Q1 2025 Fortrea Holdings Inc Earnings Call

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Operator: Ladies and gentlemen, thank you for standing by and welcome to Fortrea first quarter 2025 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to 243, our first quarter 2025 earnings Conference call.

Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you would need to press star one on your telephone you want didn't hear an automated message of biting your hands raised.

Speaker Change: To withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would like now to turn the conference over to him, but he hasn't been that's relations and corporate development. Please go ahead.

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

Hima Inguva: Good morning, and thank you for joining Fortrea's first quarter 2025 earnings conference call. I am Hima Inguva, Head of Investor Relations and Corporate Development at Fortrea. On the call with me today are our CEO, Tom Pike, and CFO, Jill McConnell. In addition, Peter Newport is also joining us on the call.

Speaker Change: Good morning, and thank you for joining for <unk> first quarter 2025 earnings conference call and he might enjoy head of Investor Relations and corporate development that folks here on the call with me today are CEO.

Speaker Change: Tom Pike and CFO, Dave Macdonald. In addition, Peter Newport is also joining us on the call as mentioned in this morning's press release, Peter has been a lead independent director and then sort of as an interim CEO and chairman of the board the call is being webcast and the slides accompanying today's presentation have been posted to the Investor relations.

Hima Inguva: As mentioned in this morning's press release, Peter has been our Lead Independent Director and will serve as our Interim CEO and Chairman of the Board. The call is being webcasted, and the slides accompanying today's presentation have been posted to the Investor Relations page of our website, Fortrea.com. During this call, we'll make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the reports we filed with the SEC regarding these risks and uncertainties, in particular those that are described in the cautionary statement concerning forward-looking statements and risk factors in our press release and presentation that we posted on the website.

Speaker Change: Did you forget site, Okay Dot com during this call we'll make certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Speaker Change: Shipments are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the report to be filed with the SEC regarding these risks and uncertainties in particular those that are described in the cautionary statement concerning forward looking statements and risk factors in our press.

Speaker Change: The release and presentation that'd be posted on the website. Please note that any forward looking statements represent our views as of today May 12, 2025, and that'd be assume no obligation to update the forward looking statements. Even if estimates change during this call if they could differ due to certain non-GAAP financial measures.

Hima Inguva: Please note that any forward-looking statements represent our views as of today, May 12, 2025, and that we assume the obligation to update the forward-looking statement even if estimates change.

Hima Inguva: During this call, we'll be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures with the most directly comparable GAAP measures is available in the earnings press release and earnings call slides provided in connection with this call.

Speaker Change: These non-GAAP measures obnoxious wapiti to order placement for the comparable GAAP measures, but we believe these measures to help investors gain a more complete understanding of yourselves.

Speaker Change: Conciliation of such non-GAAP financial measures. The most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with this call with that I'd like to turn it over to our CEO Tom Pike, Tom. Thank you. Good morning, everyone. Welcome to the call today, we have a <unk>.

Tom Pike: With that, I'd like to turn it over to our CEO, Tom Pike. Tom? Thank you. Good morning, everyone. Welcome to the call. Today, we have a number of important topics to discuss, focusing on our current business results and trajectory. Then, towards the end of the call, we'll address other announcements. Our revenues in Adjusted EBITDA came in just about where we expected, and we are reaffirming our guidance. Our book-to-bill was 1.02 times for the quarter, and our trailing 12-month book-to-bill is 1.14 times.

Speaker Change: <unk> are important topics to discuss focusing on our current business results and trajectory towards the end of the call will address other announcements our revenues and adjusted EBITDA came in just about where we expected and we are reaffirming our guidance. Our book to Bill was one two times for the quarter and our trailing 12 month book to Bill is 114.

Tom Pike: Let me start with our bookings, the general environment, and our pipeline. Regarding the 1.02 book-to-bill, we had a good pipeline and closed the anticipated large pharma opportunities, but saw delays to close some biotech awards and a little softness in clinical pharmacology in the quarter. Each quarter, I've shared with you some interesting wins we've had to demonstrate that Fortrea wins important work. Today, I will highlight a few examples. We expanded a Phase 1, I'm sorry, expanded a Phase 2, 3 clinical development partnership with a large pharma customer into an observational development program, applying our real-world evidence expertise and experience.

Speaker Change: <unk>.

Speaker Change: Let me start with our bookings the general environment in our pipeline.

Speaker Change: Regarding the one point out two book to Bill we had a good pipeline and closed anticipated large pharma opportunities, but saw delays to close a biotech awards a little softness in clinical pharmacology in the quarter.

Speaker Change: Each quarter I've shared with you some interesting wins, we've had demonstrated portrayer wins important work today I will highlight a few examples we expanded a phase one I'm sorry expanded a phase two three clinical development partnership with a large pharma customer into an observational development program buying our real world evidence expertise and.

Tom Pike: By engaging early and bringing a holistic approach, we're delivering meaningful value to this customer and its Type 1 diabetes portfolio. With another large partner, we secured wins across the range of therapeutic areas, including cancer and kidney disease, involving solutions from Phase 1 through late phase, as well as FSP. These wins were based on a longstanding relationship characterized by trust and transparency.

Speaker Change: By engaging early.

Speaker Change: And bring a holistic approach, we're delivering meaningful value to this customer and its type one diabetes portfolio with another large partner, we secured wins across a range of therapeutic areas, including cancer and kidney disease involving solutions from phase one through late phase as well as the FSP.

Speaker Change: These wins were based on a long standing relationship characterized by trust and transparency.

Tom Pike: We also had some significant wins in the biotech space. We have an established partnership with the larger biotech. Last year, we delivered a smaller monotherapy trial, which led to a first quarter non-compete study to award and evaluate a multidose therapy. Biotech customers in particular appreciate that we're large enough to deliver their studies around the world while being small enough to give them the executive attention that helps drive their programs with excellent delivery, timeline efficiencies and quality data for registration or acquisition.

Speaker Change: Also had some significant wins in the biotech space, we have an established partnership with a larger biotech last year, we delivered a smaller mono therapy trial, which led to our first quarter Noncompete study to award and evaluate a multi dose therapy.

Speaker Change: Biotech customers in particular I appreciate that were large enough to deliver their studies around the world, while being small enough to give them. The executive attention that helps drive their programs with excellent delivery timeline efficiencies and quality data for registration or acquisition.

Tom Pike: Turning to the market environment, please know that these remarks on the market were prepared before seeing the details of today's announcement regarding the U.S. pursuing the most favored nation drug pricing. As we've said in the past, the different CROs see different slices of the total clinical research spend depending on their size, customers they're exposed to, and the relationships they have. What we are seeing is that Fortrea's larger customers have remained fairly consistent in terms of opportunities and spend since last year before the U.S. election. Certainly, they are speaking of the challenges ranging from patent cliffs to IRA to tariffs to regulatory agency changes, but overall, they're pushing forward.

Speaker Change: Turning to the market environment.

Speaker Change: Note that these remarks on the market we're prepared before seeing the details of today's announcement regarding the U S. Pursuing the most favored nation drug pricing as we've said in the past the different cero see different slices of the total clinical research spend depending on their size.

Speaker Change: Customers, they're exposed to and the relationships they have.

Speaker Change: What we are seeing is that portray as larger customers have remained fairly consistent in terms of opportunities and spend Sims.

Speaker Change: Last year for the U S election, certainly theyre speaking up the challenges range ranging from patent cliffs to IRA to tariffs to regulatory agency changes, but overall they are pushing forward.

Tom Pike: As we've discussed, we are happy with how we're targeting a roughly 50-50 blend of biotech and large pharma. Since the spin, we're trending a bit more toward biotech. Regarding biotech sentiment, some report to us that regulatory meetings and input are Other biotechs are being more cautious, wanting FDA or other regulatory confirmation and support for proceeding, which is slowing down their decision-making. Some biotech customers are discussing a more challenging funding environment. Like you, we've seen reports of a biotech funding slowdown this calendar year, though there have been some nice recent acquisitions, which historically is positive. All that said, we do see our biotech opportunity pipeline growing.

Speaker Change: As we've discussed we are happy with how we're targeting a roughly 50 50 blend of biotech and large pharma.

Speaker Change: The spend we're trending a bit more towards biotech.

Speaker Change: Regarding biotech sentiment some report to us that regulatory meetings and put our timely.

Speaker Change: Other biotechs are being more cautious wanting FDA or other regulatory confirmation and support for proceeding which is slowing down their decision making.

Speaker Change: Some biotech customers are discussing a more challenging funding environment like you. We've seen reports of a biotech funding slowdown this calendar year. So there had been some nice recent acquisitions, which historically is positive.

Speaker Change: Said, we do see our biotech opportunity pipeline growing some of that is due to the changes we've made to our commercial organizations and some due to brand.

Tom Pike: Some of that is due to the changes we've made to our commercial organizations, and some due to brand building recognition for Fortrea with biotech.

Speaker Change: <unk> recognition for Korea with biotech.

Tom Pike: Before moving on, I do want to say that I've been working in life sciences for about 30 years. Pharmaceutical companies and executives are very resilient to administrative and policy changes. The burden of disease is not going away, and new and improved medications are critical. Further, innovation in both science and the process of drug development is progressing rapidly. Artificial intelligence is promising and has the potential to rapidly accelerate our understanding of biology in our discussion, discovery of targets, and therapies. AI, along with the increased use of real-world evidence, will improve the speed, cost, and quality of clinical testing to prove therapies are safe and effective.

Speaker Change: Before moving on I do want to say that I've been working in life Sciences for about 30 years and pharmaceutical companies and executives are very resilient to administrative and policy changes the burden of disease is not going away and new and improved medications are critical further innovation in both science and the process of drug development is progressing.

Speaker Change: Rapid Lee artificial intelligence is promising and has potential to rapidly accelerate our understanding of biology, and our discussion discovery of targets and therapies AI along with the increased use of real world evidence will improve the speed cost and quality of clinical testing to proved therapies are safe and effective.

Tom Pike: I believe that well-run CROs will be part of the future. On an apples-to-apples basis, our employees and overhead costs are lower, our productivity is higher, and our ability to change is great. We now have 30 years of deep experience and are part of the reason why the biotech industry has been so innovative.

Speaker Change: I believe that well run crows will be part of the future.

Speaker Change: On an apples to apples basis, our employees and overhead costs are lower.

Speaker Change: Activity is higher and our ability to change is great. We now have 30 years of deep experience and are part of the reason why the biotech industry has been so innovative.

Tom Pike: Let me go back to where I started this section. The public CROs can perform differently based on the slice of the market that they serve. Regarding our pipeline, I'm pleased to report that our overall pipeline of opportunities remains solid, higher than the average of the past three years and growing on a trailing 12-month basis. We believe our pipeline has the ability to produce attractive book-to-bills for the remainder of the year, keeping our average bookings pointing toward growth. Regarding the second quarter, it's too early to tell exactly where we will land. April was solid, but we have more biotech exposure this quarter, and these opportunities are more challenging to predict in terms of both wind rate and timing.

Speaker Change: Let me go back to where I started this section.

Speaker Change: Public zeroes can perform differently based on the slice of the market that they serve.

Guarding our pipeline I am pleased to report that our overall pipeline of opportunities remains solid higher than the average of the past three years and growing on a trailing 12 month basis.

We believe our pipeline has the ability to produce attractive book to bills for the remainder of the year, keeping our average bookings pointing toward growth.

Speaker Change: Regarding the second quarter, it's too early to tell exactly where we will land April was solid, but we have more biotech exposure this quarter and these opportunities is more challenging to predict in terms of both win rate and timing.

Tom Pike: Our clinical pharmacology pipe is solid again. There is currently a path to a 1.2 times book to bill, but there is greater uncertainty about the macro environment potentially impacting decision making than at any time since we have spun. We are focused on putting a great value proposition in front of the customers. And in some cases, we do have our regulatory and strategy consultants helping customers think through how to best progress their products in this environment.

Speaker Change: Our clinical pharmacology pipe solid again.

Speaker Change: There is currently a path to a one two times book to Bill, but there is greater uncertainty about the macro environment potentially impacting decision making than at any time since we have spun.

Speaker Change: We are focused on putting a great value proposition in front of the customers and in some cases, we do have a regulatory and strategy consultants, helping customers think through how to best progress their products in this environment.

Tom Pike: On the commercial side, our transformation is continuing and we perform well, but we still want to up our customer relationship game. We're now starting to incorporate AI to increase the efficiency, quality and consistency of our proposals, contracts and commercial workflows. This allows us to focus more on the value proposition and less on just dealing with basic qualifications. We've added more sales capacity in biotech, a sales training academy and improved account planning for our larger customers. As I mentioned above, we're reaffirming guidance for the year. I'm pleased with the results of the improvements we've made to our forecasting system since the end of last year.

Speaker Change: On the commercial side, our transformation is continuing and we performed well.

Speaker Change: We still want to up our customer relationship game.

Speaker Change: We're now starting to incorporate AI to increase the efficiency quality and consistency of our proposals contracts in commercial workflows. This allows us to focus more on the value proposition and less on just dealing with basic qualifications. We've added more sales capacity in biotech sales training Academy and improved account planning.

Speaker Change: For our larger customers.

Speaker Change: As I mentioned above we're reaffirming guidance for the year I am pleased with the results of the improvements we've made to our forecasting systems. Since the end of last year. The first quarter was a quarter of solid execution.

Tom Pike: The first quarter was a quarter of solid execution.

Tom Pike: As we've discussed, we believe that 2025 is a transformation year. We want to win more business in a complex environment. We want to continue to deliver well and improve our customer relationships. At the same time, we know we need to improve gross margins as well as reduce our SG&A costs.

Speaker Change: As we've discussed we believe that $2025 a transformation year.

Speaker Change: We want to win more business in a complex environment, we want to continue to deliver well and improve our customer relationships at the same time, we know we need to improve gross margins as well as reduce our SG&A costs, Let me discuss our planned transformation addresses that.

Tom Pike: Let me discuss how our plan transformation addresses that. Now that we have substantially exited the TSAs, we are focusing on quality, cost structure, operations improvement, and practical innovation. In our clinical pharmacology business, our occupancy is at high levels, so we're focusing on optimizing price and capacity, while still delivering high quality. In FSP, we revised how we manage over the past year and are looking to drive growth.

Speaker Change: Now that we have substantially exited the TSA is we're focusing on quality cost structure operations improvement and practical innovations and our clinical pharmacology business. Our occupancy is at high levels. So we're focusing on optimizing pricing capacity, while still delivering high quality and <unk>.

Speaker Change: First.

Speaker Change: We've revised how we manage over the past year and are looking to drive growth.

Tom Pike: We've been working hard in our full service outsourcing business, which comprises the majority of our work. Here are a few examples of recent successes in full service. We completed recruitment for a renal product seven weeks ahead of schedule and on budget for a large customer. We accelerated a large cancer study timeline by 12 months. And in the first quarter, we delivered a first patient in for a sophisticated new CAR T therapy. We know that we need to not only deliver well, but we need to improve our gross margins. Here, as we've described to you, we have a combination of complex studies, some slower starting biotech projects among our more recent wins, and what we are now preferring to call longer duration and latent life cycle studies that are impacting the burn rate.

We've been working hard in our full service outsourcing business, which comprises the majority of our work here.

Speaker Change: Here are a few examples of recent successes in full service, we completed recruitment for a renal products seven weeks ahead of schedule and on budget for a large customer we accelerated large cancer study timeline by 12 months and in the first quarter, we delivered our first patient in for a sophisticated new car T therapy.

Speaker Change: We know that we need to not only deliver well, but we need to improve our gross margins here as we've described to you. We have a combination of complex studies some slower starting biotech projects among our more recent wins.

Speaker Change: And we are and what we are now preferring to call longer duration and Layton lifecycle studies that are impacting the burn rate.

Tom Pike: We have several actions underway to improve GrowSmart. First, aligning our resources to the work, looking for ways to optimize across our therapeutic areas, sites, and geographies to lower the cost of delivery in our global footprint. We have developed tools to assist us with this. Second, we're also reducing our direct but more centralized cost of delivery. Finally, increasing burn rate should increase margins too. The first order of business is hitting milestones on time, as well as getting paid for what we do. We're also trying to help biotechs get started faster. We're trying approaches to speed things up, such as getting sites started faster, but studies cannot always enroll patients faster.

Speaker Change: We have several actions underway to improve gross margins.

Speaker Change: Aligning our resources to the work looking for ways to optimize across our therapeutic areas sites and geographies to lower the cost of delivery and our global footprint we.

Speaker Change: We have developed tools to assist us with this.

Speaker Change: Second we're also reducing our direct but more centralized cost of delivery.

Speaker Change: Finally, increasing burn rates should increase margins to the <unk>.

Speaker Change: First order of business is hitting milestones on time as well as getting paid for what we do.

Speaker Change: We're also trying to help biotechs get started faster.

Trying approaches to speed things up so just getting sites started faster, but studies cannot always enroll patients faster.

Tom Pike: We're pushing and we'll keep our focus here. Generally, this attention is better for our customers and our relationships with them.

Speaker Change: Pushing and will keep our focus here generally this attention is better for our customers and our relationships with them.

Tom Pike: We have a great team and some long-tenured Fortrea executives and new leaders to drive change and improve gross margin. They will get it done.

Speaker Change: We have a great team and some long tenured portree executives and new leaders to drive change and improve gross margin they will get it done.

Tom Pike: Regarding SG&A, we're transforming our support functions to improve service, bring costs more directly in line with benchmarks. All of our SG&A organizations are now doing more with less. We can already see the benefit of having our own tailored ERP systems. For instance, last week, our chief administrative officer was showing me the new, more actionable reports he gets on attrition, spans, layers, and costs of our employees. We expect more improvements over time. We're now optimizing our people around new processes. We'll be implementing automation and AI tools as they become available from our system vendors.

Speaker Change: Regarding SG&A, we're transforming our support functions to improve surface bring costs more directly in line with benchmarks.

Speaker Change: All of our SG&A organizations are not doing more with less we can already see the benefit of having our own tailored ERP systems for instance, last week, our chief administrative officer was showing me the new more actionable reports he gets an attrition spans and layers and cost of our employees. We expect more improvements over time, we're now opt.

Speaker Change: <unk> are people around new processes will be implementing automation and AI tools as they become available from our system vendors.

Tom Pike: When we spun, Fortrea's information technology costs were farthest above benchmarks. Ironically, with that spend, we did not inherit strong systems. From the beginning of 2024 to the end of 2025, if we hit our plan, we expect to reduce IT spend by about one third on an ongoing run rate basis. That's big. We have reduced IT costs, even though we've had to build many functions like cybersecurity from scratch.

Speaker Change: When we spun portray as information technology costs were farthest above benchmarks ironically with that spend we did not inherit strong systems from the beginning of 2024 to the ended 2025, if we hit our plan, we expect to reduce spend by about one third on an ongoing run rate base.

Speaker Change: <unk>.

Speaker Change: Big.

Speaker Change: We have reduced costs, even though we've had to build many functions like cyber security from scratch.

Tom Pike: Coming off the intense TSA exit process, as well as the divestiture of our enabling services business, we are refocusing technology projects to make Fortrea better. In the first quarter, we launched an enterprise-wide application rationalization program, which has already identified millions of dollars of savings over the next five years, a number we believe will grow as we complete the evaluation process. We are implementing new project management systems and developing better global resourcing capabilities. I just did a review of our new mobile tool to increase CRA productivity and quality overall, which will ultimately reduce our cost to serve customers.

Speaker Change: Coming off the intense TSA exit process as well as the divestiture of our enabling services business. We are refocusing technology projects to make for treat it better.

In the first quarter, we launched an enterprise wide application rationalization program, which has already identified millions of dollars of savings over the next five years number. We believe we will grow as we complete the evaluation process. We are implementing new project management systems, and developing global better global Resourcing capabilities.

Speaker Change: I just did a review of our new mobile tool to increase CRA productivity and quality overall.

Speaker Change: Which will ultimately reduce our cost to serve customers.

Tom Pike: We've also been implementing a series of rapid releases to our own systems to manage studies more effectively. We continue to work with leaders like VIVA and MediData to take advantage of their latest innovations.

Speaker Change: We've also been implementing a series of rapid releases to our own systems to manage studies more effectively we continue to work with leaders like visa and metadata to take advantage of their latest innovations.

Tom Pike: For further optimization and productivity, after a series of pilots last year, we launched CoPilot Chat through our Microsoft 365 license, making AI tools available to every employee who has Microsoft licenses. CoPilot is improving our productivity and has been rapidly adopted across Fortrea. We're seeing more than 50% increases in usage week by week driven by a comprehensive change program. For employees in need of more advanced AI capabilities, Microsoft CoPilot Enterprise is our primary solution. We piloted more than 200 use cases last year and demonstrated its power. We are rolling it out this year based on the highest priority use cases.

Speaker Change: For further optimization and productivity after a series of pilots last year, we launched co pilot chat through our Microsoft 365 license.

Speaker Change: <unk> AI tools available to every employee who has Microsoft licenses co pilot is improving our productivity and has been rapidly adopted across for trio.

Speaker Change: We're seeing more than 50% increases in usage week by week, driven by a comprehensive change program.

Speaker Change: Our employees in need of more advanced AI capabilities, Microsoft Copilot enterprises, our primary solution.

Speaker Change: Piloted more than 200 use cases last year demonstrated its power we're rolling it out this year based on the highest priority use cases.

Tom Pike: Certain areas like protocol reviews, dealing with protocol deviations, site agreements, quality plans, medical writing, and report reviews are using AI and will standardize around AI systems in the near future. As a regulated industry, given AI's ability to make mistakes, we still need humans in the loop, but we believe our productivity will continue to improve.

Speaker Change: Certain areas like protocol reviews dealing with protocol deviations site agreements quality plans medical writing report reviews are using AI and will standardize around AI assistance in the near future.

Speaker Change: As a regulated industry, given <unk> ability to make mistakes, we still need humans in the loop, but we believe our productivity will continue to improve.

Tom Pike: We have a strong IT leadership team and excellent partnerships. In coming months, we hope to be able to demonstrate to analysts and investors some of the innovations we have under development or in production.

Speaker Change: We have a strong IP leadership team and excellent partnerships in coming months, we hope to be able to demonstrate to analysts and investors. Some of the innovations we have under development or in production just a few more things for a handoff to Jill.

Tom Pike: Just a few more things before I hand off to Jill.

Tom Pike: We cemented a partnership with the Society for Clinical Research Sites, becoming a charter sponsor Collaborate Forward Working Group, which will explore and develop best practices to reduce administrative burdens across the clinical research ecosystem.

Speaker Change: We cemented a partnership with the society for clinical research sites, becoming a charter sponsor collaborate forward working group, which will explore and develop best practices to reduce administrative burdens across clinical research ecosystem.

Tom Pike: We recently announced that Fortrea was named a leader for both pre and post pharmacovigilance operations by Everest Group in its annual Pharmacovigilance Operations Peak Matrix Assessment for 2025. Third-party recognition is great to have, and we're also getting great feedback about our solutions and service experience directly from customers. Overall, our customer net promoter scores have continued to trend up, meeting our Q1 target, with team expertise and project management noted as areas of strength. I must call out our clinical pharmacology group when I talk about NPS. This team continues to earn exceptional scores. At Fortrea, we service customers well and are working hard on our transformation.

Speaker Change: We recently announced support tree was named a leader for both pre and post pharmacovigilance operations by Everest group in its annual Pharmacovigilance operations peak matrix assessment in 2025.

Speaker Change: Third party recognition is great to have and we're also getting great feedback about our solutions and service experience directly from customers overall, our customer net promoter scores have continued to trend up meeting our Q1 target with team expertise and project management noted as areas of strength.

Speaker Change: I must call out our clinical pharmacology group when I talk about NPS. This team continues to earn exceptional scores.

Speaker Change: At <unk>, we service customers well and are working hard in our transformation. We're building a firm foundation for the future.

Tom Pike: We're building a firm foundation for the future.

Jill McConnell: Now let me pass to Jill for more thorough discussion of our results and initiatives.

Speaker Change: Let me pass to Joe for a more thorough discussion of our results and initiatives.

Jill McConnell: Thank you, Tom, and thank you to everyone for joining us today. As a reminder, all my remarks relate to continuing operations of Fortrea following the divestiture of our enabling services businesses last year, unless I note otherwise. In my prepared remarks, I'll walk through the key drivers of our first quarter performance and provide an update on progress toward our 2025 guidance, along with the cost optimization initiatives underway. I'll also take some time to discuss our broader transformation strategy and share some additional disclosures to enable you to better understand our current state and progression towards margin expansion.

Joe: Thank you Tom and thank you to everyone for joining US today as a reminder, all my remarks relate to continuing operations of <unk>. Following the divestiture of our enabling services businesses last year unless I note otherwise.

Joe: In my prepared remarks, I'll walk through the key drivers of our first quarter performance and provide an update on progress toward our 2025 guidance along with the cost optimization initiatives underway.

Joe: I will also take some time to discuss our broader transformation strategy and share some additional disclosures to enable you to better understand our current state and progression towards margin expansion.

Jill McConnell: As Tom highlighted, we delivered a solid first quarter. Cancellations continue to be within our historical trends, although we noted some protraction in decision-making, particularly in the biotech segment, and we are closely monitoring this trend.

As Tom highlighted we delivered a solid first quarter.

Joe: Cancellations continued to be within our historical trend, although we noted some protraction in decision, making particularly in the biotech segment and we are closely monitoring this trend.

Jill McConnell: For the first time since the SPIN, we delivered year-over-year growth in adjusted EBITDA and adjusted EPS, which is a positive step forward. We've exited all of the major TSA services from our former parent and are operating independently, which is evidenced by the year-over-year reduction in one-time SPIN-related costs and our initial progress toward right-sizing our post-SPIN cost structure.

Joe: For the first time since the spin we delivered year over year growth in adjusted EBITDA, and adjusted EPS, which is a positive step forward.

Joe: We've exited all of the major TSA services from our former parent and are operating independently, which is evidenced by the year over year reduction in one time spin related costs and our initial progress toward right sizing our post spin cost structure.

Jill McConnell: Now I'll cover the financial results. For the first quarter, revenues of $651.3 million declined 1.6% year-on-year. The decline was driven by the varying late-stage clinical service fee new business wins both prior to the spin and in the first half of last year, along with some slowing in our backlog burn rate, primarily due to the mix of our current book of work, which contains certain projects that are more complex and longer in duration. I'll touch on that more later in my remarks. The reduction was partially offset by increases in service fee and pass-through revenues from our Phase I clinical pharmacology business.

Joe: Now I'll cover the financial results.

Joe: For the first quarter revenues of $651 $3 million declined one 6% year on year. The decline was driven by the very late stage clinical service to the new business wins, both prior to the spin and in the first half of last year, along with some slowing in our backlog burn rate primarily due to the mix of our current book of work which contained.

Joe: Certain projects that are more complex and longer in duration.

Joe: Touch on that more later in my remarks.

Joe: The reduction was partially offset by increases in service fee and pass through revenues from our phase one clinical pharmacology business.

Jill McConnell: On a gap basis, direct costs in the quarter decreased 3.5% year over year, primarily due to lower headcount and personnel costs as a result of restructuring action. Direct personnel costs in absolute dollars were reduced more than double the amount of the service fee decline. Permanent headcount across all of Fortrea is down more than 8% over the last 12 months, as we carefully balance the need to improve our cost base while continuing to deliver high quality services to our customers. These savings were partially offset by an increase in pass-through costs, higher professional fees, and stock-based compensation.

Joe: On a GAAP basis direct costs in the quarter decreased three 5% year over year, primarily due to lower head count and personnel costs as a result of restructuring actions.

Joe: Personnel costs in absolute dollars were reduced to more than double the amount of the service fee decline.

Joe: Permanent head count across our fortress is down more than 8% over the last 12 months as we carefully balanced the need to improve our cost base, while continuing to deliver high quality services to our customers.

Joe: These savings are partially offset by an increase in pass through costs higher professional fees and stock based compensation.

Jill McConnell: SG&A in the quarter was higher year over year by 1.4 percent, primarily due to an increase in personnel costs to support the establishment of our corporate functions as a standalone company, along with the yield costs related to the receivable securitization program. This increase was partially offset by the reduction in transition services agreement costs, which were substantially exited as of December 31st, 2024. If you look at SG&A sequentially, excluding the impact of one-time costs and the securitization yield costs, SG&A in the first quarter is a little more than 3% lower than in the fourth quarter of 2024, and this includes absorbing variable compensation that we reintroduced in 2025.

Joe: SG&A in the quarter was higher year over year by one 4% primarily due to an increase in personnel cost to support the establishment of our corporate functions as a standalone company along with the yield costs related to the receivables securitization program.

Joe: This increase was partially offset by the reduction in transition services agreement costs, which were substantially exited as of December 31 2024.

Joe: If you look at SG&A sequentially, excluding the impact of onetime costs in the securitization yield cost SG&A in the first quarter is a little more than 3% lower than in the fourth quarter of 2024 and this includes absorbing variable compensation that we've reintroduced in 2025.

Jill McConnell: I'll discuss more about our ongoing transformation efforts in SG&A later in my remarks.

Joe: I'll discuss more about our ongoing transformation efforts and SG&A later in my remarks.

Jill McConnell: Net interest expense for the quarter was $22.3 million, a decrease of $12 million versus the prior year, primarily due to the $475 million in debt paydown across our term loans made in June 2024. When combined with our securitization program, cash interest and securitization costs for the first quarter were down approximately 22% compared to the first quarter of 2024.

Joe: Net interest expense for the quarter was $22 3 million.

Joe: A decrease of $12 million versus the prior year, primarily due to the $475 million in debt paydown across our term loans made in June 2024.

Joe: When combined with our securitization program cash interest and securitization costs for the first quarter were down approximately 22% compared to the first quarter of 2024.

Jill McConnell: Turning to our tax rate, the effective tax rate for continuing operations for the quarter was negative 2.7 percent. The rate was adversely impacted by an impairment of goodwill that has no tax benefit, an increase in our valuation allowance, the impact of BEAT, non-deductible compensation expenses, and withholding taxes for 2025 non-U.S. earnings that are not permanently reinvested. Our book to bill for the quarter was 1.02 times, and for the trailing 12 months, it was 1.14 times. Our backlog is over $7.7 billion and has grown 4% over the past 12 months.

Joe: Turning to our tax rate the effective tax rate for continuing operations for the quarter was negative two 7%.

Joe: The rate was adversely impacted by an impairment of goodwill that has no tax benefit and increase in our valuation allowance and the impact of beat nondeductible compensation expenses and withholding taxes for 2025 non U S earnings that are not permanently reinvested.

Our book to Bill for the quarter was 1.02 times and for the trailing 12 months. It was 114 times.

Backlog is over $7 7 billion and has grown 4% over the past 12 months.

Jill McConnell: Adjusted EBITDA for the quarter was $30.3 million compared to adjusted EBITDA of $27.1 million in the prior year period. Adjusted EBITDA margin in the quarter was positively impacted by lower direct costs as a result of reduced headcount and the related personnel costs. partially offset by higher SG&A costs to support operations as a public company following the separation from our former Moving to Net Income and Adjusted Net Income.

Joe: Adjusted EBITDA for the quarter was $30 3 million compared to adjusted EBITDA of $27 1 million in the prior year period.

Adjusted EBITDA margin in the quarter was positively impacted by lower direct costs as a result of reduced head count and the related personnel costs.

Joe: Partially offset by higher SG&A costs to support operations as a public company following the separation from our former parent.

Joe: Moving to net income and adjusted net income.

Jill McConnell: In the first quarter of 2025, net loss was $562.9 million compared to net loss of $79.8 million in the prior year period, primarily due to a goodwill impairment charge recorded in the current quarter. The non-cash pre-tax goodwill impairment charge of $488.8 million dollars related to our clinical development reporting unit. The impairment was a result of uncertain global macroeconomic conditions and a decline in our share price, which led to our determination that the unit's fair value had fallen below its carrying value.

Joe: In the first quarter of 2025 net loss was $562 9 million compared to a net loss of $79 8 million in the prior year period.

Joe: Primarily due to a goodwill impairment charge recorded in the current quarter.

Joe: The noncash pretax goodwill impairment charge of $488 8 million.

Joe: Related to our clinical development reporting unit.

Joe: The impairment was the result of uncertain global macroeconomic conditions and a decline in our share price, which led to our determination that the units fair value had fallen below its carrying value.

Jill McConnell: There is no impact to the carrying value of our clinical pharmacology reporting unit. In the first quarter of 2025, adjusted net income was $1.9 million. compared to adjusted net loss of $4.9 million in the prior year period. For the current quarter, adjusted basic and diluted earnings per share were 2 cents.

There is no impact to the carrying value of our clinical pharmacology reporting unit.

Joe: In the first quarter of 2025, adjusted net income was $1 9 million.

Joe: Compared to adjusted net loss of $4 9 million in the prior year period.

Joe: For the current quarter adjusted basic and diluted earnings per share were two cents.

Jill McConnell: Turning to customer concentration, our top 10 customers represented 56% of first quarter 2025 revenues. Our largest customer accounted for 15.4% of revenues during the quarter ending March 31st, 2025.

Joe: Turning to customer concentration our top 10 customers represented 56% of first quarter 2025 revenues, our largest customer accounted for 15, 4% of revenues during the quarter ending March 31 2025.

Jill McConnell: As I comment on cash flows, note that all references to prior year cash flows are for the entirety of Fortrea, as we had not segregated cash flows from continuing and discontinued operations for the businesses sold in June 2024. For the three months ended March 31st, 2025, we reported negative operating cash flow of $124.2 million, compared to negative $25.6 million in the prior year. The main driver for the increased use of cash was our ERP conversion, as the cutover plan included a temporary pause and invoice generation during January 2025 to support system transition and data validation activities.

Joe: As I comment on cash flows note that all references to prior year cash flows are for the entirety of our trio as we had not segregated cash flows from continuing and discontinued operations for the businesses sold in June 2024.

Joe: For the three months ended March 31, 2025, we reported negative operating cash flow of $124 2 million compared.

Joe: Compared to negative $25 $6 million in the prior year.

Joe: Main driver for the increased use of cash with our ERP conversion as the cutover plan included a temporary pause in invoice generation during January 2025 to support system transition and data validation activities.

Jill McConnell: As a result of this pause, we experienced an 11-day increase in day sales outstanding to 51 days, and this was the key driver in the $70.5 million negative cash flow from accounts receivable and unbilled services. We expect that this CSO increase will begin to improve in the second quarter and over the remainder of the year. Free cash flow was negative $127.1 million compared to negative $34.9 million in the first quarter of 2024. Net accounts receivable in unbilled services for continuing operations were $729 million as of March 31, 2025, compared to $941 million as of March 31, 2024, with the primary decrease year-over-year driven by the sale of receivables under our securitization agreement, partially offset by the previously described invoicing pause.

As a result of this pause we experienced an 11 day increase in days sales outstanding to 51 days and this was the key driver in the $75 million negative cash flow from accounts receivable and Unbilled services.

Joe: We expect that this DSO increase will begin to improve in the second quarter and over the remainder of the year.

Joe: Free cash flow was negative $127 1 million compared to negative $34 9 million in the first quarter of 2024.

Joe: Net accounts receivable and Unbilled services for continuing operations were $729 million as of March 31, 2025% compared to $941 million as of March 31, 2024, with the primary decrease year over year, driven by the sale of receivables under our securitization agreement, partially offset by the previously.

Joe: Describe invoicing pause.

Jill McConnell: Due to the use of cash during the first quarter, we ended the quarter with $89 million outstanding on the revolver compared to $29 million outstanding at March 31st, 2024. Following a net borrowing position at the end of the first quarter, we're targeting operating cash flow to be positive across the balance of 2025, driven by improving DSO, increases in adjusted EBITDA, and lower cash outlays for restructuring and spin-related costs. We continue to target operating cash flow for full year 2025 to be flat to slightly negative. We ended the quarter with more than $450 million of liquidity, and with our projected EBITDA and available addbacks under the credit agreement, expect that we will continue to have ample access to our revolver throughout 2025.

Joe: Due to the use of cash during the first quarter, we ended the quarter with $89 million outstanding on our revolver compared to $29 million outstanding at March 31, 2024.

Joe: Following a net borrowing position at the end of the first quarter, we're targeting operating cash flow to be positive across the balance of 2025, driven by improving DSO increases in adjusted EBITDA and lower cash outlays for restructuring and spin related costs, we continue to target operating cash flow for full year 2025.

Joe: To be flat to slightly negative.

Joe: We ended the quarter with more than $450 million of liquidity and with our projected EBITDA and available add backs under the credit agreement and expect that we will continue to have ample access to our revolver throughout 2025.

Jill McConnell: As a reminder, the maximum leverage ratio under our credit agreement includes add-backs beyond what we include in our adjusted EBITDA, such as pro forma benefits from in-flight cost savings initiatives, Fortrea's public company costs, and costs necessitated by the SPIN. The maximum net leverage ratio under the amended credit agreement ranges from 5.5 times to 6 times over the years 2025 and 2026, and reverts to 5.3 times as of the first quarter of 2027. We are currently, and anticipate that we will remain, fully compliant with the financial maintenance ratios of the credit agreement in 2025.

Joe: As a reminder, the maximum leverage ratio under our credit agreement includes add backs beyond what we include in our adjusted EBITDA such as pro forma benefit from in flight cost savings initiatives for trade as public company costs and cost associated by the spend.

Joe: The maximum net leverage ratio under the amended credit agreement ranges from five five times to six times over the years 2025, and 2026 and revert to five three times as of the first quarter of 2027.

Joe: We are currently and anticipate that we will remain fully compliant with the financial maintenance ratios of the credit agreement in 2025.

Jill McConnell: With our TA services exits largely behind us, we plan to focus our capital allocation priorities on driving organic growth and improving productivity, along with debt repayment. Looking ahead in 2025, we are reaffirming our guidance for the year. Using exchange rates in effect on December 31st, 2024, we continue to target our revenues to be in the range of $2.45 billion to $2.55 billion, and our adjusted EBITDA to be in the range of $170 million to $200 million.

Joe: With our Ta services exits largely behind US we plan to focus our capital allocation priorities on driving organic growth and improving productivity along with debt repayments.

Joe: Looking ahead in 2025, we are reaffirming our guidance for the year using exchange rates in effect on December 31, 2024, we continue to target our revenues to be in the range of $2 45 billion to $2 55 billion.

Joe: And our adjusted EBITDA to be in the range of $170 million to $200 million.

Jill McConnell: We provided an additional slide in the first quarter earnings presentation on our Investor Relations website. This is intended to show how revenue is being adversely impacted by a slowing of our backlog burn rate versus the prior year. Over the last couple of months, we have analyzed the data around our backlog and revenue across multiple vantage points, including age, therapeutic area, phase, and customer size, among others. The analysis shows that the burn rate is being impacted by our project mix, which continues to be heavily weighted towards oncology, which in our experience can burn on average 20% more slowly than most other therapeutic areas due to the complexity of these studies.

Joe: We provided an additional slide in the first quarter earnings presentation on our Investor Relations website.

Joe: This is intended to show how revenue has been adversely impacted by a slowing of our backlog burn rate.

Joe: Versus the prior year.

Joe: Over the last couple of months, we have analyzed the data around our backlog and revenue across multiple vantage points, including age therapeutic area phase and customer size among others. The.

Joe: The analysis shows that the burn rate has been impacted by our project mix, which continues to be heavily weighted towards oncology, which in our experience can burn on average 20% more slowly than most other therapeutic areas due to the complexity of these studies.

Jill McConnell: In addition, we have been seeing continued delays in the startup of biotech projects, although our analysis shows that once underway, these projects burn more quickly than large pharma studies. FSP revenue is anticipated to be a headwind in 2025, but as we shared previously, we are rekindling our efforts in FSP because we believe we can win attractive work that can benefit both our margins and our customers where appropriate. In addition, given that our portfolio is still weighted more heavily to older projects, many of which are much longer in duration than our average project life cycle for newer projects, our burn rate is impacted as these move through the later, less intense stages of their life cycle.

Joe: In addition, we have been seeing continued delays in the startup of biotech projects. Although our analysis shows that once underway. These projects burn more quickly than large pharma studies.

Joe: FSP revenue is anticipated to be a headwind in 2025, but as we shared previously we are rekindling our efforts in FSP because we believe we can win attractive work that can benefit both our margins and our customers where appropriate.

Joe: In addition, given that our portfolio is still weighted more heavily to older projects many of which are much longer in duration than our average project lifecycle for newer projects. Our burn rate is impacted as these move through the later less intense stages of their lifecycle.

Jill McConnell: 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. Since the spin, we've made solid progress, delivering strong book-to-bills in the second halves of both 2023 and 2024, and have delivered a solid 1.18 times average in the seven quarters since the spin. Our book-to-bill in the first quarter was adversely impacted by some slowness in customer decision-making given the current market uncertainties, but we believe our pipeline remains solid to provide the foundation to an attractive full-service, FSP, and clinical pharmacology new business.

Joe: 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.

Speaker Change: Suspend we've made solid progress delivering strong book to bills in the second halves of both 2023 and 2024 and have delivered a solid one <unk>.

Joe: Eight times average in the seven quarters since the spin.

Joe: Our book to Bill in the first quarter was adversely impacted by some slowness in customer decision, making given the current market uncertainties, but.

Joe: But we believe our pipeline remains solid to provide the foundation to win attractive full service FSP and clinical pharmacology new business the.

Jill McConnell: The pricing environment remains competitive but stable at this time, and Fortrea aims to price that market. As previously shared, we are making targeted investments this year to expand our commercial coverage of biotech, as we believe it is important to thoughtfully invest in this space, recognizing that over time, biotech organizations will remain a compelling source of innovation and growth. We continue to target achieving a 1.2x book-to-bill over time, but at this time it is difficult to estimate how the remainder of the year will unfold around new business wins given the potential impacts of the current economic and policy uncertainty.

Joe: The pricing environment remains competitive but stable at this time and portray aims to price at market.

Joe: As previously shared we are making targeted investments this year to expand our commercial coverage of biotech as we believe it is important to thoughtfully invest in this space recognizing that over time biotech organizations will remain a compelling source of innovation and growth.

Joe: We continue to target achieving a one two times book to Bill over time, but at this time it is difficult to estimate how the remainder of the year will unfold around new business wins, given the potential impacts of the current economic and policy uncertainty.

Jill McConnell: As we've noted, we believe we have a solid pipeline with timely decision making and access to funding for emerging biotech customers, along with maintaining our win rate will be key. We have begun to see our efforts pay off to improve the efficiency of our project delivery and we will continue to look for opportunities to improve our burn rate, including efforts to accelerate biotech startup and oncology project execution.

Joe: As we've noted we believe we have a solid pipeline the timely decision, making and access to funding for emerging biotech customers along with maintaining our win rate will be key.

Joe: We have begun to see our efforts pay off to improve the efficiency of our project delivery and we will continue to look for opportunities to improve our burn rate, including efforts to accelerate biotech startup and oncology project execution.

Jill McConnell: We shared with you in March that the post-spin projects, which have a better financial profile, only represent a small percentage of our clinical full-service outsourcing fee revenue. They were roughly 16% of clinical full-service outsourcing fee revenue in the fourth quarter of 2024. This improved to roughly 24% in the first quarter of 2025. We believe they will grow as a proportion of revenue over time, but we don't expect them to become the majority of our clinical full-service outsourcing fee revenue until the second half of 2026.

Joe: We started we shared with you in March that the post spin projects, which have a better financial profile only represent a small percentage of our clinical full service outsourcing fee revenue. They were roughly 16% of clinical full service outsourcing fee revenue in the fourth quarter of 2024, this improved to roughly 24% in the first.

Joe: <unk> 2025, we believe they will grow as a proportion of revenue over time, but we don't expect them to become the majority of our clinical full service outsourcing fee revenue until the second half of 2026.

Jill McConnell: As we previously shared, our first quarter margins were adversely impacted by the lower revenue I described, compounded by our SG&A cost structure, which is currently higher than our peers. To address the higher SG&A costs, as well as better align our operational footprint to our current revenue profile, we are targeting gross cost reductions of $150 million in 2025, with an expected net benefit of $90 to $100 million this year, as some of the cost reductions are being offset by the reintroduction of variable compensation. Through the first quarter, we have captured roughly $19 million in gross savings with roughly one-third of that contributing to improvements in EBITDA.

Joe: As we previously shared our first quarter margins were adversely impacted by the lower revenue I described compounded by our SG&A cost structure, which is currently higher than our peers.

Joe: To address the higher SG&A cost as well as better align our operational footprint to our current revenue profile. We are targeting gross cost reductions of $150 million in 2025, with an expected net benefit of $90 million to $100 million. This year as some of the cost reductions are being offset by the reintroduction of variable compensation.

Joe: Through the first quarter, we have captured roughly $19 million in gross savings with roughly one third of that contributing to improvements in EBITDA.

Jill McConnell: Now I'll give an update on how we're executing against those transformation plans for 2025 and beyond. We have initiated transformation programs in each SG&A function and in the overall organization to reduce personnel costs, consolidate IT application and licensing expenditures, and to further optimize our facility's footprint and our third-party vendor spend. Note that since the spin, and separate from the divestitures, we have reduced approximately 2,200 permanent positions, or 13%, across our teams in an effort to better align our cost base with our revenue profile. To date, we have reduced our office footprint by over 200,000 square feet, reduced duplicative clinical subscriptions by approximately 40%, and rationalized 15% of the applications we inherited.

Joe: Now I'll give an update on how we're executing against those transformation plans for 2025 and beyond.

Joe: We have initiated transformation programs in each SG&A function and in the overall organization to reduce personnel costs consolidate IP application and licensing expenditures and to further optimize our facilities footprint and our third party vendor spend.

Joe: Note that since the spin and separate from the divestitures, we have reduced approximately 2200 permanent positions were 13% across our teams in an effort to better align our cost base with our revenue profile to date, we have reduced our office footprint by over 200000 square feet reduce duplicative clinical subscriptions.

Joe: Approximately 40% and rationalized, 15% of the applications. We inherited we expect these programs will extend into 2026 as we continue our efforts to bring our SG&A spend more in line with peers.

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

Jill McConnell: While we are reaffirming our 2025 guidance, we will hold off on discussing 2026 and beyond as the entire industry waits to see how some of the current economic uncertainty unfolds. In the meantime, we remain focused on winning attractive new clinical development business and note that the cost saving initiatives we are targeting to reduce SG&A costs and the efficiencies we are driving to optimize our operations are supporting our goal to expand our margins.

Joe: While we are reaffirming our 2025 guidance, we will hold off on discussing 2026 and beyond as the entire industry waits to see some of the current economic uncertainty unfolds in the meantime, we remain focused on winning attractive new clinical development business and note that the cost saving initiatives, we are targeting to reduce SG&A costs and the <unk>.

Joe: <unk>, we are driving to optimize our operations are supporting our goal to expand our margins.

Jill McConnell: As we approach the second anniversary of our spin, I want to note the significant achievements and progress we've made to enable Fortrea to operate as an independent, agile organization. We've accomplished many things, in large part because of long days and heavy lifts from our teams, and I want to recognize them for this. Our attention is now firmly focused on winning more new business, delivering for our customers, and thoughtfully right-sizing our organization. While we acknowledge our successes, we also acknowledge the challenges we've had along the way. We are diligently working on bringing the business back to a sustained path of growth.

Joe: As we approach the second anniversary of our spin I want to note the significant achievements and progress we've made to enable for trio to operate as an independent agile organization. We've accomplished many things in large part because of long days and heavy lift from our team and I want to recognize them for that.

Joe: Our attention is now firmly focused on winning new business delivering for our customers and thoughtfully right sizing our organization.

Joe: While we acknowledge our successes we also acknowledged the challenges we've had along the way.

Joe: We are diligently working on bringing the business back to a sustained path of growth.

Jill McConnell: Building upon the solid groundwork laid since the spin, supported by our solid $7.7 billion backlog, and the expertise of our strong global team, we maintain our unwavering commitment to exceeding customer expectations and achieving a return to revenue growth and margin expansion. The foundational elements for creating long-term value for all our stakeholders have been established.

Joe: Building upon the solid groundwork laid since the spin supported by a solid seven $7 billion backlog and the expertise of our strong global team, we maintain our unwavering commitment to exceeding customer expectations and achieving a return to revenue growth and margin expansion the foundational elements for creating long term value for all our stakeholders have been established.

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

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

Tom Pike: For my closing remarks, I'd like to say a little more about the news we shared alongside of our earnings today as we announced that Peter Newpert is going to serve as Fortrea's interim CEO after I step down. When I signed on in January of 2023, it was about a three-year assignment to lead the company through the spin and help it become a standalone company. I'm proud of the team and all that we have accomplished to navigate through the challenges before and since the spin and position the company for future success.

Tom Pike: Thank you Jill for my closing remarks, I'd like to say a little more about the news we shared our long term alongside of our earnings today, we announced that Peter Neupert going to service for tree as interim CEO after I step down.

Speaker Change: When I signed on in January 2023, it was about a three year assignment to lead the company through the spin and help it become a standalone company.

Speaker Change: I'm proud of the team and all we've accomplished navigate through the challenges before and since the spin and position the company for future success. However, the financial results in stock performance or not what any of us wanted.

Tom Pike: However, the financial results and stock performance are not what any of us want. With Fortrea now operating as a fully independent company, the board and I have agreed that this is the right time to move ahead with a transition as part of executive succession planning. We believe the market opportunities for Fortrea are large and expanding, despite the short term issues. We believe the company is a strong player, and our brand is well positioned in the market. We are delivering on our plans and getting stronger now that the spin is behind us. I've worked closely with Peter for two and a half years, and I welcome him as Interim CEO.

Speaker Change: For trio now operating as a fully independent company the board and I have agreed that this is the right time to move ahead with a transition as part of executive succession planning, we believe the market opportunities for portrait our large and expanding despite the short term issues. We believe the company is a strong player and our brand is well positioned in the March.

Speaker Change: We are delivering on our plans and getting stronger now that the spin is behind us.

Speaker Change: I've worked closely with Peter for two and a half years and I welcome him as interim CEO soon the board will completed succession planning for the right CEO to lead the company for the next phase of the process is well advanced.

Tom Pike: Soon the board will complete its succession planning for the right CEO to lead the company for the next phase. The process is well advanced.

Tom Pike: Above all, I want to thank our 15,000 employees for their hard work during this demanding time transition and for their ongoing commitment to serving our customers. They have worked with tireless dedication and truly advanced our mission of bringing life-changing treatments to patients faster.

Speaker Change: <unk> I want to thank our 15000 employees for their hard work during this demanding time transition and for their ongoing commitment to serving our customers.

Speaker Change: I've worked here with tireless dedication and truly advanced our mission of bringing life changing treatments to patients faster. It has been my honor to run this company and to work with our customers employees and shareholders in this important industry.

Tom Pike: It has been my honor to run this company and to work with our customers, employees, and shareholders in this important industry. I'm confident that Fortrea's future is bright.

Speaker Change: I'm confident that <unk> future is bright.

Operator: Operator, can you please begin the Q&A session? Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. withdraw your question please press star 1 1 again. We ask that you limit to one question and return to the queue for follow-up to allow everyone an opportunity to ask a question.

Speaker Change: Operator can you please begin the Q&A session.

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 again.

Speaker Change: We ask that you limit to one question and return to the queue for follow up to allow everyone an opportunity to ask a question.

David Windley: And the first question will come from David Windley with Jeffreys. Your line is now Hi, good morning, and thanks for taking my questions. I'll stick with the one and focus on on revenue. The quarter's revenue was quite a bit better than our estimate in consensus. Looking at guidance, I believe that the full-year expectation was for something in the upper single-digit decline, and I kind of think we were probably thinking that that would be in that range maybe in the first quarter. It was obviously quite a bit better than that.

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

David Windley: Hi, good morning, and thanks for taking my questions I'll I'll stick with one and focus on on revenue.

Speaker Change: The quarter's revenue was quite a bit better than our estimate and consensus.

David Windley: Looking at guidance.

David Windley: Believe the full year expectation was for something in the upper single digit decline.

David Windley: I think.

David Windley: We were probably thinking that that would be.

David Windley: In that range, maybe in the first quarter. It was obviously quite a bit.

David Windley: Better than that so.

David Windley: So my question is basically to understand the cadence of revenue a little bit better and your comments about burn rate and things like that, but it looks like essentially your guidance would assume that revenue is essentially flat to down for the rest of the year. I want to make sure I'm understanding that correctly, cadence-wise, et cetera, and then how you improve margin against that if revenue is not improving sequentially.

David Windley: My question is basically to understand the cadence of revenue a little bit better.

David Windley: And your comments about burn rate and things like that but it looks like essentially your guidance would assume that revenue was essentially flat to down for the rest of the year I want to make sure I'm understanding that correctly cadence wise et cetera, and then how you improve margin.

David Windley: Against that if revenue is not improving sequentially. Thank you.

Tom Pike: Thank you. Yeah, Dave, I'll take that question. You're right. The revenue strength in the first quarter was even service revenues came in in line with our expectations, pass-throughs came in higher than we expected. And we actually saw some increases in pass-throughs in our clinical pharmacology business. Those as those spaces become more and more occupied. We're having to leverage more third parties for that work. And we're working on ways to be able to better utilize the capacity that we have to try to minimize that. But that came in much stronger than we expected in the first quarter.

David Windley: Yes, Dave I'll take that question you are right the revenue strength in the first quarter was even service revenues came in in line with our expectations pass throughs came in higher than we expected and we actually saw some increases in pass throughs in our clinical pharmacology business.

David Windley: Those as those.

David Windley: Space has become more and more occupied we're having to leverage more third parties for that work and we're working on ways to be able to better utilize the capacity that we have to try to minimize that but that came in much stronger than we expected in the first quarter and we've just seen a little bit more strength as well in the.

Tom Pike: And we've just seen a little bit more strength as well in the regular clinical pass-through side. So we're keeping a close eye on it. We don't expect that clinical pharmacology piece to carry through the remainder of the year. So that will impact a little bit the back half, at least for our current projections. We're gonna keep watching it closely. Obviously, if this trend continues to the second quarter, it might mean that there is a little bit of upside to revenue for the year, but it's not appropriate for us to call that yet until we see a little bit more how that pass-through trend rate plays out.

David Windley: Regular clinical pass through side, so we're keeping a close eye on it.

David Windley: We werent, but we don't expect that clinical pharmacology piece to carry through the remainder of the year, so that will impact a little bit the back half at least for our current projections, we're going to keep watching it closely obviously if this trend continues through the second quarter. It might mean that there is a little bit of upside to revenue for the year, but it's not appropriate for us to call that yet until we see a little bit more how that pass through trend rate.

Tom Pike: Services have generally been coming in line with where our forecasts have been projecting. They were a very small amount favorable in the first quarter. But that in terms of margin expansion, I think you'll see it expand across the quarters more slowly, not to the same pronounced way that you saw it from first to second quarter last year. We talked about this on the last call, but that's because most of the savings initiatives, I talked about the 19 of growth and kind of a third that came through as net of that. We just started doing a majority of the notifications and programs in the first quarter.

David Windley: Plays out service fees have generally been coming in line with where forecasts have been projecting they were.

David Windley: A very small amount favorable in the first quarter, but that in terms of margin expansion I think youll see it expand across the quarters more slowly not to the same pronounced way that you sought from first to second quarter last year, we talked about this on the last call, but that's because most of the savings initiatives I talked about the 19 of growth.

David Windley: And kind of a survey that came through as net of that that's we just started doing a majority of the notifications and programs in the first quarter. Some of them started late in Q4, but youre not really seeing the full benefit of those and with SG&A, it's going to be a little bit more phased across the second and third quarter. So youll see more of the revenue dropping through in the back half.

Tom Pike: Some of them started late in Q4, but you're not really seeing the full benefit of those. And with SG&A, it's gonna be a little bit more phased across the second and third quarter.

Justin Bowers: So you'll see more of the revenue dropping through in the back half of the year as we start to see the benefit of those efficiency programs. And our next question comes from Justin Bowers with DB, your line is open. Hi, good morning, everyone. So I just want to stick with clinical pharmacology. Can you talk about how the RFP volume looked for that in a quarter and how things are looking for the rest of the year? Any change in win rates? And I think you talked about optimizing price there a little bit. Can you elaborate on that, please?

Of the year as we start to see the benefit of those efficiency programs.

Justin Bowers: And our next question comes from Justin Bowers with DB. Your line is open.

Justin Bowers: Hi, Good morning, everyone. So just wanted to stick with clinical pharmacology can you talk about how.

Justin Bowers: How the RFP volume look for that in the quarter and how things are looking for the rest of the year any change in win rates and I think you talked about optimizing price there a little bit can you elaborate on that please.

Tom Pike: Hey, Justin, it's Tom. The clinical pharmacology business remains strong for no obvious reason. The First quarter bookings were a little softer there, but that pipeline has returned, and you might recall from prior discussions that we made a deliberate effort over the last couple of years to try to move from more biotech-focused to more large pharma-focused, and frankly, the team has done a terrific job, so we do expect that to continue to be a shining star here in terms of both growth, pipeline conversion, and growth as we go through the year. And as Jill said, what we're going to try to do, some of the work we actually have to take as pass-through because we have to give to third parties, just given the complexities of scheduling within clinics, and so we're going to do what we can to try to turn more of that into revenue.

Tom Pike: Hey, Justin it's Tom.

Tom Pike: The clinical pharmacology business remains strong for <unk>.

Tom Pike: No.

Tom Pike: Obvious reason.

Tom Pike: <unk>.

Tom Pike: First quarter bookings were a little softer there, but that pipeline has returned and you might recall from prior discussions that we made a deliberate effort over the last couple of years to try to move from more biotech focus to more large pharma focus and frankly the team has done a terrific perfect.

So we do expect that to continue to be a shining star here in terms of both growth pipeline conversion and growth as we go through the year and as Jill said, what we're going to try to do some of the work we actually have to take a pass through because we have to give to third parties just given the complexity.

Tom Pike: Substantially within clinics and so we're going to do we can to try to turn more of that into revenue. So that business is very strong for us.

Tom Pike: So that business is very strong for us.

Patrick Donnelly: And our next question will come from Patrick Donnelly with Citi. Your line is open. Hey, guys, thanks for taking the question. Maybe a little bit of a follow up on that, just in terms of booking backdrop. What are you guys seeing there? I mean, you have everything from biotech funding to pharma reprioritization, the drug pricing stuff this morning, I'm sure you're still digesting. But what are you seeing in the backdrop? Is it getting more competitive? Some of the bigger CROs are facing their own challenges. I'm curious if you're seeing them encroach on more deals that you're in the mix for.

Patrick Donnelly: And our next question will come from Patrick Donnelly with Citi. Your line is open.

Patrick Donnelly: Hey, guys. Thanks for taking the question, maybe a little bit of a follow up on that just in terms of bookings backdrop what.

Patrick Donnelly: What are you guys seeing there I mean, you have everything from biotech funding for pharma required.

Patrick Donnelly: Thank you.

Patrick Donnelly: Pricing this morning, I'm sure you're still digesting.

Patrick Donnelly: But what are you seeing.

Patrick Donnelly: But getting more competitive.

Patrick Donnelly: One of the biggest bureau and.

Patrick Donnelly: And their own challenges.

Patrick Donnelly: Curious if you're seeing them encroach on more deals that you are in the mix for.

Patrick Donnelly: And then the pricing backdrop as well will be helpful to talk through and maybe get a little more competitive. I appreciate it.

Patrick Donnelly: And then the pricing backdrop would be helpful to talk through maybe give a little more competitive I appreciate it.

Tom Pike: Yeah, thank you, Patrick. You know, it's interesting for us, if you didn't pick up the newspaper and read some of the reports of our competitors, it feels somewhat the same. So our biotech pipelines continue to grow, our large pharma partners, we're continuing to see opportunities. We purposely use that word solid again because we have a pipeline that should have the ability to hit our target bookings number. But as you said, what we are seeing practically on the ground, in particular in biotech in our set, is a larger number of discussions about wanting to make sure that the FDA really has approved their pathway, you know, make sure that they get detailed, sometimes asking for another meeting.

Patrick Donnelly: Yes, Thank you Patrick.

Patrick Donnelly: It's interesting for us if you didn't pick up the newspaper and.

Patrick Donnelly: Read some of the reports of our competitors it feels somewhat the same so our biotech pipelines continued to grow our large pharma partners. We're continuing to see opportunities. We purposely use that word solid again, because we have a pipeline that should.

Patrick Donnelly: Have the ability to hit our target bookings number.

Speaker Change: But as you said, what we are seeing practically on the ground in particular in biotech and ours is a larger number of discussions about wanting to make sure that the FDA really.

Patrick Donnelly: Has approved their pathway to make sure that they get detailed sometimes asking for another meeting we do we're hearing a mixture of things some people have meetings on time.

Tom Pike: We're hearing a mixture of things. Some people have meetings on time, some people are needing further clarification that takes some extra time. And there definitely is a notable increased concern about funding. Right now, we've been able to offset that with better commercial activity. You know, we, in the biotech side, we lead with science, the way we call it. And then we've done much more over the past year, we've tried to get our therapeutic In terms of competition, it's somewhat like it was last quarter. I think we saw towards the second half of last year, the larger CROs starting to turn toward biotech.

Speaker Change: People are needing further clarification that takes some extra time and there definitely is a notable increase concern about funding right now we've been able to offset that with better commercial activity.

Speaker Change: The biotech side, we'd lead with science the way we call it and then.

Speaker Change: Done much more over the past year, we've tried to get our therapeutic expertise medical doctors more involved with biotech sooner by targeting the key ones ourselves in terms of competition. It's somewhat like it was last quarter I think we saw towards the second half of last year.

Speaker Change: Larger CRO is starting to turn towards biotech, we actually saw med space a couple of times this quarter, which we haven't seen too often interestingly, but I would say, it's competitive and so far pricing is remains disciplined so.

Tom Pike: We actually saw MedPace a couple of times this quarter, which we haven't seen too often, interestingly. But I would say it's competitive. And so far, pricing remains disciplined. So it is competitive, but there's no notable lack of discipline around pricing.

Speaker Change: It is competitive but there is no notable lack of discipline around pricing.

Eric Coldwell: And the next question comes from Eric Coldwell with Bayard. Your line is open. Hey, I was just hoping I could get a quick update on SG&A expectations from an absolute perspective for the year, and maybe a margin perspective, and a better sense on what you're thinking for the, you talked about some phasing issues in Q2 and Q3.

Eric Coldwell: And the next question comes from Eric Coldwell with Baird. Your line is open.

Eric Coldwell: Hey, I was just hoping I could get a quick.

Speaker Change: Update on SG&A expectations from a absolute perspective for the year and maybe a margin perspective.

Speaker Change: A better sense on what Youre thinking for the you're talking about some phasing issues in Q2, and Q3 that would be helpful to understand what you were speaking to there Joel thanks, so much.

Jill McConnell: That would be helpful to understand what you were speaking to there, Jill. Thanks so much. Sure, I'm happy to discuss that. So, we actually weren't expecting much in terms of SG&A improvement in the quarter, so we were pleased to see a little bit of improvement, given the timing and phase in those initiatives. Because, as we had shared, we had to really be fully exited from the TSAs to start many of the initiatives. So, we're expecting some marginal improvement in SG&A as a percent of revenue in the second quarter, but you'll see it much more dramatically improve in Qs 3 and 4.

Speaker Change: Sure happy to discuss that so we actually weren't expecting much in terms of SG&A improvement in the quarter. So we were pleased to see a little bit of improvement given the timing and phasing of those initiatives.

Speaker Change: As we have shared we had to really be fully exited from the TSA to start many of the initiatives.

Speaker Change: So we're expecting some marginal improvement in SG&A as a percent of revenue in the second quarter, but youll see it much more dramatically improve in Qs three and four when we talked when we came out with your and I think we said we were targeting about $70 million of gross savings. So of that 150, I mentioned 70 is related to SG&A and we're expecting about 42.

Jill McConnell: When we came out with year end, I think we said we were targeting about $70 million of growth savings. So, of that $150 I mentioned, $70 is related to SG&A, and we're expecting about $40 to $50 million of that to represent actual net net reductions in SG&A over the course of the year.

Speaker Change: $50 million of that too.

Speaker Change: Represent actual net net reductions in SG&A over the course of the year.

Elizabeth Anderson: And our next question will come from Elizabeth Anderson with Evercore. Your line is open. Hi guys, thanks so much for the question. I was wondering if you could talk a little bit about the cashflow improvement. You talked about DSOs getting improving over the rest of the year. Maybe if you could give us a little bit more color on sort of that and the pacing of the impact you're expecting there.

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

Elizabeth Anderson: Hi, guys.

Speaker Change: Thanks, so much for the question.

Speaker Change: Just wondering if you could talk a little bit about the cash flow improvement you talked about dsos getting improving over the rest of the year, maybe if you could give us a little bit more color on sort of that in the pacing of the impact youre expecting there.

Elizabeth Anderson: And then also just anything you can update us in terms of the expectations regarding the new CEO search and sort of any, if you have any timing expectations. I'll start with the cash flow progression, Elizabeth. So as we mentioned, you'll recall we were at 40 at the end of the year last year, and that was very strong for us. It even surprised us a little bit how well we did in collecting. That jumped up to 51 at the end of the first quarter, but that was pretty much in line with our expectations because of the pause that we took in invoicing for much of the first month of the quarter.

Speaker Change: And then also just anything you can update us in terms of the expectations.

Speaker Change: <unk>, the new CEO search and sort of any if you have any timing expectations at this time.

Speaker Change: I'll start with the cash flow progression Elizabeth.

Speaker Change: So as we mentioned Youll recall, we were at 40 at the end of the year last year and that was very very strong for us it even surprised us a little bit how well we did in collecting.

Speaker Change: That jumped up to 51 at the end of the first quarter, but that was pretty much in line with our expectations because of the pause that we took in invoicing for much of the first month of the quarter and given terms and to and just getting that restarted. It didnt immediately go back to a 100% obviously on day one it took a lot of taken it took a little while through the quarter to progress back.

Jill McConnell: And given terms and just getting that restarted, it didn't immediately go back to 100%. Obviously, on day one, it took a little while through the quarter to progress back. So we would expect to see those DSOs coming down. Over the course of the full year, we're probably targeting to be kind of low to mid 40s by year end, but you should see that slowly come down over the course of the year. And in terms of cash flow itself, we're expecting the remaining quarters, Q2 will be a little bit more, I would say, neutral. But as we move through Q3 and Q4, we would expect those to be cash flow positive.

Speaker Change: So we would expect to see those dsos coming down and over the course of the full year, we're probably targeting to be kind of low to mid <unk> by year end, but you should see that slowly come down over the course of the year and in terms of cash flow itself.

Speaker Change: We're expecting the remaining quarters Q2 will be a little bit more I would say neutral, but as we move through Q3 and Q4, we would expect those to be cash flow positive and then for the full year as we said operating cash flow to be flat to slightly negative just depending on how some things play out.

Jill McConnell: And then for the full year, as we said, operating cash flow to be flat to slightly negative, just depending on how some things play out.

Peter Newport: And Peter Newpert's on the line. Peter and I have worked closely together. As I said in my remarks, he's an extremely capable executive.

Speaker Change: And Peter <unk> on the line, Peter and I have worked closely together as I said in my remarks is extremely capable executive.

Peter Newport: Peter, do you want to talk to the succession point? Sure, I'll give it a shot. It's hard to predict when you're going to land on the right individual to take the business forward. I'd say we're far along and we're very optimistic.

Speaker Change: Peter do you want to talk to the succession point.

Peter Newport: Sure I'll give it a shot.

Speaker Change: It's hard to predict when you're going to land on the right individual to take the business forward I'd say, we're far along and we're very optimistic.

Charles Rhyee: that we will have somebody in the seat in the not-too-distant And our next question comes from Charles Rhyee with TD Cohen. Your line is open. Yeah, thanks for taking the question. Tom, you had mentioned some questions around biotech funding. Just wanted to get a little bit more of your thoughts there in terms of whether you're seeing even committed funding perhaps drying up and being a challenge for some of your biotech customers. And then, and I guess then to Jill, as that relates to DSOs, anything to note in terms of assumptions for maybe bad debt within receivables?

Speaker Change: That we will have somebody in the seat in the not too distant future.

Speaker Change: And our next question comes from Charles <unk> with TD Cowen Your line is open.

Charles: Yes, thanks for taking the question.

Speaker Change: Tom.

Speaker Change: Had mentioned.

Speaker Change: Some.

Speaker Change: Some questions around biotech funding just wanted to get a little bit more of your thoughts there.

Speaker Change: Terms of whether you are seeing.

Speaker Change: Even committed funding, perhaps drawing up.

Speaker Change: Being a child or somebody a bunch of our customers and then I guess then to gel as a relates to dsos anything to note in terms of assumptions for maybe about within receivables.

Tom Pike: Has there been any sort of changes in terms with clients and sort of what's confidence in sort of in your ability to collect on work that's already been done? Yeah, thank you. Regarding the funding, I think where we're primarily seeing it is a little bit more caution about trying to make sure that they're confident that funding will be in place when they do their study. So they're talking to us that's delaying some of their situations a little bit harder to get money, a little bit harder to get meetings. And so for us, it's been interesting.

Speaker Change: Has there been any sort of changes in terms with clients and sort of what's what's confidence in sort of in your ability to collect on work that's already been done. Thanks.

Speaker Change: Yes. Thank you regarding the funding I think where we're primarily seeing it is a little bit more caution about trying to make sure that.

Speaker Change: They are confident that funding will be in place when they do their studies. So they are talking to us thats delaying some of their situations a little bit harder to get money, a little bit harder to get meetings and.

Speaker Change: So for US it's been interesting we havent seen cancellations, we actually haven't seen people, specifically say that they are not doing something but they have slowed down their decision, making and they've extended the timeframes around proposals as they are just trying to ensure that they can get funding.

Tom Pike: We haven't seen cancellations. We actually haven't seen people specifically say that they're not doing something, but they have slowed down their decision making and they've extended the timeframes around proposals as they're just trying to ensure that they can get funding. So it's been interesting so far, but it's not been.

Speaker Change: It's been interesting so far but it has not been.

Tom Pike: But so far, our pipeline is sustaining to a level where we seem to have enough pipeline to be able to continue to grow as we described earlier.

But so far our pipeline is sustaining to a level, where we seem to have enough pipeline to be able to continue to grow as we described earlier.

Jill McConnell: Yeah, and I'll just add, I'll remind folks that with our methodology for taking bookings, we don't take them unless they have adequate funding, not just to support the trial, but their operations based on run rate for the period of the trial. So we try not to expose ourselves there by taking it until we're sure that they will be able to get through the duration of the trial. But in terms of bad debt, no, Charles, we have not seen any spike in terms of our credit provisions to date. We are watching things very closely. As always, you know, there are customers that we're working with to try to navigate.

Speaker Change: Yeah, and I'll, just add I'll remind folks that with our methodology for taking bookings, we don't take them unless they have adequate funding not just to support the trial, but their operations based on run rate for the period of the trial. So we try not to expose ourselves there by taking it until we're sure that they will be able to get to the duration of the trial, but in terms of bad debt.

Speaker Change: No Charles we have not seen any.

Speaker Change: Mike in terms of our credit provisions to date, we are watching things very closely as always.

Speaker Change: There are customers that were working with to try to navigate I think some of that is because we've since it's been gotten better.

Jill McConnell: I think some of that is because we've since it's been gotten better at getting in front of it and trying to manage how we provide things to the customers and work with them. It doesn't mean there are never any situations, but I don't think we've seen anything unusual in terms of the run rate there. So thankfully, we'll keep a close eye on it.

Speaker Change: Getting in front of it and trying to manage how we provide things to the customers and work with them.

Speaker Change: It doesn't mean there are never any situations I don't think we've seen anything unusual in terms of the run rate there. So thankfully, we'll keep a close eye on it.

Luke Sergott: And the next question comes from Luke Sergott with Barclays. Your line is open. Great. Thanks, guys. Just wanted to talk a little bit about the burn rate, you know, what the assumptions are for the year. You had your AR kind of ticked down from 4Q, you know, burn rate stepped down from 4Q as well, you know, and then you talked a little bit about there about the difference between the biotech versus large pharma. Dig in there about why the biotech would be different, because I thought, you know, I understand oncology is slower burning. But I assume that they're also working a lot on oncology work as well.

Luca <unk>: And the next question comes from Luca <unk> with Barclays. Your line is open.

Speaker Change: Great. Thanks, guys I, just wanted to talk a little bit about the burn rate.

Luca <unk>: What the assumptions are for the year.

Luca <unk>: You said you are kind of tick down from <unk>.

Luca <unk>: Burn rate step down from <unk> as well and then you talked a little bit about their belt.

Luca <unk>: The difference between bio for the biotech versus large pharma.

Luca <unk>: Dig in there about why the biotech would be different because I thought I understand oncology slower burning.

Luca <unk>: But.

Luca <unk>: Soon that Theyre also working a lot on oncology work as well so just kind of.

Luke Sergott: So just kind of.

Luke Sergott: Double click on that one if you would. Sure, Luke, you know, I think when we came in, when we talked about our results at the end of the year and talked about this year, we said we expected burn rate to be between eight to eight and a half over the course of this year. And we saw that, you know, come into the higher end of that range in the first quarter, the back end of the year, we're still expecting eight, eight and a half. It will depend a bit on how these pass-throughs progress and how some of this kind of plays out and also continuing to work on the initiatives we've had.

Speaker Change: Double click on that one if you would.

Luke: Sure Luke.

Luke: When we came in when we talked about our results at the end of the year and talked about this year. We said, we expected burn rate to be between eight eight and a half over the course of this year and we saw that come into the higher end of that range in the first quarter or the back end of the year, we're still expecting a date and have it will depend a bit on how these these pass through.

Has progressed and how some of this kind of plays out and also.

Luke: Continuing to.

Luke: Work on the initiatives. We've had I think oncology is we went and we just dug in it on every which way you could look at.

Tom Pike: I think oncology, as we went and we just dug in it on every which way you could look at the angles from our pipeline. And we just see across all the portfolio oncology, which for our late stage, full service business is now approaching pretty much 50% of that portfolio. It does burn about 20% more slowly and we have seen that biotech start more slowly. And why that's important is because as we're kind of have been reinvigorating the pipeline and reinvigorating the, you know, the backlog since the time of the spin, you have more of those biotech customers in there and that's causing a little bit of slowness to start up.

Luke: The angles from our pipeline and we just see across all the portfolio oncology, which for our late stage full service business is now approaching pretty much 50% of that portfolio. It does burn about 20% more slowly.

Luke: And we have seen that biotech start more slowly and why that's important is because as we are kind of have been reinvigorating the pipeline and reinvigorating the.

Luke: The backlog since the time of the spin you have more of those biotech customers in there and thats, causing a little bit of slowness to startup. The good news is as I shared once they get running they tend to run a little bit faster than what we've seen with a large farmer peer so over time, we're optimistic that they'll they'll catch up.

Tom Pike: The good news is, as I shared, once they get running, they tend to run a little bit faster than what we've seen with the large pharma peers. So over time, we're optimistic that they'll catch up, catch up and make up for that. But I think just given the phase of where we are with some of the newer work, we're not quite there yet.

Luke: Catch up and make up for that but I think just given the phase of where we are with some of the newer work, we're not quite there yet.

Tom Pike: You know, oncology, I know many of our peers have talked about this too. It just is, as these treatments become more and more specialized, the recruitment is a bit more challenging. So they tend to start a little bit more slowly until you really get them up and running. They also tend to be longer in duration in many cases as they're trying to follow up, you know, progression-free survival and other things for the period of time. Same thing with rare and, you know, gene therapy treatments. You see those long tails as well. So we definitely are experiencing some of that.

Luke: Oncology I know many of our peers have talked about this to it. It just is as these treatments become more and more specialized the recruitment is a bit more challenging so they tend to start a little bit more slowly until you really get them up and running they also tend to be longer in duration in many cases as they are trying to follow up.

Luke: Progression free survival and other things for the for the period of time same thing with rare <unk> and gene.

Luke: Gene therapy treatments, you see those long tails as well so we definitely are experiencing some of that.

Tom Pike: You know, like everyone, we're actively working to try to see what we can do to improve those burn rates. But I think for the remainder of the year, we'll probably stay in that range.

Luke: Like everyone. We're actively working to try to see if we can do to improve those burn rates, but I think for the remainder of the year will probably stay in that range.

Matt Sykes: And the next question will come from Matt Sykes with Goldman Sachs. Your line is open. Hi, good morning. Thanks for taking my question. Maybe just a high-level one, Tom, and maybe Jill, on the book-to-bill. Tom, you talked about a path to 1.2 times book-to-bill over the course of the year.

Mac Sykes: And the next question will come from Mac Sykes with Goldman Sachs. Your line is open.

Mac Sykes: Hi, Good morning, Thanks, taking my question maybe just.

Speaker Change: High level, one Tom maybe Jill on the book to Bill Tom You talked about.

Speaker Change: <unk> to one two times book to Bill over the course of the year I know, there's a lot of puts and takes in that but I guess my question is how much of that path is determined by things that you necessarily can't control, whether it's biotech funding MFN pharma sector tariffs versus things that you actually can control in your business like bookings and how competitive you are in there.

Tom Pike: I know there's a lot of puts and takes in that, but I guess my question is, how much of that path is determined by things that you necessarily can't control, whether it's biotech funding, MFN, pharma sector tariffs, versus things that you actually can control in your business, like bookings and how competitive you are in the RFP process to getting those awards? Well, it's interesting, Matt, you really hit on the key thing. I think in this kind of environment, controlling the controllables is the word of the day. So all of this discussion we've had about controlling our costs and really trying to get them in line with peers is really key to this.

Speaker Change: RFP process to getting those awards.

Speaker Change: Well, it's interesting that you really hit on the key thing I think in this kind of environment controlling the controllable says the word of the day. So all of this discussion we've had about controlling our costs and really trying to get them in line with peers is really key to this but on the bookings side. It really is working hard on early engagement.

Tom Pike: But on the booking side, it really is working hard on early engagement. It's training our salespeople better. It's trying to focus more on the value proposition, trying to make sure our pipeline is full. So what we've been trying to do is control the things that we can control. Regarding the 1.2, what I tried to describe is right now, as we sit here today, we do have a path. But the path for this quarter does have more biotech, certainly, than the last two quarters that need to close. So just given the macros, given today's news, you know, given the macros, the uncertainty is real associated with it.

Speaker Change: It's training our salespeople better.

Speaker Change: Just trying to focus more on the value proposition trying to make sure our pipeline is full.

Speaker Change: We've been trying to do is control the things we can control regarding the one point to what I tried to describe is right now as we sit here today, we do have a path.

Speaker Change: The path for this quarter does have more biotech certainly than the last two quarters to lead to close so just given the macros given today's news gives the macros and.

Speaker Change: The uncertainty is.

Speaker Change: Real associated with it and so we're we're not going to give you a specific number and in terms of for the year right now our pipeline is shaping up if we just snap the chalk line today, it's shaping up in a way that we could potentially deliver those types of bookings one two times in the remainder of the year is.

Tom Pike: And so we're not going to give you a specific number. And in terms of for the year, right now, our pipeline is shaping up. If we just snap the chalk line today, it's shaping up in a way that we could potentially deliver those types of bookings 1.2 times in the remainder of the year as well. So we're not seeing concern about flow of pipeline. The second half, we do tend to see more large pharma. The way this business works, it does tend to be a little bit more predictable. And we have a higher win rate because it's off an allocation.

Speaker Change: Well, so we're not seeing concern about flow of pipeline in the second half we do tend to see more large pharma. The way. This business works. It does tend to be a little bit more predictable and we have a higher win rate because it's often allocation and so.

Tom Pike: And so, you know, we feel good at the moment. But I think all of us are going to have to digest the news, whether it's regulatory news, whether it's the, you know, most favored nations news. We're going to have to digest that over the coming weeks.

Speaker Change: We feel good at the moment, but I think all of us are going to have to digest the news, whether it's regulatory news whether it's fee.

Speaker Change: Most favored nations news, we're going to have to digest that over the coming weeks.

Max Smock: And the next question will come from Max Smock with William Blair. Your line is open. Good morning. Thanks for taking our questions. Just following up on some of the margin questions that have already been asked, it seems like based on some of your previous comments about SG&A expectations for this year, I think the guide factors in about 100 basis points of gross margin in total for the year. First, is that the right way to think about it?

Speaker Change: And the next question will come from Max Smock with William Blair. Your line is open.

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

Speaker Change: Following up on some of the margin questions that have already been asked it seems like based on some of your previous comments about SG&A expectations for this year and the <unk>.

Speaker Change: <unk> factors in about 100 basis points of gross margin in total for the year versus that the right way to think about it and then can you walk through how you're expecting gross margin to trend as we move through this year and then what that means for where we should end up for adjusted EBITDA margin exiting the year. Thanks.

Jill McConnell: And then can you walk through how you're expecting gross margin to trend as we move through this year, and then what that means for where we should end up for adjustee with the margin exiting the year? Sure, I think in terms of gross margin, it's going to be a little bit choppy over the course of the year, you know, it'll be improving from the benefit of the savings initiative. So, as I mentioned, within operations, we have been looking to thoughtfully reduce our footprint and those actions have been overweighed. We've already been doing some of that, but you have the impact of variable compensation that we introduced right at the beginning of the year.

Speaker Change: Sure I think in terms of gross margin.

Speaker Change: Okay.

Speaker Change: It's going to be a little bit choppy over the course of the year.

Speaker Change: It will be improving from the benefit of the savings initiatives. So as I mentioned within operations, we have been looking to thoughtfully reduce our footprint and <unk> actions have been overweigh, we've already been doing some of that but you have the the impact of variable compensation that we introduced at the beginning of the year and then our.

Jill McConnell: And then our annual merit cycle, which took effect at the beginning of April. And so we're trying to kind of thoughtfully manage that and manage how we do that as well as things like promotions around, you know, maintaining our talent and trying to minimize unwanted or attrition that we would want to avoid with key talent. So, I think we're navigating all of those things as we'll see, as we talked about earlier in the call from a revenue perspective, we're expecting it to be pretty flattish over the course of the year, potentially a little bit of softening in the second half if we see pass-throughs coming back to what we were expecting, but I think that's the wild card and we all know how margins can impact pass-throughs.

Speaker Change: Annual Merit cycle, which took effect at the beginning of April and so we're trying to kind of thoughtfully manage that and manage how we do that as well as things like promotions around maintain.

Speaker Change: We maintain our talent and trying to minimize.

Speaker Change: On.

Speaker Change: Unwanted or <unk>.

Speaker Change: Patricia net attrition that we would want to avoid with key talent. So I think we're navigating all of those things is we'll see as we talked about earlier in the call from a revenue perspective, we're expecting it to be pretty flattish over the course of the year potentially a little bit of softening in the second half if we see pass throughs coming back to what we were expecting but I think thats the wildcard and we all know.

Speaker Change: How margins can impact pass throughs, I think from SG&A as I shared earlier Max.

Jill McConnell: So, I think from SG&A, as I shared earlier, Max, you know, we're targeting 40 to 50 of net savings. So, we had a little over 420 if you excluded things like stock-based compensation in 2024, and we're expecting that to be, you know, around 375-ish as we get into by the end of 2025, but it is more heavily weighted till the second half. So, we're actively working on those plans and there's still things that we need to be doing, but I think most of the teams have their plans in place. They're just executing against them.

Speaker Change: We're targeting 40% to 50 of net savings that we had a little over 420, if you excluded things like.

Speaker Change: Stock based compensation in 2024, and we're expecting that to be in around three to $3 75 ish as we get into.

By the end of 2025, but it is more heavily weighted to the second half. So we're actively working on those plans and there's still things that we need to be doing but I think most of the teams have their plans in place so just executing against them.

Jill McConnell: And the next question will come from Michael Ryskin with Bank of America. Your line is Hey Jill, thanks. I'm actually going to follow up on just that last point. You know, you're talking about the $40 to $50 million on SG&A and how XSPC would have been a little bit higher, but you also called out the $150 million of gross cost reductions versus $90 to $100 net. So just comparing those two numbers, can you walk through sort of like what's increments that you're putting in? Walk us through the timing on that and just sort of line items when it's going to be realized when we see full benefits.

Michael Riskin: And the next question will come from Michael Riskin with Bank of America. Your line is open.

Michael Riskin: Hey, Joe Thanks, I'm actually going to follow up on just that one.

Speaker Change: Last point.

Speaker Change: Youre talking about the $40 million to $50 million on SG&A ex SBC would have been.

Speaker Change: A little bit a little bit higher but you also called out the $150 million of gross cost reductions versus 90 to 100, Matt.

Speaker Change: So.

Speaker Change: Just comparing those two numbers can you walk through sort of mcdermott's increment that you're announcing today versus what you had talked about on the on the <unk> call and those new cost savings that you're putting in.

Speaker Change: Walk us through the timing on that and.

Speaker Change: Line items when it can be realized when we should see full benefits.

Jill McConnell: Thanks.

Speaker Change: Thanks.

Jill McConnell: All right, so just I want to make sure I'm clear, and I know it is confusing, probably a little bit. So the $150 million is consistent with what we talked about on our Q4 call. Seventy of that gross is coming out of SG&A, 80 gross is coming out of our operations organization. And then, you know, the 90 to 100 we talked about, I'm saying 40 to 50 of that will come from SG&A and about 50 coming out of operations. We are continuing to look, and certainly as the course of the year plays out, and in terms of bookings and being really thoughtful about how we manage, we're continuing to look for other opportunities.

Speaker Change: Alright, so so just I want I want to make sure I'm clear and I know it gets confusing probably a little bit to the $150 million is consistent with what we talked about on our Q4 call.

Speaker Change: 70 of that growth is coming out of SG&A 80 growth is coming out of our operations organization and then the 90 to 100, we talked about them Im saying, 40% to 50 of that will come from SG&A and about 50 coming out of operations. We are continuing to look and certainly as the course of the year plays out and in terms of bookings and being <unk>.

Speaker Change: Thoughtful about how we manage we're continuing to look for other opportunities as we now even with taking out $40 million to $50 million net of SG&A. This year, we're still not going to be in line with peers on SG&A as a percent of revenue. So there is still work to be done.

Jill McConnell: As we know, even with taking out 40 to 50 million net of SG&A this year, we're still not going to be in line with peers on SG&A as a percent of revenue. So there's still work to be done. We're not announcing anything new necessarily, but we're continuing to just kind of tighten or sharpen the pencil, I guess, so to speak, and look for ways to continue to optimize. And certainly, if we decide that we're going to do more, then that would be something we'll talk about later in the year. But for now, we're just progressing nicely against the plans that we laid out with our year end announcement.

Speaker Change: We're not announcing anything new necessarily but we're continuing to just kind of.

Speaker Change: Titan sharpened the pencil I guess, so to speak and look for ways to continue to optimize and certainly if we if we decide that we're going to do more than that would be something we'll talk about later in the year, but for now we're just progressing nicely against the plans that we laid out with our year end announcement.

Tom Pike: I would now like to turn the call back over to Tom for closing remarks. Okay, thank you. I think I'd just like to say it's been a real honor to run Fortrea, and the future is bright. So thank you again. It's been great to reconnect with analysts and others and look forward to seeing you out on the trail. Thank you.

Tom Pike: I would now like to turn the call back over to Tom for closing remarks.

Tom Pike: Okay. Thank you.

Tom Pike: I think I'd just like to say, it's been a real honor to run for Korea, and the future is bright.

Tom Pike: Thank you again, it's been great to reconnect with analysts and others and.

Tom Pike: Look forward to seeing you out on the trail. Thank you.

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

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

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