the balance sheet, and finally, we have a clear line of sight to improving our margins while delivering quality work and started planning for 2025. I will give you some detail on some of these highlights, and Jill will fill in on others. Our new offerings and approaches to partnering with large-farm are gaining traction. This quarter, we beat out four of the big six zeroes to be selected as one of only two providers in an attractive full-service partnership with a larger pharmaceutical firm.

Speaker Change: Sponsored by Clinical Leader in four categories, Capabilities, Expertise, Quality, and Reliability.

Speaker Change: These awards are based on an independent survey which compiled feedback that customers provide on CROs that they have worked with on a project during the past 16 months.

Speaker Change: Now let me address the low light of the quarter that spills into some of our other results.

Tom Pike: The customer noted how Fortrea showed up differently to the opportunities than others under consideration. The increased bookings and revenue from this win should be felt in 2025. As I mentioned, we had some nice wins in a couple of other large-farm firms too. In one situation would be two larger incumbents take over an important clinical services opportunity and consolidate what was three vendors into one. We also got a nice win and foothold in a third even larger pharmaceutical firm.

Speaker Change: Our book to bill for this quarter was just under one.

Speaker Change: Since we're a new public company, we'll try to give you more color on what happened.

Speaker Change: During Q2, we said to you, if we execute, we can meet our target of 1.2 book-to-bill. Let me explain why we thought that.

Speaker Change: Our pipeline at the beginning of Q2 was larger than any quarter since the beginning of 2022. In fact, it was 11% higher than the average of the three prior quarters. And our win rates have been solid.

Tom Pike: We'd begun to see additional opportunities from these customers. Our clinical pharmacology business continues to be strong with attractive book to bills, customers, and indications. We're also seeing increasing momentum in transferring the impressive relationships we have in clinical pharmacology and to phase one, B and two. We have a significant number of opportunities and it increased our win rate where decisions have been made. These relationships are based on the deep scientific knowledge we've brought to the table working in some inspiring new modalities that include metabolic, neurodegenerative, immunology, and more.

Speaker Change: Overall, about half of our work is with biotechs.

Speaker Change: We're experienced at working with biotech companies and are optimistic about our capability to deliver attractive biotech solutions that fuel growth for Fortrea. At the same time, contracting in this space can be uncertain, and we're finding it is harder to predict when the final contract will be executed.

Speaker Change: In the first half, our mix was slanted toward biotech.

Speaker Change: We're making changes to address the disappointing predictions and bookings these past two quarters.

Speaker Change: Unfortunately, two quarters of sub 1.2 bookings impacts our guidance and some other key targets.

Tom Pike: We had some good wins in biotech in areas such as oncology, ophthalmology, and dermatology. Recently I met with the CEO of an ophthalmology biotech who has a great product and they raved about our success to date with an important and challenging trial. In the second quarter, we also announced two offerings that reflect areas of strength for Portria. The first was our diversity and inclusion solution which is designed to expand patient access to clinical trials and address the US FDA requirements increase enrollment of underrepresented populations in clinical trials.

Speaker Change: Now let me turn to our pipeline for the back half of the year.

Speaker Change: As I mentioned, our pipeline at the beginning of Q2 is 11% greater than our average of the prior three quarters.

Speaker Change: In Q3 and Q4 of last year, we delivered that 1.2 book to Bill O'Better.

Tom Pike: The solution incorporates our consulting expertise, real-world evidence data, comprehensive planning, implementation, and measurement methodology. We've had a very nice response to this solution and have gained significant experience in this area working on more than 40 diversity action plans in the past year. Greater productivity in clinical trials has become critical for the industry and Portria is centering itself on this value proposition. We are developing changes to roles, processes, partnerships, and technology. As part of this effort, another offering that we announced in the second quarter was the launch of our AI Innovation Studio which will develop and deploy AI and ML technologies to drive productivity, quality, and enhance site and patient experiences as well as safety in clinical research.

Speaker Change: The pipeline at the beginning of this quarter, Q3, is even greater than it was in Q2. In fact, it's 7.5% greater than it was.

Speaker Change: It also has more large pharma, which is encouraging.

Speaker Change: We're seeing our large former partners coming through their internal processes with RFP flow returning.

Speaker Change: We also feel good about Q4. As we sit here today, the second half overall has more qualified opportunities.

Speaker Change: than any upcoming two quarters since we've been public. The pipeline is very attractive.

Speaker Change: In addition, the new and refreshed partnerships should contribute more opportunities in 2025.

Speaker Change: Now let me hand over to Jill. She'll comment on the numbers in more detail on our Transformation and Margin Improvement programs. Then I'll wrap up with some comments about the remainder of the year in 2025.

Jill McConnell: Thank you, Tom. And thank you to everyone for joining us today. Before we get into the details of the quarter, I want to acknowledge some of the work we have already done over the past year. Exiting around 60% of our TSA services with our former parent,

Tom Pike: Rich, Fortrea's innovation studio is a fresh take on AI for CROs, very forward looking and collaborative, it's still cost effective. I'm looking forward to seeing what productivity ideas emerge from the studio in collaboration with our forward leaning customers. We're hoping to share some of this with investors and analysts later this year. In another development, our therapeutic strategy leaders, who are some of our key medical doctors, now prepare strategies for increasing our impact and share on various therapeutic areas.

Jill McConnell: completing the divestiture of our non-core enabling services businesses and materially improving our balance sheet. These are important building blocks for us to create long-term value for all our stakeholders.

Jill McConnell: Upon the closing of the enabling services divestiture and executing on our receivable securitization facility in the quarter, we significantly reduced our balance sheet leverage by paying down around $500 million of SPIN-related debt.

Tom Pike: They identify the movers and shakers, interesting mechanisms, as well as what we need to do and offerings we need to have to increase our share of the pie with biotech and large pharma. Overall, we're strengthening our offerings and it's getting noticed. Fortrea was recognized in the second quarter for the first time as an independent company with CRO leadership awards, sponsored by clinical leader in four categories, capabilities, expertise, quality and reliability. These awards are based on an independent survey, which compiled feedback that customers provide on CROs that they have worked with on a project during the past 16 months.

Jill McConnell: We have improved our capital structure and have ample headroom between our current ratios and our debt covenant. We have laid the right foundation for continued transformation.

Speaker Change: I will start with providing a detailed breakdown of the financial performance of our core business this quarter. Then, I will walk you through the components that we are using to enhance profit margins in the Adjusted EBITDA Margin Bridge we provided.

Speaker Change: I will share progress on our commercial transformation and expectations for the remainder of 2024, including the components that are driving improved adjusted EBITDA margins for the second quarter and that we believe will drive improved EBITDA margins for the second half of 2024.

Speaker Change: Moore. And finally, I will discuss our outlook for 2025.

Tom Pike: Now, let me address the low light of the quarter that spills into some of our other results. Our book to bill for this quarter was just under one. Since we're a new public company, we'll try to give you more color on what happened. During Q2, we said to you, if we execute, we can meet our target of 1.2 book to bill. Let me explain why we thought that. Our pipeline at the beginning of Q2 was larger than any quarter since the beginning of 2022.

Speaker Change: As a reminder, all of my remarks relate to continuing operations following the divestiture of our enabling services businesses, unless I note otherwise.

Speaker Change: Revenues of $662.4 million declined 8.6% year-on-year. This was driven by lower pass-through revenues compared to historical highs and lower service fee revenues.

Speaker Change: The pass-through decline is largely driven by lower pass-throughs on the biomarker studies we have previously called out, which are now normalizing given their stage in the project life cycle.

Tom Pike: In fact, it was 11% higher than the average of the three prior quarters and our win rates have been solid. Overall, about half of our work is with biotechs. We're experienced at working with biotech companies and are optimistic about our capability to deliver attractive biotech solutions at fuel growth for Fortrea. At the same time, contracting in this space can be uncertain and we're finding it is harder to predict when the final contract will be executed.

Speaker Change: Our second quarter service revenue continues to be impacted by a combination of factors, primarily lower new business awards in the pre-spin period, along with a mixed shift towards later stage and longer duration studies, particularly in oncology.

Speaker Change: Note that we did see mid-single-digit sequential growth in service fees, in line with our expectations.

Speaker Change: On a gap basis, direct costs in the quarter decreased 7.6% year-over-year, primarily due to lower pass-through costs.

Tom Pike: In the first half, our mix was slanted toward biotech. We're making changes to address the disappointing predictions and bookings these past two quarters. Unfortunately, two quarters of sub 1.2 bookings impacts our guidance and some other key targets.

Speaker Change: SG&A in the quarter was higher year-over-year by 59.7%, primarily due to incremental one-time costs incurred for exiting the TSA with our former parent.

Speaker Change: The company reclassified $33.1 million from direct costs to SG&A expenses in the prior year comparison period, primarily related to information technology costs and certain non-clinic facility charges.

Tom Pike: Now, let me turn to our pipeline for the back half of the year. As I mentioned, our pipeline's beginning of Q2 was 11% greater than our average of the prior three quarters. In Q3 and Q4 of last year, we delivered that 1.2 book to bill or better. The pipeline at the beginning of this quarter, Q3, is even greater than it was in Q2. In fact, it's 7.5% greater than it was. It also has more large pharma, which is encouraging.

Speaker Change: For the second quarter, you will see SG&A as a percent of revenue on a gap basis at 23.6 percent.

Speaker Change: However, it contains approximately $54 million of one-time costs related to the continued separation from our former parent.

Speaker Change: Excluding spin-related one-time costs in both quarters, underlying SGA and A as a percent of revenue was relatively flat to the first quarter.

Tom Pike: We're seeing our large pharma partners coming through their internal processes with RFP flow returning. We also feel good about Q4. As we sit here today, the second half overall has more qualified opportunities than any upcoming two quarters since we've been public. The pipeline is very attractive. In addition, the new and refreshed partnerships should contribute more opportunities in 2025.

Speaker Change: We see significant potential to expand margins by reducing SG&A expense as a percentage of revenue over time once we fully exit the TSA services and can transition to lower cost replacement infrastructure.

Speaker Change: Net interest expense for the quarter was $45.2 million, however this is comprised of actual interest expense of approximately $33 million.

Speaker Change: and the remainder being the write-off of a portion of the debt issuance discount based on the debt prepayment in the quarter. As noted previously, we are targeting quarterly interest and related fees expense to decline substantially going forward due to the debt paydown.

Jill McConnell: Now, let me hand over to Jill. She'll comment on the numbers in more detail on our transformation and margin improvement programs that will wrap up with some comments about the remainder of the year in 2025.

Jill McConnell: Thank you, Tom, and thank you to everyone for joining us today. Before we get into the details of the quarter, I want to acknowledge some of the work we have already done over the past year, exiting around 60% of our TSA services with our former parent, completing the divestiture of our non-core enabling services businesses, and materially improving our balance sheet. These are important building blocks for us to create long-term value for all our stakeholders.

Speaker Change: When looking at the annualized interest expense using debt outstanding, securitization usage, and rates in effect at the end of the second quarter 2024.

Speaker Change: Estimated annual total cash interest and securitization costs are targeted to be approximately 18% lower compared to the annualized costs at the end of the first quarter of 2024.

Speaker Change: Turning to our tax rate, the effective tax rate for continuing operations for the quarter was negative 12.1%, primarily due to the combined effect of a forecasted pre-tax loss in 2024, given our large one-time costs, a change in evaluation allowance, and earnings mix.

Jill McConnell: Upon the closing of the enabling services divestiture and executing on our receivable securitization facility in the quarter, we significantly reduced our balance sheet leverage by paying down around $500 million of spin-related debt. We have improved our capital structure and have ample headroom between our current ratios and our debt covenants. We have laid the right foundation for continued transformation. I will start with providing a detailed breakdown of the financial performance of our core business this quarter.

Speaker Change: During the second quarter, we recognized tax expense of $10.7 million in continuing operations primarily due to a forecasted valuation allowance on our deferred tax asset related to disallowed interest expense.

Speaker Change: We have plans that we expect could improve our overall tax position over time.

Jill McConnell: Then I will walk you through the components that we are using to enhance profit margins in the adjusted EBITDA margin bridge we provided. I will share progress on our commercial transformation and expectations for the remainder of 2024, including the components that are driving improved adjusted EBITDA margins for the second quarter, and that we believe will drive improved EBITDA margins for the second half of 2024. And finally, I will discuss our outlook for 2025.

Speaker Change: Our book-to-bill for the trailing 12 months since the spin is 1.16 times and for this quarter it was 0.96 times.

Speaker Change: Our backlog at around $7.4 billion has grown 5.6% since the spin.

Speaker Change: As part of our work in the first quarter of this year to disentangle the enabling services businesses for reporting as discontinued operations.

Speaker Change: We became aware of historical misstatements of certain financial line items which we identified. The overall impact of these adjustments is not considered material to any given year. As previously discussed, we are continuing to bolster our financial control environment through personnel additions and process improvements.

Jill McConnell: As a reminder, all of my remarks relate to continuing operations following the divestiture of our enabling services businesses unless I note otherwise. Revenue of $662.4 million declined 8.6% year-on-year. This was driven by lower pass-through revenues compared to historical highs and lower service fee revenues. The pass-through decline is largely driven by lower pass-throughs on the biomarker studies we have previously caught out which are now normalizing given their stage in the project life cycle.

Speaker Change: Continuing operations adjusted EBITDA for the quarter of 55.2 million dollars decreased 23.2% year over year compared to adjusted EBITDA of 71.9 million dollars in the prior year period.

Speaker Change: Note that Adjusted EBITDA more than doubled compared to the first quarter of 2024, increasing by 103.7% on a sequential basis.

Jill McConnell: Our second quarter service-through revenue continues to be impacted by a combination of factors. Primarily, lower new business awards in the pre-spin period along with a mixed shift towards later stage and longer duration studies, particularly in oncology. Note that we did see mid-single-digit sequential growth in service fees in line with our expectations. On a gap basis, direct costs in the quarter decreased 7.6% year-over-year, primarily due to lower pass-through costs. S-GNA in the quarter was higher year-over-year by 59.7%, primarily due to incremental one-time costs incurred for exiting the TSA with our former parent.

Speaker Change: Adjusted EBITDA margin for the second quarter was 8.3% compared to 9.9% in the prior year period.

Speaker Change: Adjusted EBITDA margin in the quarter was negatively impacted by lower service fee revenues from the lower awards during the pre-spin year, the mix to longer duration studies, and higher SG&A costs post-spin to support operations as a public company.

Speaker Change: These were partially upset by the benefit from the restructuring program we initiated in the third quarter of 2023, which is continuing into 2024.

Speaker Change: In the second quarter of 2024, adjusted net loss of $2.3 million decreased 105% compared to adjusted net income of $46.1 million in the prior year period.

Jill McConnell: The company reclassified $33.1 million from direct costs to S-GNA expenses in the prior year comparison period, primarily related to information technology costs and certain non-clinic facility charges. For the second quarter, you will see S-GNA as a percent of revenue on a gap basis at 23.6%. However, it contains approximately $54 million of one-time costs related to the continued separation from our former parent. Excluding spend-related one-time costs in both quarters, underlying S-GNA as a percent of revenue was relatively flat to the first quarter.

Speaker Change: Adjusted net loss for both basic and diluted share for the quarter was $0.03 compared to adjusted net income of $0.52 in the prior year period.

Speaker Change: Turning to customer concentration. In our continuing operations, our top 10 customers represented slightly more than half of our second quarter 2024 revenues.

Speaker Change: One customer accounted for 13.2% of revenues.

Speaker Change: As I comment on cash flows, note these relate to Fortrea in total, as we have not segregated cash flows from discontinued operations.

Jill McConnell: We see significant potential to expand margins by reducing S-GNA expense as a percentage of revenue over time, once we fully exit the TSA services and can transition to lower cost-replacing. Eastman Infrastructure. Net interest expense for the quarter was $45.2 million, however this is comprised of actual interest expense of approximately $33 million, and the remainder being the write-off of a portion of the debt issuance discount based on the debt prepayment in the quarter.

Speaker Change: For the first six months ended June 30, 2024, we reported $248.1 million in cash flow from operating activities.

Speaker Change: Gates, compared to $148.1 million generated in the prior year.

Speaker Change: Cashflow benefited from the sale of receivables under the Securitization Facility and an increase in unearned revenue, partially offset by the decrease in net income.

Jill McConnell: As noted previously, we are targeting quarterly interest and related fees expense to declines substantially going forward due to the debt paydown. When looking at the annualized interest expense using debt outstanding, securitization usage, and rates in effect at the end of the second quarter 2024, estimated annual total cash interest and securitization costs are targeted to be approximately 18% lower compared to the annualized cost at the end of the first quarter of 2024.

Speaker Change: Free cash flow was $227.6 million compared to $122.3 million in the first six months of 2023.

Speaker Change: Net accounts receivable and unbilled services for continuing operations were $637.9 million as of June 30, 2021.

Speaker Change: 44, compared to $941 million as of March 31, 2024.

Speaker Change: Day sales outstanding from continuing operations was 54 days as of June 30, 2024, 43 days lower than March 31, 2024.

Jill McConnell: Turning to our tax rate, the effective tax rate for continuing operations for the quarter was negative 12.1%, primarily due to the combined effect of a forecasted pre-tax loss in 2024, given our large one-time costs, a change in evaluation allowance, and earnings mix. During the second quarter, we recognized tax expense of $10.7 million in continuing operations, primarily due to a forecasted valuation allowance on our deferred tax asset related to disallowed interest expense.

Speaker Change: The reduction versus the first quarter is primarily due to the sale of receivables through our securitization facility, lower average billings, and to a lesser extent, an increase in advances. We continue to make changes to our contracting and order-to-cash processes to enable further improvements to our DSO profile over time.

Speaker Change: During the quarter, we prepaid $275 million of term loans from the initial divestiture proceeds.

Jill McConnell: We have plans that we expect could improve our overall tax position over time. Our book to bill for the trailing 12 months since the spin is 1.16 times, and for this quarter it was 0.96 times. Our backlog at around $7.4 billion has grown 5.6% since the spin. As part of our work in the first quarter of this year to disentangle the enabling services businesses for reporting as discontinued operations, we became aware of historical misstatements of certain financial line items which we identified.

Speaker Change: With the majority, $211 million, used to prepay Term Loan B, which has a higher cost of debt.

Speaker Change: We also used $229 million of the proceeds from our securitization facility to further pay down Term Loan B and our revolver, and as a result, reduced total debt by $504 million from the end of the first quarter, ending the second quarter with $1.14 billion in gross debt.

Speaker Change: We have been, and for the foreseeable future we expect to be, fully compliant with the financial maintenance covenants of our credit agreement.

Jill McConnell: The overall impact of these adjustments is not considered material to any given year. As previously discussed, we are continuing to bolster our financial control environment through personnel additions and process improvements. Continuing operations adjusted EBITDA for the quarter of $55.2 million decreased 23.2% year-over-year compared to adjusted EBITDA of $71.9 million in the prior year period. Note that adjusted EBITDA more than doubled compared to the first quarter of 2024, increasing by 103.7% on a sequential basis.

Speaker Change: We have considerable room under our covenant ratios due to the debt pay down, the exclusion of securitization usage from the calculations, and the benefit of the add-backs permitted under the credit agreement.

Speaker Change: We ended the quarter with more than half a billion dollars of liquidity.

Speaker Change: Our capital allocation priorities are unchanged, focusing in the near term on infrastructure investments for timely exit of the transition services agreement with our former parents, targeted investments to drive organic growth and improve productivity, and then debt repayment.

Speaker Change: Our target for net leverage ratio continues to be 2.5 to 3 times over the medium term.

Jill McConnell: Adjusted EBITDA margin for the second quarter was 8.3% compared to 9.9% in the prior year period. Adjusted EBITDA margin in the quarter was negatively impacted by lower service-free revenues from the lower awards during the pre-spin year, the mixed-alonger duration studies, and higher SGA cost post-spin to support operations as a public company. These were partially upset by the benefit from the restructuring program we initiated in the third quarter of 2023, which is continuing into 2024.

Speaker Change: Now, I will provide an update on our transformation program. We continue to make progress on our journey towards improving financial results while we increase the longer-term health and performance of Fortrea.

Speaker Change: We've now exited around 60% of our TSA services with our former parent, and we have robust plans in place to exit the majority of the remaining TSA services by year-end, with a limited number being exited early in 2025 to ensure business continuity through year-end.

Speaker Change: We are continuing with programs to reduce costs, including a restructuring program we introduced in the third quarter of 2023, which is continuing into 2024.

Jill McConnell: In the second quarter of 2024, adjusted net loss of $2.3 million decreased 105% compared to adjusted net income of $46.1 million in the prior year period. Adjusted net loss for both basic and diluted share for the quarter was 3 cents compared to adjusted net income of $0.52 in the prior year. Pyrid. Turning to customer concentration. In our continuing operation, our top 10 customers represented slightly more than half of our second quarter 2024 revenues.

Speaker Change: The improvement in overall adjusted EBITDA this quarter is benefiting from these programs as the service-free revenue growth we delivered dropped through strongly to the bottom line as we expected.

Speaker Change: On SG&A, while we have made initial progress in IT already, we are continuing to prepare for more efficient supporting organizations over time.

Jill McConnell: One customer accounted for 13.2% of revenues. As I comment on cash flows, note these relate to Fortrea and Total as we have not segregated cash flows from discontinued operations. For the $38.1 million in cash flow from operating activities compared to $148.1 million generated in the prior year. Cash flow benefited from the sale of receivables under the securitization facility and an increase in unearned revenue partially upset by the decrease in net income.

Speaker Change: In a few areas, we expect to begin to see benefits emerge towards the end of the year with other improvements planned for 2025 and beyond as we fully exit the TSA and adopt these more efficient infrastructures.

Speaker Change: As you can see from our SG&A expense line item, this is critical for us to be competitive with our peers.

Speaker Change: On operational execution, we continue to enhance productivity by compressing our time to study startups and accelerating achievement of milestones through targeted investments and project management capabilities.

Speaker Change: We remain laser focused on building our backlog with the right mix and volume of new business awards.

Jill McConnell: Free cash flow with $227.6 million compared to $122.3 million in the first six months of 2023. Net accounts receivable and unbuilt services for continuing operations were $637.9 million as of June 30, 2024 compared to $941 million as of March 31, 2024. Day sales outstanding from continuing operations was 54 days as of June 30, 2024, 43 days lower than March 31, 2024. The reduction versus the first quarter is primarily due to the sale of receivables through our securitization facility, lower average billing and to a lesser extent and increase in advances.

Speaker Change: As a result of these headwinds we now expect to have an overall revenue decline versus 2000 through 2023 of around 4% with second half being improved versus the first half, but down slightly versus the prior year.

Speaker Change: Given that a portion of the revenue reduction is expected to be service fee revenues, we are reducing our adjusted EBITDA target to a range of $220 million to $240 million.

Jill McConnell: We continue to make changes to our contracting and order to cash processes to enable further improvements to our DSO profile over time. During the quarter, we preyed $275 million of term loans from the initial divestiture proceeds with a majority $211 million used to prepay term loan B which has a higher cost of debt. We also used $229 million of the proceeds from our securitization facility to further pay down term loan B and our revolver.

Speaker Change: In spite of the lower adjusted EBITDA range, we are targeting to show continued improvement sequentially through the remainder of the year both in service fee revenue and in adjusted EBITDA, let.

Speaker Change: Let me bridge this improvement for you as seen on slide nine of our Investor presentation.

Speaker Change: Youll see that we delivered $82 3 million of adjusted EBITDA in the first half of the year.

Jill McConnell: And as a result, reduced total debt by $504 million from the end of the first quarter ending the second quarter with $1.14 billion in gross debt. We have been and for the foreseeable future we expect to be fully compliant with the financial maintenance covenants of our credit agreement. We have considerable room under our covenant ratios due to the debt pay down, the exclusion of securitization usage from the calculations and the benefit of the addbacks permitted under the credit agreement.

Speaker Change: Using this as a run rate, we'd give you a full year adjusted EBITDA of around $165 million.

Speaker Change: To get to a revised midpoint of $230 million, we are targeting service fee revenue growth to contribute $40 million to $50 million, along with continued operational and SG&A optimization to contribute 15% to $25 million.

Speaker Change: The margin optimization is anticipated to be a combination of gross margin improvement given the restructuring programs, we have implemented improvements in facilities and other operating costs and reductions in our it spend and.

Jill McConnell: We ended the quarter with more than half a billion dollars of liquidity. Our capital allocation priorities are unchanged, focusing in the near term on infrastructure investments for timely exit of the transition services agreement with our former parents, target an investment to drive organic growth and improve productivity and then debt repayment. Our target for net leverage ratio continues to be 2.5 to 3 times over the medium term.

Speaker Change: Achieving this we would target to deliver an adjusted EBITDA margin in the 11% to 12% range for the fourth quarter of 2024.

Speaker Change: Now, let me share some implications of our results and these guidance changes to our view of 2025 adjusted EBITDA based on our modeling.

Speaker Change: We are now targeting the adjusted EBITDA margin for 2025% to be more likely in the 11% to 12% range.

Jill McConnell: Now I will provide an update on our transformation program. We continue to make progress on our journey towards improving financial results while we increase the longer term health and performance of Fortria. We've now exited around 60% of our TSA services with our former parent and we have robust plans in place to exit the majority of the remaining TSA services by year end. With a limited number of TSA services, we are being exited early in 2025 to ensure business continuity, through Year End.

Speaker Change: This is below the 13% we had been targeting previously it would represent a roughly 300 basis points improvement at the midpoint versus 2024 and broadly of 30% to 40% increase in adjusted EBITDA dollars delivered.

Speaker Change: In addition, we are targeting a return to positive cash flow in 2025, given the expected reduction in spend related to the separation from our former parent.

Jill McConnell: We are continuing with programs to reduce costs, including a restructuring program we introduced in the third quarter of 2023, which is continuing into 2024. The improvement in overall adjusted EBITDA this quarter is benefiting from these programs, as the service-free revenue growth we delivered dropped through strongly to the bottom line as we expected. On SGNA, while we have made initial progress in IT already, we are continuing to prepare for more efficient supporting organizations over time.

Speaker Change: The challenges of the separation and the time it has taken to optimize our commercial approach and operational execution has led to a slower return to growth and margin expansion than we originally anticipated, but make no mistake with a backlog of more than $7 billion.

Speaker Change: Global talented team of more than 16000 clinical development professionals and full independence to unlock future optimization insight, we remain a great partner for our growing customer base, a rewarding place to work for our employees and our long term value creation opportunity for our investors.

Jill McConnell: In a few areas, we begin, we expect to begin to see benefits emerged towards the end of the year with other improvements planned for 2025 and beyond, as we fully exit the TSA and adopt these more efficient infrastructures. As you can see from our SGNA expense lane item, this is critical for us to be competitive with our peers. On operational execution, we continue to enhance productivity by compressing our time to study startup and accelerating achievement of milestones through target investments in project management capabilities.

Speaker Change: We are relentlessly focused on driving innovation and efficiency and clinical development and we are gaining significant traction with customers, which is opening doors to new opportunities.

Speaker Change: As a pure play CRO, we are diligently executing our transformation strategy to drive substantial margin expansion and unlock significant value for our shareholders now I'll turn it back to Tom for the remainder of his remarks.

Speaker Change: Thank you Jill and closing let me provide some thoughts about the remainder of the year in 2025.

Jill McConnell: We remain laser focused on building our backlog with the right mix and volume of new business awards. To that end, we are continuing to invest in resources and tools for our commercial organization and our ensuring senior leadership are intrinsically involved in the competitive selling process by leveraging their relationships and experiences.

Speaker Change: Regarding the second half of 2024 as I mentioned, our pipeline of opportunities has grown and has more large pharma, which should be more predictable in both the third and fourth quarter, we have attractive qualified opportunities to close in contract.

Jill McConnell: I will now cover our updated guidance for continuing operations. For full year 2024, we are lowering the midpoint of our revenues to $2.725 billion, with a range of $2.7 billion to $2.75 billion. The adjustment to revenue guidance largely reflects the lower recent past due trends we have been seeing, in particular due to the biomarker studies I mentioned earlier, and the impact to service through revenues due to the lower than expected new business awards in the first half of the year.

Speaker Change: We execute we feel confident that across the two upcoming quarters. We can average one two book to Bill Q.

Speaker Change: Q4, it looks stronger than Q3.

Speaker Change: We will continue to do everything we can to meet a one two book to bill or better in the third and fourth quarters.

Joe: Now, let me pick up on Joe's discussion of 2025.

Speaker Change: We have a programmatic approach to increase sales and improve operating margins.

Speaker Change: Delivering for customers with quality.

Jill McConnell: As a result of these headwinds, we now expect to have an overall revenue decline versus 2023 of around 4%. With the second half being improved versus the first half, but down slightly versus the prior year. Given that a portion of the revenue reduction is expected to be service fee revenues, we are reducing our adjusted EBITDA target to a range of $220 million to $240 million. In spite of the lower adjusted EBITDA range, we are targeting to show continued improvements sequentially through the remainder of the year, both in service fee revenue and in adjusted EBITDA.

Speaker Change: We now understand the investments required and are planning to make them.

Joe: We hit our target book to bills as Joe said, we're modeling more than 30% improvement to adjusted EBITDA dollars next year.

Joe: In 2025, we will complete our exit from our former parent.

Joe: And those heavy onetime costs, we also expect to turn cash flow positive in 2025.

Speaker Change: I acknowledge this is a different financial trajectories and the one we had hoped but it is still a very attractive increase in adjusted EBITDA in a short period of time.

Jill McConnell: Let me bridge this improvement for you as seen on slide 9 of our investor presentation. You'll see that we delivered $82.3 million of adjusted EBITDA in the first half of the year. Using this as a run rate would give you a full year adjusted EBITDA of around $165 million. To get to our revised midpoint of $230 million, we are targeting service fee revenue growth to contribute $40 to $50 million, along with continued operational and SGNA optimization to contribute $15 to $25 million.

Speaker Change: Let me step back and tell you why I'm so confident for trio.

Speaker Change: As I get to see the <unk> team in action.

Speaker Change: As I get direct customer feedback on our performance and how we show up from executives.

We work hard here, we press, our innovative offerings and we seek to exceed our customers' expectations.

Speaker Change: When customers take the time to get to know us they see us as innovative agile and they know the management team is accessible to them.

Jill McConnell: The margin optimization is anticipated to be a combination of gross margin improvements given the restructuring programs we have implemented, improvements in facilities and other operating costs, and reductions in our IT spend. In achieving this, we would target to deliver an adjusted EBITDA margin in the 11 to 12 percent range for the fourth quarter of 2024.

Speaker Change: Internally I meet with teams working on exiting our former parent divesting, enabling services and improving our delivery and margins. They also work hard they resolve issues and then meet deadlines.

Speaker Change: With our AI and.

Speaker Change: Leaders regularly we push for practical innovation, while reducing overall costs.

Jill McConnell: Now let me share some implications of our results and these guidance changes to our view of 2025 adjusted EBITDA based on our model. Charlene. We are now targeting the adjusted EBITDA margin for 2025 to be more likely in the 11-12% range. While this is below the 13% we had been targeting previously, it would represent a roughly 300 basis points improvement at the midpoint versus 2024, and broadly a 30-40% increase in adjusted EBITDA dollars delivered.

Speaker Change: Work to do but this is the right team to do it for.

Speaker Change: For instance, Jill and I meet weekly with teams driving our sales process, we reviewed larger and more important deals we press for critical thinking and what I call ferocious debates among friends to develop compelling solutions and we're getting better all the time.

Speaker Change: In my career I've turned around businesses and I've grown businesses, let me share this <unk>.

Jill McConnell: In addition, we are targeting a return to positive cash flow in 2025, given the expected reduction in spend related to the separation from our former parents. The challenges of the separation and the time it is taking to optimize our commercial approach and operational execution has led to a slower return to growth and margin expansion than we originally anticipated, but make no mistake. With a backlog of more than $7 billion, a global talented team of more than 16,000 clinical development professionals and full independence to unlock future optimization insight, we remain a great partner for our growing customer base, a rewarding place to work for our employees, and a long-term value creation opportunity for our investors.

Speaker Change: Services firms and <unk> in particular can be sort of like Flywheels. If you know what a flywheel is.

Speaker Change: It takes effort and time to get it spinning.

Speaker Change: As Jim Collins is written you put a great team in place you confront the brutal facts and then you create a culture of discipline around execution.

Speaker Change: We're doing that here at fortress.

Once the flywheel is spinning momentum is very powerful thing. We can go on a multiyear journey to create value others have and we will too.

Speaker Change: In summary, <unk> had a very solid quarter of execution and progress we are well positioned for growth and value creation in the future.

Jill McConnell: We are relentlessly focused on driving innovation and efficiency in clinical development, and we are gaining significant traction with customers, which is opening doors to new opportunities. As a pure-play CRO, we are diligently executing our transformation strategy to drive substantial margin expansion and unlock significant value for our shareholders.

Speaker Change: We will get that flywheel going and build momentum.

Speaker Change: You think about it we de Levered.

Speaker Change: <unk> doubled EBITDA from Q1 to Q2.

We had some big relationship wins in large pharma.

Speaker Change: We have a record pipeline as a public company.

Tom Pike: Now I'll turn it back to Tom for the remainder of his remarks. Thank you, Jill.

Speaker Change: And we're anticipating more than a 30% increase in adjusted EBITDA next year.

Tom Pike: In closing, let me provide some thoughts about the remainder of the year in 2025. Regarding the second half of 2024, as I mentioned, our pipeline of opportunities has grown and has more large pharma, which should be more predictable. In both a third and fourth quarter, we have attractive, qualified opportunities to close in contract. If we execute, we feel confident that across the two upcoming quarters, we can average a 1.2 book to bill. Q4 looks stronger than Q3. We will continue to do everything we can to meet a 1.2 book to bill or better in the third and fourth quarters.

Speaker Change: In closing I'd like to recognize the tremendous team of professionals, we have working here at fortress.

Speaker Change: We've navigated our first year as an independent entity and the team has remained focused and dedicated to our patients Byard mission.

Speaker Change: I appreciate their commitment and their expertise when we deliver solutions that bring life changing treatments to patients faster, creating value for all of our stakeholders.

Operator can you. Please open the lineup for questions. Thank you.

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.

Tom Pike: Now let me pick up on Jill's discussion of 2025. We have a programmatic approach to increase sales and improve operating margins while delivering for customers with quality. We now understand the investments required and are planning to make them. If we hit our target book to bills, as Jill said, we're modeling more than 30% improvement to adjust the EBITDA dollars next year. In 2025, we will complete our exit from our former parent and end those heavy one-time costs. We also expect to turn cash flow positive in 2025.

Speaker Change: To withdraw your question. Please press star one again.

Speaker Change: The first question will come from Dave Windley with Jefferies. Your line is now open.

Speaker Change: Hi, good morning, Thanks for taking my questions.

Speaker Change: Did hit the doubling of EBITDA in <unk>, which I thought was going to be the hardest hurdle for you to hit.

Speaker Change: I wanted to dig into some of the moving parts in the P&L and the first question. So you mentioned that <unk>.

Speaker Change: Service fee revenue was up mid single digits.

Since total.

Speaker Change: Total revenue was basically flat means that pass throughs were down by the same amount could you quantify that and how much should we think about that being a factor that continues through the second half. Thanks.

Tom Pike: I acknowledge that this is a different financial trajectory than the one we had hoped, but it is still a very attractive increase in adjusted EBITDA in a short period of time. Let me step back and tell you why I'm so confident in Portria, because I get to see the Portria team in action, because I get direct customer feedback on our performance and how we show up from executives. We work hard here.

Speaker Change: Yes. Thank you for the question Dave.

Speaker Change: Don't quantify but I will say those biomarker studies in particular, it's really significant what we saw at the end of say acute in this period same quarter last year.

Tom Pike: We press our innovative offerings, and we seek to exceed our customer's expectations. When customers take the time to get to know us, they see us as innovative, agile, and they know the management team is accessible, of them. Internally, I meet with teams working on exiting our former parent, divesting enabling services and improving our delivery in margins. They also work hard, they resolve issues, and they meet deadlines. I meet with our AI and IT leaders regularly. We push for practical innovation while reducing overall IT costs. There's work to do, but this is the right team to do it.

Speaker Change: We saw basically high single digits and packages in that study and it kind of quadrupled over the last few quarters and then was back down more in line with what we saw in the same quarter last year and so in particular that one and we think most of the fluctuations of that one have now worked their way through and we have been saying all along.

Speaker Change: The key to us being able to drive the improvement in adjusted EBITDA will come from service fee revenue is growing.

Speaker Change: And so that we're pleased to see that it was in line with what we expected for the quarter and that's what we're projecting as we look over as you can see you saw the bridge that took you from Q1 to Q2 on our on our presentation, but obviously similar results we're expecting in terms of that magnitude for the remainder of the year.

Tom Pike: For instance, Jill and I meet weekly with teams driving our sales process. We review larger and more important deals. We press for critical thinking and what I call ferocious debates among friends to develop compelling solutions. We're getting better all the time.

Speaker Change: Another way to come at this maybe is again revenue basically flat sequentially operating costs down by about $28 million.

Speaker Change: What were the drivers of that.

Tom Pike: In my career, I've turned around businesses and I've grown businesses. Let me share this. Services firms and zeros in particular can be thought of like flywheels. If you know what a flywheel is, you know it takes effort and time to get it spinning. As Jim Collins has written, you put a great team in place, you confront the brutal facts, and then you create a culture of discipline around execution. We're doing that here at Portria. Once the flywheel is spinning, momentum is a very powerful thing. We can go on a multi-year journey to create value. Other zeros have, and we will too.

Speaker Change: You had talked on the last quarter about expanding some of the cost takeout.

Speaker Change: The restructuring that you mentioned in the prepared remarks.

Speaker Change: I assume some of it was that.

Speaker Change: Did you get a full quarter impact of that and how much of that continues.

Speaker Change: Laps into the second half or into the third quarter specifically.

Speaker Change: Yes, we did get we didn't get a full quarter of it because some of the additional pieces that we've been tacking onto that program really started in the second quarter. So that's some of the additional benefit that youll see in Q3 and Q4 in that program actually has continued through the third quarter. So you probably wouldn't see the full benefit of that until in the last quarter of the year, but that's part of the improvement.

Speaker Change: We also I called out that there have been some improvements in our it spend that we've seen as we've gone through the course of the year. There most of the SG&A improvements are very backend heavy but we are seeing some of those things help us as well and it's been just really tight cost management I'm still meeting every single week to review every single hire in the company all of the travel expense. So we really just.

Tom Pike: In summary, Portria had a very solid quarter of execution progress, and we're well positioned for growth and value creation in the future. We will get that flywheel going and build momentum. You think about it. We delivered. We doubled Evida from Q1 to Q2. We had some big relationship wins in large pharma. We have a record pipeline as a public company, and we're anticipating more than a 30% increase in adjusted Evida next year.

Speaker Change: <unk> been trying to be very disciplined about costs in this period, while revenues continued to be relatively.

Speaker Change: Rest.

Speaker Change: Okay last one for me in in the bookings numbers.

Speaker Change:

Tom Pike: In closing, I'd like to recognize the tremendous team of professionals we have working here at Portria. We've navigated our first year as an independent entity, and the team has remained focused and dedicated to our patients by admission. I appreciate their commitment and their expertise when we deliver solutions that bring life-changing treatments to patients faster, creating value for all of our stakeholders.

Speaker Change: Again kind of wondering the composition of this was this just.

Speaker Change: Lower new wins or given given some of the moving parts and changes in estimates, including your forward revenue estimate around pass throughs.

Speaker Change: Did you take like an outsized pass through.

Speaker Change: He said are effectively cancellation in the quarter.

Operator: Operator, can you please open the line up for questions? 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.

Speaker Change: It influence the overall book to Bill. Thanks, That's all for me.

Tom Pike: Hi, David its Tom.

Speaker Change: It was really just.

Tom Pike: Normal bookings there were no major cancellations and no unusual events.

Speaker Change: Those pass throughs I think the bottom line. There is just that we are having some difficulty predicting exactly when biotechs are going to contract.

David Windley: And the first question will come from Dave Windley with Jeffries. Your line is now open. Good morning. Thanks for taking my questions. You did hit the doubling of Evida on Q2, which I thought was going to be the hardest hurdle for you to hit. I wanted to dig into some of the moving parts from the P&L and the first question. So you mentioned that service fee revenue was up mid-single digits, which since total revenue is basically flat means that pastures were downed by the same amount.

Speaker Change: And.

Speaker Change: We're finding with them being about 50% of our exposure from a revenue standpoint and in this quarter. They were much higher exposure in terms of the opportunities.

We have to do a better job of understanding exactly what the timelines are and then figuring out what we can what we can do to influence those timelines. So as you heard the pipeline is actually quite strong.

David Windley: Could you quantify that and how much should we think about that being a factor that continues through the second half? Thanks. Yeah, thank you for the question, Dave. We won't quantify, but I will say those biomarker studies in particular, it's really significant. We saw at the end of, say, this in this period, same quarter last year, we saw basically high single digits in passage from that study, and it kind of quadrupled over the last few quarters, and then was back down more in line with what we saw in the same quarter last year.

Speaker Change: I would worry about this business as if the pipeline was strong but the pipeline is strong some important wins from large pharma that will give us more of a floor, but unfortunately in this quarter. We just didn't deliver in terms of the these biotech opportunities to the level that I think we could have.

Speaker Change: Got it thank you.

Speaker Change: Thank you Dave.

Speaker Change: And the next question.

Speaker Change: Comes from Patrick Donnelly with Citi. Your line is now open.

David Windley: And so in particular, that one we think most of the fluctuations of that one have now worked their way through, and we have been saying all along that the key to us being able to drive the improvements and adjust the EBITDA will come from service fee revenues growing, you know, and so that we're pleased to see that it was in line with what we expected for the quarter, and that's what we're projecting as we look over, as you can see, you saw the bridge that took you from Q1 to Q2 on our, on our presentation, but obviously similar results were expecting in terms of that magnitude for the remainder of the year. Okay.

Speaker Change: Hey, guys. Thank you for taking the questions.

Speaker Change: Tommy you can pick up on normally finish there I mean, it sounds like you guys are.

Tommy: We're feeling pretty good about the pipeline to your point.

Speaker Change: Pipeline looks pretty good at <unk>.

Speaker Change: Came in light.

Speaker Change: Youre talking about the building book to Bill over one two <unk> can you just talked about I guess the confidence levels of visibility just given the last couple of quarters, you've come up late.

Speaker Change: Got stronger pipeline, what gives you the confidence that that book to Bill does in fact build off of this.

Speaker Change: Michael.

Speaker Change: Yes, Hi, Patrick I think the difference is we've looked at in a lot of detail and you can imagine that we're all over this.

David Windley: Another way to come at this maybe is, again, revenue basically flat sequentially operating costs down by about $28 million. What were the drivers of that? Did you had talked on the last quarter about expanding some of the costs take out that, you know, the restructuring that you mentioned in the prepared remarks? I assume some of it was that, did you get a full quarter impact of that and how much of that?

Speaker Change: Given what's going on is that we look at the composition in terms of large pharma opportunities biotech opportunities. We also look at what's been awarded and and needs to be contracted versus what's more speculative.

Speaker Change: And in these upcoming quarters, we have quite a number of mid size and larger opportunities from large pharma and we do have a number of things that are awarded and need to be contracted and that gives us more confidence in what we see.

David Windley: Continues, you know, kind of laps into the second half or into the third quarter specifically? Yeah, we did get, we didn't get a full quarter of it because some of the additional pieces that we've been tacking onto that program really started in the second quarter, so that's some of the additional benefit that you'll see in Q3 and Q4, that program actually has continued through the third quarter, so you probably wouldn't see the full benefit of that until in the last quarter of the year, but that's part of the improvement.

Speaker Change: Again.

Speaker Change: To some degree I hate to acknowledges, but we're learning a little bit more about having this much biotech exposure at least I am and I think what we're doing is really revising our procedures there to try to really understand exactly what those dates are for contracting and then exactly what we can do about them.

David Windley: We also, I caught out that there have been some improvements in our IT spend that we've seen as we've gone through the course of the year, there, you know, most of the S&M improvements are very back end heavy, but we are seeing some of those things help us as well, and it's been just really tight cost management. I'm still meeting every single week to review every single higher in the company, all the travel expense, so we really just been trying to be very disciplined about costs in this period while revenues continue to be relatively suppressed.

Speaker Change: Because the ability to influence them as a key part of what we try to do as a sales team, but this upcoming two quarters with more large pharma exposure gives us some confidence because the large pharma firms have a tendency to be more.

Speaker Change: Insistent and their scheduling and more predictable because of the amount of experience they have and how they have done their approval process. So that's what makes us feel good about second half of the year.

David Windley: Okay, last one for me, in the bookings numbers, again, kind of wondering the composition of this, was this just lower new wins, or given, you know, given some of the moving parts and changes and estimates, including your forward revenue estimate around pass-throughs, did you take like an outsized pass-through, you know, reset, or, you know, effectively cancellation in the quarter that influence the overall book to bill. Thanks, and that's all for me.

Speaker Change: Certainly I'm disappointed in the Q2 number but again the pipeline looks strong and then the mix of opportunities in some of these larger pharma relationships give us some internal confidence that we're in a good position as we go forward.

Bette Jo: Okay. Thanks, Bette Jo.

Bette Jo: Yes, maybe one for Joe just on the on the 2025 conversation there it sounds like the margin and maybe more than that 11 to 12 range, but still to your point.

David Windley: Hi, David. It was really just normal bookings. There were no major cancellations and no unusual events in terms of those pass-throughs. I think the bottom line there is just that we are having some difficulty predicting exactly when biotechs are going to contract. And we're finding, you know, with them being about 50% of our exposure from a revenues standpoint, and in this quarter, they were much higher exposure in terms of the opportunity.

Speaker Change: Percent dollar growth can you just talk about the levers to get there I mean, how much of it is contingent on a certain level of topline growth versus cost outs. If you could talk gross margins SG&A. That's always helpful. But I just want to talk a little bit about the bridge to get to that.

David Windley: Police. We have to do a better job of understanding exactly what the timelines are and then figure out what we can do to influence those timelines. So as you heard, the pipeline is actually quite strong. I would worry about this business as if the pipeline wasn't strong, but the pipeline is strong. Some important wins from large farmer that will give us more of a floor, but unfortunately in this quarter we just didn't deliver in terms of the biotech opportunities to the level that I think we could have. God, thank you. Thank you, Dave.

Speaker Change: The new margin level. Thank you guys.

Speaker Change: Sure Patrick.

Speaker Change: It's really going to come from two things right in terms of the if you use roughly 300, it will be split about half and half based on what we see today half coming from gross margin improvements, but more so from really driving productivity.

Speaker Change: And improving our processes in the in the selling sorry in the project delivery space and then the other half will come from SG&A improvements, we've been talking about the fact that we need to get really through the TSA and be fully exited to start to see some of that value in the dollars coming out in SG&A and so we're expecting it to be split between.

Speaker Change: Two things.

Speaker Change: I appreciate it.

Speaker Change: And our next question comes from Loop Circuit with Barclays. Your line is open.

Patrick Donnelly: And the next question comes from Patrick Donnelly with City. Your line is now open. Hey, guys, thank you for taking questions. Tom, maybe pick up on where you finished there. I mean, it sounds like you guys are feeling pretty good about the pipeline to your point. The pipeline looked good at the start. Too cute. I think the bookabill came in light. You know, you're talking about this building, bookabill, certainly over one, two and four Q.

Speaker Change: Great. Thanks, I just wanted to follow up on.

Speaker Change: Our next question there from.

Speaker Change: On the 25 numbers. So like if you kind of just do the math, there and back it out to a 35% midpoint growth in EBITDA.

Speaker Change: 11, 5% operating margin that implies roughly a revenue number around $2 7 billion, which is comes into the low end of your guide so.

Speaker Change: One is my math.

Patrick Donnelly: Can you just talk about, I guess, the confidence level of visibility just given the last couple of quarters and come up like in spite of that stronger pipeline? What gives you the confidence that that bookabill does in fact build off on this pipeline? Yeah, hi, Patrick. I think the difference as we've looked at it in a lot of detail. And you can imagine that we're all over this given what's going on is that we look at that composition in terms of large farmer opportunities.

Speaker Change: Correct. There and then two is it something to do with expected elevated pass through kind of coming off continuing to come off as we saw in this quarter and just any color.

Speaker Change: Color there, what's actually going on between the dynamics.

Speaker Change: Yes, I think it is youre right its really that mix as we continue to expect pass throughs to moderate as we go through the course of the year and then servicing revenues be picking up we did have strong book to bills in the back half of last year. So we're starting to see some of that come through but in terms of topline numbers, it's being largely offset by what we're seeing.

Patrick Donnelly: Biotech opportunities. We also look at what's been awarded and needs to be contracted versus what's more speculative. And in these upcoming quarters, we have quite a number of midsize and larger opportunities from large farmer. And we do have a number of things that are awarded and need to be contracted and that gives us more confidence in what we see. Again, to some degree, I hate to acknowledge this, but we're learning a little bit more about having this much biotech exposure at least I am.

Speaker Change: In terms of lower pass through trends.

Speaker Change: Okay, Great and then I guess.

Speaker Change: More of a high level of market demand side.

Speaker Change: Could you talk we've seen like some weakness here in drug discovery side.

Especially on the safety assessment and you guys just talked about seeing good bookings and Clinton farm, so kind of where does that fit within the overall workflow.

Speaker Change: It's more late phase focus, but study starts continue to be.

Patrick Donnelly: And I think what we're doing is really revising our procedures there to try to really understand exactly what those dates are for contracting and then exactly what we can do about them. Because the ability to influence them is a key part of what we try to do as a sales team. But this upcoming two quarters with more large farmer exposure gives us some confidence because the large farmer firms have a tendency to be more consistent in their scheduling and more predictable because of the amount of experience they have and how they've done their approval process. So that's what makes us feel good about the second half of the year.

Speaker Change: Softer just kind of where you start seeing.

Speaker Change: Yes.

Speaker Change: If there is going to be any pressure there on the on our late stage pipeline.

Speaker Change: Yes, what we see is pretty consistent with actually with what Dave Windley wrote in one of his recent notes and.

Speaker Change: The early.

Speaker Change: Yeah Yeah.

Speaker Change: Am I going to say, but it is true but we.

Speaker Change: But we see we see a pretty consistent so in early so in phase one.

Speaker Change: It is a little bit soft in men inbound biotechs, but what we've done over the past year has continued to increase our exposure to some of the more attractive larger players in pharma and.

Patrick Donnelly: Certainly, I'm disappointed in the Q2 number, but again, the pipeline looks strong and then the mix of opportunities and some of these larger farmer relationships give us some internal confidence that we're in a good position as we go forward. Okay, thanks, bad stuff. Yeah, maybe one for Gerald, just on the 2025 conversation there, I think it's a margin and maybe more not 11 to 12 lines, but still to your point, I think it's 30% dollar growth.

Speaker Change: What we see is there is a group of pharmaceutical firms that are actually spending quite a bit more on R&D.

Speaker Change: And we're pretty well positioned with a number of those firms plus picking up some new customers in the phase one spot that are out of again larger pharma. So so I think for US what's happening is we're just.

Speaker Change: Well viewed and well positioned and that's giving us.

Speaker Change: <unk> an advantage when it looks when we look at the clinical pharmacology that being said, we also see the same thing, which generally being discussed in the industry that.

Patrick Donnelly: Can you just talk about the levers to get there? I mean, how much of it is contingent on a certain level of top line growth? There's cost outs, you know, if you can talk gross margin, that's true, maybe that's only possible, but if you want to talk a little bit about the bridge to get to that, that new margin number, thanks. Yeah, sure, Patrick. So it's really going to come from two things, right?

Speaker Change: Phase II and phase III is being prioritized and so given that it's being prioritized.

Speaker Change: We're seeing for a company like ours with the exposure. We have we are seeing plenty of demand for phase II phase III type studies. So I think I generally agree with that commentary that's out there about how the industry is going but again given that we're mostly exposed to phase two three and four that is a benefit for us.

Patrick Donnelly: In terms of the, if you use roughly 300, it'll be split about half and half based on what we see today. Half coming from gross margin improvements, but more so from really driving productivity and improving our processes in the, you know, in the selling, sorry, in the project delivery space. And then the other half will come from SGNA improvements. We've been talking about the fact that we need to get really through those TSAs and be fully exited to start to see some of that value and the dollars coming out in SGNA. And so we're expecting it to be split between those two things. Appreciate it.

Speaker Change: Yes, yes, if that's all right. Thanks.

Speaker Change: And the next question comes from Elizabeth Anderson with Evercore. Your line is open.

Elizabeth Anderson: Hey, Thanks, so much maybe just piggybacking off of what Luc was just asking how have you found the pricing environment.

Speaker Change: In the recent.

Speaker Change: Maybe in the pipeline and some of your recent wins and if you could differentiate between biotech and pharma for that that would be super helpful.

Luke Sergott: And our next question comes from Luke Sergott with Barclays. Your line is open. Great. Thanks. I just wanted to follow up on Patrick's question there from on the 25 number. So like if you, if you kind of just do the math there and back it out, you have 35% midpoint growth in EBITDA. And you have like 11.5% operating margin that implies roughly a revenue number around 2.7 billion, which is comes into the low under your guide.

Speaker Change: Thanks, Elizabeth in terms of <unk>.

Speaker Change: Biotech pricing I think it continues to be consistent with what its been and thats good market based pricing.

Speaker Change: We occasionally see somebody step in to buy something there in biotech, but for the most part its <unk>.

Speaker Change #100: Solid disciplined pricing in that marketplace, and then in large pharma similar to the commentary of some of our.

Speaker Change #101: Competitors, we generally are seeing full service outsourcing b.

Luke Sergott: So, you know, one is that is my math correct there. And then two, is it like something to do with expected elevated pass through kind of coming off, continuing to come off as we saw in this quarter and, you know, just any color there what's actually going on between the dynamics. Yeah, I think it is, you're right. It's really that mix as we continue to expect pass through to moderate as we go through the course of the year.

Speaker Change #102: A reasonable market based pricing you should know that portrait tries to go for market based pricing and what I mean by that is there is probably some band of reasonable prices out there and we try to be in that band, where we maintain our margins, but we deliver good value for the customer we do see.

Speaker Change #102: FSP some situations where.

Luke Sergott: And then, you know, service through revenues be picking up. We did have strong book to bills in the back half of last year. So we're starting to see some of that come through, but in terms of top line numbers. It's being largely offset by what we're seeing in terms of lower pass through trends. Okay, great. And then I guess more high level of market demand side, you know, we've seen like some weakness here in drug discovery side, especially on the safety assessment.

Speaker Change #102: Our competitors is really lowering prices.

Speaker Change #102: Luckily as we've discussed on prior calls we're not as exposed to these really large volume FSP deals as some of our competitors are.

Speaker Change #102: So.

Speaker Change #103: Personally I've been around this industry for a while I don't think thats sustainable, but we are seeing FSP in the largest situations be very very competitive so does that help Elizabeth.

Luke Sergott: And you guys just talked about seeing good bookings and clean farm. So kind of where does that fit within the overall workflow. I know it's more late phase focus, but you know, study starts continue to be softer just kind of where you start seeing the if there is going to be any pressure there on the on the late stage pipeline. Yeah, we're what we see is pretty consistent with actually what Dave Windley wrote in one of his recent notes.

Speaker Change #104: Yes, that's super Great commentary. Thank you for that maybe just as a follow up.

Speaker Change #105: Back half guide I think implies a backlog burn of about nine 4% ish and obviously, that's a little bit of an acceleration versus what we saw in the first half of the year, but down year on year ourselves. So how do we just think about that and sort of why is that kind of the right level sort of studies that are there.

Speaker Change #106: Or coming forward that you know that have started to burn already like you could just give us any more color on why that's the right burn rate that would be great. Thanks.

Luke Sergott: And that's that the early go up. Yeah, yeah, what am I going to say, but it's true, but we, but we see we see a pretty consistent so in early so in phase one. It is a little bit softer than man among biotechs, but what we've done over the past year is continue to increase our exposure to some of the more attractive larger players and farmer. And, you know, what we see is there is a group of pharmaceutical firms that are actually spending quite a bit more on R&D.

Speaker Change #107: Sure Elizabeth Yes, I think I think its two things one as you say I mentioned that what we want in the second half of last year is starting to come into the pipeline and we're being really focused on those new projects in particular, and ensuring we execute them as rapidly as possible.

Speaker Change #107: Getting sites initiated.

Speaker Change #107: Getting to those patient enrollment milestones, where we can start to also bill in addition to recognizing revenue. So those are important things.

Speaker Change #108: You have the combination of that plus the work, Tom and Tom talked about us being on the sales call were also on weekly project review call. Then we're going through and looking at all large projects come forward every every week and we talked through and understand where they are and try to do what we can to get any barriers out of the way, whether it's resourcing our leadership.

Luke Sergott: And we're pretty well positioned with a number of those firms, plus picking up some new customers in the phase one spot that are out of again larger. So, so I think for us what's happening is we're just First, well viewed and well positioned, and that's giving us a bit of an advantage when we look at the clinical pharmacology.

Speaker Change #109: Engagement or working with customers in terms of trying to get decisions. So those two things are really allowing us to start to drive some momentum in and how we're burning through our backlog its a little bit of an uptick.

Luke Sergott: That being said, we also see the same thing that's generally being discussed in the industry that phase two and phase three is being prioritized, and so given that it's being prioritized, we're seeing, you know, for a company like ours, for the exposure we have, we're seeing plenty of demand for phase two, phase three type studies, so I think I generally agree with that commentary that's out there about how the industry is going, but again, given that we're mostly exposed to phase two, three, and four, that is benefit for us, yeah, yeah if I thought, all right, thanks.

Speaker Change #108: It's a constant.

Speaker Change #110: It's a constant battle that we're making to try to grow revenue, but against those two things we're seeing some initial progress.

Speaker Change #111: Got it that's helpful. Thank you.

Speaker Change #112: And the next question comes from Justin Bowers with DB. Your line is open.

Speaker Change #113: Hi, good morning, everyone.

Can you talk a little bit how you're positioning for trader.

Speaker Change #114: And in biotech versus large pharma.

Elizabeth Anderson: And the next question comes from Elizabeth Anderson with Evercore, your line is open. Hey, thanks so much, maybe just piggybacking off of what Luke was just asking. How have you found the pricing environment in the recent, you know, maybe in the pipeline and some of your recent wins, and if you could differentiate between biotech and farm up for that, that would be super helpful. Yeah, thanks Elizabeth. In terms of biotech pricing, I think it continues to be consistent with what it's been and that's good market based pricing, and we occasionally see somebody step into buy something there and biotech, but for the most part, it's solid, disciplined pricing in that marketplace.

Speaker Change #115: And maybe discuss some of the steps that you're taking in terms of the commercial transformation and how youre going to market.

Speaker Change #116: Yes, thanks, Justin in terms of biotech we have this strong medical expertise that we inherited from covance overtime and.

Speaker Change #117: Excellent physicians excellent strategists, we were just on a call the other day, where our lead strategist actually did her ph D. In this specific mechanism an indication of the project and had some really innovative ideas. So when it when it comes to biotech what we're really trying to do.

Speaker Change #116: Figure out how we can.

Speaker Change #118: With quality shorten their timelines and really bring the medical scientific expertise, how we can help them with the protocol development to make sure that we reduce protocol amendments.

Elizabeth Anderson: And then in large pharma, similar to the commentary of some of our competitors, we generally are seeing full service outsourcing be reasonable market based pricing, you should know that Portria tries to go for market based pricing, and what I mean by that is there's probably some band of reasonable prices out there, and we try to be in that band where we maintain our margins, but we deliver a good value for the customer. We do see an FSP, some situations where a competitor is really lowering prices.

Speaker Change #116: And give them the <unk>.

Speaker Change #119: <unk> investigator relationships and access that it's hard to get as a small biotech with large pharma it's interesting there.

Speaker Change #119: Alluded to in my comments, they're very interested in productivity right now we're seeing some of the consultants to the industry really pushing productivity.

Speaker Change #119: It's a discussion topic, whether they are increasing their spending on R&D or not.

Speaker Change #120: So what we're really doing is leaning into how does for trio being a relatively agile company, how do we help them be more productive and so as I said in my remarks. We've decided this is something I've been passionate about for a long time and so we've really decided to try to center ourselves so not.

Elizabeth Anderson: Luckily as we've discussed on prior calls, we're not as exposed to these really large volume FSP deals as some of our competitors are. And so personally, I've been around this industry for a while, I don't think that's sustainable, but we are seeing FSP in the largest situations be very, very competitive. So does that help Elizabeth? Yeah, that's super great comment here. Thank you for that. Maybe just as a follow up, the back half guide, I think, implies a backlog of about 9.4% ish.

Speaker Change #120: Just for instance, investing in AI generally, but how do we improve the productivity of some of the more expensive parts of the clinical trial, such as the interaction with CRA is around sites or reducing protocol amendments around.

Speaker Change #120: That have secondary effect costs throughout the trial.

Elizabeth Anderson: And I just, obviously that's a little bit of an acceleration versus what we saw in the first half of the year, but a down year and year still. So how do we just think about that and sort of why is that kind of the right level? Are there sort of studies that are coming forward that you know that have started to burn already? Like we could just give us any more color on why that's the right burn rate, that would be great.

Speaker Change #121: So with Big Pharma, we're really trying to center ourselves in this productivity discussion with biotech it's more acceleration scientific support real world evidence integration those types of things does that help Justin I know thats, a little detailed for an earnings call, but maybe it gives you a sense.

Elizabeth Anderson: Thanks. Sure Elizabeth. Yeah, I think it's two things. One, as you say, I mentioned what we won in the second half of last year is starting to come into the pipeline and we are being really focused on those new projects in particular and ensuring we execute them as rapidly as possible, you know, getting sites initiated, you know, getting to those patient enrollment milestones where we can start to also bill in addition to recognizing revenue.

Speaker Change #122: I appreciate it and then just a follow up for maybe you in general on the bookings were there any delays or push outs from <unk> into the second half of the year I mean, you talked about.

Speaker Change #123: Some are some awards that were not yet contracted and then.

Speaker Change #124: Should we just think of this as being just given the size of the organization and where you are now like should we just think of the bookings are just being a little more volatile from quarter to quarter, but.

Elizabeth Anderson: So those are important things. So you have the combination of that, Clest, the work, you know, Tom and I, Tom talked about us being on the sales call, we're also on weekly project review calls and we're going through and looking at all, you know, large projects come forward every week and we talk through and understand where they are and try to do what we can to get any barriers out of the way, whether it's resourcing or leadership engagement or working with customers in terms of trying to get the decision.

Speaker Change #124: At the end of the year sort of you can maybe get back to the $1. Two on average is that sort of like where we are in the cycle right now over the next call it like four to six quarters.

Speaker Change #125: Let me start on that I do think that we are to your last point there we're trying to get to a point, where we have a trailing 12 months of one point to so that we have that ongoing amount of bookings that really helps us grow.

Elizabeth Anderson: So those two things are really allowing us to start to drive some momentum in how we're burning through our backlog. It's a little bit of an uptick, you know, it is a constant, you know, it's a constant battle that we're making to try to grow revenue, but against those two things, we're seeing some initial progress. Got it. That's helpful. Thank you.

Speaker Change #126: So I do think for better or worse, what youre seeing in fact is a little more volatility than we would like.

Speaker Change #126: But again the key thing is the pipeline is strong right now.

Speaker Change #126: Aye.

Elizabeth Anderson: And the next question comes from Justin Bowers with DB. Your line is open. Hi, good morning, everyone. Tom, can you talk a little bit how you're positioning Fortrea in biotech versus large pharma and maybe discuss some of the stuff that you're taking in terms of the commercial transformation and how you're going to market? Yeah, thanks, Justin. In terms of biotech, you know, we have this strong medical expertise that we inherited from co-vants over time and some excellent physicians, excellent strategists.

Speaker Change #127: I don't know Jill if you'd comment more on that but I.

Speaker Change #127: I think.

Speaker Change #129: We should be able to with the efforts we're doing at predictability and then the relationships. We are developing I think we're expecting to be able to get greater consistency here.

Elizabeth Anderson: We were just on a call the other day where our lead strategist actually did her PhD in this specific mechanism and indication of the project and had some really innovative ideas. So when it comes to biotech, what we're really trying to do is figure out how we can with quality shorten their timelines and really bring the medical scientific expertise, how we can help them with protocol development to make sure that we reduce protocol amendments and give them the site investigator relationships and access that it's hard to get as a small biotech.

Speaker Change #130: And Thats, obviously, the target I think we called out the one in the first quarter because it happened so late and it was yes.

Speaker Change #131: And it was large and we had had confirmation from them that it was going to happen and then it did in at the last minute. So I think I don't want to be talking about pushing us from quarter to quarter. We're just targeting consistently getting to that one two over time and with the pipeline that we see for the second half we believe we've got the the.

Speaker Change #130: The mechanism to do that.

Speaker Change #130: Thank you I'll jump back in queue.

Speaker Change #130: Thank you.

Speaker Change #130: And the next question comes from Matt Smart with William Blair. Your line is open.

Speaker Change #132: Hi, good morning, Thanks for taking our questions wanted to just drill in a little bit more.

Speaker Change #133: And to your commentary around small biotech and decision making process there.

Matt Smart: And can you give us a sense for just how those decision, making timelines have changed across this year. It seems like funding really trailed off in June and July just wondering if you've seen biotech become even more cost conscious cost conscious in the last couple of months in particular.

Elizabeth Anderson: With large pharma, it's interesting. As I alluded to in my comments, they're very interested in productivity right now. We're seeing some of the consultants to the industry really pushing productivity. It's a discussion topic whether they're increasing their spending on R&D or not. And so what we're really doing is leaning into how does Fortria, with being a relatively agile company, how do we help them be more productive? And so as I said in my remarks, we've decided this is something I've been passionate about for a long time and so we've really decided to try to center ourselves.

Matt Smart: And what do you get the sense. These customers are waiting to see in order to feel more comfortable about moving these programs forward here in the near future. Thank you.

Speaker Change #135: Yes, I think cost consciousness was they've always been pretty cost conscious because they are on a budget maybe 'twenty 'twenty. One 'twenty two is a little bit of an exception, but generally they've been pretty cost conscious I do think we're seeing more involvement of different elements of the organization, whether it's the board whether it's more interaction with the <unk>.

Speaker Change #135: Top executives in the company that are causing the biotechs to just.

Speaker Change #135: Have an anticipated schedule and.

Speaker Change #135: And at least from what we're seeing then have that anticipated schedule slipped through these further discussions.

Elizabeth Anderson: So not just, for instance, investing in AI generally, but how do we improve the productivity of some of the more expensive parts of the clinical trial, such as the interaction with CRAs around sites or reducing protocol amendments around, you know, that have secondary effect costs throughout the trial. So with big pharma, we're really trying to center ourselves in this productivity discussion. With biotech, it's more acceleration, scientific support, real-world evidence integration, you know, those types of things.

Speaker Change #135: As Joe said, it's <unk>.

Speaker Change #135: Difficult.

Speaker Change #136: Thank you.

Speaker Change #137: Fact that we now have a larger pipeline because of some of the slower processes doesn't make us want to promise you anymore, but.

Speaker Change #138: But there is no question that the decision for US is over the last say four to six quarters have gotten a little bit slower in biotech is there just a little bit more careful with their budgets.

Speaker Change #138: Understood. Thank you and then maybe just a quick follow up for me here on burn rate.

Elizabeth Anderson: Does that help, Justin? I know that's a little detailed for an earnings call, but maybe gives you a sense. Yep, appreciate it. And then just a follow up for maybe you and in general on the bookings, were there any delays or push outs from 2Q into the second half of the year? I mean, you talked about some awards that were not yet contracted. And then, you know, should we just think of this as being just given the size of the organization and where you are now?

Speaker Change #139: Wondering if employee retention if you can give some commentary around how that has tracked so far here in 2024, and what impact turnover has had on the lower than expected burn rate that we've seen over the last couple of quarters here. Thank you.

Speaker Change #140: Yes sure.

Speaker Change #141: I know we've been talking towards the end of last year and early this year that we were seeing attrition levels well below pre COVID-19 norms.

Speaker Change #142: Maybe moved up just slightly but they are really in line with the industry nothing significant there. We don't think that's a significant factor in terms of the burn rate I mean for us, it's really about continuing to focus on the productivity enhancements greater execution around the.

Elizabeth Anderson: Like, should we just think of the bookings as just being a little more law tool from quarter to quarter, but, you know, at the end of the year, sort of, you can maybe get back to the 1.2 on average, is that sort of like where we are in the cycle? Right now,[inaudible] Sanders. Let me start on that. I do think that we are to your last point there. We're trying to get to a point where we have a trailing 12 months of 1.2 so that we have that ongoing amount of bookings that really helps us grow.

Speaker Change #143: The delivery and making sure that we unlock the barriers and for our teams to be able to deliver the projects as efficiently as possible, we're not seeing attrition to be a big factor.

Speaker Change #143: Okay, great. Thanks, again for taking my questions.

Speaker Change #144: Thanks Max.

Charles <unk>: And the next question comes from Charles <unk> with TV Cowen Your line is open.

Charles <unk>: Yes.

Elizabeth Anderson: And so I do think for better or worse what you're seeing in fact is a little more volatility than we would like. But again, the key thing is that the pipeline is strong right now. I, you know, I don't know, Jill, if you'd comment more on that. But I think we should be able to with the efforts we're doing at predictability and then the relationships we're developing. I think we're expecting to be able to get greater consistency here.

Charles <unk>: Thanks for taking the questions.

Charles <unk>: Wanted to maybe just go into a little bit more you talked about sort of the Cogs just that biotech is what had been sort of.

Speaker Change #146: Mindful of spending and obviously some of your peers have also talked about some cautiousness how.

Speaker Change #147: How much do you think it maybe on the macro environment that.

Lack of sort of rate.

Speaker Change #148: No. We haven't haven't seen has that played a bigger part is that come up in discussions.

Elizabeth Anderson: That's obviously the target. I think we called out the one in the first quarter because it happened so late and it was and it was large and we had had confirmation from them that it was going to happen and then it didn't at the last minute. So I think I don't want to be talking about pushing it from quarter to quarter. We're just targeting consistently, getting to that 1.2 over time. And with the pipeline that we see for the second half, we believe we've got the, you know, the mechanism to do that. Thank you. I'll jump back and you. Thank you.

Speaker Change #148: And then secondly for Jill.

Speaker Change #149: Think about the EBITDA margin guide.

Speaker Change #150: Implied for the 2025 revenue growth.

Speaker Change #151: How much of that is predicated on hitting the one two book to bill in the back half of the year.

Speaker Change #152: If you can give us a sense on maybe some of the sensitivity can you still get there is there a little bit short or.

Speaker Change #152: That that at least 1.2 is required.

Speaker Change #152: Okay.

Speaker Change #153: Thanks, Charles I think I think I'd summarize the biotech market as being solid.

Maxwell Smock: And the next question comes from Max Smock with William Blair. Your line is open. Hi, good morning. Thanks for taking our questions. We're going to just drill in a little bit more. Indeed, our commentary around small biotech and decision making process there. And can you give us a sense for just how those decision-making timelines have changed across this year? It seems like funding really tried out awesome June and July. Just wondering if you've seen biotech become even more cost conscious in the last couple of months in particular. And what do you get to sense these customers are waiting to see in order to feel more comfortable about moving these programs forward here in the near future?

Speaker Change #154: It is consistent with prior quarters consistent with this year that it is a solid environment and then in terms of the larger pharma, we really do see three groups of them. We see those that are growing those that are sort of.

Speaker Change #154: Slow growth or flattish and then those that are flat to declining we actually see different behaviors in those different groups and so we think about our targeting emblem very differently and so on.

Speaker Change #154: Again, biotech being more than 60% of the of the <unk>.

Speaker Change #154: R&D market these days being where a lot of the innovation is happening continues to be a big target be solid and attractive for us to portray a big part of our history, but then we're being very careful because the large pharma market is really pretty distinct in how it's reacting with some actually increase.

Maxwell Smock: Thank you. Yeah, I think cost consciousness wise, they've always been pretty cost conscious because they're on a budget. You know, maybe 2021-22 was a little bit of an exception, but generally they've been pretty cost conscious. I do think we're seeing more involvement of different elements of the organization, whether it's the board, whether it's more interaction with the top executives in the company that are causing the biotechs to just have an anticipated schedule.

Speaker Change #154: Full service outsourcing.

Speaker Change #154: Some pressing for savings and productivity and then some actually restructuring simultaneously.

Speaker Change #154: Does that Charles that help on the market overall, and how we're thinking about it.

Maxwell Smock: And then at least from what we're seeing, then have that anticipated schedule slip through these further discussions. As Jill said, you know, it's difficult. I don't think the fact that we now have a larger pipeline because of some of these slower processes doesn't make us want to promise you anymore, but there's no question that the decision process is over the last, say, four to six quarters have gotten a little bit slower in biotech because they're just a little bit more careful with their budgets. Understood, thank you.

Charles <unk>: Yes, it does.

Charles <unk>: Maybe before.

Joe: Joe you talked about the margins just to follow up on that Tom could you mentioned earlier right into CRO commentary one of the big pharma.

Charles <unk>: On the engagement and as you said.

Charles <unk>: That David commented that portfolio kind of presented differently, maybe you can provide.

Charles <unk>: For more details on.

Charles <unk>: <unk>.

Speaker Change #155: On how you presented differently, but what would be the kind of call out.

Speaker Change #155: Yes. It is.

Speaker Change #155: Number of factors, it's largely alignment with their values of where they're going so when you. When you look at what we're trying to do it for tree of this focus on productivity this focus on.

Maxwell Smock: And then maybe just a quick follow from me here on on burn rate. I'm wondering if employee retention, if you can get some commentary around how that has tracked so far here in 2024 and what impact turnover has had on the lower than expected burn rate that we've seen over the last couple of quarters here. Thank you. I'm going to do that, Jill. Yeah, sure. So, I know we've been talking towards the end of last year and only this year that we were seeing attrition levels well below pre-COVID norms.

Speaker Change #155: How we can be.

Jill McConnell: To be more effective at supporting their need to accelerate drug development, we're getting very good feedback about that and then the other frankly is that our management and it's not just me and Jill frankly, it's as you go down through levels of this organization. It's all quite aligned they do like what we're doing in artificial.

Maxwell Smock: They've, they've maybe moved up just slightly, but they're really in line with the industry, nothing significant there. We don't think that's a significant factor in terms of the burn rate. I mean, for us it's really about continuing to focus on the productivity enhancement, greater execution around the delivery and making sure that we unlock the barriers and, you know, for our teams to be able to deliver the projects as efficiently as possible. We're not seeing attrition be a big factor. Okay, great. Thanks for giving me a question. Thanks, Max.

Speaker Change #156: Intelligence, we have some concepts here that we'd like to show to you guys later in the year associated with how we think about technology, how we think about simplifying and making more efficient the cra's job, how we're trying to use hub ing and centralization to lower the overall costs.

Jill McConnell: And.

Jill McConnell: They're excited to collaborate with us over the coming few years in terms of how we can try to get greater productivity into clinical research.

Charles Rhyee: And the next question comes from Charles Rhyee with T.D. Kohn, when your line is open. Yeah, thanks for taking the question.

Jill McConnell: Okay.

Speaker Change #157: And I'll pick up on your question, Yes, we have.

Charles Rhyee: I wanted to tell me, just go into a little bit more. You talked about sort of the cost, you know, just that five take is always been sort of mindful of spending. And, you know, obviously some of your peers have also talked about some cautiousness. You know, how much do you think it's maybe on the macro environment that, you know, lack of sort of rate, you know, cuts that we haven't seen, if that's played a bigger part, you know, has that come up in discussion.

Speaker Change #158: We are working very hard to deliver on average across that back half that one two times book to bill that will be very important we would we would have margin expansion.

Speaker Change #159: If we were able to be a little bit less than that but I think to get to those levels. It's really important because as you know getting revenue through the through the final. It is very critical in being able to.

Speaker Change #159: Bringing those new projects, where we can apply the new techniques and methodologies. We're doing is really important. So we are very much <unk>.

Charles Rhyee: And then secondly, maybe for Jill, when, you know, if we think about the EBITDA Margin Guide, implied for the 2025 revenue growth, you know, how much is that is predicated on hitting the 1.2 book to bill in the back after year? Like, what's, maybe you can give us a sense on maybe some of the sensitivity? Can you still get there if you're a little bit short or, you know, is it, is it that at least 1.2 is required?

Working towards getting that one two times to be able to get to the 2025 target.

Speaker Change #159: Great. Thank you.

Speaker Change #160: And our next question comes from.

Matt <unk>: Matt <unk> with Goldman Sachs. Your line is open.

Good morning. This is <unk> on for Matt. Thank you for taking your questions.

Charles Rhyee: Thanks. Thanks, Charles. I think I'd summarize the biotech market as being solid. So it is consistent with prior quarters, consistent with this year that it is a solid environment. And then in terms of the larger pharma, we really do see three groups of them. We see those that are growing, those that are sort of slow growth or flatish, and then those that are flat to decline. And we actually see different behaviors in those different groups.

Speaker Change #162: Touched on the cost savings a little bit on Dave's question, but just to dig a little deeper there.

Speaker Change #163: Is there scope to continue to drive costs lower than you previously expected given the revenue and booking trends this year and maybe some overcapacity you've experienced and I guess put differently. How are you thinking about balancing cutting costs and expanding margins, while being ready to absorb greater demand when it comes through.

Speaker Change #162: Yes.

Speaker Change #164: It has been now on the head on that last point there right. We're trying to be very very disciplined and think about how we balance improving the bottom line with making sure hearing feedback from our customers and the things we need we know when we show up particularly a large farm opportunity. They expect you to have a global footprint and be able to produce work.

Charles Rhyee: And so we think about our targeting of them very differently. And so again, biotech being, you know, more than 60% of the, of the R&D market these days, and being where a lot of the innovation is happening continues to be a big target, be solid and attractive for us at Portria, a big part of our history. But then we're being very careful because the large pharma market is really pretty distinct in how it's reacting with some actually increasing full service outsourcing, some pressing for savings and productivity, and then some actually restructuring simultaneously. So Charles, that help on the market overall and how we're thinking about it.

Speaker Change #165: And any country that they that they are looking for support. So it is a balancing act we know theres opportunity to take out further costs in SG&A. We're very focused on that we've talked about that historically you can see it in our SG&A, even the underlying as a percent of revenue we've talked about the fact that in it in particular, we're working hard to bring down the cost, but we're trying to be really thoughtful think.

About things like Tom had mentioned with the AI and ml, how we can use that to also improve productivity. So it is a balancing act, but we are certainly being mindful of our costs as we go forward, while we try to be prepared for what we hope will be significant growth in the future.

Speaker Change #166: That's helpful. Thank you and then one more quick one on our side.

Tom Pike: Yeah, maybe before Killie talked about the market, just follow up on that time, because you mentioned earlier, right, in your pro-convigy, it's one of the big pharma engagement, and you said that they had come in that Portria kind of presented differently. Maybe you can provide more to your sales on how you presented differently. But what would they call out? Yeah, it's a number of factors. It's largely alignment with their values of where they're going.

Speaker Change #167: Even the dispersion between pharma and biotech in the discussions this quarter longer term how are you thinking about the customer mix split between biotech and pharma are you still aiming for that 50 50 split or is your thought process evolving there. Thank you.

Speaker Change #168: Yeah. Thanks, well I think we would like to continue on with this mix. We like this mix because the large pharma gives you that consistency of opportunities in <unk>.

Speaker Change #169: Clearly as you can tell from this call. We we want to consistently deliver for you and for our people and our customers. So you get that consistency with large pharma and frankly, we also think that some of the things that we're doing around productivity benefit the biotechs as well on the other hand biotech market.

Tom Pike: So when you look at what we're trying to do at Fortrea, this focus on productivity, this focus on how we can be more effective at supporting their need to accelerate drug development, we're getting very good feedback about that. And then the other frankly is that our management, it's not just me and Jill, frankly, it's as you go down through levels of this organization, it's all quite aligned. They do like what we're doing in artificial intelligence.

Speaker Change #169: It is rich it is growing it is getting investment and it is <unk>.

Speaker Change #170: <unk> to continue to grow as a proportion of the overall R&D spend I certainly in my discussions Big Pharma you certainly continue to have a lot of interest in trying to look at the assets that are attractive.

Tom Pike: We have some concepts here that we'd like to show to you guys later in the year associated with how we think about technology, how we think about simplifying and making more efficient the CRAs job, how we're trying to use hubbing and centralization to lower the overall costs. And they're excited to collaborate with us over the coming few years in terms of how we can try to get greater productivity into clinical research.

Speaker Change #169: <unk>.

Speaker Change #169: The large pharma is looking to biotech for a lot of its innovation.

Speaker Change #171: And so we think continuing to serve that market and we have a history of it you'll know that covance that acquired Chiltern Chiltern was very biotech over 100% biotech focused really.

Speaker Change #172: So we have a lot of good skills for biotechs, and we hope to keep that 50 50 mix going.

Speaker Change #172: Okay.

Jill McConnell: Okay, now I'll pick up on your question. I mean, yes, we, you know, we are working very hard to deliver, you know, on average, across that back half, that 1.2 times book to bill, that will be very important. We would have margin expansion, you know, if we were able to be a little bit less than that, but I think to get to those levels, it's really important, because as you know, getting revenue through the funnel is very critical and being able to, you know, bring in those new projects where we can apply the new techniques and methodologies we're doing is really important. So we are very much working towards getting that 1.2 times to be able to get to the 2025 target. Great, thank you.

Speaker Change #172: And our next question comes from Eric Coldwell with Baird. Your line is open.

Eric Coldwell: Thank you.

Speaker Change #174: First I think I have three questions.

Speaker Change #175: What was the breakdown of the $54 million spin related cost here in the quarter.

Speaker Change #176: Why was that up over three <unk> quarter over quarter, and what is the expected level in <unk>.

Speaker Change #176: <unk> and <unk>.

Speaker Change #178: Yes, sure Eric I'll take that one.

Speaker Change #179: We're expecting it to increase.

Speaker Change #180: We're not expecting to be at that level quarterly for the remainder of the year, but we knew that it was going to ramp over the course of the year because of the fact that the heavy lift in terms of the particularly the I T.

Matt Sykes: And our next question comes from Matt Sykes with Goldman Sachs. Your line is open. Good morning. This is Will or Maya on from Matt. Thank you for taking our questions. You touched on the cost savings a little bit on Dave's question, but just to dig a little deeper there. Is there scope to continue to drive costs slower than you previously expected given the revenue and booking trends this year and maybe some over capacity you've experienced?

Speaker Change #180:

Speaker Change #180: Transitions that we were doing those are aware the majority of the costs were so the vast majority of that probably.

80% of it is related type costs and the rest would be supporting the other groups, but I mean, it's all the things around.

Speaker Change #180: Transitioning servers, we've got about 30% of those transition the team is working hard and there are more.

Speaker Change #181: More than 1000 of those it's the application for hundreds of applications that we're working on we've talked openly about the fact that we're replacing our ERP and HCM. So it's really all of the costs to help support those coming across.

Matt Sykes: And I guess put differently, how are you thinking about balancing cutting costs and expanding margins while being ready to absorb greater demand when it comes to real? Yeah, you've hit the, you've hit the now on the head on that last point there, right? We're trying to be very, very disciplined and think about how we balance improving the bottom line with making sure, you know, hearing the feedback from our customers and the things we need, we know when we show up, particularly at large harm opportunities, they expect you to have a global footprint and be able to produce, you know, work in any country that they that they are looking for support.

Speaker Change #181: We are expecting is don't have to spend on it in Q3 and Q4, but not to the extent we would.

Speaker Change #181: At the moment based on our projections that it would be the highest quarter, but there still will be spend on it in the third and fourth quarters.

Speaker Change #182: When you say less Jill are you talking I mean is it $40 million $20 million what does their ZIP code you could put us on for how to go into the next quarter.

Speaker Change #181: Yes.

Jill McConnell: I think it's probably still going to be it's not going to be as low as it was in first quarter, but it won't be as high as it was in the second quarter.

Matt Sykes: So it is a balancing act. We know there's opportunity to take out further costs in SGA. We're very focused on that. We've talked about that historically. You can see it in our SGA. Even the underlying as a percent of revenue, we've talked about the fact that in IT in particular, we're working hard to bring down the cost. But we're, you know, trying to be really thoughtful, think about things like Tom had mentioned with the AI and ML, how we can use that to also improve productivity.

Jill McConnell: Just to kind of I think if you think about the average of that that's probably a fair approximation.

Jill McConnell: Okay and then.

Speaker Change #183: Was there.

Speaker Change #183: A bonus reversal benefit to two to two <unk> and is there an accrual reduction impact that you would call out that's incremental driving the second half.

Matt Sykes: So it is a balancing act, but we're certainly being mindful of the cost as we go forward while we, you know, try to be prepared for what we hope will be significant growth in the future. Chair. That's helpful. Thank you. And then one more quick one on our side. Given the dispersion between pharma and biotech in the discussions this quarter, longer term, how are you thinking about the customer mix split between biotech and pharma?

Speaker Change #184: There was a very small amount that we unwound in Q2, but that wasn't the biggest driver of the improvement from an adjusted EBITDA perspective. It was really small I mean, obviously, yes. We have publicly said that we are reducing our future accruals because of the fact that we are below where we were expecting to be for the year. So that is a little bit of a benefit in the second half, but it wasn't.

Matt Sykes: Are you still aiming for that 50-50 split or is your thought process evolving there? Thank you. Yeah, thanks. Well, I think we would like to continue on with this mix. We like this mix because the large pharma gives you that consistency of opportunities and clearly as you can tell from this call, we want to consistently deliver for you and for, you know, our people and our customers. So you get that consistency with large pharma.

Speaker Change #184: The big driver of the <unk> performance from an adjusted EBITDA perspective.

Speaker Change #185: I'm, just trying to get a sense on the.

Speaker Change #186: The comp as you go into 2025.

Speaker Change #187: If you work to move back to normal accruals in 'twenty five obviously from a lower level than was previously expected, but what kind of a year over year headwind might that be and is that factored into the 11% to 12% EBITDA guidance. It is factored in preliminary I guess, yes preliminary outlook. It is factored into that it will it will be.

Matt Sykes: And frankly, we also think that some of the things that we're doing around productivity benefit the biotech as well. On the other hand, biotech market is rich, you know, it is growing, it is getting investment and it is expected to continue to grow as a proportion of the overall R&D spend. I certainly, in my discussions, big pharma that you certainly continue to have a lot of interest in trying to look at the assets that are attractive and, you know, the large pharma is looking to biotech for a lot of its innovation.

Speaker Change #188: A headwind that we'll have to work to overcome and that's part of the work that we're doing across the teams.

Speaker Change #189: We did talk a little bit about that the benefits of that restructuring program. Because we are continuing to work through that through this quarter not really seen full benefits of that towards the end of this year that will help offset some of that as we go into next year, but that is also a headwind that we're working towards with the efficiency and productivity programs that we have in place.

Speaker Change #189: It's important to be able to get back to that.

Matt Sykes: And so we think continuing to serve that market. You know, that co-vants that acquired Chiltern, Chiltern was very biotech, 100% biotech focused really. And so we have a lot of good skills for biotechs and we hope to keep that 50-50 mix going. Okay, and our next question comes from Eric. Code well with Bayard. Your line is open. Thank you. First, I think I have three questions. What was the breakdown of the 54 million spend-related cost here in the quarter?

Speaker Change #189: The thing is hi, Eric the main thing is its planned it yes. It is part of it yes, Okay and I know I said I had three questions I guess, there's probably a few more sub parts to these but on the last one.

Speaker Change #190: You said you were making changes to get the bookings going.

Speaker Change #191: <unk> talked a bit a round up but are there any specific details you could give us.

Changes in the terms, you're offering changes and pricing changes in Salesforce focused leadership.

Speaker Change #192: Is there some kind of more specific detail you could give us anecdotal.

Speaker Change #192: Our commentary that we could track besides.

Speaker Change #193: More of what I would say it was a higher level discussions so far at least if I look back to me.

Matt Sykes: Why was that up over 3x quarter over quarter and what is the expected level in 3Q and 4Q? Yes, sure, Eric. I'll take that one. We were expecting it to increase. We're not expecting to be at that level quarterly for the remainder of the year, but we knew that it was going to ramp over the course of the year because of the fact that the heavy lift in terms of the, particularly the IT transitions that we were doing, those were where the majority of the costs were.

Speaker Change #194: Yes, Eric I appreciate that.

Speaker Change #195: Glad you asked too because we are not making price concessions.

Speaker Change #195: Third to increase sales, we're not doing anything out of market associated with extending terms or anything like that so we are really trying to stay in market and has the value proposition of working with us as I was alluding to in the earlier discussions with our strategies with our medical.

Matt Sykes: So the vast majority of that probably 80% of it is IT-related type costs and the rest would be supporting the other groups. But I mean, it's all the things around, you know, transitioning servers. We've got about 30% of those transitions. The team's working hard and there are, you know, more than a thousand of those. It's the application, the hundreds of applications that we're working on. You know, we've talked openly about the fact that we're replacing our ERP and HCM.

Speaker Change #195: Expertise with the investigator relationships that we have with the technologies like the <unk> relationship that's pretty unique that we have we're really trying to press into selling with that not by making price concession. So I'm glad you asked about that.

Speaker Change #196: With respect to specifics.

Matt Sykes: So it's really all the cost to help support those coming across. So we are expecting to have spent on it in Q3 and Q4, but not to the extent we would, at the moment, based on our projections, this would be the highest quarter, but there still will be spent on it in the third and fourth quarter. When you say less, Jill, are you talking, I mean, is it 40 million, 20 million?

Speaker Change #197: There are a couple of things.

Speaker Change #197: First we are improving the discipline of our weekly and monthly meetings associated with sales and the predictability, we're going to make a couple of changes to how we predict the second half of the quarter and look at probabilities a little bit differently than we have been we had gone into a method of certain methodologies.

Matt Sykes: What is there a zip code you could put us in for how to go into the next quarter? I think it's probably still going to be, it's not going to be as low as it was in first quarter, but it won't be as high as it was in second quarter. You know, just to kind of, you know, I think if you think about the average of that, that's probably a fair approach.

Speaker Change #197: Allergy and now we're going to use a couple of different methodologies to try to predict but the key is what you don't want to do is you don't want to predict youre going to be at.

Speaker Change #197: 96, what you wanted to do is figure out the way to get at one point too. So the key is really working with the teams to really try to understand the decision processes and then how we can influence them.

Matt Sykes: Reclamation. Okay, and then was there a bonus reversal benefit to 2Q and is there an accrual reduction impact that you would call out that's incremental driving the second half? There was a very small amount that we unwound in Q2 but that wasn't the biggest driver of the improvement from an adjusted even a perspective it was really small. I mean obviously yes we have publicly said that we are reducing our future accruals because of the fact that we are below where we were expecting to be for the year.

Speaker Change #198: Make them work.

Speaker Change #198: And the other thing that we're looking at in all candor for next year and it's incorporated in the numbers that Joe was describing is actually.

Joe: The potential of increasing our resources associated with.

Joe: Going after biotech in particular.

Joe: <unk>.

Joe: Do we inherited a sales force of a certain size and so we're thinking should we go ahead and have more resources exposed to biotech in certain geographies. So we're looking at that right. Now. So we've got a number of things I guess the last thing I'd say is we are looking at the use of AI in both.

Matt Sykes: So that is a little bit of a benefit in the second half but it wasn't the big driver of the 2Q performance from an adjusted even a perspective. I'm just trying to get a sense on the the comp as you go into 2025 and you know if you work to move back to normal accruals in 25 obviously from a lower level than was previously expected but what kind of a year-ever your headwind might that be and is that factored into the 11 to 12% EBITDA guidance?

Joe: <unk> and RFP development. There are some tools out there that you may be aware of that that incorporate some elements. So we're looking at with those tools can do but then also looking at.

Joe: How can we enhance it with some of the skills that we have in house.

Matt Sykes: It is factored in. It is factored into that. It will be a headwind that will have to work to overcome and that's part of the work that we're doing across the teams and you know we did talk a little bit about that the benefits of that restructuring program you know because we're continuing to work through that through this quarter not really seeing full benefits of that towards the end of the year that will help offset some of that as we go into next year but that is also a headwind that we're working towards with the efficiency and productivity programs that we have in place.

Eric Coldwell: So does that help Eric.

Joe: Yes.

Eric Coldwell: That's helpful. I appreciate it.

Eric Coldwell: Yeah.

Eric Coldwell: And the next question comes from Michael Riskin.

Speaker Change #199: With Banc of America Securities. Your line is open.

Speaker Change #200: Great. Thanks for squeezing me in I'll, just limit it to one given the given the time I.

I want to go back to this comment on pipeline converting to orders both into Q&A during the year talking about the swing between pharma and biotech. So just I mean, it sounds like there was you talked about predicting differently predicting when biotechs convert.

Matt Sykes: We know it's important to be able to get back to that. Yeah the main thing is higher the main thing is it's planned it. Yes it is part of it. Yeah okay and I know I said I had three questions I guess there's probably a few more sub parts to these but on the last one you've said you were making changes to get the bookings going you've talked a bit around that but are there any specific details you could give us?

Speaker Change #201: But does it sound like those were canceled outright or sort of fell through so just confirm that.

Speaker Change #201: Biotechs.

Speaker Change #202: That was in the pipeline, but didn't convert into the queue is is it still in the pipeline is there is it still sort of.

Speaker Change #203: Part of your second half outlook, because you talked about.

Matt Sykes: Changes in the terms you're offering, changes in pricing, changes in sales force, focus, leadership you know is there some kind of more specific detail you could give us anecdotal commentary that we could track besides you know more of what I would say it was a higher level discussion so far at least it felt like that to me. Yeah Eric appreciate that I'm glad you asked too because we are not making price concessions for to increase sales we're not doing anything out of market associated with extending terms or anything like that so we are really trying to stay in market and have the value proposition of working with us as I was saluting to in the earlier discussions with our strategies with our medical expertise with the investigator relationships that we have with the technologies like the Advaraviva relationship that's pretty unique that we have you know we're really trying to press into selling with that not by making price concession so I'm glad you asked about that with respect to specifics yeah I think there are a couple of things you know first we are improving the discipline of our weekly and monthly meetings associated with sales and the predictability we're going to make a couple of changes to how we predict the second half of the quarter and look at probabilities a little bit differently than we have been we had gone into a method a certain methodology and now we're going to use a couple of different methodologies to try to predict but the key is you know what you don't want to do is you don't want to predict you're going to be at 0.96 what you want to do is figure out the way to get at 1.2 so the key is really working with the teams to really try to understand the decision processes and then how we can influence them and and make them work and the other thing that we're looking at in all candor for next year and it's incorporated in the the numbers that Joe was describing is actually potential of increasing our resources associated with going after biotech in particular and you know do we we inherited a sales force of a certain size and so we're thinking should we go ahead and have more resources exposed to biotech and certain geographies so we're looking at that right now so we've got a number of things I guess the last thing I'd say is we are looking at the use of AI in both targeting and RFP development there are some tools out there that you may be aware of that that incorporates some elements so we're looking at what those tools can do but then also looking at you know how can we enhance it with some of the skills that we have in house House.

Speaker Change #204: Heavy biotech win in <unk>, but more pharma lean entering <unk>. So I'm just wondering if the biotech and converted and still there is that part of the part of the equation for the second half and then just how much does that really swing quarter to quarter.

Speaker Change #205: In terms of the pipeline the composition of it.

Speaker Change #205: Because that's something that's been really volatile so just sort of what are the factors driving that.

Speaker Change #205: Thanks.

Speaker Change #205: Yes.

Speaker Change #206: Our reality is that a lot of it is delayed decision, making so it is in fact in the third and fourth quarter. So that's one of the things that makes our pipeline look look great, but what is the.

Speaker Change #206: The addition to that is that we have some things that we knew were going to be late in the year Award and contract with large pharma and those are coming into sight now two for Q3 and Q4. So that's what makes us feel good about the second half of the year.

Speaker Change #206: In terms of the volatility I think we are finding there is a little seasonality this seems to be.

Speaker Change #206: Perhaps it's introduced by the re prioritization and some of the internal processes, taking place in large pharma that are causing.

Speaker Change #206: More second half awards in first half awards at least in the companies that we're working with.

Speaker Change #206: But.

Speaker Change #206: You saw this last year you see it this year I am not sure I really want to call. It a trend yet, though it may be more just a temporal thing. That's happened in 2024, then it is a long term trend because historically pharma firms are pretty balanced through the year large pharma is pretty balanced.

Speaker Change #206: For the year with the potential of a little increase in Q4 as theyre trying to finish up their budgets. So I don't want to call. It a long term trend yet, but it certainly happens to be something that we saw in 2024.

Speaker Change #206: Okay.

Speaker Change #206: I show no further questions at the queue at this time I would now like to turn the call back over to Tom for closing remarks.

Tom Pike: Thank you very much we appreciate your interest in us and support.

Speaker Change #207: Again, it's been a good quarter for things like Delevering doubling EBITDA. Some of these big relationship wins, and we have a strong pipeline.

Speaker Change #207: No.

Tom Pike: We appreciate your interest and support and look forward to talking to you next quarter. Thank you.

Speaker Change #208: This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change #208: Okay.

Speaker Change #208: [music].

Speaker Change #208: Okay.

Speaker Change #208: Yes.

Speaker Change #208: Okay.

Matt Sykes: So is that health, Eric? Yes, thank you. That's helpful. I appreciate it. And the next question comes from Michael Ryskin with Bank of America Securities. Your line is open. Great, thanks for squeezing me in. I'll just look at the Q and later in the year, talking about the swing between farming biotechs. So just, I mean, it sounds like there is, you talk about predicting, uh, difficulty predicting when biotechs convert, um, but doesn't sound like those were canceled outright or sort of fell through.

Speaker Change #208:

Speaker Change #208: Okay.

Speaker Change #208: Okay.

Speaker Change #208: Yes.

Speaker Change #208: Okay.

Speaker Change #208: Okay.

Speaker Change #208: Yes.

Speaker Change #208: Okay.

Speaker Change #208:

Speaker Change #208: Okay.

Speaker Change #208: Sure.

Speaker Change #208: Okay.

Okay.

Speaker Change #208: Yes.

Speaker Change #208: [music].

Speaker Change #208: Okay.

Speaker Change #208: Okay.

Matt Sykes: So just confirm the, you know, all that biotech that was in the pipeline, um, that didn't convert into Q is, is it still on the pipeline? Is there, you know, is it still sort of part of your second half outlook? Because he talked about, you know, heavy biotech will mean in two Q, but more far more lean entering three Q. So I'm just wondering if the biotech didn't convert into still there?

Speaker Change #208: Okay.

Speaker Change #208: Yes.

Matt Sykes: Is that part of the, part of the equation for the second half? Um, and then just how much does that really swing quarter to quarter, um, in terms of the pipeline, the composition of it? Um, because that's the thing that's been really volatile. So just sort of what are the factors driving that? Thanks. Yeah, I mean, our reality is that a lot of it is delayed decision making. So it is, in fact, in the third and fourth quarters.

Matt Sykes: So that's one of the things that makes our pipeline look, look great. But what is, um, you know, the addition to that is that we have some things that we knew were going to be late in the year award and contract with large pharma. And those are coming into site now to for Q three and Q four. So that's a makes us feel good about the second half of the year. You know, in terms of the volatility, I think we are finding there's a little seasonality.

Matt Sykes: This seems to be, you know, perhaps it's introduced by the reproordization and some of the internal processes taking place in large pharma that are causing a more second half awards and first half awards, at least in the companies that we're working with. But, you know, you saw this last year, you see it this year. I'm not sure I really want to call it a trend yet, though. It may be more just a temporal thing that's happened in 2024 than it is a long term trend because, you know, historically, pharma firms are pretty balanced through the year.

Speaker Change #208: [music].

Matt Sykes: Large pharma is pretty balanced through the year with a potential of a little increase in Q four. So they're trying to finish up their budgets. So I don't want to call it a long term trend yet, but it certainly happens to be something that we saw in 2024. I show no further questions at the queue at this time.

Tom Pike: I would now like to turn the call back over to Tom for closing remarks. Thank you very much. We appreciate your interest in us and support. You know, again, it's been a good quarter for things like delivering, doubling EBITDA, some of these big relationship wins, and we have a strong pipeline. So we appreciate your interest in support and look forward to talking to you next quarter. Thank you.

Operator: This concludes today's conference call. Thank you for participating.

Speaker Change #208: [music].

Speaker Change #209: Ladies and gentlemen, thank you for standing by welcome to a fortress second quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.

Speaker Change #209: After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you wouldn't hear an automated message advising your hand, its right to withdraw your question. Please press star one again, please be advised that today's conference.

Speaker Change #210: Is being recorded I would like now to turn the conference over to your speaker today, I'm angry I head up Investor Relations and corporate development. Please go ahead.

Speaker Change #211: Good morning, and thank you for joining <unk> second quarter 'twenty 'twenty four earnings conference call I am he might enjoy head of Investor Relations and corporate development efforts here on the call with me today are our CEO, Tom Pike and CFO, David Macdonald, our call is being webcast. It in the slides accompanying today's presentation have been posted to our.

Speaker Change #211: Investor Relations page.

Speaker Change #212: What's your dot com during this call, we'll make certain forward looking statements within the meaning of 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 may strongly encourage you to do.

Speaker Change #212: The reports, we filed with the SEC regarding these risks and uncertainties in particular those that are described in the cautionary statement regarding forward looking statements and risk factors in our press release and presentation deck posted on the website.

Speaker Change #212: Please note that any forward looking statements represent our views as of today August 12, 24, and that'd be assume no obligation to update the forward looking statements. Even if estimates change. During this call will also be reference certain non-GAAP financial measures. These non-GAAP measures are not superior to or replacement for the comparable GAAP measures like me.

Tom Pike: We believe these measures help investors gain a more complete understanding of results and 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 I'd like to turn it over to our CEO Tom Pike Tom.

Tom Pike: Good morning, everyone and welcome to the call. Let me start by saying that portray a had a solid quarter of execution progress on our strategic objectives. Despite some difficulty predicting when biotech opportunities had contract that impacted our book to bill.

Speaker Change #213: As you know for tree is a pure play zero that offers end to end solutions for clinical trials across phases. One through four we have a strong track record of delivering high quality services to our customers range from small biotech startups to large pharma companies. We believe we have a strong value proposition in the market as we combined 30 years of experience.

Speaker Change #213: <unk> deep scientific expertise operational excellence and innovative technology to deliver faster better more cost effective outcomes for our customers. We also have a diversified and balanced portfolio of projects and a healthy mix of short and long term contracts as well as broad exposure to different geographies and indications.

Speaker Change #214: In the second quarter, we saw some positive signs of improvements in our business. Let me share with you some of the highs and lows of the quarter and then we will talk in more detail, but what we see for our second half bookings.

Speaker Change #214: First the highlights we signed several deals and partnerships with top 20 pharma customers, including one new full service outsourcing partnership.

Speaker Change #214: Other deals are solid footholds into larger customers.

Speaker Change #214: Our pipeline of opportunities continues to improve in both value and mix and our win rates are solid more on that in a couple of minutes.

Speaker Change #214: We've exited about 60% of the TSA agreements with our former parent and are making good progress on the most difficult part the transition of software servers and other technology.

Operator: You may now disconnect. . Michael Ryskin, David Windley, Hima Inguva, Rishi Parekh, Patrick Michael Ryskin, David Windley, Hima Inguva, Rishi Parekh, Patrick Michael Ryskin, David Windley, Hima Inguva, Rishi Michael Ryskin, David Windley, Hima Inguva, Rishi Michael Ryskin, David Windley, Hima Inguva, Michael Ryskin, David Windley, Hima Inguva, Rishi Parekh, Patrick Michael Ryskin, David Windley, Hima Inguva, Rishi Parekh, Patrick Michael Ryskin, David Windley, Hima Inguva, Rishi Parekh, Patrick Michael Ryskin, Charles Rhyee, Thomas Pike, Michael Ryskin Michael Ryskin, Charles Rhyee, Thomas Pike, Michael Ryskin, Charles Rhyee, Michael Ryskin, Charles Rhyee, Thomas Pike, Michael Ryskin, Ladies and gentlemen, thank you for standing by.

Hima Inguva: Welcome to Fortrea's second quarter of 2024 earnings conference call. 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 the session, you would need to press star 1-1 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.

Speaker Change #214: We deleveraged the balance sheet and finally, we have a clear line of sight to improving our margins, while delivering quality work and started planning for 2025.

Speaker Change #214: I will give you some detail on some of these highlights and Joe will fill in on others.

Speaker Change #215: Our new offerings and approaches to partnering with large farm are gaining traction this quarter, we beat out four of the big six crows to be selected as one of only two providers and an attractive full service partnership with a larger pharmaceutical firms.

Hima Inguva: I would like now to turn the conference over to your speaker today, Hima Inguva, head of Invest relations and corporate development. Please go ahead. Good morning, and thank you for joining Fortrea's second quarter 2024 earnings conference call. I am Hima Inguva, head of Invest relations and corporate development at Fortrea. On the call with me today are our CEO, Tom Pike and CFO Jill McConnell. We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties.

Joe: Customer noted how portrays showed up differently to the opportunities than others under consideration the.

Joe: The increased bookings and revenue from this win should be felt in 2025.

Joe: As I mentioned, we had some nice wins in a couple of other large pharma firms two in one situation would be to larger incumbents takeover and an important clinical services opportunity and consolidated what was three vendors into one we also got a nice win at foot hold in a third even larger pharmaceutical firms.

Joe: We began to see additional opportunities from these customers.

Joe: Our clinical pharmacology business continues to be strong with attractive book to bills customers and indications.

Joe: We're also seeing increasing momentum in transferring the impressive relationships who are in clinical pharmacology into phase <unk>. We are a significant number of opportunities and have increased our win rate where decisions have been made.

Hima Inguva: In particular, those that are described in the cautionary statement regarding forward looking statements and this practice in our press release and presentation that we posted on the West side. Please note that any forward looking statements represent our views as of today, August 12, 2024, and that we assume no application to update the forward looking statements even if estimates change. During this call, we'll also be referring to certain non-gap financial measures. These non-gap measures are not superior to or replacement for the comparable gap measures, but we believe these measures help investors gain a more complete understanding of results. Reconciliation of such non-gap financial measures to the most directly comparable gap measures available in the earnings facilities and earnings call presentation slides provided in connection with today's call. Good morning, everyone. Welcome to the call.

Joe: These relationships are based on the deep scientific knowledge, we've brought to the table working in some inspiring new modalities that include metabolic neuro degenerative immunology and more.

Speaker Change #216: <unk> had some good wins in biotech in areas, such as oncology ophthalmology and dermatology.

Speaker Change #216: Recently I met with the CEO of an ophthalmology biotech has a great product.

Speaker Change #216: They raved about our success to date with an important and challenging trial.

Speaker Change #217: In the second quarter, we also announced two offerings that reflect areas of strength for <unk>. The first was our diversity and inclusion solution, which is designed to expand patient access to clinical trials and address the U S. FDA requirements to increase enrollment underrepresented populations in clinical trials the solution incorporates Arkansas.

Hima Inguva: Let me start by saying that Portrea had a solid quarter of execution progress on our strategic objectives, despite some difficulty predicting when biotech opportunities would contract that impact our book to bill. As you know, Portrea is a pure play zero that offers end-to-end solutions for clinical trials cross phases one through four. We have a strong track record of delivering high quality services to our customers, ranging from small biotech startups to large farm companies.

Hima Inguva: We believe we have a strong value proposition in the market as we combined 30 years of experience, deep scientific expertise, operational excellence, and innovative technology to deliver faster, better, more cost-effective outcomes for our customers. We also have a diversified and balanced portfolio of projects and a healthy mix of short and long-term contracts, as well as broad exposure to different geographies and indications. In the second quarter, we saw some positive signs of improvements in our business.

Tom Pike: Let me share with you some of the highs and lows of the quarter, and then we'll talk in more detail about what we see for our second half bookings. First, the highlights. We signed several deals and partnerships with top 20 pharma customers, including one new full-service outsourcing partnership. The other deals are solid foot holds into larger customers. Our pipeline of opportunities continues to improve in both value and mix and our wind rates are solid.

Tom Pike: More on that in a couple of minutes. We've exited about 60% of the TSA agreements with our former parent and are making good progress on the most difficult part, the transition of software, servers, and other technology. We deliver the balance sheet, and finally, we have a clear line of sight to improving our margins will deliver in quality work and started planning for 2025. I will give you some detail on some of these highlights, and Jill will fill in on others.

Tom Pike: Our new offerings and approaches to partnering with large pharma are gaining traction. This quarter, we beat out four of the big six zeroes to be selected as one of only two providers in an attractive full-service partnership with a larger pharmaceutical firm. The customer noted how Fortreas showed up differently to the opportunities than others under consideration. The increased bookings and revenue from this wind should be felt in 2025. As I mentioned, we had some nice winds and a couple of other large pharma firms too.

Tom Pike: In one situation would be two larger incumbents take over an important clinical services opportunity and consolidate what was three vendors into one. We also got a nice wind and foothold in a third even larger pharmaceutical firm. We began to see additional opportunities from these customers. Our clinical pharmacology business continues to be strong with attractive book to bills, customers, and indications. We're also seeing increasing momentum in transferring the impressive relationships we have in clinical pharmacology and to phase one, B and two.

Tom Pike: We have a significant number of opportunities and it increased our wind rate where decisions have been made. These relationships are based on the deep scientific knowledge we've brought to the table working in some inspiring new modalities that include metabolic, neurodegenerative, immunology, and more. We had some good wins in biotech in areas such as oncology, ophthalmology, and dermatology. Recently, I met with the CEO of an ophthalmology biotech who has a great product and they raved about our success to date with an important and challenging trial.

Tom Pike: In the second quarter, we also announced two offerings that reflect areas of strength for Fortrea. The first was our diversity and inclusion solution, which is designed to expand patient access to clinical trials and address the US FDA requirements to increase enrollment of underrepresented populations in clinical trials. The solution incorporates our consulting expertise, real-world evidence data, comprehensive planning, implementation, and measurement methodology. We've had a very nice response to this solution and have gained significant experience in this area, working on more than 40 diversity action plans in the past year.

Tom Pike: Greater productivity in clinical trials has become critical for the industry, and Fortrea is centering itself on this value proposition. We are developing changes to roles, processes, partnerships, and technology. As part of this effort, another offering that we announced in the second quarter was the launch of our AI Innovation Studio, which will develop and deploy AI and ML technologies to drive productivity, quality, and enhance site and patient experiences, as well as safety in clinical research.

Tom Pike: Fortrea's innovation studio is a fresh take on AI for CROs, very forward-looking and collaborative, yet still cost-effective. I'm looking forward to seeing what productivity ideas emerge from the studio in collaboration with our forward-leaning customers. We're hoping to share some of this with investors and analysts later this year. In another development, our therapeutic strategy leaders, who are some of our key medical doctors, now prepare strategies for increasing our impact in share and various therapeutic areas.

Tom Pike: They identify the movers and shakers, interesting mechanisms, as well as what we need to do and offerings we need to have to increase our share of the pie with biotech and large pharma. Overall, we're strengthening our offerings and it's getting noticed.

Tom Pike: Fortrea was recognized in the second quarter for the first time as an independent company with CRO leadership awards sponsored by clinical leader in four categories, capabilities, expertise, quality, and reliability. These awards are based on an independent survey which compiled feedback that customers provide on CROs that they have worked with on a project during the past 16 months.

Tom Pike: Now, let me address the low light of the quarter that spills into some of our other results. Our book to bill for this quarter was just under one. Since we're a new public company, we'll try to give you more color on what happened. During Q2, we said to you, if we execute, we can meet our target of 1.2 book to bill. Let me explain why we thought that. Our pipeline at the beginning of Q2 was larger than any quarter since the beginning of 2022.

Tom Pike: In fact, it was 11% higher than the average of the three prior quarters and our win rates have been solid. Overall, about half of our work is with biotech. Brooks. We're experienced at working with biotech companies and are optimistic about our capability to deliver attracted biotech solutions at fuel growth for Portrea. At the same time, contracting in the space can be uncertain, and we're finding it is harder to predict when the final contract will be executed. In the first half, our mix was slanted toward biotech.

Tom Pike: We're making changes to address the disappointing predictions and bookings these past two quarters. Unfortunately, two quarters of sub 1.2 bookings impacts our guidance and some other key targets.

Tom Pike: Now, let me turn to our pipeline for the back half of the year. As I mentioned, our pipeline's beginning of Q2 was 11% greater than our average of the prior three quarters. In Q3 and Q4 of last year, we delivered that 1.2 book to Bill or better. The pipeline at the beginning of this quarter, Q3 is even greater than it was in Q2. In fact, it's 7.5% greater than it was. It also has more large pharma, which is encouraging.

Tom Pike: We're seeing our large pharma partners coming through their internal processes with RFP flow returning. We also feel good about Q4. As we sit here today, the second half overall has more qualified opportunities than any upcoming two quarters since we've been public. The pipeline is very attractive. In addition, the new and refreshed partnerships should contribute more opportunities in 2025.

Jill McConnell: Now, let me hand over to Jill. She'll comment on the numbers in more detail and our transformation and margin improvement programs that I'll wrap up with some comments about the remainder of the year in 2025. Thank you, Tom. And thank you to everyone for joining us today. Before we get into the details of the quarter, I want to acknowledge some of the work. We have already done over the past year exiting around 60% of our TSA services with our former parent, completing the divestiture of our non-core enabling services businesses and materially improving our balance sheet.

Jill McConnell: These are important building blocks for us to create long-term value for all our stakeholders. Upon the closing of the enabling services divestiture and executing on our receivables securitization facility in the quarter, we significantly reduced our balance sheet leverage by paying down around $500 million of spin-related debt. We have improved our capital structure and have ample headroom between our current ratios and our debt covenants. We have laid the right foundation for continued transformation.

Jill McConnell: I will start with providing a detailed breakdown of the financial performance of our core business this quarter. Then I will walk you through the components that we are using to enhance profit margins in the adjusted EBITDA margin bridge we provided. I will share progress on our commercial transformation and expectations for the remainder of 2024, including the components that are driving improved adjusted EBITDA margins for the second quarter. And that we believe will drive improved EBITDA margins for the second half of 2024.

Jill McConnell: And finally, I will discuss our outlook for 2025. As a reminder, all of my remarks relate to continuing operations following the divestiture of our enabling services businesses unless I note otherwise. Revenue of $662.4 million declined 8.6% year-on-year. This was driven by lower pass-through revenues compared to historical highs and lower service fee revenues. The pass-through decline is largely driven by lower pass-throughs on the biomarker studies we have previously caught out which are now normalizing given their stage in the project life.

Jill McConnell: Cycle. Our second quarter service-free revenue continues to be impacted by a combination of factors, primarily lower new business awards in the pre-spin period, along with a mixed shift towards later stage and longer duration studies, particularly in oncology. Note that we did see mid-single-digit sequential growth in service fees in line with our expectations. On a gap basis, direct costs in the quarter decreased 7.6% year-over-year, primarily due to lower pass-through costs. SGNA in the quarter was higher year-over-year by 59.7%, primarily due to incremental one-time costs incurred for exiting the TSA with our former parent.

Jill McConnell: The company reclassified $33.1 million from direct costs to SGNA expenses in the prior year comparison period, primarily related to information technology costs and certain non-clinic facility charges. For the second quarter, you will see SGNA as a percent of revenue on a gap basis at 23.6%. However, it contains approximately $54 million of one-time costs related to the continued separation from our former parent. Excluding spend-related one-time costs in both quarters, underlying SGNA as a percent of revenue was relatively flat to the first quarter.

Jill McConnell: We see significant potential to expand margins by reducing SGNA expense as a percentage of revenue over time, once we fully exit the TSA services and can transition to lower cost replacement infrastructure. Net interest expense for the quarter was $45.2 million. However, this is comprised of actual interest expense of approximately $33 million. And the remainder being the write-off of a portion of the debt issuance discount based on the debt prepayment in the quarter.

Jill McConnell: As noted previously, we are targeting quarterly interest and related fees expense to declines substantially going forward due to the debt paydown. When looking at the annualized interest expense using debt outstanding, securitization usage, and rates in effect at the end of the second quarter 2024, estimated annual total cash interest and securitization costs are targeted to be approximately 18% lower compared to the annualized cost at the end of the first quarter 2024. Turning to our tax rate, the effective tax rate for continuing operations for the quarter was negative 12.1%, primarily due to the combined effect of a forecasted pre-tax loss in 2024, given our large one-time costs, a change in evaluation allowance, and earnings mix.

Jill McConnell: During the second quarter, we recognize tax expense of $10.7 million in continuing operations, primarily due to a forecasted evaluation allowance on our deferred tax asset related to disallowed interest expense. We have plans that we expect could improve our overall tax position over time. Our book to bail for the trailing 12.1 since the spend is 1.16 times, and for this quarter it was 0.96 times. Our backlog at around $7.4 billion has grown 5.6% since the spend.

Jill McConnell: As part of our work in the first quarter of this year, to disentangle the enabling services businesses for reporting as discontinued operations, we became aware of historical misstatements of certain financial line items which we identified. The overall impact of these adjustments is not considered material to any given year. As previously discussed, we are continuing to bolster our financial control environment through personnel additions and processing. Rubin. Continuing operations, adjusted EBITDA for the quarter of $55.2 million decreased 23.2% year-over-year compared to adjusted EBITDA of $71.9 million in the prior year period.

Jill McConnell: Note that adjusted EBITDA more than doubled compared to the first quarter of 2024, increasing by 103.7% on a sequential basis. Adjust EBITDA to 9.9% in the prior year period. Adjust EBITDA margin in the quarter was negatively impacted by lower service fee revenues from the lower awards during the pre-spin year, the mix to longer duration studies, and higher SG&A costs post-spin to support operations as a public company. These were partially upset by the benefit from the restructuring program we initiated in the third quarter of 2023, which is continuing into 2024.

Jill McConnell: In the second quarter of 2024, adjusted net loss of $2.3 million decreased 105% compared to adjusted net income of $46.1 million in the prior year period. Adjusted net loss for both basic and diluted share for the quarter was 3 cents compared to adjusted net income of 52 cents in the prior year period. Turning to customer concentration. In our continuing operations, our top 10 customers represented slightly more than half of our second quarter of 2024 revenues.

Jill McConnell: One customer accounted for 13.2% of revenues. As I comment on cash flows, note these relate to Fortria and Total as we have not segregated cash flows from discontinued operations. For the first six months and a June 30th, 2024, we reported $248.1 million in cash flow from operating activities compared to $148.1 million generated in the prior year. Cash flow benefited from the sale of receivables under the securitization facility and an increase in unearned revenue partially upset by the decrease in net income.

Jill McConnell: Free cash flow was $227.6 million compared to $122.3 million in the first six months of 2023. Net accounts receivable and unbuilt services for continuing operations were $637.9 million as of June 30th, 2024 compared to $941 million as of March 31st, 2024. Day sales outstanding from continuing operations was 54 days as of June 30th, 2024, 43 days lower than March 31st, 2024. The reduction versus the first quarter is primarily due to the sale of receivables through our securitization facility, lower average billings and to a lesser extent and increase in advances.

Jill McConnell: We continue to make changes to our contracting and order to cash processes to enable further improvement to our DSO profile over time. During the quarter, we pre-paid $275 million of term loans from the initial divestiture proceeds with a majority $211 million used to pre-pay term loan fee, which has a higher cost of debt. We also use $229 million of the proceeds from our securitization facility to further pay down term loan fee and our revolver.

Jill McConnell: And as a result, reduce total debt by $504 million from the end of the first quarter, ending the second quarter with $1.14 billion in gross. Stett. We have been, and for the foreseeable future we expect to be, fully compliant with the financial maintenance covenants of our credit agreement. We have considerable room under our covenant ratios due to the debt paydown, the exclusion of securitization usage from the calculations, and the benefit of the addbacks permitted under the credit agreement.

Jill McConnell: We ended the quarter with more than half a billion dollars of liquidity. Our capital allocation priorities are unchanged, focusing in the near term on infrastructure investments for timely exit of the transition services agreement with our former parents. Targeting investments to drive organic growth and improve productivity, and then debt repayment. Our target for net leverage ratio continues to be two and a half to three times over the medium term.

Jill McConnell: Now I will provide an update on our transformation program. We continue to make progress on our journey towards improving financial results while we increase the longer term health and performance of Fortrea. We've now exited around 60% of our TSA services with our former parent, and we have robust plans in place to exit the majority of the remaining TSA services by year end, with a limited number being exited early in 2025 to ensure business continuity through year end.

Jill McConnell: We are continuing with programs to reduce cost, including our restructuring program we introduced in the third quarter of 2023, which is continuing into 2024. The improvement in overall adjusted EBITDA this quarter is benefiting from these programs, as the service-free revenue growth we delivered dropped through strongly to the bottom line as we expected. On SGNA, while we have made initial progress in IT already, we are continuing to prepare for more efficient supporting organizations over time.

Jill McConnell: In a few areas, we begin, we expect to begin to see benefits emerged towards the end of the year with other improvements planned for 2025 and beyond as we fully exit the TSA and adopt these more efficient infrastructures. As you can see from our SGNA expense lane item, this is critical for us to be competitive with our peers. On operational execution, we continue to enhance productivity by compressing our time to study startup and accelerating achievement of milestones through targeted investments in project management capabilities. We remain to that end, we are continuing to invest in resources and tools for our commercial organization, and our ensuring senior leadership are intrinsically involved in the competitive selling process by leveraging their relationships and experiences.

Jill McConnell: I will now cover our updated guidance for continuing operations. For four year 2024, we are lowering the midpoint of our revenues to $2.725 billion, with a range of $2.7 billion to $2.75 billion. The adjustment to revenue guidance largely reflects the lower recent past due trends we have been seeing, in particular due to the biomarker studies I mentioned earlier, and the impact to service through revenues due to the lower than expected new business awards in the first half of the year.

Jill McConnell: As a result of these headwinds, we now expect to have an overall revenue decline versus 2023 of around 4 percent, with the second half being improved versus the first half, but down slightly versus the prior year. Given that a portion of the revenue reduction is expected to be service-free revenues, we are reducing our adjusted EBITDA target to a range of $220 million to $240 million. $1 million. In spite of the lower adjusted EBIT range, we are targeting to show continued improvement sequentially through the remainder of the year, both in service fee revenue and in adjusted EBITDA.

Jill McConnell: Let me bridge this improvement for you as seen on slide nine of our investor presentation. You'll see that we delivered $82.3 million of adjusted EBITDA in the first half of the year. Using this as a run rate would give you a full year adjusted EBITDA of around $165 million. To get to our revised midpoint of $230 million, we are targeting service fee revenue growth to contribute $40 to $50 million, along with continued operational and SGNA optimization to contribute $15 to $25 million.

Jill McConnell: The margin optimization is anticipated to be a combination of gross margin improvements, given the restructuring programs we have implemented, improvements in facilities and other operating costs, and reductions in our IT spend. In achieving this, we would target to deliver an adjusted EBITDA margin in the 11 to 12% range for the fourth quarter of 2024.

Jill McConnell: Now let me share some implications of our results and these guidance changes to our view of 2025 adjusted EBITDA based on our modeling. We are now targeting the adjusted EBITDA margin for 2025 to be more likely in the 11 to 12% range. While this is below the 13% we had been targeting previously, it would represent roughly 300 basis points improvement at the midpoint versus 2024. And broadly, a 30 to 40% increase in adjusted EBITDA dollars delivered.

Jill McConnell: In addition, we are targeting a return to positive cash flow in 2025, given the expected reduction in spend related to the separation from our former parent. The challenges of the separation and the time it is taking to optimize our commercial approach and operational execution has led to a slower return to growth and margin expansion than we originally anticipated. But make no mistake, with a backlog of more than $7 billion, a global talented team of more than 16,000 clinical development professionals, and full independence to unlock future optimization insight, we remain a great partner for our growing customer base, a rewarding place to work for our employees, and a long-term value creation opportunity for our investors.

Jill McConnell: We are relentlessly focused on driving innovation and efficiency in clinical development, and we are gaining significant traction with customers, which is opening doors to new opportunities. As a pure-play CRO, we are diligently executing our transformation strategy to drive substantial margin expansion and unlock significant value for our shareholders.

Tom Pike: Now I'll turn it back to Tom for the remainder of his remarks. Thank you, Jill.

Tom Pike: In closing, let me provide some thoughts about the remainder of the year in 2025. Regarding the second half of 2024, as I mentioned, our pipeline of opportunities has grown and has more large pharma, which should be more predictable. In both the third and fourth quarter, we have attractive, qualified opportunities to close in contract. If we execute, we feel confident that across the two upcoming quarters, we can average a 1.2 book to bill. Q4 looks stronger than Q3. We will continue to do everything we can to meet a 1.2 book to bill or better in the third and fourth quarters.

Tom Pike: Now let me pick up on Jill's discussion of 2025. We have a programmatic approach to increase sales and improve operating margins while delivering for customers with quality. County. We now understand the investments required and are planning to make them. If we hit our target book to bills, as Jill said, we're modeling more than 30% improvement to adjust the EBITDA dollars next year. In 2025, we'll complete our exit from our former parent and end those heavy one-time costs.

Tom Pike: We also expect to turn cash flow positive in 2025. I acknowledge that this is a different financial trajectory than the one we had hoped, but it is still a very attractive increase in adjusted EBITDA in a short period of time. Let me step back and tell you why I'm so confident in Portrea, because I get to see the Portrea team in action, because I get direct customer feedback on our performance and how we show up from executives.

Tom Pike: We work hard here. We press our innovative offerings, and we seek to exceed our customer's expectations. When customers take the time to get to know us, they see us as innovative, agile, and they know the management team is accessible to them. Internally, I meet with teams working on exiting our former parent, divesting enabling services, and improving our delivery and margins. They also work hard. They resolve issues and they meet deadlines. I meet with our AI and IT leaders regularly.

Tom Pike: We push for practical innovation while reducing overall IT costs. There's work to do, but this is the right team to do it. For instance, Jill and I meet weekly with teams driving our sales process. We review larger and more important deals. We press for critical thinking and what I call ferocious debates among friends to develop compelling solutions, and we're getting better all the time. In my career, I've turned around businesses and I've grown businesses.

Tom Pike: Let me share this. Services firms and zeros in particular can be thought of like fly wheels. If you know what a fly wheel is, you know it takes effort and time to get it spinning. As Jim Collins has written, you put a great team in place, you confront the brutal facts, and then you create a culture of discipline around execution. We're doing that here at Portria. Once the fly wheel is spinning, momentum is a very powerful thing. We can go on a multi-year journey to create value. Other zeros have, and we will too.

Tom Pike: In summary, Portria had a very solid quarter of execution progress, and we're well positioned for growth and value creation in the future. We will get that fly wheel going and build momentum. You think about it. We delivered. We doubled Evida from Q1 to Q2. We had some big relationship wins in large Pharma. We have a record pipeline as a public company, and we're anticipating more than a 30% increase in adjusted Evida next year.

Tom Pike: In closing, I'd like to recognize the tremendous team of professionals we have working here at Portria. We've navigated our first years in independent entity, and the team has ranked focused and dedicated to our patient's fire admission. I appreciate their commitment and their expertise when we deliver solutions that bring life-changing treatments to patients faster, creating value for all of our stakeholders.

Operator: Sanders, Operator. Can you please open the line up for questions? 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.

David Windley: And the first question will come from Dave Windley with Jeffries. Your line is now open. Good morning. Thanks for taking my questions. You did hit the doubling of EBITDA on 2Q, which I thought was going to be the hardest hurdle for you to hit. I wanted to dig into some of the moving parts from the P&L in the first question. So you mentioned that service fee revenue was up mid-single digits, which since total revenue is basically flat means that pastures were down by the same amount.

David Windley: Could you quantify that? And how much should we think about that being a factor that continues through the second half? Thanks. Yeah, thank you for the question, Dave. We won't quantify, but I will say those biomarker studies in particular, it's really significant. What we saw at the end of, say, Q, in this period, same quarter last year, we saw basically high single digits in pastures from that study. And it kind of quadrupled over the last few quarters.

David Windley: And then was back down more in line with what we saw in the same quarter last year. And so in particular that one, we think most of the fluctuations of that one have now worked their way through. And we have been saying all along that the key to us being able to drive the improvement and adjust the EBITDA will come from service fee revenues growing. And so we're pleased to see that it was in line with what we expected for the quarter.

David Windley: And that's what we're projecting as we look over, as you can see, you saw the bridge that took you from Q1 to Q2 on our presentation. But obviously, similar results were expecting in terms of that magnitude for the remainder of the year. Okay, another way to come at this maybe is, again, revenue basically flat sequentially operating cost down by about $28 million. What were the drivers of that? You had talked on the last quarter about expanding some of the cost takeout that the restructuring that you mentioned in the prepared remarks.

David Windley: I assume some of it was that, did you get a full quarter impact of that and how much of that continues, you know, kind of laps into the second half or into the third quarter specifically? Yeah, we did get, we didn't get a full quarter of it because some of the additional pieces that we've been tacking onto that program really started in the second quarter. So that's some of the additional benefits that you'll see in Q3 and Q4.

David Windley: That program actually has continued through the third quarter. So you probably wouldn't see the full benefit of that until in the last quarter of the year, but that's part of the improvement. We also, I caught out that there have been some improvements in our IT spend that we've seen as we've gone through the course of the year. Most of the Estonian improvements are very back end heavy, but we are seeing some of those things help us as well.

David Windley: And it's been just really tight cost management. I'm still meeting every single week to review every single hire in the company, all the travel expense. So we really just been trying to be very disciplined about costs in this period while revenues continue to be relatively suppressed. Okay, last one for me. In the bookings numbers. Pierce. Again, kind of wondering the composition of this, was this just lower new winds or given some of the moving parts and changes in estimates, including your forward revenue estimate, around pass-throughs, did you take like an outsized pass-through reset or effectively cancellation in the quarter that influenced the overall book to bill?

David Windley: Thanks, that's all for me. Hi, David. It was really just normal bookings. There were no major cancellations and no unusual events in terms of those pass-throughs. I think the bottom line there is just that we are having some difficulty predicting exactly when biotechs are going to contract. And we are finding, you know, with them being about 50% of our exposure from a revenue standpoint. And in this quarter, they were much higher exposure in terms of the opportunities.

David Windley: We have to do a better job of understanding exactly what the timelines are and then figuring out what we can do to influence those timelines. So as you heard, the pipeline is actually quite strong. I would worry about this business as if the pipeline wasn't strong, but the pipeline is strong. Some important winds from large farmers that will give us more of a floor. But unfortunately, in this quarter, we just didn't deliver in terms of the biotech opportunities to the level that I think we could have. God, thank you. Thank you, Dave.

Patrick Donnelly: And the next question comes from Patrick Donnelly with City. Your line is now open. Hey guys, thank you for taking questions. Tom, maybe you pick up on where you finish there. I mean, it sounds like you guys are feeling pretty good about the pipeline to your point. The pipeline looked pretty good at the start of 2Q. I think the Book of Bill came in light. You know, you're talking about the building, Book of Bill, certainly over 1, 2, and 4Q.

Patrick Donnelly: Can you just talk about, I guess, the confidence level, the visibility, just given the last couple of calls and come up late in spite of that stronger pipeline? What gives you the confidence that that Book of Bill does in fact build off of this good pipeline? Yeah, hi, Patrick. I think the difference, as we've looked at it in a lot of detail, and you can imagine that we're all over this, given what's going on, is that we look at that composition in terms of large farm opportunities, biotech opportunities.

Patrick Donnelly: We also look at what's been awarded and needs to be contracted versus what's more speculative. And in these upcoming quarters, we have quite a number of mid-size and larger opportunities from large pharma. And we do have a number of things that are awarded and need to be contracted. And that gives us more confidence in what we see. You know, again, to some degree, I hate to acknowledge this, but we're learning a little bit more about having this much biotech exposure, at least I am.

Patrick Donnelly: And I think what we're doing is really revising our procedures there to try to really understand exactly what those dates are for contracting, and then exactly what we can do about them. Because the ability to influence them is a key part of what we try to do as a sales team. But this upcoming two quarters with more large pharma exposure gives us some confidence because the large pharma firms have a tendency to be more consistent in their scheduling and more predictable because of the amount of experience they have and how they have done their approval process.

Patrick Donnelly: So that's what makes us feel good about the second half of the year. Certainly, I'm disappointed in the Q2 number, but again, the pipeline looks strong, and then the mix of opportunities and some of these larger pharma relationships give us some internal confidence that we're in a good position as we go forward. Thank you. Thanks, Beth.

Patrick Donnelly: Thank you. Maybe one for Jill, just on the 2025 conversation there, I think it's a margin and maybe more than that, 11 to 12 range, but still to your point, I think it's 30-40% dollar growth. Can you just talk about the leverage to get there? I mean, how much of it is contingent on a certain level of top-line growth, where it's cost-outs, you know, if you can talk gross margin, that's true.

Patrick Donnelly: Maybe that's only possible, but if you want to talk a little bit about the bridge to get to that, we have a new margin number. Thank you. Yeah, sure, Patrick. So it's really going to come from two things, right? In terms of the, if you use roughly 300, it'll be split about half and half based on what we see today. We have coming from gross margin improvements, but more so from really driving productivity and improving our processes in the, you know, in the selling, sorry, in the project delivery space, and then the other half will come from SG&A improvements.

Patrick Donnelly: We've been talking about the fact that we need to get really through those TSAs and be fully exited to start to see some of that value and the dollars coming out in SG&A, and so we're expecting it to be split between those two things. Appreciate it.

Luke Sergott: And our next question comes from Loop Circuit with Barclays. Your line is open. Great. Thanks. I just wanted to follow up on Patrick's question there from on the 25 number. So like if you, if you kind of just do the math there and back it out, you have 35% mid-point growth in EBITDA, and you have like 11.5% in operating margin that implies roughly a revenue number around 2.7 billion, which is comes into the low end of your guide.

Luke Sergott: So, you know, one is that is my math correct there, and then two is it like something to do with expected elevated pass-through kind of, you know, coming off, continuing to come off as we saw in this quarter, and you know, just any color there what's actually going on between the dynamics. Yeah, I think it is, you're right, it's really that mix as we continue to expect pass-throughs to moderate as we go through the course of the year, and then, you know, service through revenues be picking up.

Luke Sergott: We did have strong book debills in the back half of last year, so we're starting to see some of that come through, but in terms of top line numbers, it's being largely offset by what we're seeing in terms of lower pass-through trends. Okay, great. And then I guess more, you know, high level market demand side, you know, can you talk, we've seen like some weakness here in drug discovery side, especially on the safety assessment, and you guys just talked about seeing good bookings and clean farms, so kind of where does that fit within the overall workflow?

Luke Sergott: I know it's more late phase focus, but you know, study starts continue to be softer, just kind of where you start seeing the, if there is going to be any pressure there on the late stage pipeline. Yeah, what we see is pretty consistent with actually what Dave Windley wrote in one of his recent notes, and that's that the early grew up. Yeah, yeah, what am I going to say? But it's true, but we But we see it pretty consistent.

Luke Sergott: So in early, so in phase one, it is a little bit soft and man-and-bomb biotech, but what we've done over the past year is continue to increase our exposure to some of the more attractive larger players in pharma. And, you know, what we see is there is a group of pharmaceutical firms that are actually spending quite a bit more on R&D and we're pretty well positioned with a number of those firms plus picking up some new customers in the phase one spot that are out of, again, larger pharma.

Luke Sergott: So I think for us what's happening is we're just well viewed and well positioned and that's giving us a bit of an advantage when it looks at when we look at the clinical pharma ecology. That being said, we also see the same thing that's generally being discussed in the industry that phase two and phase three is being prioritized. And so given that it's being prioritized, we're seeing, you know, for a company like ours, the exposure we have, we're seeing plenty of demand for phase two, phase three type studies.

Luke Sergott: So I think I generally agree with that commentary that's out there about how the industry is going. But again, given that we're mostly exposed to phase two, three, and four, that is benefit for us. Yeah, yeah, that's what I thought. Alright, thanks.

Elizabeth Anderson: And the next question comes from Elizabeth Anderson with Evercore. Your line is open. Hey, thanks so much. Maybe just piggybacking off of what Luke was just asking. How have you found the pricing environment in the recent, you know, maybe in the pipeline and some of your recent wins and if you could differentiate between biotech and pharma for that, that would be super helpful. Yeah, thanks, Elizabeth. In terms of biotech pricing, I think it continues to be consistent with what it's been and that's good market based pricing.

Elizabeth Anderson: And we occasionally see somebody step into buy something there and biotech. But for the most part, it's solid, disciplined pricing in that marketplace. And then in large pharma, similar to the commentary of some of our competitors, we generally are seeing full service outsourcing be reasonable market based pricing. You should know that Portria tries to go for market based pricing and what I mean by that is there's probably some band of reasonable prices out there.

Elizabeth Anderson: And we try to be in that band where we maintain our margins, but we deliver a good value for the customer. We do see an FSP. Some situations where a competitor is really lowering prices. Luckily, as we've discussed on prior calls, we're not as exposed to these really large volume FSP deals as some of our competitors are. And so, you know, personally, I've been around this industry for a while. I don't think that's sustainable, but we are seeing FSP in the largest situations be very, very competitive. So does that help Elizabeth? Yeah, that's super great comment here. Thank you for that.

Elizabeth Anderson: Maybe just as a follow-up, the back half guide, I think, implies a backlog of about 9.4% ish. And I just, you know, obviously, that's a little bit of an acceleration versus what we saw in the first half of the year, but a down year on year still. So how do we just think about that and sort of why is that kind of the right level? Is there sort of studies that are coming forward that you know that have started to burn already?

Elizabeth Anderson: You could just give us any more color on why that's the right burn rate. Could be great. Thanks. Sure Elizabeth. Yeah, I think I think it's two things. One, as you say, you know, I mentioned what we won in the second half of last year is starting to come into the pipeline. And we're being really focused on those new projects in particular. And ensuring we execute them as rapidly as possible, you know, getting sites initiated, you know, getting to those patient enrollment milestones where we can, you know, start to also bill in addition to recognizing revenue.

Elizabeth Anderson: So those are important things. So you have the combination of that class, the work, you know, Tom and I talked, Tom talked about us being on the sales call. We're also on weekly project review calls and we're going through and looking at all, you know, large projects come forward every, every week and we talk through and understand where they are and try to do what we can to get any barriers out of the way, whether it's resourcing or leadership engagement or working with customers in terms of trying to get decisions.

Elizabeth Anderson: So those two things are really allowing us to start to drive some momentum in and how we're burning through our backlog. It's a little bit of an uptick. You know, it is, it's a constant, you know, it's a constant battle that we're, we're making to try to grow revenue, but against those two things, we're seeing some initial progress. Got it. That's helpful.

Justin Bowers: Thank you. And the next question comes from Justin Bowers with DB. Your line is open. Hi, good morning, everyone.

Justin Bowers: Tom, can you talk a little bit how you're positioning Fortrea in biotech versus large pharma and maybe discuss some of the steps that you're taking in terms of the commercial transformation and how you're going to market? Yeah, thanks, Justin. In terms of biotech, you know, we have this strong medical expertise that we inherited from co-vants over time and some excellent positions, excellent strategists. We were just on a call the other day where our lead strategist actually did her PhD in this specific mechanism and indication of the project and had some really innovative ideas.

Justin Bowers: So when it comes to biotech, what we're really trying to do is figure out how we can with quality shorten their timelines and really bring the medical scientific expertise, how we can help them with protocol development to make sure that we reduce protocol amendments and give them the site investigator relationships and access that it's hard to get as a small biotech. With large pharma, it's interesting. As I alluded to in my comments, they're very interested in productivity right now.

Justin Bowers: We're seeing some of the consultants to the industry really pushing productivity. It's a discussion topic whether they're increasing their spending on R&D or not. And so what we're really doing is leaning into how does Fortria with being a relatively agile company? How do we help them be more productive? And so as I said in my remarks, we've decided this is something I've been passionate about for a long time. And so we've really decided to try to center ourselves.

Justin Bowers: So not just, for instance, investing in AI generally, but how do we improve the productivity of some of the more expensive parts of the clinical trial, such as the interaction with CRAs around sites or reducing protocol amendments around, you know, that have secondary effect costs throughout the trial. So with big pharma, we're really trying to center ourselves in this productivity discussion. With biotech, it's more acceleration, scientific support, real world evidence integration, you know, those types of things. Does that help Justin? I know that's a little detailed for an earnings call, but maybe gives you a sense. Yeah, appreciate it.

Justin Bowers: And then just a follow up for you and Jill on the bookings, were there any delays or pushouts from to Q into the second half of the year? I mean you talked about some, some awards that were not yet contracted. And then, you know, should we just think of this as being just given the size of the organization and where you are now? Like, is should we just think of the bookings as just being a little more law tool from quarter to quarter?

Justin Bowers: But you know, you know, at the end of the year, sort of you can maybe get back to the 1.2 on average, is that sort of like where we are in the cycle right now over the next call it like four to four to six quarters? Let me let me start on that. I do think that we are to your last point there. We're trying to get to a point where we have a trailing 12 months of 1.2 so that we have that ongoing amount of bookings that really helps us grow.

Justin Bowers: And so I do think for better or worse, what you're seeing in fact is a little more volatility than we would like. But again, the key thing is that the pipeline is strong right now. I, you know, as I don't know Jill, if you comment more on that, but I think we should be able to with the efforts we're doing at predictability. And then the relationships we're developing, I think we're expecting to be able to get greater consistency here.

Justin Bowers: That's obviously the target. I think we called out the one in the first quarter because it happened so late and it was and it was and it was large and we had had confirmation from them that it was going to happen and then it didn't at the last minute. So I think I don't want to be talking about pushes from quarter to quarter. We're just targeting consistently getting to that 1.2 over time and with the pipeline that we see for the second half, we believe we've got the, you know, the mechanism to do that. Thank you. I'll jump back and you. Thank you.

Maxwell Smock: And the next question comes from Max Mark with William Blair. Your line is open. Hi, good morning. Thanks for taking our questions. We're going to just drill in a little bit more. Indeed or commentary around small biotech and decision-making process there. And can you give us a sense for just how those decision-making timelines have changed across this year? It seems like funding really trail awesome June and July. I just wondered if you've seen biotech become even more cost conscious in the last couple of months in particular.

Maxwell Smock: And what do you get the synthies customers are waiting to see in order to feel more comfortable about moving these programs forward here in the near future. Thank you. Yeah, I think cost consciousness wise, they've always been pretty cost conscious because they're on a budget, you know, maybe 2021-22 is a little bit of an exception, but generally they've been pretty cost conscious. I do think we're seeing more involvement of different elements of the organization, whether it's the board, whether it's more interaction with the top executives in the company that are causing the biotechs to just have an anticipated schedule.

Maxwell Smock: And then at least from what we're seeing, then have that anticipated schedule slip through these further discussions. As Jill said, you know, it's difficult. I don't think the fact that we now have a larger pipeline because of some of these slower processes doesn't make us want to promise you anymore, but there's no question that the decision process is over the last say four to six quarters have gotten a little bit slower in biotech because they're just a little bit more careful with their budgets.

Maxwell Smock: Thank you. Maybe just a quick follow up from me here on on burn rate. I'm wondering if employee retention, if you can get some commentary around how that has tracked so far here in 2024 and what impact turnovers had on the lower than expected burn rate that was seen over the last couple of quarters here. Thank you. I'm going to do that, Jill. Yeah, sure. So I know we've been talking towards end of last year and only this year that we were seeing attrition levels well below pre-COVID norms.

Maxwell Smock: They've maybe moved up just slightly, but they're really in line with the industry, nothing significant there. We don't think that's a significant factor in terms of the burn rate. I mean, for us, it's really about continuing to focus on the productivity enhancements, greater execution around the delivery and making sure that we unlock the barriers and, you know, for our teams to be able to deliver the projects as efficiently as possible. We're not seeing attrition be a big factor. Okay. Great. Thanks for taking our questions. Thanks, Max.

Maxwell Smock: And the next question comes from Charles Rhyee with TV Co, when your line is open. Yeah. Thanks for taking the question. I wanted to come maybe just go into a little bit more. You talked about sort of the cost, you know, just that 5x oil has been sort of mindful of spending and, you know, obviously some of your peers have also talked about some cautiousness. You know, how much do you think it's maybe on the macro environment that, you know, lack of sort of rate cuts that we haven't seen.

Maxwell Smock: Is that played a bigger part? You know, has that come up in discussions? And then secondly, maybe for Trill, when, you know, if we think about the EBITDA Margin guide implied for the 2025 revenue growth. You know, how much is that is predicated on hitting the 1.2 book to bill in the back after year? Like what's maybe you can give us a sense on maybe some of the sensitivity? Can you still get there?

Maxwell Smock: If you're a little bit short or, you know, is it? That at least 1.2 is required. Thanks. Thanks Charles. I think I'd summarize the biotech market as being solid. So it is consistent with prior quarters consistent with this year that it is a solid environment. And then in terms of the larger pharma, we really do see three groups of them. We see those that are growing those that are sort of slow growth or flatish.

Maxwell Smock: And then those that are flat to decline. We actually see different behaviors in those different groups. And so we think about our targeting them very differently. And so again, biotech being more than 60% of the R&D market these days. And being where a lot of the innovation is happening continues to be a big target. Be solid and attractive for us at Portria, big part of our history. But then we're being very careful because the large pharma market is really pretty distinct in how it's reacting with some actually increasing full service outsource.

Maxwell Smock: Some pressing for savings and productivity. And then some actually restructuring simultaneously. So is that Charles that help on the market overall and how we're thinking about it? Yeah, maybe before Jill, you talked about the market just follow up on that time because you mentioned earlier, right? And your pro apology is one of the big pharma engagement. And you said that they had come in that Portria kind of presented differently. Maybe you can provide more to your sales on on how you presented differently.

Maxwell Smock: So what would they call out? Yeah, it's a number of factors. It's largely alignment with their values of where they're going. So, when you look at what we're trying to do at Fortrea, this focus on productivity, this focus on how we can be more effective at supporting their need to accelerate drug development, we're getting very good feedback about that. And then the other, frankly, is that our management, it's not just me and Jill, frankly, it's as you go down through levels of this organization, it's all quite aligned.

Maxwell Smock: They do like what we're doing in artificial intelligence. We have some concepts here that we'd like to show to you guys later in the year associated with how we think about technology, how we think about simplifying and making more efficient the CRA's job, how we're trying to use hubbing and centralization to lower the overall costs. And they're excited to collaborate with us over the coming few years in terms of how we can try to get greater productivity into clinical research.

Maxwell Smock: Okay, and I'll pick up on your question. I mean, yes, we are working very hard to deliver an average across that back half that 1.2 times book to bill, that will be very important. We would have margin expansion, you know, if we were able to be a little bit less than that, but I think to get to those levels, it's really important, because as you know, getting revenue through the funnel is very critical and being able to, you know, bring in those new projects where we can apply the new techniques and methodologies we're doing is really important. So we are very much working towards getting that 1.2 times to be able to get to the 2025 target. Okay, thank you.

Charles Rhyee: And our next question comes from Matt Psyx with Goldman Sachs. Your line is open. Good morning. This is Will or Maya on from Matt. Thank you for taking our questions. You touched on the cost savings a little bit on Dave's question, but just to dig a little deeper there. Is there scope to continue to drive cost slower than you previously expected given the revenue and booking trends this year and maybe some over capacity of experience?

Charles Rhyee: And I guess put differently, how are you thinking about balancing cutting costs and expanding margins while being ready to absorb greater demand when it comes to real? Yeah, you've hit the now on the head on that last point there, right? We're trying to be very, very disciplined and think about how we balance improving the bottom line with making sure, you know, hearing the feedback from our customers and the things we need, we know when we show up, particularly at large harm opportunities, they expect you to have a global footprint and be able to produce, you know, work in any country that they that they are looking for support.

Charles Rhyee: So it is a balancing act. We know there's opportunity to take out further cost in SGNA. We're very focused on that. We've talked about that historically. You can see it in our SGNA. Even the underlying as a percent of revenue, we've talked about the fact that in IT in particular, we're working hard to bring down the cost. But we're, you know, trying to be really thoughtful, think about things like Tom had mentioned with the AI and ML, how we can use that to also improve productivity.

Charles Rhyee: So it is a balancing act, but we're certainly being mindful of the cost as we go forward while we, you know, try to be prepared for what we hope will be significant growth in the future. Chair. That's helpful. Thank you.

Charles Rhyee: And then one more quick one on our side. Given the dispersion between pharma and biotech in the discussions this quarter, longer term, how are you thinking about the customer mix split between biotech and pharma? Are you still aiming for that 50-50 split or is your thought process evolving there? Thank you. Yeah, thanks. Well, I think we would like to continue on with this mix. We like this mix because the large pharma gives you that consistency of opportunities.

Charles Rhyee: And clearly, as you can tell from this call, we want to consistently deliver for you and for our people and our customers. So you get that consistency with large pharma. And frankly, we also think that some of the things that we're doing around productivity benefit the biotech as well. On the other hand, biotech market is rich. It is growing. It is getting investment. And it is expected to continue to grow as a proportion of the overall R&D spend.

Charles Rhyee: I certainly, in my discussions, big pharma that you certainly continue to have a lot of interest in trying to look at the assets that are attractive and the large pharma is looking to biotech for a lot of its innovation. And so we think continuing to serve that market. We have a history of it. You'll know that co-vants that acquired children, children was very biotech, 100% biotech focused really. And so we have a lot of good skills for biotechs. And we hope to keep that 50-50 mix going. Okay, and our next question comes from Eric Coldwell with Bayard.

Charles Rhyee: Your line is open. Thank you. First, I think I have three questions. What was the breakdown of the 54 million spend-related cost here in the quarter? Why was that up over 3x quarter over quarter? And what is the expected level in 3Q and 4Q? Yes, sure, Eric. I'll take that one. We were expecting it to increase. We're not expecting to be at that level quarterly for the remainder of the year. But we knew that it was going to ramp over the course of the year because of the fact that the heavy lift in terms of the, particularly the IT transitions that we were doing, those were where the majority of the costs were.

Charles Rhyee: So the vast majority of that, probably 80% of it is IT-related type costs, and the rest would be supporting the other groups. But I mean, it's all the things around transitioning servers. We've got about 30% of those transitions. The team's working hard, and there are more than 1,000 of those. It's the application, the hundreds of applications that we're working on. We've talked openly about the fact that we're replacing our ERP and HCM.

Charles Rhyee: So it's really all the cost to help support those coming across. So we're expecting to have spent on it in Q3 and Q4, but not to the extent we would at the moment, based on our projections, this would be the highest quarter, but there still will be spend on it in the third and fourth quarter. When you say less, Jill, are you talking, I mean, is it 40 million, 20 million? What does there is zip code you could put us in for how to go into the next quarter?

Charles Rhyee: What to achieve? Yeah, I think it's probably still going to be, it's not going to be as low as it was in first quarter, but it won't be as high as it was in second quarter. Just to kind of think about the average of that, that's probably a fair approach. Reximation. Okay, and then was there a bonus reversal benefit to QQ and is there an accrual reduction impact that you would call out that's incremental driving the second half?

Charles Rhyee: There was a very small amount that we unwound in Q2 but that wasn't the biggest driver of the improvement from an adjusted even a perspective it was really small. I mean obviously yes we have publicly said that we are reducing our future accruals because of the fact that we are below where we were expecting to be for the year. So that is a little bit of a benefit in the second half but it wasn't the big driver of the QQ performance from an adjusted even a perspective.

Charles Rhyee: I'm just trying to get a sense on the the comp as you go into 2025 and you know if you work to move back to normal accruals in 25 obviously from a lower level than was previously expected but what kind of a year of year headwind might that be and is that factored into the 11 to 12% EBITDA guidance? It is factored in. Yes, it is factored into that and it will be a headwind that will have to work overcome and that's part of the work that we're doing across the teams and you know we did talk a little bit about that the benefits of that restructuring program you know because we're continuing to work through that through this quarter not really seen full benefits that towards the end of this year that will help offset some of that as we go into next year but that is also a headwind that we're working towards with the efficiency and productivity programs that we have in place.

Charles Rhyee: We know it's important to be able to get back to that. Yeah the main thing is higher. The main thing is it's planned it. Yes it is part of it. Yeah okay and I know I said I had three questions.

Eric Coldwell: I guess there's probably a few more sub parts to these but on the last one you've said you were making changes to get the bookings going. You've talked a bit around that but are there any specific details you could give us? Changes in the terms you're offering, changes in pricing, changes in sales force, focus, leadership, you know is there some kind of more specific detail you could give us anecdotal commentary that we could track besides you know more of what I would say was a higher level discussion so far at least it felt like that to me.

Eric Coldwell: Yeah Eric appreciate that. I'm glad you asked too because we are not making price concessions for to increase sales. We're not doing anything out of market associated with extending terms or anything like that so we are really trying to stay in market and have the value proposition of working with us as I was saluting to in the earlier discussions with our strategies with our medical expertise with the investigator relationships that we have with the technologies like the Advaraviva relationship that's pretty unique that we have.

Eric Coldwell: You know we're really trying to press into selling with that not by making price concession so I'm glad you asked about that. With respect to specifics yeah I think there are a couple of things you know first we are improving the discipline of our weekly and monthly meetings associated with sales and the predictability we're going to make a couple of changes to how we predict the second half of the quarter and look at probabilities a little bit differently than we have been.

Eric Coldwell: We had gone into a method a certain methodology and now we're going to use a couple of different methodologies to try to predict but the key is you know what you don't want to do is you don't want to predict you're going to be at .96 what you want to do is figure out the way to get at 1.2 so the key is really working with the teams to really try to understand the decision processes and then how we can influence them and and make them work. And the other thing that we're looking at in all candor for next year and it's incorporated in the the numbers that Joe was describing is actually potential of increasing our resources associated with going after biotech in particular and you know do we we inherited a sales force of a certain size and so we're thinking should we go ahead and have more resources exposed to biotech and certain geographies so we're looking at that right now.

Eric Coldwell: So we've got a number of things I guess the last thing I'd say is we are looking at the use of AI in both targeting and RFP development. There are some tools out there that you may be aware of that that incorporates some elements so we're looking at what those tools can do but then also looking at you know how can we enhance it with some of the skills that we have in house. House. So is that health, Eric? Yes, thank you. That's helpful. I appreciate it.

Eric Coldwell: And the next question comes from Michael Ryskin with Bank of America Securities. Your line is open. Great. Thanks for squeezing me in. I'll just give you a few questions. I'll just give you a few questions from Michael Ryskin. I'll just give you a few questions. I'll just give you a few questions from Michael Ryskin. That didn't convert into a queue. Is it still on the pipe line? Is it still part of your second half outlook?

Eric Coldwell: Because you talked about heavy biotech-leaning in 2 queue, but more far more lean entering 3 queue. So I'm just wondering if the biotech didn't convert and it's still there. Is that part of the equation for the second half? And then just how much does that really swing quarter to quarter in terms of the pipe line, the composition of it? Because that's something that's been really volatile. So it's just sort of what are the factors driving that?

Eric Coldwell: Thanks. Yeah. I mean, our reality is that a lot of it is delayed decision-making. So it is, in fact, in the third and fourth quarters. So that's one of the things that makes our pipeline look great. But what is, you know, the addition to that is that we have some things that we knew were going to be late in the year award and contract with large pharma. And those are coming into site now too for Q3 and Q4.

Eric Coldwell: So that's what makes us feel good about the second half of the year. You know, in terms of the volatility, I think we are finding there's a little seasonality. This seems to be, you know, perhaps it's introduced by the Reaper organization and some of the internal processes taking place in large pharma that are causing a more second half awards and first half awards, at least in the companies that we're working with.

Eric Coldwell: But, you know, you saw this last year, you see it this year. I'm not sure I really want to call it a trend yet, though. It may be more just a temporal thing that's happened in 2024 than it is a long-term trend because, you know, historically, pharma firms are pretty balanced through the year. Large pharma is pretty balanced through the year with the potential of a little increase in Q4. So they're trying to finish up their budgets. So I don't want to call it a long-term trend yet, but it certainly happens to be something that we saw in 2024.

Operator: I show no further questions at the queue at this time. I would now like to turn the call back over to Tom for closing remarks. Thank you very much. We appreciate your interest in us and support. You know, again, it's been a good quarter for things like delivering, doubling the EBITDA, some of these big relationship wins and we have a strong pipeline. So we appreciate your interest and support and look forward to talking to you next quarter. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.