Q4 2024 Fortrea Holdings Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to four tree of fourth quarter 'twenty 'twenty four 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.

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Speaker Change: I would like now to turn the conference over to him and give him the head of Investor Relations and corporate development. Please go ahead.

Speaker Change: Good morning, and thank you for joining for T. S fourth quarter 2024 earnings Conference call and let you go head of Investor Relations and corporate development at books, yet on the call with me today are our CEO, Tom Pike and CFO Jamie Macdonald.

Speaker Change: It is being webcast and the slides accompanying today's presentation have been posted to the Investor Relations page up all that Facebook via Dot Com you in there.

Speaker Change: Paul will 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.

Speaker Change: We encourage you cause you. 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.

Speaker Change: The fact that in our press release and presentation that people sit on the best site.

Speaker Change: Please note that any forward looking statements represent our views as of today March two 2025 and that we assume no obligation to update the forward looking statements. Even if estimates change. During this call will also be a friend of certain non-GAAP financial measures. These non-GAAP measures are not because we get to a replacement for.

Speaker Change: The comparable GAAP measures, but he believes these measures help investors gain a more complete understanding of results a reconciliation of such non-GAAP financial measures to the most comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call, we thought I'd like to turn it over to our CEO.

Tom Pike: Tom Tom.

Tom Pike: Good morning, everyone and welcome to the call today.

Tom Pike: The share of portray as fourth quarter results and look forward to what's ahead in 2025 I'll start with.

Tom Pike: Our commercial success in the fourth quarter, we delivered a strong book to Bill of 135, resulting in a 1.29 for the second half since our spin our book to Bill has averaged one two times, which is what we had targeted.

Tom Pike: Our year ending backlog has grown to $7 7 billion.

Tom Pike: We're pleased with the transformation of our trio sales capabilities over this past 18 months, we delivered these sales with pricing discipline.

Tom Pike: Let me provide some color we.

Tom Pike: We saw continued strong new business and our market, leading phase one clinical pharmacology services business, which we call Cps.

Tom Pike: This included significant repeat awards from our largest Cps customer.

Tom Pike: In fact, the fourth quarter was our most successful quarter ever Cts sales, where we've made major investments in our network of clinics strengthening our offering and increasing capacity.

Tom Pike: Beyond the Cps are awards for full service clinical work from large pharma were also strong including global oncology studies on a sole source award in Gastroenterology.

Tom Pike: We were also selected as the sole provider for drug safety services by a larger pharma customer with an innovative solution, but as an integrated AI tool for literature searches and medical writing to support post market surveillance.

Tom Pike: Our success in supporting the biotech sector with full service solutions also continue to pace in the fourth quarter were very strong in biotech oncology. Once again this quarter based on our expertise and strong study delivery.

Tom Pike: And oncology, we want across a broad range of therapeutic areas from a global phase II infectious disease study to a sole source when ophthalmology an area in which we are building a strong reputation.

Tom Pike: I'd also like to call out a few other commercial highlights from the quarter. We had good sales in Asia Pacific as customers in this region recognized our capabilities to support them with global programs. For instance, this quarter wins included a nice global phase III oncology study and a significant medical device program. We're on.

Tom Pike: Also pleased to have been selected FERC Global study later out of Asia Pac as part of our collaboration with a large pharma customer.

Tom Pike: Also our consulting organization is implementing multiple real world evidence studies in Asia Pacific for a large U S based large pharma firm looking to grow their business in the region we.

Tom Pike: We delivered a solid performance and functional service provision, which we call FSP in the fourth quarter as well. In addition to some solid sales from this part of the business. We helped a large customer complete the launch of a safety platform through a very large FSP effort that we will now continue to operate this implementation was the culmination.

Tom Pike: The nation of almost 24 months of work integrating 11 complex systems and more than 80000 product licenses migrating about 3 million cases or safety teams collaborated with the customer to deliver the platform ahead of schedule. It's a demonstration of portray as capabilities applied to a complex situation for a car.

Tom Pike: Store.

Tom Pike: Our consulting group continues to grow developing real productivity solutions for the industry and providing customers with science based strategy from clinical development planning and regulatory strategy to real World evidence solutions. For example, our team delivered qualitative and quantitative research studies to support FDA acceptance.

Tom Pike: Clinical outcomes assessment endpoint measures and incorporated novel measures empty to <unk> filings with one approval so far for our biotech customer.

Tom Pike: Our include improving clinical pharmacology and later stage full service outsourcing delivery is contributing to our strong book to Bill.

Tom Pike: But it's not the only place we're seeing the improvements manifest.

Tom Pike: One of the first things we established after the spin was a comprehensive customer relationship feedback program, including a net promoter score or NPS measurement system I am pleased to share that our NPS scores have significantly improved over the year.

Tom Pike: We believe that we're creating a better customer experience working with for trio as well as understanding additional improvements that we can make.

Tom Pike: Another highlight worth noting from the fourth quarter as a successful exit of most of the transition services agreement or TSA with our former parent that success has continued in Q1 and after this quarter, we expect payments to our former parent to be a fraction of what they were our team has delivered.

Tom Pike: It was no small feat for example, it's transitioned to the new four three a digital environment.

Tom Pike: Migrated 17000 devices 8000 mobile phones 500 applications finished building 1600 servers as well as the launch of our HR ERP on December 16, and launch of our finance ERP platform on January 2nd.

Tom Pike: I want to commend both to portray it team and our effective teaming with technology partners to deliver these incredible results.

Tom Pike: Now, let me transition from customer successes.

Tom Pike: And both Cro's I've run.

Tom Pike: I view, the most important leading metric to be book to Bill.

Tom Pike: Certainly proud that our average book to Bill is one two times since spin and it bodes well for the future.

Tom Pike: However, let me discuss the big issue here or.

Tom Pike: Our targeted revenue and adjusted EBITDA trajectory for 2025 are not in line with our prior expectations.

Tom Pike: Let me remind you this spin was lift and shift we've been using the same management processes and systems division of a much larger company used ideally waiting to update them until we convert them to our own environment.

Tom Pike: As we implemented our environment connection with exiting the TSA as we did a deeper analysis of full service projects and other inputs to longer term forecasts gives.

Tom Pike: Given this analysis, we have a better picture of the revenues costs margins and timing on a full service work projects from pre spin period, and we understand that they represent a bigger slice of the pie in 2025.

Tom Pike: This analysis. This analysis, which also took significant time to confirm indicated that the pre spin projects. Many later in their lifecycle have less revenue and less profitability than expected for 2025.

Tom Pike: The strong book to bills in spinner, creating work that sold and delivered a good margins. This post spin work is not coming on fast enough to offset the pre spin contract economics.

Tom Pike: <unk> older versus newer mix issue will continue to negatively impact our financial performance during 2025 until revenue from our new business wins becomes a larger proportion of the mix.

Tom Pike: We're implementing new management systems and processes that are sized with details and granularity appropriate for an independent company of our size.

Tom Pike: They will enable us to align our resources to the work we need.

Tom Pike: To do to complete trials more efficiently and profitably.

Tom Pike: Markets are really as the stomach and Roman Emperor champion the idea of something called <unk>, which means embrace your difficulties as part of your journey.

Tom Pike: That is what we have to do here portray it we keep moving forward.

Now, let me hand over to Jill.

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

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

Jill: I want to acknowledge that this period with limited communication to the external investment community has been challenging as.

Jill: As we got later into the fourth quarter, we realized that we needed to do significantly more analysis, although the number of dimensions before continuing to communicate it.

Jill: It is important that we had the full picture of 2024 results.

Jill: Including in sharing the TSA services exit and strong book to Bill were delivered and understanding where we might be falling short.

Jill: We used this quiet period to interrogate our expectations for 2025 guidance.

Jill: To ensure we had transformation programs underway, so that we could provide the detail and transparency we are sharing today.

Jill: In my remarks, I will focus on the details of our 2024 results.

Jill: Our 2025 guidance, including the actions, we have taken and will continue to take to reduce costs.

Jill: And our outlook for the medium term.

Jill: I will also discuss our transformation plans in detail. So you understand how we plan to track our progress against them.

Jill: As Tom shared we had some very compelling successes in 2024 and.

Jill: In addition to what he shared.

Jill: All that we sold two non core businesses and paid down debt, reducing our annual interest expense.

Also reduced our DSO by 60% versus last year.

Jill: I'm incredibly proud of our teams for the on timelines of our Standalone HR system, and our finance ERP and also for their efforts to enhance our internal control environment, which resulted in the successful remediation of the material weaknesses identified last spring.

Jill: Now I'll cover the financial results.

Jill: For the fourth quarter revenues of $697 million declined one 8% year on year.

Jill: <unk> of growth versus the prior year was driven by lower late stage clinical service fee revenue, partially offset by higher service fee revenues from our phase one clinical pharmacology business.

Jill: Our phase one clinical pharmacology unit has continued to perform well.

Jill: Our later stage clinical business is performing well for our customers as evidenced by their higher NPS ratings.

Jill: However services revenue declined based on a combination of factors, including lower New business awards in the pre spin period, along with the mix of later in their lifecycle and longer duration studies, and our backlog, including solar burning studies, such as oncology, which has continued to be a significant part of our portfolio.

Jill: The fourth quarter was also negatively impacted by the effort associated with the system transition to exit the TSA services.

Jill: Along with a more pronounced impact of the holiday period compared to historical experience.

Jill: <unk> as a percentage of total services revenue have remained generally consistent year over year.

Jill: Full year 2020 for revenue of $2696 4 million, which was broadly in line with our guidance range decreased five 1% compared to revenue of $2842 5 million for full year 2023.

Jill: On a GAAP basis direct cost in the quarter decreased three 8% year over year, primarily due to lower personnel costs as a result of restructuring actions.

Jill: These savings were partially offset by an increase in professional fees and stock based compensation as well as targeted hiring and where necessary to support specific needs.

Jill: SG&A in the quarter was higher year over year by 16, 9%, primarily due to an increase in professional fees and incremental one time costs incurred for exiting the TSA services, along with the yield cost related to the receivables securitization program, we initiated in the second quarter of last year.

Jill: If you exclude the impact of onetime costs related to the spin as well as the impact of the yield Cos underlying SG&A as a percent of revenue was broadly consistent with the previous two quarters.

Jill: Net interest expense for the quarter was $21 9 million.

Jill: The decrease of $12 $6 million versus the prior year, primarily due to the $475 million and debt paydowns across our term loan a and term loan b that were made in June 2024.

Jill: When combined with our securitization program.

Jill: Risks and securitization costs for the fourth quarter were down approximately 22% compared to the fourth quarter of 2023.

Jill: Turning to our tax rate the effective tax rate for continuing operations for the quarter was a benefit of one 2%.

Jill: It was negatively impacted by withholding taxes on our 2020 for non U S earnings that we asserted our not permanently reinvested and an additional valuation allowance against our deferred tax assets.

Jill: Our book to Bill for the quarter was 135 times for the trailing 12 months was one six times.

Jill: Our backlog is at around seven 7 billion and has grown four 2% over the past 12 months.

Jill: Adjusted EBITDA for the quarter was $56 million compared.

Jill: Compared to adjusted EBITDA of $58 9 million in the prior year period.

Jill: Adjusted EBITDA for full year, 2024, with $202 5 million compared to adjusted EBITDA of $245 8 million for full year 2023.

Jill: Adjusted EBITDA margin for full year, 2024 was seven 5% compared to eight 6% for full year 2023.

Jill: Adjusted EBITDA margin in the quarter and for the year was negatively impacted by the lower late stage clinical service fee revenues, along with higher SG&A costs post spin to support operations as a public company following the separation from our former parent.

Jill: These were partially offset by the benefit from the restructuring program, we initiated in the third quarter of 2023, which continued through 2024.

Jill: Now I'll move to net income and adjusted net income.

Jill: In the fourth quarter of 2024 net loss was $73 9 million compared to net loss of $48 6 million in the prior year period.

Jill: Full year 2024, net loss was $271 5 million compared to net loss of $31 $7 million for full year 2023.

Jill: In the fourth quarter of 2024, adjusted net income was $16 6 million compared to adjusted net income of $12 7 million in the prior year period.

Jill: <unk> full year 2024, adjusted net income was $30 1 million compared to adjusted net income of $111 9 million for full year 2023.

Jill: For the current quarter adjusted basic earnings per share was 34.

Jill: And adjusted diluted earnings per share was 33.

Jill: Turning to customer concentration our top 10 customers represented 53% of 2020 for revenue.

Jill: Our two largest customers accounted for 14, 3% and 10, 5% of revenues respectively.

Speaker Change: As I comment on cash flow note. This relates to portray in total as we have not segregated cash flows from discontinued operations.

Speaker Change: For the 12 months ended December 31, 2024, we recorded $262 8 million in cash flow from operating activities.

Speaker Change: Compared to $168 $4 million generated in the prior year.

Speaker Change: Cash flow for the full year benefited from the initial sale of receivables under the securitization facility in the second quarter and an increase in unearned revenue as well as strong cash collections, partially offset by the decrease in net income.

Speaker Change: Free cash flow was $237 3 million compared to $128 1 million in 2023.

Speaker Change: Net accounts receivable and Unbilled services for continuing operations were $659 5 million as of December.

Speaker Change: Remember 31, 2024 compared to $988 5 million as of December 31, 2023.

Speaker Change: Days sales outstanding from continuing operations was 40 days as of December 31, 2024.

Speaker Change: 10 days lower than September 32024, and considerably lower than the equivalent of roughly 100 days at 2023 year end.

Speaker Change: The reduction versus the third quarter is due to our focus on billing and collection processes, along with our efforts to enhance our contracting terms.

Speaker Change: We are compliant with the financial maintenance covenants of our credit agreement as of the end of the quarter.

Speaker Change: We ended the quarter with more than half of $1 billion of liquidity.

Speaker Change: Although we expected to remain compliant with our debt covenants going forward in order to provide more flexibility, we renegotiated our net debt leverage ratio to provide more certainty to the fourth quarter of 2026.

Speaker Change: The maximum leverage ratio was increased from five three times to six zero times for the four quarters, beginning with Q3 2025.

Speaker Change: Being down in both the third and fourth quarters of 2026 and reverting to five three times afterwards.

Speaker Change: With our TSA services exits largely behind US we plan to focus our capital allocation priorities and targeted investments to drive organic growth and improved productivity along with debt repayment.

Speaker Change: Now turning to 2025 guidance.

Speaker Change: Using exchange rates in effect on December 31, 2024, we target our revenues to be in the range of $2 45 billion.

Speaker Change: Two to $5 5 billion.

Speaker Change: Our adjusted EBITDA to be in the range of $170 million to $200 million.

Speaker Change: Note that due to the nature of our revenue is contracted versus our global employee footprint. Using December 31, 2024 exchange rates provides a headwind to revenue and a tailwind to our cost base.

Speaker Change: The lower revenue targets year on year are driven by our project mix, which is burning more slowly due to the pre spin awards move into the later stages of their lifecycle and our therapeutic mix with a significant portion of oncology, which burns more slowly than other therapeutic areas.

Speaker Change: Post spin portfolio is also impacted by slower startup in biotech projects and the soft first half bookings in 2024.

Speaker Change: The lower margin targets are driven by the inefficiencies in the pre spend portfolio and the inherited SG&A costs that we are actively working to reduce.

Speaker Change: Many of the pre spin projects are extended in duration and are well into their lifecycle as Tom described both of which create headwinds to growth and margin expansion in 2025.

Speaker Change: Now I'll discuss our robust transformation plans for 2025 and beyond.

Speaker Change: We believe the key to our transformation is restarting revenue growth, which is why we are laser focused on continuing to build on the success of our commercial engine to date. We've made good progress delivering strong book to Bill in the second half of both 2023 and 2024 and have delivered a solid one two times.

Speaker Change: Average in the six quarters since the spin.

Speaker Change: We continue to see an attractive pipeline of opportunities in all phases of clinical work, both full service and FSP and we believe we are well positioned to capitalize on them.

Speaker Change: We plan to increase our investment in biotech in 2025.

Speaker Change: Overall, we have about a 50 50 split between large pharma and biotech customers and we believe it is a competitive strength for.

Speaker Change: For 2025, we continue to target achieving a one two times average book to Bill.

Speaker Change: Turning to our savings programs, we've spoken previously about needing to prepaying, our SG&A costs more in line with peers over time.

Speaker Change: But we are essentially exited from the TSA services with our former parent and are operating in their own enterprise systems. We have initiated transformation programs to reduce personnel costs consolidate it applications and licensing expenses and to further optimize our facilities footprint and our third party vendor spend.

Speaker Change: We target year on year net savings of $40 million to $50 million in 2025 from these initiatives. This.

Speaker Change: This is included in our guidance with the benefits increasing over the course of the year and you should see a year over year reduction in total underlying SG&A spend.

Speaker Change: We expect these programs will extend into 2026 as we continue our efforts to bring our SG&A spend more in line with peers.

Speaker Change: Note that since the spin and separate from the divestitures.

Speaker Change: We have reduced more than 1400 positions across our operations and SG&A teams in an effort to better align our cost base with our revenue profile.

Speaker Change: That journey is continuing and we took a charge of $21 $3 million to our P&L in the fourth quarter to recognize the additional restructuring programs, we've already kicked off for 2025.

Speaker Change: It is important to understand that since the spin we have not had the impact of incentive compensation in our results due to our financial performance.

Speaker Change: We are restarting these programs for 2025, so we anticipate these programs to be a headwind when compared to prior years.

Speaker Change: Regarding our operations optimization, we're looking at are projects as two categories pre spin awards and postponed awards.

Speaker Change: With our pre spin projects, we will continue to work on having an optimized level of resourcing and utilization and ensure we are compensated for the scope of work that we perform.

Speaker Change: Our goal is to see the pre spend projects through to completion as efficiently as possible.

Speaker Change: At the present time they are the vast majority of our later stage full service clinical revenue.

Speaker Change: We have included some operations restructuring in our 2025 guidance and will continue to seek opportunities for further optimization.

Our postbank projects are performing well and we will continue to look for opportunities to accelerate delivery.

Speaker Change: Post spin projects only represent a small percentage of our full service clinical revenue less than we expected at this point.

Speaker Change: It will grow as a proportion of revenue over time.

Speaker Change: We don't expect them to become the majority of our later stage full service clinical revenue until the second half of 2026.

Speaker Change: In order for you to follow our progress we intend to discuss each quarter at least postpone projects are becoming a larger percentage of our later stage full service clinical revenue overtime.

Speaker Change: Because our 2025 guidance is not in line with what we expected a few months ago I will now share our current view of modeling for 2026.

Speaker Change: First we prepared multiple years project by project forecast at a level more detailed than ever done previously.

Speaker Change: Analyzed and adjusted other assumptions, including that the level of change orders and cancellation rates remain in line with our historic norms and current experience.

Speaker Change: For net new business assumption, we used a more conservative 115 times for our modeling.

Speaker Change: We applied a burn rate assumptions similar to what we have experienced since the spin.

Speaker Change: We're planning for another 100 basis points of reduction in SG&A costs in 2026.

Speaker Change: With these parameters are modeling anticipates, a return to growth in the first half of 2026.

Speaker Change: Before I conclude I want to take a moment to recognize the incredible hard work by <unk> employees to deliver strong book to bills and results for customers and to exit our TSA services and streamline our infrastructure. We've shown this organization can accomplish difficult thing.

Speaker Change: There is still work to be done, but we have put in place the building blocks to create long term value for all our stakeholders.

Speaker Change: With the solid foundation, we have laid in the past year attractive backlog of nearly seven 7 billion.

Speaker Change: And our talented global team, we are committed to delighting, our customers and returning to growth and margin expansion now I'll turn it back to Tom for the remainder of his remarks.

Tom Pike: Thanks, Joe.

Tom Pike: Ultimately our vision is to be the best choice Euro company that moves at the speed of science listened intently to customers and delivers with precision or.

Tom Pike: While 2025 will continue to be a period of transition. The long term trajectory is clear we believe that we can master agility scientific excellence and customer focused execution to define next year Europes heroes by embracing this mindset, we are positioning ourselves not just to compete but to lead.

Tom Pike: Now regarding shareholder value creation.

Tom Pike: I am not satisfied with where things stand and we're reviewing additional opportunities for growth cost reduction and shareholder return.

Tom Pike: I'm still bullish on the CRO industry and <unk> role in it.

Tom Pike: As the future clinical research is being shaped through rapid advances in science and biology evolving regulatory landscapes increasingly the transformative potential of AI.

Tom Pike: We believe the clinical research industry will grow and CRO. This will be a key part of it.

Tom Pike: Here as Jill said, our pipeline is solid and we've demonstrated we can sell.

Tom Pike: We can also deliver sophisticated solutions for customers and are supporting leading edge science that promises significant advances for patients for instance, we're proud to be working with several biotechs, who are developing silencing RNA to treat a variety of cardiovascular diseases, including Hyperlipidemia and trombone.

Tom Pike: And political disease.

Tom Pike: New drugs can be administered as little as once every six months significantly reducing patient burden and improving compliance.

Tom Pike: Car T therapies are the most common pipeline technology for genetically modified cell therapies and <unk> is one of the very few crows that is ever successfully brought a car T from first in human to market access or.

Tom Pike: New trend with car Ts is treatment of autoimmune diseases and portrait is there.

Tom Pike: The clinical research industry needs to evolve.

Tom Pike: Success will depend on our ability to both be both agile and disciplined more flexible in how we design and execute trials upholding ethical and regulatory standards, while running a good business.

Speaker Change: The intelligence Revolution.

Tom Pike: Or IR is upon us.

Tom Pike: Technology, particularly AI will revolutionize clinical research over time, but we believe the greatest impact will come from combining these innovations with deep operational therapeutic and regulatory expertise our role is not simply to manage studies, but to bring intelligence productivity flexibility and problem solving.

Tom Pike: <unk> every trial we conduct.

Tom Pike: We're tree is pushing ahead in a focused way on Pi. We examined a 185 use cases last year, we have specific initiatives coming from that such as to further enable our accelerated platform as well as democratizing AI, which means cost effectively rolling it out broadly to our people.

Tom Pike: For productivity and more.

Tom Pike: We believe we can transform portray it for this future.

Tom Pike: In the past year have we've demonstrated improvements in customer satisfaction and quality all the while conducting an enormous transition as a spin out.

Tom Pike: Over coming months, you will see the synergy directed toward transforming for the future.

Tom Pike: I'll close by recognizing the incredible efforts of our team at for trio.

Tom Pike: We have tremendous therapeutic regulatory and operational experts across the globe their dedication.

Tom Pike: And hard work have been instrumental in driving our success and positioning us for a bright future driven.

Tom Pike: Driven by our purpose of delivering solutions that bring life changing treatments to patients faster our team is ready to accelerate.

Tom Pike: Stay tuned.

Tom Pike: Now, let's turn to our operator to begin Q&A.

Tom Pike: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced and to withdraw. Your question. Please press star one one again.

Speaker Change: And the first question will come from Patrick Donnelly with Citi. Your line is now open.

Patrick Donnelly: Hey, guys. Thanks for taking the question.

Speaker Change: Tom maybe one for you just on.

Speaker Change: The trajectory here, 25% to 26.

Speaker Change: Yes, it sounds like Youre striving kind of this pre spin projects.

Speaker Change: Ram.

Speaker Change: <unk> profitability with old versus new mix issue.

Speaker Change: We can return to growth in 2006, I guess can you just talk about the process to identify that why it took so long to kind of identify what was going on and again that was going to really weigh down 25 was this just getting contracts done before the spin and the financials, we've got a little bit loose.

Speaker Change: I guess on the back of that just the confidence in the trajectory of the new mix picking things up as we work our way in the 2006.

Tom Pike: Yes, Thanks Patrick.

Speaker Change: As I said we.

Speaker Change: You try to use existing processes you can't change everything if you think about it when you do a spin you have some things you are trying to proactively change like get out of the TSA is youre trying to.

Speaker Change: Our case, we had to really redesign the commercial function and make it much more effective. So you have these proactive things and then you have reactive things along the way and what we determined here is that really the systems and processes associated with forecasting.

Speaker Change: Needed to get to a much more detailed level for us to have confidence in 2025.

Speaker Change: We had some signs of this but as you can imagine to deliver this kind of guidance.

Speaker Change: Really has to do a lot of confirmation there was an initial pass at it.

Speaker Change: And then much more detailed analysis project by project as Joe described in her remarks as well.

Speaker Change: And the result of that which really took a couple of months to complete is what you see here now.

Speaker Change: Now.

Speaker Change: Nobody wants to bring this kind of news as a shareholder myself I don't want to bring this kind of news.

Speaker Change: We think we need to deal with the reality of this pre spin portfolio and.

Patrick Donnelly: <unk> put it out there I would say the other thing Patrick that did surprise us in this analysis is that the newer work. The good work, we've sold which is being delivered at the original deal economics as we call it.

Patrick Donnelly: Is starting more slowly than I would've expected.

Patrick Donnelly: And we think some of that is our heavy mix of biotech that we have whereas you've heard from us in some of our peers. There is a longer process for startup in many cases and then in addition.

Patrick Donnelly: There is quite a bit of oncology as you heard my examples we do a lot of excellence oncology work here and it does burn a little slower so all of that.

Patrick Donnelly: A few months frankly to identify.

Patrick Donnelly: Analyze confirm go through the forecast every element change orders forecast et cetera to sort out because we didn't want to bring this kind of news lately.

Patrick Donnelly: We needed to make sure that we were confident in the underlying assumptions.

Patrick Donnelly: And then you mentioned that the income just shareholder return opportunities.

Patrick Donnelly: Stock broke below 10 Bucks this morning.

Patrick Donnelly: Got it.

Patrick Donnelly: Old occurred back a little bit there what you see as a reasonable path forward here one of the focus points. What can you guys do to kind of a market with more value there.

Patrick Donnelly: A few things.

Patrick Donnelly: These bookings I believe led our industry in the third and fourth quarter. So the company is demonstrating that it does very good work for customers and I tried to give you guys a sense of it I know thats a lot of detail for a call with our analysts and investors, but I'll try to give you a sense that we do very good work in our work.

Patrick Donnelly: Is improving and it's well received by customers. That's the number one thing.

Speaker Change: Joe was describing her remarks too as we continue to really have a couple of very focused programs. One is growing the stuff that we can grow like clinical pharmacology business continuing to grow that.

Speaker Change: Really looking hard at growing FSP this year and continue to focus on full service outsourcing, but at the same time. It is transforming our SG&A and you heard that remark about the 40% to $50 million improvement that we're looking for associated with it and then frankly continuing to transform.

Speaker Change: Our operations in full service with this more detailed information we think we can align resources more effectively.

Speaker Change: We've given you a sense through these numbers of what we believe is clear, but we're going to continue to work on optimizing how we delivered to make sure we're delivering with quality and meeting customer expectations or exceeding them, but also doing it cost efficiently.

Speaker Change: So we're going to have those two programs very heavily I should also mention that we also have one in the area.

It is very interesting because we know it's transformative in AI, but we also know that we have to deal with application rationalization and tech that we've got here from the prior decade, and so we have a very strong executive there who's driving improvements in that area too.

Speaker Change: And just anything else, Okay, alright, Thank you Patrick.

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

Justin Bowers: Hi, good morning, everyone.

Speaker Change: Just trying to.

Speaker Change: Help understand the cost structure, a little better and then.

Speaker Change: The top line assumptions as well in the guide.

Speaker Change: So you talked about.

Speaker Change: Going into 2026 with a burn rate that's consistent with.

Speaker Change: Historical patterns, but it looks like.

Speaker Change: When the revenue step down that implies something around an 8% burn rate which would be.

Speaker Change: 100.

Speaker Change: 100 basis point contraction year over year or so.

Speaker Change: Is that sort of the right ballpark for how we should be thinking about 2025, and then just want to confirm that.

Speaker Change: It sounded like.

Speaker Change: Earlier in 2000 to early in 2024, and you talked about a lot of the opportunities being with large pharma.

Speaker Change: And Tom you also just mentioned some of the focus on FSP as well so.

Speaker Change: Really just want to understand sort of the execution there.

Speaker Change: And.

Speaker Change: And the opportunities that you're seeing in 2025, and how that plays into the burn rate and then I'll come back with part two on the cost structure.

Speaker Change: Why don't I start.

Speaker Change: With that part.

Speaker Change: And just in.

Speaker Change: In terms of the mix, we're still about 50, 50, and we like that mix. So.

Speaker Change: We've been pretty successful biotech you guys might recall that we talked about how in the third quarter and fourth quarter. We had the more balanced exposure in terms of the bookings to those two areas. The large and then the biotechs and we did deliver with that as you look forward, we actually have.

Speaker Change: Good pipeline now.

Speaker Change: And I think we've learned in this business not to try to Overcommit at this point in the process, but it continues to be this nice mixture of large pharma and biotech and you can hear from the examples that we're doing a lot of the most innovative work with biotechs I will said before Jill comments on the burn rate that.

Speaker Change: This is a very detailed analysis project by project.

Speaker Change: And many of these projects that we have our late in their lifecycle.

Speaker Change: And what that means if you think about it with percentage complete accounting and I hate to get into detail here, but with percentage complete accounting.

Speaker Change: Even if you lower the cost of execution late in the trial.

Speaker Change: It's still very difficult to improve the margins of that trial when most of the hours have been expended.

Speaker Change: So what it's got us in a situation of <unk>.

Working through almost an air pocket here.

Speaker Change: <unk>.

Speaker Change: Things that are later in later stages difficult to do much with in many cases don't have the kind of profitability that we would like to see.

Speaker Change: And then we replace them with new work, but that new work has to come on coli.

Speaker Change: And so thats, what youre seeing in 2025.

Joe: Joe I don't know if you'd comment on the burn rate.

Speaker Change: I think.

Speaker Change: We've tried we've seen the burn rate are second half you may recall from previous remarks, I said, we did benefit some from the clinical pharmacology business, which is which burns faster just based on the nature of those studies and obviously FSP comes in more quickly, but when we looked at this portfolio and really dug in and we.

Speaker Change: We did.

Speaker Change: Try to be as you heard me say, we modeled a $1 <unk> five even though we've done better than that.

Speaker Change: On average since the spin we wanted to be slightly more conservative and we will be doing everything we can to try to see how we can improve those rates and be more efficient and optimize as I mentioned as Tom has talked about as well, but for now thats, probably inappropriate way to model.

Speaker Change: Okay, and maybe just I'll be quick here on this one but can you provide us with just sort of like ranges in terms of ratios for cost of services and SG&A in 2025.

Speaker Change: So in 'twenty five we're looking to take out about 80 basis points as a percent of revenue based on the guidance that we provided.

Speaker Change: And then as I said, we were looking to take out another 100 basis points in 2012 26, if we go for it or SG&A for SG&A, yes.

Okay gross.

Justin Bowers: It's clear to us Justin for gross margin, we need to continue to take action to you're really seeing that as the overall EBITDA margin at this point, but it is clear to us that we need to continue to be more cost effective in that area and match resources to work in a very detailed way.

Speaker Change: Okay. Thank you, Joe and Tom and I will jump back in queue.

Justin Bowers: Thank you Justin.

Justin Bowers: And we do ask that everyone ask one question and then please queue back up for a follow up question to give everyone a chance to ask questions.

Speaker Change: And the next question will come from David Windley with Jefferies. Your line is now open.

David Windley: Hi, good morning, Thanks for taking my questions I appreciate the detail. This morning, I wanted to kind of wrap a couple together.

David Windley: That have already been asked but around the kind of thinking about burn rate.

Speaker Change: Book to Bill.

Speaker Change: And the level of backlog so so.

Speaker Change: As Justin said it does calculate to a burn rate that seems to drop about 100 basis points or maybe a little more maybe 125.

Speaker Change: And hearing you describe that projects are kind of near the end of their lifecycle.

Speaker Change: And not going to be as revenue generative in 25 years, maybe you previously previously expected I guess, what I would expect to see from that just kind of a clean out of backlog, maybe some dead backlog in there that's not going to be productive or trials that were reduced in size and need to be down scoped.

Speaker Change: And I don't I don't see that I mean, it looks like to get the burn rate to stay in approximately the right not the right, but at the same level that it was in 'twenty four would be about $1 billion $900 million reduction.

Speaker Change: And backlog and so absent that Tom on your percent of completion comment I would expect if that backlog still stays in.

Speaker Change: You would have positive true ups at the end of trials that would actually help margin. So the punch line here is it seems like I'm missing link is either you've got projects at risk that you are delivering on time on schedule that you can recognize favorably as they wrap up early.

Speaker Change: Or you still have a big backlog cleanup that needs to happen, which one is it. Please thanks.

Speaker Change: Well I'll start you may be able to tell that.

Speaker Change: Sales a little under the weather today so.

Speaker Change: Well I'm going to start and then you can add to this Jill.

Speaker Change: With respect to the.

Jill: That backlog, we actually went through analysis this quarter to try to look at stuff in the backlog and.

Jill: There was really the backlog is substantially fine the way it is.

Jill: I do think it's possible that there are sometimes write ups at the end of projects.

Jill: Here I think you actually get both time from what I've seen here to date, you get some write ups and some write offs at the end and they're tending to net here in general So it is a little different than in some places. So its a good detailed comment but here they are tending to net and as they get long in life.

Jill: They tend to operate at lower margins and then at the very end they have a bump in activity associated with closing them out.

Jill: So we've done the best of our ability to try to estimate that for 2025.

Jill: <unk>.

Jill: This is what we see right now in terms of backlog burn.

Jill: As a public company, we can't Arb.

Jill: <unk> go in and <unk> some of the backlog out to make those burn rates work I think we just need to do our best to burn those off they are important projects for customers and we need to finish them out and then what we need to work on is really trying to accelerate the new work and frankly trying to accelerate the existing work dirt.

Jill: The course of this year because that's good for everybody.

Jill: And so at this point.

Jill: The numbers are the numbers you can hear we worked on them for a long time, we've done more detailed than ever before.

Jill: And have programs in place to be effective but this is our best judgment at this point I do think there is upside as we get into 2006, when you start seeing the new work come into the portfolio and.

Jill: It should be a consideration and I'm sure we'll talk about it in later calls it should be a consideration around portrait.

Speaker Change: I was pausing J Jill is going to add.

Joe: Joe I think.

Speaker Change: We.

Speaker Change: As Tun said, we spent a huge amount of time trying to go through we did go back and Lee.

Speaker Change: Validate the backlog, we looked at our cancellation rates because in a number of our peers have talked about those increasing we have not seen that they've stayed in line with our historic norm. So we believe the backlog is as we presented it as appropriate.

Speaker Change: Okay.

Speaker Change: Dave.

Speaker Change: Jump back in queue. The way we're doing this but thank you for the question.

Elizabeth Anderson: And our next question comes from Elizabeth Anderson with Evercore. Your line is open.

Elizabeth Anderson: Hi, guys. Thanks, so much for the question can.

Elizabeth Anderson: Can you talk about the current environment.

Elizabeth Anderson: So I think there still remains some concerns about pricing in terms of demand.

And then in terms of like also cancellations.

Some of your peers have obviously call that out so could you help us level set on on that I hear what youre, saying, obviously about the change in forecast about sort of late burning project, which this would be applicable to you, but it would just be helpful to understand a little bit more detail about what youre seeing in the current environment in the first quarter.

Elizabeth Anderson: Elizabeth.

Elizabeth Anderson: <unk>.

David Windley: What I would say, it's substantially similar to what we've communicated in the last call and Thats that we do have a good amount of opportunities both in large pharma and biotech our cancellation rates based on who were exposed to are not elevated so I did see that in some.

David Windley: The others, but our cancellations are not elevated based on that.

David Windley: In the current environment.

David Windley: I think the honest thing as we're all a little nervous about the macros with everything going on whether you're shopping at Walmart or you're thinking about your next clinical trial, but the industry seems to be pressing ahead.

David Windley: And right now.

David Windley: I think there is a belief that biotech entrepreneurs will be supported and so there is a belief will continue to have.

David Windley: Opportunities there and then our large pharma partners, we chat about it then.

As we were preparing for this call and we're not seeing anything new associated with IRA we're.

David Windley: We're not seeing any particular portfolio restructuring. So it seems like people are just pressing ahead. So.

David Windley: Our pipeline is solid it still takes every quarter.

David Windley: In this business as long as I've been doing it.

David Windley: Never it's never over till it's over as Yogi would say.

David Windley: And.

But our pipeline is solid as we look out to the future here.

David Windley: Thanks.

David Windley: Thank you.

David Windley: And our next question will come from Luke.

Speaker Change: <unk> with Barclays. Your line is open.

David Windley: Hey, guys. Thanks for the question.

Speaker Change: So just kind of talk about the the analysis on the background like what was the catalyst that tripped.

Speaker Change: Youre controls that made you do that analysis and give us a sense of the timing on that and then.

Speaker Change: As you are thinking about the mix shift into the.

Speaker Change: From legacy to newer work talk about kind of the resource overlap that you guys have because there is there'll be a concern if we're taking an extra 80 bps of Rev. Al from SG&A This year.

Speaker Change: And how that coincides with the new business that you've been winning.

Speaker Change: Might not have as much.

Speaker Change: Firepower to get those projects up and running as quickly as you could.

Speaker Change: So thanks for the question the catalyst was as we were preparing for the 2025.

Speaker Change: Budgets, we started to see some signs that made us want to go deeper in terms of the analysis and those kinds of signs were.

Speaker Change: Revenue potential revenue shortfalls coming through.

Speaker Change: In certain areas and so when you see that kind of thing.

Speaker Change: You can't take it at face value and what we knew about the company.

Speaker Change: Does that.

Speaker Change: Many crows, but not all of them.

Speaker Change: Projects were estimated out into the future.

Speaker Change: They're not always in a detailed fashion and we've talked in prior calls that there really are not the project management systems and resource management systems here that you see in some other companies and so we knew this and as we were looking.

Last year.

Speaker Change: And then coming into this year, we really had to go deep and.

Speaker Change: To your point about the old versus new.

Speaker Change: New work versus old one of my biggest concerns is that we don't want to turnaround and actually slow down revenue because we don't have the resources. We are a business that that builds on our basis and on a hedge basis based on the work that people do and so one of the things the team.

Speaker Change: Did it was really a dual effort to try to make sure. We had what we felt was a pretty accurate forecast, but also the.

Speaker Change: The operations team is working to really look out months by months geography by geography.

Speaker Change: <unk> by project therapeutic area by therapeutic area because to some degree you need to know the sites that people actually operate at and to try to optimize the resources so that.

Speaker Change: If it's a longer span of time, we might do a reduction, but if it's a shorter span of time.

Speaker Change: We may have to hold the resource because it's the better economic approach.

Speaker Change: So I share that detail with you look because I just wanted to give you a sense that I have to credit our operations team and under this adversity.

Speaker Change: They are trying to get incredibly detailed about demand coming in very much like a manufacturing environment, where you look at inbound demand and then also how do they optimize that resource.

Speaker Change: There is flow up and down at the sites that we have and in the geographies that we have so.

Speaker Change: So I'm hopeful that we're going to optimize it but it is going to be something that we're going to concentrate on every month and actually the teams will be doing every day, but we're going to look at every month to try to make sure were optimized and if we can find more we will you might have heard my comment in there that I am.

Speaker Change: Looking at further areas for revenue generation cost reduction and other shareholder value creation opportunities. So it's not over yet in terms of this.

Speaker Change: We wanted to give you a sense as of today, where we are on it.

Speaker Change: Alright, great. Thanks.

Luke: Thank you Luke.

Speaker Change: And the next question will come from Eric Coldwell with Baird. Your line is open.

Luke: Yes.

Luke: Thanks, very much can you hear me.

Luke: Yes, Hey, Eric how are you.

Speaker Change: Thank you I'm, sorry dialing in remotely today.

Luke: I wanted to come back.

Luke: Yeah.

Luke: Wanted to come back to the.

Speaker Change: 2026 preliminary thoughts appreciate those those detailed definitely picked up the baton SG&A. This year. Another 100 bps next year Im curious what youre thinking.

Speaker Change: It sounds like you're expecting to return to topline growth in the first half and then maybe more in the second half with a better mix of projects in the second half of 'twenty six but what are you thinking on gross margin next year and overall EBITDA. This year, you're targeting mid sevens on EBITDA margin 100 bps would get me to the mid eight simply hold gross margin flat.

Speaker Change: But are you anticipating a better lift in gross margin on the revenue growth.

Speaker Change: A better mix in the second half and so we shouldnt just be thinking mid eights on EBITDA margin in 'twenty six.

Speaker Change: So Eric I'll try to take that I mean, we obviously have done a lot of that analysis.

Speaker Change: And I think we.

Speaker Change: Would be expecting more than the 100 basis points of margin improvement year on year, but we felt like at this point until we have been able to see how all of these new processes. We put in place are playing out we would be better off.

Waiting a couple more months and see how these forecasts are tracking compared to what we provided and then we can probably provide a little more clarity on what that future looks like and we did try to be relatively conservative in our modeling, but yes, you would expect wholesale gross margin improvement in 2000, <unk>, because we believe that even though you have to hold on to resource.

Speaker Change: In certain areas because you have to have it it's not all being fully utilized and so there'll be able to absorb that growth.

Speaker Change: We've been helping with come that were both able to absorb that growth without having to add a lot of significant.

Speaker Change: <unk> resource in 'twenty six.

Speaker Change: Eric the other thing I'd add is that if you just think about the math.

Speaker Change: Roughly.

Speaker Change: As new work comes online it is performing very close to the deal economics of this industry.

Speaker Change: And so when you and I think you guys view, Eric you can know this industry very well you have a sense of what that is so you can almost think of it as.

Speaker Change: As it becomes a bigger part of the mix the percentage of that mix and that difference in margin will start accretive to the bottom line. So the plan here is as you see that new mix, you will see that at better margins and that will lift it.

Speaker Change: As it grows as a proportion so just trying to get the model in your head. If you know what I mean, Eric as you as you see that allows what Joel saying to go forward and I think frankly, you guys can model it slightly different ways. This was a 115 versus one point too, but we've model is 115 just to be a little conservative and we.

Speaker Change: Feel like it's good progression.

Speaker Change: Okay, operator, we must have.

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

Max Smock: Hi, Tom and Joe Thanks for taking my questions and Joe.

Speaker Change: I hope you feel better soon here.

Speaker Change: Tom I know you just discussed this in response to Dave's question a minute ago, but.

Speaker Change: So sorry for a bit of a repeat question here, but frankly, it's still just kind of struggling on our and to understand your backlog in the quarter in the context of your commentary around determining that some of those pre spin projects have less remaining revenue than you anticipated earlier or at the end of 2024.

Speaker Change: I mean can you just walk through again why those findings when it leads to some adjustment to backlog in <unk> in the form of cancellations and I'm just trying to understand from a mechanism mechanics perspective, why are you finding that we can to huge step down in burn rate incentive that big revision in backlog that Dave was discussing earlier. Thanks.

Speaker Change: Yes, Max it's a good question, because maybe I'll clarify its not so much less backlog, it's actually slower burn and Thats. The difference in 25. So these projects. We did some interesting analysis that showed that a lot of these older projects extend out as much.

Speaker Change: As 40% to 50% longer than the projects, we're selling today.

Speaker Change: And so as you can imagine when they extend it out over time there. They are burning more slowly they have a lot of hours in them already and every incremental hour is less as a percentage of the total and that causes some more slowly. So so it's less it's not so much that it's a reduction in <unk>.

Speaker Change: Backlog is just a lesser amount of it is going to show up in 2025 than we expect.

Speaker Change: And so it's a helpful clarification on your part and so so that work is out there. It just is burning more slowly and given it's a bigger percentage of the mix. It also has some built in inefficiencies, perhaps concessions on March and other things over time that we're still carrying with us through these.

Speaker Change: Solar projects.

Speaker Change: Got it Super helpful. Tom Thank you for clarifying and sorry, if I misunderstood based on the prepared remark now now it's important stuff right now. This obviously, it's super important call. Thank you Max.

Of course, maybe just as a.

Matt: And our next question comes from Matt.

Matt: With Goldman Sachs. Your line is open.

Matt: Hey, guys. This is <unk> on for Matt. Thanks for squeezing me in here.

Speaker Change: The commentary around the 80 basis points of savings for the year is helpful. But just wanted to dig a little deeper on the expense side, how should we think about the opex cadence and I guess gross margin as well throughout 2025, it's a lot of moving pieces with TSA roll off restructuring shift to new business and then some of the targeted investments if you could just kind of.

Speaker Change: Some of the puts and takes there and how we should think about phasing that would be super helpful. Thank you.

Speaker Change: Hello.

Speaker Change: I think in terms you will see margins improve over the course of the year, it's not you're not going to see the same for example step from one quarter one to quarter. Two that you saw last year, but you'll see margins going over the course, there. However, we're going to provide more detail on that quarterly progression.

Speaker Change: When we do our Q1 earnings and the reason I say that is because we've come out of the TSA as we have all the costs now.

Speaker Change: Resetting and Youre not going to see much benefit from the SG&A reduction in the first quarter, because we were standing up the new systems and we're getting through year end, we were remediated the material weakness as I mentioned in my remarks and in.

Speaker Change: The work to consolidate applications takes a bit of time, so it will improve over the course of the year and the margins will improve but will provide more detail on that progression as we get our Q1 results.

Speaker Change: Got it thanks, and just need more time with the new system.

Speaker Change: As you can imagine doing that with everything right now we need to we want to see a couple of months in the new system just to make sure everything.

Speaker Change: Matching with the new process that we put in place.

Speaker Change: That makes sense. Thanks again.

Speaker Change: Alright, operator.

Speaker Change: Hey.

Speaker Change: Operator, let's take two more calls we are at 10 o'clock and we want to.

Speaker Change: Let people go and we will have some further calls to the analysts, but let's take two more and I apologize to folks I noticed is important but we look forward to talking to you during the day alright.

Speaker Change: Alright.

Speaker Change: Brian. The next question comes from Charles <unk> with TV Cowen Your line is open.

Speaker Change: Yeah. Thanks, Thanks for taking the question.

Charles: Maybe just and I apologize I joined a little bit late but.

Charles: Can you talk a little bit about this is this idea of pre spend versus co spin projects.

Charles: Where are you looking at your backlog in this manner last year or is this when did you start to really focus on the difference between.

Speaker Change: The pre spin projects versus the post spin and then secondly, following up on an earlier question around sort of the SG&A leverage.

Charles: This year and then into next year.

Charles: Can you give us a sense on kind of what we're running at in terms of capacity utilization.

Charles: And sort of just a sense on how much excess capacity you are kind of carrying currently to allow you to sort of recapture that in terms of margin as we go forward. Thanks.

Charles: Yes.

Charles: Charles I'll comment on a couple of things and then ill give it.

Charles: First the pre versus post we started to see trends. So what has happened over the past year and really not just the last few months. Now is we are trying to look deeply into the portfolio to try to understand what we can do about the profitability of some of these older projects and as we look deeply in the.

Charles: Portfolio, we started to see this pattern that we had relatively more percentage complete projects and relatively and certainly the new ones. We want to make sure. The new stuff that we won was operating at good economics, and we confirm that.

Charles: And then we started to look at the older stuff and we noticed that there were a couple of categories that were distinct the much more mature ones that were more percent complete and then ones, where we still have an opportunity to have an impact. So we start to look at that and then again this analysis at higher levels of cost.

Charles: US to actually take it down all the way to project by project. So.

Charles: It's.

Charles: Relatively recent to categorize it that way, but we certainly wanted to confirm that the new work that we won with our processes as independent company was meeting its original economics, because thats totally under our control.

Charles: I'll, just say on the capacity utilization.

Charles: That is closely managed and we are trying to thread the needle of.

Charles: Making sure that we have.

Charles: Limited capacity as we need to be able to deliver these projects with quality.

Charles: And.

Charles: That's clearly part of what we're trying to do and on the prior question you can hear how we're going to try to thread that needle.

Speaker Change: Delivering this more mature work that's lower profitability and then also adding the new work to it and the team is working at a much more detailed level, Joe I don't know if you'd add something on that yes, I think the only thing I would say is.

Speaker Change: The 80 basis points today.

Speaker Change: As I mentioned is going to be.

Speaker Change: On a lower revenue base, obviously, if revenue was flat you'd be seeing a more substantial basis point reduction year on year. So that's why we called out 80 basis points, but also kind of said $40 million to $50 million of net savings because.

Speaker Change: Because of the revenue decline. Unfortunately, you don't see quite as much impact out from just a basis point perspective.

Speaker Change: So that helped Charles.

Speaker Change: Okay, let's take one last operator.

Speaker Change: Okay.

Speaker Change: The next question will come from Michael <unk> with Bank of America. Your line is open.

Michael: Great. Thanks for squeezing me in I appreciate it Tom I wanted to follow up on a point you had mentioned a couple of times in prepared remarks, and Q&A. This sort of difference between pre spin and post spin in terms of the processes.

Speaker Change: My question is is it really that.

Speaker Change: <unk>.

Speaker Change: And what I'm getting at is yes, the management changed when you were spun out but if you think about the employee base.

Speaker Change: That's stayed largely the same so the same people that were booking revenues in and putting the bookings and putting the book together, that's been more or less consistent yes, you've implemented new processes and you've gone through the TSA exits et cetera, but that all took time. So I guess, what I'm getting that is it really that clear where it's the day before the spin the day after the spin.

Speaker Change: Is there a risk that you look at some of your bookings from second half 'twenty, three and they're also a little bit lower quality than maybe some of the most recent ones from the last couple of quarters.

Speaker Change: If it gets a fair question, but the reality is we have changed quite a lot.

Speaker Change: <unk> business is managed at a much more detailed level for instance, there are every project. We now have regular calls where projects are reviewed at various levels of management, sometimes even up to me and Jill associated with challenges.

Speaker Change: <unk>.

Speaker Change: All of the projects in terms of approval, if any kind of change in terms of scope or any kind of change of additional hours without scope. All of that is now approved in some detail and so if you look at the detailed processes that we've put in place.

Speaker Change: It actually has changed quite a bit and so what we wanted to just make sure that those more detailed processes of management.

Speaker Change: And frankly.

Speaker Change: Not accepting variances as just something that has to happen.

Speaker Change: That those detailed processes.

Speaker Change: Need to make sure that on the new projects, we're sustaining margin and on the older projects. If we can capture additional compensation per additional scope. We're doing it and then if we can use more effectively cost and resources, we're doing it and so there has been quite a bit of change here.

Speaker Change: I guess another example is we've taken work that used to have a higher cost resource we started to put it into hubs. We have a very significant hub in strategy. One of the things Youll know about for tree is before I came here they actually made some excellent investments in India.

Speaker Change: And those to enter around other low cost places in the world as well and those elements are being used even more so I think we would say the focus and discipline. We have had on this business has made a difference.

Speaker Change: Difficult with the mature projects to actually impact them.

Speaker Change: And but the newer ones.

Speaker Change: Even if they are pre spin, but they're earlier in their life, we can impact those in the newest ones that we've sold we want to make sure theyre delivered well.

Speaker Change: So Michael I appreciate the questions operator, we probably have to ramp from here I just want to thank everybody for being with us and we've done a tremendous amount of work. The last couple of months and we think we have a firm foundation, we're being well accepted by customers with these leading book to bills and we're going to.

Speaker Change: To continue pressing ahead here at fortress doing great things for our customers. So thank you.

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

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

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Speaker Change: Hum.

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Speaker Change: Yes.

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Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to four tree of fourth quarter 'twenty 'twenty four 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 this session you would need.

Speaker Change: Press Star one on your telephone you didn't hear an automated message of bonds. In your hand is raised to withdraw your question. Please press star one again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I'd like now to turn the conference over to him and he's the head of Investor Relations and corporate development. Please go ahead.

Speaker Change: Good morning, and thank you for joining for T. S fourth quarter 2024 earnings Conference call I am He might you go head of Investor Relations and corporate development that puts you on the call with me today are our CEO, Tom Pike and CFO, Jamie Macdonald the call is being webcast. It in the slides accompanying today's presentation have been bolstered.

Speaker Change: Investor Relations page up all that Facebook via 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. These strongly.

Speaker Change: I encourage you because you don't report to be 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 people sit on the best site.

Speaker Change: Note that any forward looking statements represent our views as of today March two 2025 and that we assume no obligation to update the forward looking statements. Even if estimates change. During this call will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not configured to order placement for the.

Speaker Change: Comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results.

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

Tom Pike: Thanks, So much good morning, everyone and welcome to the call today, we're pleased to share <unk> fourth quarter results and look forward to whats ahead in 2025 I'll start with our commercial success in the fourth quarter. We delivered a strong book to Bill of 135, resulting in a $1 two nine for the second half since <unk>.

Tom Pike: Our spin our book to Bill has averaged one two times, which is what we had targeted our year ending backlog has grown to $7 7 billion.

Tom Pike: We're pleased with the transformation of portrait sales capabilities over this past 18 months, we've delivered these sales with pricing discipline.

Tom Pike: Let me provide some color we.

Tom Pike: We saw continued strong new business and our market, leading phase one clinical pharmacology services business, which we call Cps.

Tom Pike: This included significant repeat awards from our largest cps customer and.

Tom Pike: In fact, the fourth quarter was our most successful quarter ever Cts sales, while we have made major investments in our network of clinics strengthening our offering and increasing capacity.

Tom Pike: Beyond Cps or awards for full service clinical work from large pharma were also strong including global oncology studies in a sole source award in Gastroenterology.

Tom Pike: We were also selected as the sole provider for drug safety services by a larger pharma customer with an innovative solution, but as an integrated AI tool for literature searches and medical writing to support post market surveillance.

Tom Pike: Our success in supporting the biotech sector with full service solutions also continue to pace in the fourth quarter were very strong in biotech oncology wins again this quarter based on our expertise and strong study delivery.

Tom Pike: And oncology, we want across a broad range of therapeutic areas from a global phase two infectious disease study to a sole source win ophthalmology an area in which we are building a strong reputation.

Tom Pike: I'd also like to call out a few other commercial highlights from the quarter. We had good sales in Asia Pacific as customers in this region recognized our capabilities to support them with global programs. For instance, this quarter wins included a nice global phase III oncology study and a significant medical device program, where all.

Tom Pike: Also pleased to have been selected FERC Global studies.

Tom Pike: Out of Asia Pac as part of our collaboration with a large pharma customer.

Tom Pike: Also our consulting organization is implementing multiple real world evidence studies in Asia Pacific for a large U S based large pharma firm looking to grow their business in the region we.

Tom Pike: We delivered a solid performance and functional service provision, which we call FSP in the fourth quarter as well. In addition to some solid sales from this part of the business. We helped a large customer complete the launch of a safety platform through a very large FSP effort that we will now continue to operate this implementation was the culmination.

Tom Pike: The nation of almost 24 months of work integrating 11 complex systems and more than 80000 product licenses migrating about 3 million cases are safety and <unk> teams collaborated with the customer to deliver the platform ahead of schedule, it's a demonstration and portray as capabilities applied to a complex situation for <unk>.

Tom Pike: Store.

Our consulting group continues to grow developing real productivity solutions for the industry and providing customers with science based strategy from clinical development planning and regulatory strategy to real World evidence solutions. For example, our team delivered qualitative and quantitative research studies to support FDA acceptance of.

Tom Pike: Clinical outcomes assessment endpoint measures and incorporated novel Medicine to two NDA filings with one approval so far for our biotech customer.

Tom Pike: Our include improving clinical pharmacology and later stage full service outsourcing delivery is contributing to our strong book to Bill.

Tom Pike: But it's not the only place we're seeing the improvements manifest.

Tom Pike: One of the first things we established after the spin was a comprehensive customer relationship feedback program, including a net promoter score or NPS measurement system I am pleased to share that our NPS scores have significantly improved over the year.

Tom Pike: We believe that we're creating a better customer experience working with <unk> as well as understanding additional improvements that we can make.

Tom Pike: Another highlight worth noting from the fourth quarter as a successful exit of most of the transition services agreement or TSA with our former parent that success has continued in Q1 and after this quarter, we expect payments to our former parent to be a fraction of what they were our team has delivered.

Tom Pike: It was no small feat for example, it's transitioned to the new <unk> digital environment.

Tom Pike: Migrated 17000 devices 8000 mobile phones 500 applications finished building 1600 servers as well as the launch of our HR ERP on December 16, and launch of our finance ERP platform on January 2nd.

Tom Pike: I want to commend both to portray it team and our effective teaming with technology partners to deliver these incredible results.

Tom Pike: Now, let me transition from customer successes.

Tom Pike: And both Crows I've run.

Tom Pike: I view, the most important leading metric to be book to Bill.

Tom Pike: Certainly proud that our average book to Bill is one two times since spin and that bodes well for the future.

However, let me discuss the big issue here or.

Our targeted revenue and adjusted EBITDA trajectories for 2025 are not in line with our prior expectations.

Tom Pike: Let me remind you this spin was lift and shift we've been using the same management processes and systems division of a much larger company used ideally waiting to update them until we convert them to our own environment.

Tom Pike: As we implemented our environment connection with exiting the TSA as we did a deeper analysis of full service projects and other inputs to longer term forecasts gives.

Tom Pike: Given this analysis, we have a better picture of the revenues cost margins and timing on the full service work projects from pre spin period, and we understand that they represent a bigger slice of the pie in 2025.

Tom Pike: This analysis. This analysis, which also took significant time to confirm indicated that the pre spin projects. Many later in their lifecycle have less revenue and less profitability than expected for 2025.

Tom Pike: The strong book to Bill since spin or creating work that sold and delivered a good margins. This post spin work is not coming on fast enough to offset the pre spin contract economics.

Tom Pike: <unk> older versus newer mix issue will continue to negatively impact on our financial performance during 2025 until revenue from our new business wins becomes a larger proportion of the mix.

Tom Pike: We're implementing new management systems and processes that are sized with details and granularity appropriate for an independent company of our size.

Tom Pike: They will enable us to align our resources to the work we need to do to complete trials more efficiently and profitably.

Tom Pike: Markets are really as the stomach enrollment Emperor champion the idea of something called <unk>, which means embrace your difficulties as part of your journey.

Tom Pike: That is what we have to do here portray it we keep moving forward now.

Jill: Now, let me hand over to Jill.

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

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

Speaker Change: I want to acknowledge that this period with limited communication to the external investment community has been challenging as.

Speaker Change: As we got later into the fourth quarter.

Speaker Change: That we needed to do significantly more analysis, although the number of dimensions before continuing to communicate it.

Speaker Change: It is important that we had the full picture of 2024 results.

Speaker Change: Including in sharing the TSA services exit and strong book to Bill were delivered and understanding where we might be falling short.

Speaker Change: We used this quiet period to interrogate our expectations for 2025 guidance.

Speaker Change: To ensure we had transformation programs underway, so that we could provide the detail and transparency we are sharing today.

Speaker Change: In my remarks, I will focus on the details of our 2024 results.

Our 2025 guidance, including the actions, we have taken and will continue to take to reduce costs.

Speaker Change: And our outlook for the medium term.

Speaker Change: I will also discuss our transformation plans in detail. So you understand how we plan to track our progress against them.

Speaker Change: As Tom shared we had some very compelling successes in 2024 and.

Speaker Change: In addition to what he shared.

Speaker Change: All that we sold two non core businesses and paid down debt, reducing our annual interest expense.

Speaker Change: Also reduced our DSO by 60% versus last year.

Speaker Change: I'm incredibly proud of our teams for the on timelines of our Standalone HR system, and our finance ERP and also for their efforts to enhance our internal control environment, which resulted in the successful remediation of the material weaknesses identified last spring.

Speaker Change: Now I'll cover the financial results.

Speaker Change: For the fourth quarter revenues of $697 million declined one 8% year on year.

Speaker Change: <unk> of growth versus the prior year was driven by lower late stage clinical services revenue, partially offset by higher service fee revenues from our phase one clinical pharmacology business.

Speaker Change: Our phase one clinical pharmacology unit has continued to perform well.

Speaker Change: Our later stage clinical business is performing well for our customers as evidenced by their higher NPS ratings.

Speaker Change: However service fee revenue declined based on a combination of factor <unk>.

Speaker Change: Including lower New business awards in the pre spin period, along with the mix of later in their lifecycle and longer duration studies, and our backlog, including slower burning studies, such as oncology, which has continued to be a significant part of our portfolio.

Speaker Change: The fourth quarter was also negatively impacted by the effort associated with the system transition to exit the TSA services.

Speaker Change: Along with a more pronounced impact of the holiday period compared to historical experience.

Speaker Change: <unk> as a percentage of total service fee revenue have remained generally consistent year over year.

Speaker Change: Full year 2020 for revenue of $2696 4 million, which was broadly in line with our guidance range decreased five 1% compared to revenue of $2842 5 million for full year 2023.

Speaker Change: On a GAAP basis.

Speaker Change: <unk> cost in the quarter decreased three 8% year over year, primarily due to lower personnel costs as a result of restructuring actions.

Speaker Change: These savings were partially offset by an increase in professional fees and stock based compensation as well as targeted hiring and where necessary to support specific needs.

Speaker Change: SG&A in the quarter was higher year over year by 16, 9%.

Speaker Change: Merely due to an increase in professional fees and incremental one time costs incurred for exiting the TSA services, along with the yield cost related to the receivables securitization program, we initiated in the second quarter of last year.

Speaker Change: If you exclude the impact of onetime costs related to the spin as well as the impact of the yield Cos underlying SG&A as a percentage of revenue was broadly consistent with the previous two quarters.

Speaker Change: Net interest expense for the quarter was $21 9 million.

Speaker Change: A decrease of $12 $6 million versus the prior year, primarily due to the $475 million in debt pay downs across our term loan a and term loan b that were made in June 2024.

Speaker Change: When combined with our securitization program.

Speaker Change: Risks and securitization costs for the fourth quarter were down approximately 22% compared to the fourth quarter of 2023.

Speaker Change: Turning to our tax rate the effective tax rate for continuing operations for the quarter was a benefit of one 2%.

Speaker Change: <unk> was negatively impacted by withholding taxes on our 2020 for non U S earnings that we asserted our not permanently reinvested and an additional valuation allowance against our deferred tax assets.

Our book to Bill for the quarter was 135 times and for the trailing 12 months was one six times.

Speaker Change: Our backlog is at around seven 7 billion and has grown four 2% over the past 12 months.

Speaker Change: Adjusted EBITDA for the quarter was $56 million.

Speaker Change: Compared to adjusted EBITDA of $58 9 million in the prior year period.

Adjusted EBITDA for full year, 2024, with $202 5 million compared to adjusted EBITDA of $245 8 million for full year 2023.

Speaker Change: Adjusted EBITDA margin for full year, 2024 was seven 5% compared to eight 6% for full year 2023.

Speaker Change: Adjusted EBITDA margin in the quarter and for the year was negatively impacted by the lower late stage clinical service fee revenues, along with higher SG&A costs post spin to support operations as a public company following the separation from our former parent.

Speaker Change: These were partially offset by the benefit from the restructuring program, we initiated in the third quarter of 2023, which continued through 2024.

Speaker Change: Now I'll move to net income and adjusted net income.

Speaker Change: In the fourth quarter of 2024 net loss was $73 9 million compared to net loss of $48 6 million in the prior year period.

Speaker Change: Full year 2024, net loss was $271 5 million compared to net loss of $31 $7 million for full year 2023.

Speaker Change: In the fourth quarter of 2024, adjusted net income was $16 6 million compared to adjusted net income of $12 7 million in the prior year period.

Speaker Change: <unk> full year 2024, adjusted net income was $30 1 million compared to adjusted net income of $111 9 million for full year 2023.

Speaker Change: For the current quarter adjusted basic earnings per share was 34.

Speaker Change: And adjusted diluted earnings per share was 33.

Speaker Change: Turning to customer concentration our top 10 customers represented 53% of 2020 for revenue.

Speaker Change: Our two largest customers accounted for 14, 3% and 10, 5% of revenues respectively.

Speaker Change: As I comment on cash flow note. This relates to portray in total as we have not segregated cash flows from discontinued operations.

Speaker Change: For the 12 months ended December 31, 2024, we recorded $262 8 million in cash flow from operating activities.

Speaker Change: Compared to $168 $4 million generated in the prior year.

Speaker Change: Cash flow for the full year benefited from the initial sale of receivables under the securitization facility in the second quarter and an increase in unearned revenue as well as strong cash collections, partially offset by the decrease in net income.

Speaker Change: Free cash flow was $237 3 million compared to $128 1 million in 2023.

Speaker Change: Net accounts receivable and Unbilled services for continuing operations were $659 5 million as of December.

Speaker Change: Remember 31, 2024 compared to $988 5 million as of December 31, 2023.

Speaker Change: Days sales outstanding from continuing operations was 40 days as of December 31, 2024.

Speaker Change: 10 days lower than September 32024, and considerably lower than the equivalent of roughly 100 days at 2023 year end <unk>.

Speaker Change: The reduction versus the third quarter is due to our focus on billing and collection processes, along with our efforts to enhance our contracting terms.

Speaker Change: We are compliant with the financial maintenance covenants of our credit agreement as of the end of the quarter.

Speaker Change: We ended the quarter with more than $5 billion of liquidity.

Speaker Change: Though we expected to remain compliant with our debt covenants going forward in order to provide more flexibility, we renegotiated our net debt leverage ratio to provide more certainty to the fourth quarter of 2026.

Speaker Change: The maximum leverage ratio was increased from five three times to 6.0 times for the four quarters, beginning with Q3 2025.

Speaker Change: That being down in both the third and fourth quarters of 2026 and reverting to five three times afterwards.

Speaker Change: With our TSA services exits largely behind US we plan to focus our capital allocation priorities and targeted investments to drive organic growth and improved productivity along with debt repayment.

Speaker Change: Now turning to 2025 guidance.

Speaker Change: Using exchange rates in effect on December 31, 2024, we target our revenues to be in the range of $2 45 billion.

Speaker Change: <unk>, five 5 billion and our adjusted EBITDA to be in the range of $170 million to $200 million.

Speaker Change: Note that due to the nature of our revenue is contracted versus our global employee footprint. Using December 31, 2024 exchange rates provides a headwind to revenue and a tailwind to our cost base.

Speaker Change: The lower revenue targets year on year are driven by our project mix, which is burning more slowly due to the pre spin awards moving through the later stages of their lifecycle.

Speaker Change: Our therapeutic mix with a significant portion of oncology, which burns more slowly than other therapeutic areas.

Speaker Change: The post spin portfolio is also impacted by slower startup in biotech projects and the soft first half bookings in 2024.

Speaker Change: The lower margin targets are driven by the inefficiencies in the pre spend portfolio and the inherited SG&A costs that we are actively working to reduce.

Speaker Change: Any of the pre spin projects are extended in duration and are well into their lifecycle as Tom described both of which create headwinds to growth and margin expansion in 2025.

Speaker Change: Now I'll discuss our robust transformation plans for 2025 and beyond.

Speaker Change: We believe the key to our transformation is restarting revenue growth, which is why we are laser focused on continuing to build on the success of our commercial engine to date. We've made good progress delivering strong book to Bill in the second half of both 2023 and 2024 and have delivered a solid one two times.

Speaker Change: <unk> average in the six quarters since the spin.

Speaker Change: We continue to see an attractive pipeline of opportunities in all phases of clinical work, both full service and FSP and we believe we are well positioned to capitalize on them.

Speaker Change: We plan to increase our investment in biotech in 2025.

Speaker Change: Overall, we have about a 50 50 split between large pharma and biotech customers and we believe it is a competitive strength.

Speaker Change: For 2025, we continue to target achieving a one two times average book to Bill.

Speaker Change: Turning to our savings program, we have spoken previously about needing to proliferate, our SG&A costs more in line with peers over time.

Speaker Change: Now that we are essentially exited from the TSA services with our former parent and they're operating in their own enterprise systems. We have initiated a transformation program to reduce personnel costs consolidate it applications and licensing expenses and to further optimize our facilities footprint and our third party vendor spend.

Speaker Change: We target year on year net savings of $40 million to $50 million in 2025 from these initiatives.

Speaker Change: This is included in our guidance with the benefits increasing over the course of the year and you should see a year over year reduction in total underlying SG&A spend.

Speaker Change: We expect these programs will extend into 2026 as we continue our efforts to bring our SG&A spend more in line with peers.

Speaker Change: Note that since the spin and separate from the divestitures.

Speaker Change: We have reduced more than 4500 positions across our operations and SG&A teams in an effort to better align our cost base with our revenue profile.

Speaker Change: That journey is continuing and we took a charge of $21 $3 million to our P&L in the fourth quarter to recognize the additional restructuring programs, we've already kicked off for 2025.

Speaker Change: It is important to understand that since the spin we have not had the impact of incentive compensation in our results due to our financial performance.

Speaker Change: We are restarting these programs for 2025, so we anticipate these programs to be a headwind compared to prior years.

Speaker Change: Regarding our operations optimization, we're looking at are projects as two categories pre spend awards and postpone awards.

Speaker Change: With our pre spin projects, we will continue to work on having an optimized level of resourcing and utilization and ensure we are compensated for the scope of work that we perform.

Speaker Change: Our goal is to see the pre spend projects through to completion as efficiently as possible.

Speaker Change: At the present time they are the vast majority of our later stage full service clinical revenue.

Speaker Change: We have included some operations restructuring in our 2025 guidance and we will continue to seek opportunities for further optimization.

Speaker Change: Our post spring projects are performing well and we will continue to look for opportunities to accelerate delivery.

Speaker Change: The postponed projects only represent a small percentage of our full service clinical revenue less than we expected at this point.

Speaker Change: They will grow as a proportion of revenue over time, but we don't expect them to become the majority of our later stage full service clinical revenue until the second half of 2026.

Speaker Change: In order for you to follow our progress we intend to discuss each quarter at least postponed projects are becoming a larger percentage of our later stage full service clinical revenue overtime.

Speaker Change: Because our 2025 guidance is not in line with what we expected a few months ago.

Speaker Change: Now I'll share our current view of modeling for 2026.

Speaker Change: First we prepared multiple years a project by project forecast at a level more detailed than ever done previously.

Speaker Change: We analyzed and adjusted other assumptions, including that the level of change orders and cancellation rates remain in line with our historic norms and current experience.

Speaker Change: For net new business assumption, we used a more conservative 115 times for our modeling.

Speaker Change: We applied a burn rate assumptions similar to what we have experienced since the spin.

Speaker Change: We're planning for another 100 basis points of reduction in SG&A cost in 2026.

Speaker Change: With these parameters are modeling anticipates, a return to growth in the first half of 2026.

Speaker Change: Before I conclude I want to take a moment to recognize the incredible hard work by <unk> employees to deliver strong book to bills and results for customers and to exit our TSA services and streamline our infrastructure. We've shown this organization can accomplish difficult thing.

Speaker Change: There is still work to be done, but we have put in place the building blocks to create long term value for all our stakeholders with.

Tom Pike: With the solid foundation, we have laid in the past year attractive backlog of nearly seven 7 billion and our talented global team. We are committed to delighting, our customers and returning to growth and margin expansion now I will turn it back to Tom for the remainder of his remarks.

Tom Pike: Thanks, Joe.

Tom Pike: Ultimately our vision is to be the best choice Euro company that moves at the speed of science listened intently to customers and delivers with precision.

Tom Pike: While 2025 will continue to be a period of transition. The long term trajectory is clear we believe that we can master agility scientific excellence and customer focused execution to define next year Europes heroes by embracing this mindset, we are positioning ourselves not just to compete but to lead.

Tom Pike: Now regarding shareholder value creation.

Tom Pike: I am not satisfied with where things stand and we're reviewing additional opportunities for growth cost reduction and shareholder return.

Tom Pike: I'm still bullish on the CRO industry and <unk> role in it as.

Tom Pike: As the future clinical research is being shaped through rapid advances in science, and biology evolving regulatory landscapes and increasingly the transformative potential of AI.

Tom Pike: We believe the clinical research industry will grow and CRO. This will be a key part of it here.

Tom Pike: Year as Jill said, our pipeline is solid and we've demonstrated we can sell.

Tom Pike: We can also deliver sophisticated solutions for customers and are supporting leading edge science that promises significant advances for patients for instance, we're proud to be working with several biotech who are developing silencing RNA to treat a variety of cardiovascular diseases, including Hyperlipidemia and thrombosis.

Tom Pike: Political disease.

Tom Pike: New drugs can be administered as little as once every six months significantly reducing patient burden and improving compliance.

Tom Pike: <unk> T therapies are the most common pipeline technology for genetically modified cell therapies and <unk> is one of the very few crows that is ever successfully brought the car T from first in human to market access a new trend with car Ts is treatment of autoimmune diseases and portrait is there.

Speaker Change: The clinical research industry needs to evolve.

Speaker Change: Excess will depend on our ability to both be both agile and disciplined more flexible in how we design and execute trials upholding ethical and regulatory standards, while running a good business.

Speaker Change: Intelligence Revolution, or or IR is upon us technology, particularly AI will revolutionize clinical research over time, but we believe the greatest impact will come from combining these innovations with deep operational therapeutic and regulatory expertise our role is not simply to manage studies.

Speaker Change: But to bring intelligence productivity flexibility and problem solving capabilities every trial we conduct.

Speaker Change: Our tree is pushing ahead in a focused way on AI. We examined the 185 use cases last year, we have specific initiatives coming from that such as to further enable our accelerate platforms as well as democratizing AI, which means cost effectively rolling it out broadly to our people.

Productivity and more.

Speaker Change: We believe we can transform portray it for this future and.

Speaker Change: And in the past year have we've demonstrated improvements in customer satisfaction and quality all the while conducting an enormous transition as a spin out over coming months, you will see the synergy directed towards transforming for the future.

I'll close by recognizing the incredible efforts of our team at per trip, we have tremendous therapeutic regulatory and operational experts across the globe their dedication and hard work have been instrumental in driving our success and positioning us for a bright future driven by our purpose of delivering solutions that bring life changing treatments to patients.

Speaker Change: <unk> faster our team is ready to accelerate stay tuned.

Speaker Change: Now, let's turn to our operator to begin Q&A.

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.

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

Patrick Donnelly: And the first question will come from Patrick Donnelly with Citi. Your line is now open.

Speaker Change: <unk>.

Patrick Donnelly: Hey, guys. Thanks for taking the question.

Speaker Change: Tom maybe one for you.

Speaker Change: Just kind of the trajectory here in 'twenty five 'twenty six.

Speaker Change: Yes, it sounds like Youre striving kind of pre spin projects.

Speaker Change: Much red mud pump less profitability with old versus new mix issue.

Speaker Change: With a return to growth in 'twenty two.

Speaker Change: Can you just talk about the process to identify that why it took so long to kind of identify what was going on and again that was going to really weigh down 25 was this just getting contracts done before the spin and the financials has got a little bit loose.

Speaker Change: I guess on the backend of just confidence in the trajectory of the new mix picking things up as we work our way in the 2006.

Speaker Change: Yes, Thanks Patrick.

Speaker Change: As I said we.

Speaker Change: You try to use existing processes you can't change everything if you think about it when you do a spin you have some things you are trying to proactively change like get out of the TSA as youre trying to.

Speaker Change: Our case, we had to really redesign the commercial function and make it much more effective. So you have these proactive things and then you have reactive things along the way and what we determined here is that really the systems and processes associated with forecasting.

Speaker Change: Needed to get to a much more detailed level for us to have confidence in 2025.

Speaker Change: We had some signs of this but as you can imagine to deliver this kind of guidance.

Speaker Change: Really has to do a lot of confirmation there was an initial pass at it.

Speaker Change: And then much more detailed analysis project by project as Joe described in her remarks as well.

Speaker Change: And the result of that which really took a couple of months to complete is what you see here now.

Speaker Change: Now.

Speaker Change: Nobody wants to bring this kind of news as a shareholder myself I don't want to bring this kind of news.

Speaker Change: We think we need to deal with the reality of this pre spin portfolio and.

Speaker Change: <unk> put it out there I would say the other thing Patrick that did surprise us in this analysis is that the newer work. The good work, we've sold which is being delivered at the original deal economics as we call it.

Speaker Change: Is starting more slowly than I would've expected.

Speaker Change: And we think some of that is our heavy mix of biotech that we have whereas you've heard from us in some of our peers. There is.

Use a longer process for startup in many cases and then in addition.

Speaker Change: There is quite a bit of oncology as you heard my examples we do a lot of excellent oncology work here and it does burn a little slower.

Speaker Change: So all of that.

Speaker Change: A few months frankly to identify.

Speaker Change: Analyze confirm go through the forecast every element change orders forecast et cetera to sort out because we didn't want to bring this kind of news lately, we needed to make sure that we're confident in the underlying assumptions.

Speaker Change: And then you mentioned there at the end, Tom just shareholder return opportunities.

Speaker Change: Stock broke below 10 Bucks this morning.

Speaker Change: Could you just kind of.

Speaker Change: For the curtain back a little bit there what you see as a reasonable path forward here one of the focus points. What can you guys do to kind of a market with more value here.

Speaker Change: A few things.

Speaker Change: These bookings I believe led our industry in the third and fourth quarter. So the company is demonstrating that it does very good work for customers and I tried to give you guys a sense of it I know thats a lot of detail for a call with our analysts and investors, but I'll try to give you a sense that we do very good work in our work.

Speaker Change: It is improving and it's well received by customers. That's the number one thing.

Speaker Change: Joe was describing her remarks too as we continue to really have a couple of very focused programs.

Speaker Change: One is growing the stuff that we can grow like clinical pharmacology business continuing to grow that.

Speaker Change: Really looking hard at growing FSP this year.

Speaker Change: And continue to focus on full service outsourcing, but at the same time. It is transforming our SG&A and you heard that remark about the 40% to $50 million improvement that we're looking for associated with it and then frankly continuing to transform our operations and full service with this.

Speaker Change: More detailed information, we think we can align resources more effectively.

Speaker Change: We've given you a sense through these numbers of what we believe is clear, but we're going to continue to work on optimizing how we delivered to make sure we're delivering with quality and meeting customer expectations or exceeding them, but also doing it cost efficiently. So we're going to have those two programs very heavily I should.

Speaker Change: <unk> mentioned that we also have one in the it area.

Speaker Change: Is very interesting because we know it's transformative in AI, but we also know that we have to deal with application rationalization and tech that we've got here from the prior decade.

Speaker Change: So we have a very strong executive there who is driving improvements in that area too.

Speaker Change: And just anything else, Okay, alright, Thank you Patrick.

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

Justin Bowers: Hi, good morning, everyone.

Speaker Change: Just trying to.

Speaker Change: Help understand the cost structure, a little better and then the <unk>.

Speaker Change: Top line assumptions as well in the guide.

Speaker Change: You talked about.

Speaker Change: Going into 2026 with a burn rate that's consistent with <unk>.

Speaker Change: Historical patterns, but it looks like.

Speaker Change: When the revenue step down that implies something around an 8% burn rate which would be.

Speaker Change: Over 100 <unk>.

Speaker Change: 100 basis point contraction year over year or so.

Speaker Change: Is that sort of the right ballpark for how we should be thinking about 2025, and then just want to confirm that.

Speaker Change: It sounded like.

Speaker Change: Earlier in 2000 to early in 2024, and you talked about a lot of the opportunities being with large pharma.

Speaker Change: And Tom you also just mentioned some of the focus on FSP as well so.

Speaker Change: Really just want to understand sort of the execution there.

Speaker Change: And.

Speaker Change: And the opportunities that you're seeing in 2025, and how that plays into the burn rate and then I'll come back with part two on the cost structure.

Speaker Change: Why don't I start.

Speaker Change: With that part.

Speaker Change: And just in.

Speaker Change: In terms of the mix, we're still about 50, 50, and we like that mix. So.

Speaker Change: We've been pretty successful biotech you guys might recall that we talked about how in the third quarter and fourth quarter, we had more balanced exposure in terms of the bookings to those two areas. The large and then the biotechs and we did deliver with that as you look forward, we actually have a good pipeline now.

Speaker Change: <unk>.

Speaker Change: And I think we've learned in this business not to try to over commit at this point in the process, but it continues to be this nice mixture of large pharma and biotech and you can hear from the examples that we're doing a lot of the most innovative work with biotechs I will said before Jill comments on the burn rate that.

Speaker Change: This is a very detailed analysis project by project.

Speaker Change: And many of these projects that we have our late in their lifecycle.

Speaker Change: And what that means if you think about it with percentage complete accounting and I hate to get into detail here.

Speaker Change: With percentage complete accounting.

Speaker Change: Even if you lower the cost of execution late in the trial.

Speaker Change: It's still very difficult to improve the margins of that trial when most of the hours have been expended.

Speaker Change: And so what it's got us in a situation of <unk>.

He's working through almost an air pocket here.

Speaker Change: <unk>.

Speaker Change: Things that are later in later stages difficult to do much with in many cases don't have the kind of profitability that we would like to see.

Speaker Change: And then we replace them with new work, but that new work has to come on fully and so thats what youre seeing in 2025.

Speaker Change: Joe I don't know if you'd comment on the burn rate.

Speaker Change: I think.

Speaker Change: We've tried we've seen the burn rate are second half you may recall from previous remarks, I said, we did benefit some from clinical pharmacology business, which is which burns faster just based on the nature of those studies and obviously FSP comes in more quickly, but when we looked at this portfolio and really dug in and we.

Speaker Change: We did.

Speaker Change: <unk> to be as you heard me say, we modeled a $1 one five even though we've done better than that.

Speaker Change: On average since the spin we wanted to be slightly more conservative and we will be doing everything we can to try to see how we can improve those rates and be more efficient and optimize as I mentioned as Tom has talked about as well, but for now thats, probably an appropriate way to model.

Speaker Change: Okay, and maybe just I'll be quick here on this one but can you provide us with just sort of like ranges in terms of ratios for cost of services and SG&A in 2025.

Speaker Change: So in 'twenty five we're looking to take out about 80 basis points as a percent of revenue based on the guidance that we provided.

Speaker Change: And then as I said, we were looking to take out another 100 basis points in 2026, if we go for it or SG&A SG&A, yes.

Speaker Change: Gross.

Speaker Change: It's clear to us Justin for gross margin, we need to continue to take action to you're really seeing that as the overall EBITDA margin at this point, but it's clear to us that we need to continue to be more cost effective in that area and match resources to work in a very detailed way.

Speaker Change: Okay. Thank you, Joe and Tom and I will jump back in queue.

Speaker Change: Thank you Justin.

Speaker Change: And we do ask that everyone ask one question and then please queue back up for a follow up question to give everyone a chance to ask questions.

David Windley: And the next question will come from David Windley with Jefferies. Your line is now open.

David Windley: Hi, good morning, Thanks for taking my questions I appreciate the detail. This morning, I wanted to kind of wrap a couple together.

David Windley: That have already been asked but around the kind of thinking about burn rate.

David Windley: Book to Bill.

David Windley: And the level of backlog so so.

Justin Bowers: Justin said it does calculate to a burn rate that seems to drop about 100 basis points or maybe a little more maybe 125.

Justin Bowers: And hearing you describe that projects are kind of near the end of their lifecycle.

Justin Bowers: And not going to be as revenue generative in 25 years, maybe you previously previously expected I guess, what I would expect to see from that is kind of a clean out of backlog, maybe some dead backlog in there that's not going to be productive or trials that were reduced in size and need to be down scoped.

Justin Bowers: And I don't I don't see that I mean, it looks like to get the burn rate to stay in approximately the right not the right, but at the same level that it was in 'twenty four would be about $1 billion $900 million reduction in.

Justin Bowers: And backlog and so absent that Tom on your percent of completion comment I would expect if that backlog still stays in.

Justin Bowers: You would have positive true ups at the end of trials that would actually help margin. So the punch line here is it seems like I'm missing link is either you've got projects at risk that you are delivering on time on schedule that you can recognize favorably as they wrap up early.

Speaker Change: Or you still have a big backlog cleanup that needs to happen, which one is it. Please thanks.

Speaker Change: Well I'll start you may be able to tell that.

Speaker Change: A little under the weather today so.

Jill: Well I'm going to start and then you can add to this Jill.

Speaker Change: With respect to the.

Speaker Change: That backlog, we actually went through analysis this quarter to try to look at stuff in the backlog and.

Speaker Change: There was really the backlog is substantially fine the way it is.

Speaker Change: I do think it's possible that there are sometimes write ups at the end of projects, but here I think you actually get both time from what I've seen here, Dave you get some write ups and some write offs at the end and they're tending to net here in general So it is a little different than in some places so its a good.

Speaker Change: Detailed comment, but here they are tending to net and as they get long in life.

Speaker Change: They tend to operate at lower margins and then at the very end they have a bump in activity associated with closing the Mt.

Speaker Change: So we've done the best of our ability to try to estimate that for 2025 and <unk>.

Speaker Change: This is what we see right now in terms of backlog burn is.

Speaker Change: As a public company, we can't arbitrarily.

Speaker Change: <unk> go in and <unk> some of the backlog out to make those burn rates work I think we just need to do our best to burn those off they are important projects for customers and we need to finish them out and then what we need to work on is really trying to accelerate the new work and frankly trying to accelerate the existing work during.

Speaker Change: The course of this year because that's good for everybody.

Speaker Change: And so at this point.

Speaker Change: The numbers are the numbers you can hear we worked on them for a long time, we've done more detailed than ever before.

Speaker Change: And have programs in place to be effective but this is our best judgment at this point I do think there is upside as we get into 2006, when you start seeing the new work come into the portfolio and.

Speaker Change: It should be a consideration and I'm sure we'll talk about it in later calls it should be a consideration around portrait.

Speaker Change: I was pausing J Jill is going to add.

Speaker Change: Joe I think.

Speaker Change: As we.

Speaker Change: As Tun said, we spent a huge amount of time trying to go through we did go back and Lee.

Speaker Change: Validate the backlog, we looked at our cancellation rates because in a number of our peers have talked about those increasing we have not seen that they've stayed in line with our historic norm. So we believe the backlog as we presented it as appropriate.

Speaker Change: Okay.

Speaker Change: Dave.

Speaker Change: Jumping back in Q the way we're doing this but thank you for the question.

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

Elizabeth Anderson: Hi, guys. Thanks, so much for the question can.

Speaker Change: Can you talk about the current environment.

Speaker Change: So I think there still remains some concerns about pricing in terms of demand.

Speaker Change: And then in terms of like also cancellations.

Speaker Change: Some of your peers have obviously call that out so could you help us level set on that I hear what youre, saying, obviously about the change in forecast about sort of lay burning project, which this would be applicable to you, but it would just be helpful to understand a little bit more detail about what youre seeing in the current environment in the first quarter.

Speaker Change: Elizabeth.

Elizabeth Anderson: What I would say, it's substantially similar to what we've communicated in the last call and Thats that we do have a good amount of opportunities both in large pharma and biotech our cancellation rates based on who were exposed to are not elevated so I.

Elizabeth Anderson: Did see that in some of the others, but our cancellations are not elevated based on that.

Elizabeth Anderson: In the current environment.

Speaker Change: I think the honest thing as we're all a little nervous about the macros with everything going on whether you're shopping at Walmart or you're thinking about your next clinical trial, but the industry seems to be pressing ahead.

Elizabeth Anderson: And right now.

Elizabeth Anderson: I think there is a belief that biotech entrepreneurs will be supported and so there is a belief we will continue to have.

Elizabeth Anderson: Opportunities there and then our large pharma partners, we chat about it.

Speaker Change: As we were preparing for this call and we're not seeing anything new associated with IRA we're.

Speaker Change: We're not seeing any particular portfolio restructuring.

Speaker Change: So it seems like people are just pressing ahead so.

Speaker Change: Our pipeline is solid it still takes every quarter.

Speaker Change: In this business as long as I've been doing it.

Speaker Change: Never it's never over till it's over as Yogi would say.

Speaker Change: But our pipeline is solid as we look out to the future here.

Speaker Change: Thanks.

Speaker Change: Thank you.

Speaker Change: And our next question will come from Luke.

Speaker Change: <unk> with Barclays. Your line is open.

Speaker Change: Hey, guys. Thanks for the question.

Speaker Change: So just kind of talk about the the analysis on the background like what was the catalyst that tripped.

Speaker Change: Youre controls that made you do the analysis and give us a sense of the timing on that and then.

Speaker Change: As you are thinking about the mix shift into the.

Speaker Change: From legacy to newer work talk about kind of the resource overlap that you guys have because there is there'll be a concern if we're taking an extra 80 bps of Rev. Al from SG&A This year.

Speaker Change: And how that coincides with the new business that you've been winning.

Speaker Change: Might not have as much.

Speaker Change: Firepower to get those projects up and running as quickly as you could.

Speaker Change: So thanks for the question.

Speaker Change: <unk> was as we were preparing for the 2025.

Speaker Change: Budgets, we started to see some signs that made us want to go deeper in terms of the analysis and those kinds of signs were.

Speaker Change: Revenue potential revenue shortfalls coming through.

Speaker Change: In certain areas and so when you see that kind of thing.

Speaker Change: You can't take it at face value and what we knew about the company.

Speaker Change: Does that.

Speaker Change: Many crows, but not all of them.

Speaker Change: Projects were estimated out into the future.

Speaker Change: Not always in a detailed fashion and we've talked in prior calls that there really are not the project management systems and resource management systems here that you see in some other companies and so we knew this and as we were looking.

Speaker Change: Last year.

Speaker Change: And then coming into this year, we really had to go deep in.

Speaker Change: And to your point about the old versus new.

Speaker Change: New work versus old one of my biggest concerns is that we don't want to turnaround and actually slow down revenue because we don't have the resources. We are a business that that builds on our basis and on a hedge basis based on the work that people do and so one of the things the team.

Speaker Change: We did it was really a dual effort to try to make sure. We had what we felt was a pretty accurate forecast, but also.

Speaker Change: The operations team is working to really look out months by months geography by geography.

By project therapeutic area by therapeutic area because to some degree you need to know the sites that people actually operate at and to try to optimize the resources so that.

Speaker Change: If it's a longer span of time, we might do a reduction, but if it's a shorter span of time.

Speaker Change: We may have to hold the resource because it's the better economic approach. So I share that detail with you look because I just want to give you a sense that I have to credit our operations team and under this adversity.

Speaker Change: They're trying to get incredibly detailed about demand coming in very much like a manufacturing environment, where you look at inbound demand and then also how do they optimize that resource.

Speaker Change: There is flow up and down at the sites that we have and in the geographies that we have so I'm hopeful that we're going to optimize it but it is going to be something that we're going to concentrate on every month and actually the teams will be doing every day, but we're going to look at every month to try to make sure were optimized and if we can.

Speaker Change: Find more we will.

Speaker Change: Have heard my comment in there that im looking at further areas for revenue generation cost reduction and other shareholder value creation opportunities. So it's not over yet in terms of this.

Speaker Change: But we wanted to give you a sense as of today, where we are on it.

Speaker Change: Alright, great. Thanks.

Luke: Thank you Luke.

Speaker Change: And the next question will come from Eric Coldwell with Baird. Your line is open.

Luke: Sure.

Eric Coldwell: Thank you very much can you hear me.

Luke: Yes, Hey, Eric how are you.

Speaker Change: Im sorry dialing in remotely today.

Luke: I wanted to come back.

Luke: Yeah.

I wanted to come back to the.

Luke: 2026 preliminary thoughts appreciate those those detailed.

Speaker Change: Definitely picked up the 80 bps on SG&A. This year. Another 100 bps next year Im curious what youre thinking.

Speaker Change: It sounds like you are expecting to return to topline growth in the first half and then maybe more in the second half with a better mix of projects in the second half of 'twenty six but what are you thinking on gross margin next year and overall EBITDA. This year, you're targeting mid sevens on EBITDA margin 100 bps would get me to the mid eight simply hold gross margin flat.

Speaker Change: But are you anticipating a better lift in gross margin on the revenue growth in the the <unk>.

Speaker Change: Better mix in the second half and so we shouldnt just be thinking mid eights on EBITDA margin in 2006.

Speaker Change: So Eric I'll try to take that I mean, we obviously have done a lot of that analysis and and I think we would be expecting more than 100 basis points of margin improvement year on year, but we felt like at this point until we've been able.

Speaker Change: See how all of these new processes, we've put in place are playing out we would be better off.

Speaker Change: Waiting a couple of more months and see how these forecasts are tracking compared to what we provided and then we can probably provide a little more clarity on what that future looks like and we did try to be relatively conservative in our modeling, but yes, you would expect wholesale gross margin improvement in 2006, because we believe that even though you have to hold on to resell.

Speaker Change: In certain areas because you have to have it it's not all being fully utilized and so there'll be able to absorb that growth as we've been hoping that would come that were both able to serve that growth without having to add a lot of significant <unk>.

Speaker Change: <unk> resource in 2006.

Speaker Change: Eric the other thing I'd add is that if you just think about the math.

Speaker Change: Roughly.

Speaker Change: As new work comes online, it's performing very close to the deal economics of this industry.

Speaker Change: And so when you and I think you guys view, Eric you can know this industry very well you have a sense of what that is so you can almost think of it as.

Speaker Change: As it becomes a bigger part of the mix the percentage of that mix and that difference in margin will start accretive to the bottom line. So the plan here is as you see that new mix, you will see that a better margins and that will lift it.

Speaker Change: As it grows as a proportion so just trying to get the model in your head. If you know what I mean, Eric as you as you see that allows what Joe's saying to go forward and I think frankly, you guys can model it slightly different ways. This was a 115 versus $1 two but we've model is 115 just to be a little conservative and we.

Speaker Change: Feel like it's good progression.

Speaker Change: Okay, operator, we must heng.

Max Smock: Our next question comes from Max Smock with William Blair. Your line is open.

Max Smock: Hi, Tom and Joe Thanks for taking my questions and Joe.

Speaker Change: I hope you feel better soon here.

Speaker Change: Tom I know you just discussed this in response to Dave's question a minute ago, but.

Speaker Change: Alright, so sorry for a bit of a repeat question here, but frankly still just kind of struggling on our and to understand your backlog in the quarter in the context of your commentary around determining that some of those pre spin projects have less remaining revenue than you anticipated earlier or at the end of 2024. So I'm just hoping can you just walk through again why those findings when it leads to some adjustment to backlog in <unk>.

Speaker Change: In the form of cancellations again, I'm, just trying to understand from a mechanism mechanics perspective, why are you finding that lead into a huge step down in burn rate incentive that big revision in backlog that Dave was discussing earlier. Thanks.

Yes, Max it's a good question because maybe I'll clarify.

Speaker Change: Not so much less backlog, it's actually slower burn and Thats. The difference in 25. So these projects. We did some interesting analysis that shows that a lot of these older projects extend out as much as 40% to 50% longer than the projects we're selling.

Speaker Change: Today.

Speaker Change: And so as you can imagine when they've extended out over time there. They are burning more slowly they have a lot of hours in them already and every incremental hour is less as a percentage of the total.

Speaker Change: That causes them to burn more slowly so so it's less it's not.

Speaker Change: Not so much that it's a reduction in backlog is just a lesser amount of it is going to show up in 2025 than we expect.

Speaker Change: And so it's a helpful clarification on your part and so so that work is out there. It just is burning more slowly and given it is a bigger percentage of the mix. It also has some built in inefficiencies, perhaps concessions on March and other things over time that we're still carrying with us through these.

Speaker Change: Solar projects.

Speaker Change: Got it Super helpful. Tom Thank you for clarifying and sorry, if I misunderstood based on the prepared remarks.

Max Smock: It's important stuff right now is obviously super important call. Thank you Max.

Speaker Change: And maybe just as a.

Speaker Change: And our next question comes from Matt.

Speaker Change: With Goldman Sachs. Your line is open.

Speaker Change: Hey, guys. This is <unk> on for Matt. Thanks for squeezing me in here.

Speaker Change: The commentary around the 80 basis points of savings for the year is helpful. But just wanted to dig a little deeper on the expense side, how should we think about the opex cadence and I guess gross margin as well throughout 2025, it's a lot of moving pieces with TSA roll off restructuring shift to new business and then some of the targeted investments if you could just kind.

Speaker Change: Parse out some of the puts and takes there and how we should think about phasing that would be super helpful. Thank you.

Speaker Change: Hello.

Speaker Change: So I think in terms you will see.

Speaker Change: Margins improve over the course of the year, it's not you're not going to see the same for example step from one quarter one to quarter. Two that you saw last year, but you'll see margins there over the course, there. However, we're going to provide more detail on that quarterly progression.

Speaker Change: When we do our Q1 earnings and the reason I say that is because we've come out of the TSA as we have all the costs now, we're resetting and youre not going to see much benefit from the SG&A reduction in the first quarter, because we were standing up the new systems and we're getting through year end, we were remediated the material weakness as I mentioned in my.

Speaker Change: <unk> and <unk>.

Speaker Change: Work to consolidate applications takes a bit of time, so it will improve over the course of the year and the margins will improve but will provide more detail on that progression as we get our Q1 results.

Speaker Change: Got it. Thank you just need more time with the new system.

Speaker Change: As you can imagine doing that with everything right now we need to do you want to say a couple of months in the new system just to make sure everything.

Speaker Change: Matching with any process that we put in place.

Speaker Change: That makes sense. Thanks again.

Speaker Change: Alright, operator doesn't take operator, let's take two more calls we are at 10 o'clock and we want to.

Speaker Change: Let people go and we will have some further calls with the analysts, but let's take two more and I apologize to folks I know, it's important but we look forward to talking to you during the day.

Speaker Change: Alright.

Speaker Change: Brian. The next question comes from Charles <unk> with TV Cowen Your line is open.

Charles: Yeah. Thanks, Thanks for taking the question.

Speaker Change #100: Maybe just and I apologize I joined a little bit late but.

Charles: Can you talk a little bit.

Charles: This idea of pre spend versus co spin projects.

Charles: Where are you looking at your backlog in this manner last year or is this when did you start to really focus on the difference between.

Charles: The pre spin projects versus the post spin and then secondly, following up on an earlier question around sort of the SG&A leverage.

Charles: This year and then into next year how.

Charles: How much.

Charles: Can you give us a sense on.

Charles: Kind of what we're running at in terms of capacity utilization.

And sort of just a sense on how much excess capacity you are kind of carrying currently to allow you to sort of recapture that in terms of margin as we go forward. Thanks.

Charles: Yes. Thank you Charles I'll comment on a couple of things and then ill give it.

Charles: First the pre versus post.

Charles: <unk> started to see trends so what has happened over the past year and really not just the last few months. Now is we are trying to look deeply into the portfolio to try to understand what we can do about the profitability of some of these older projects and as we look deeply in the portfolio. We started to see this pad.

Charles: <unk> that we had relatively more percentage complete projects and relatively and certainly the new ones, we want to make sure. The new stuff that we won was operating at good economics, and we confirm that and.

Charles: And then we started to look at the older stuff and we noticed that there were a couple of categories that were distinct the much more mature ones that were more percent complete and then ones, where we still have an opportunity to have an impact. So we started to look at that and then again this analysis at higher levels of cost.

Charles: As to actually take it down all the way to project by project. So.

Charles: It's.

Charles: Relatively recent to categorize it that way, but we certainly wanted to confirm that the new work that we won with our processes as independent company was meeting its original economics, because thats totally under our control.

Charles: I'll, just say on the capacity utilization.

Charles: That is closely managed and we are trying to thread the needle of.

Charles: Making sure that we have.

Charles: Limited capacity as we need to be able to deliver these projects with quality.

Charles: And.

That's clearly part of what we're trying to do and on the prior question you can hear how we're going to try to thread that needle.

Charles: Delivering this more mature work thats lower profitability and then also adding the new work to it and the team is working at a much more detailed level, Joe I don't know if you'd add something on that yes.

Speaker Change #101: Only thing I would say is the 80 basis point today that I.

Charles: <unk> is going to be.

Charles: Lower revenue base, obviously, if revenue was flat you'd be seeing a more substantial basis point reduction year on year. So that's why we call it out.

Charles: Basis points, but also kind of said, 40% to $50 million of net savings because because of the revenue decline. Unfortunately.

Charles: You don't see quite as much impact out from just a basis point perspective.

Charles: So that helped Jones.

Charles: Okay, let's take one last operator.

Speaker Change #102: Okay and our next question will come from Michael <unk> with Bank of America. Your line is open.

Michael: Great. Thanks for squeezing me in I appreciate it.

Speaker Change #103: I wanted to follow up on a point you had mentioned a couple times in prepared remarks, and Q&A. This sort of difference between pre spin and post spin in terms of the.

Speaker Change #103: Processes I guess my question is is it really that.

Speaker Change #103: Delineated.

Speaker Change #104: And what I'm getting at is yes, the management changed when you were spun out, but if you're thinking about the employee base.

Speaker Change #104: That's stayed largely the same so the same people that were booking revenues in and putting the bookings and putting the book together, that's been more or less consistent yes, you've implemented new processes that you've gone through the TSA, because et cetera, but that all took time. So I guess, what I'm getting that is it really that clear where it's the day before the spin the day after the spin.

Speaker Change #105: Is there a risk that you look at some of your bookings from second half 'twenty three in there.

Speaker Change #105: Also what are the lower quality than maybe some of the most recent ones from the last couple of quarters.

Speaker Change #105: If it gets a fair question, but the reality is we have changed quite a lot.

Speaker Change #106: This business is managed at a much more detailed level for instance, there are every project. We now have regular calls where projects are reviewed at various levels of management, sometimes even up to me and Jill associated with challenges.

Speaker Change #106: Base all of the projects in terms of approval, if any kind of change in terms of scope or any kind of change of additional hours without scope. All of that is now approved in some detail and so if you look at the detailed processes that we've put in place.

Speaker Change #106: It actually has changed quite a bit and so what we wanted to just make sure that those more detailed processes of management.

Speaker Change #106: And frankly.

Speaker Change #106: Not accepting variances as just something that has to happen.

Speaker Change #106: That those detailed processes.

Speaker Change #106: Need to make sure that on the new projects, we're sustaining margin and on the older projects. If we can capture additional compensation for additional scope. We're doing it and then if we can use more effectively cost and resources, we're doing it and so there has been quite a bit of change here.

I guess another example is we've taken work that used to have a higher cost resource we started to put it into hubs. We have a very significant hub in strategy. One of the things Youll know about for tree is before I came here they actually made some excellent investments in India.

Speaker Change #106: And those to enter around other low cost places in the world as well and those elements are being used even more so I think we would say the focus and discipline. We have had on this business has made a difference.

Speaker Change #106: Difficult with the mature projects to actually impact of them.

Speaker Change #106: And but the newer ones.

Speaker Change #106: Even if they are pre spin, but they're earlier in their life, we can impact those in the newest ones that we've sold we want to make sure theyre delivered well.

Speaker Change #106: So Michael I. Appreciate the question operator, we probably have to ramp from here I just want to thank everybody for being with us and we've done a tremendous amount of work. The last couple of months and we think we have a firm foundation, we're being well accepted by customers with these leading book to bills and we're going to.

Speaker Change #106: To continue pressing ahead here at fortress doing great things for our customers. So thank you.

Speaker Change #106: This concludes today's conference call. Thank you for participating you may now disconnect.