Q2 2025 Fortrea Holdings Inc Earnings Call
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Increasing the revenue range and reaffirming its ibida range.
Portraits business fundamentals are steadily improving, as demonstrated in this quarter's performance.
This progress reflects its strengthened operational delivery and position.
For tries leading Clinical Pharmacology Services. The reporting unit is in high demand with a combination of leading science and robust delivery.
for example, the team delivered, a bioequivalent trial ahead of schedule
from first subject in to database lock for more than 500 participants in exactly 1 year earlier than expected.
The trial will enable regulatory submission for oral formulations of a life-changing therapeutic that is currently only available in injectable form.
In later phase clinical projects, second quarter delivery also was strong.
The team had a Flawless track record and by that I mean early on time in its delivery of site initiation visits as well as patient enrollment at the halfway mark of a study.
Similarly, the metrics were ready to enroll sites and last patient in were all better than our Benchmark targets.
In an environment of global complex studies, this level of operational performance stands out and is reflected in our strong customer NPS scores.
The company continues to invest in Innovation and in its people.
The second quarter saw the introduction of 3, new modules in the award-winning accelerate software platform.
1 example, risk. Radar is an AI powered agent designed to enhance risc-based Quality Management in clinical trials.
It uses Ai and machine learning to automate risk identification and suggest mitigation strategies.
Risk radar, reduces manual effort, improves operational, efficiency and strengthens patient, safety protections.
I'll wrap up my prepared remarks by thanking for tree employees for their commitment and hard work, over the quarter.
I've seen this organization involved over many years now in my role on the board.
Over the past few months, I've gained a unique perspective serving as its interim CEO.
I can tell you that this team is not only dedicated to advancing research but is also remarkably resilient.
They have definitely navigated a challenging journey to independence by staying focused on what matters most motivated by a shared mission to bring new treatments to patients faster.
Supported by a seasoned and collaborative leadership. Team of Industry veterans. They are forward facing and looking to the future with optimism.
I'm very pleased to have on show joining the team as CEO this week.
Let me just say a few words about anel.
He brings deep experience in life sciences, knows the cro industry From the Inside Out. Not only as an executive but also as a customer
He also has a proven record of building companies and delivering delivering profitable growth.
Anel is an outstanding and hands-on leader, and I know the entire board joins me in welcoming him to Fortrea.
Console. Now you've been here from Full 48 hours? Would you like to make any comments before we hand the call over to Joe
Peter, thank you for that introduction. I'm very appreciative of the warm welcome from the board and from the portrait of Team. While I've only served as CEO for a couple of days, I've already had some opportunities to speak with Executives in the Pharma and biotech Industries. Whom I have worked with for many years.
In the near term, I will be focusing. My time on engaging both our customers and colleagues around the world.
For the past few years, I have been on the customer side of our industry and a consumer of cro services.
That coupled with my time as an executive at PPD, I hope to bring a fresh perspective and energy to help Drive our Ambitions at fortra.
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The fundamental value proposition for Crows remains solid, even as marking conditions have been a headwind for the industry in the recent past.
For me, it's exciting to see how scientific and technological innovation is shaping the future of clinical development.
Having delivered growth in this environment. In my past career. I know what it takes for us to be successful.
Having spoken with current portray a customers, both large Pharma and biotech. I know they are pleased with how we deliver for them.
To our growth engine bringing energy and discipline in a way that will yield value for our customers. Our people, our investors, and ultimately, and most importantly for patients, I'm ready for this opportunity. I too want to thank Hima for all her efforts and for traa over the past few years. Additionally I'd like to welcome Tracy to the team Tracy I look forward to working with you once again. But for now let's return the call to the second quarter results and handed over to Jill for a deeper dive Jill back over to you.
Good day and thank you for standing by welcome to the <unk> second 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 want.
Thank you also. And thank you to everyone for joining us today.
As a reminder, all my remarks relate to continuing operations of Fort Tria following the deveste of our enabling Services businesses last year. Unless I note, otherwise,
Need to press Star one on your telephone you will then hear an automated message advising your hand, just raced to withdraw your question. Please press star one again please.
I will start by saying that I warmly. Welcome onshore and Tracy to portr and look forward to working with them to demonstrate the Excellence. I know this organization can achieve
I also want to thank Hima for her many contributions as we launched for Tria as a standalone company.
Please be advised that today's conference is being recorded.
As we put the 2-year spin transition firmly behind us.
I'd now like to hand, the conference over to your speaker today handler in Grupo <unk> head of Investor Relations and corporate development. Please go ahead.
Good morning, and thank you for joining <unk> second quarter 2025 earnings conference call I am he might even go head of Investor Relations and corporate about Lyndon for Tee up before we begin I want to share that this will be my last call, leading fortyish earnings call as I've decided to leave the company to pursue other opportunities I'm incredibly.
We welcome this next period as a time to take the grit and resilience we've built from the separation efforts and apply it fully towards enabling our customers to develop their life-changing treatments and make them a reality for patients around the globe. It is time.
In my prepared remarks, I'll cover the primary factors that influence our second-quarter performance and share an update on the steps we're taking toward achieving our 2025 guidance.
I'll highlight our progress against our previously. Shared cost optimization initiatives.
I believe proud of what we've built here and deeply grateful for the support of our investors, becoming a 14th and the opportunity to work alongside such a high caliber team. We have a robust transition plan for Investor Relations. It's my pleasure to introduce Tracy Cooney, our new head of IR, who will be joining the call welcome Tracy.
Additionally, I'll spend a few minutes highlighting improvements in our cash flow, this quarter, and our expectations regarding liquidity going forward.
By the end of this call, I want it to be clear that we are continuing to take appropriate actions to improve our financial performance and capital profile.
Also like to welcome on you see you I'm sure to crawl, who joined Fortunately on Monday until get excited to have you here with all that said I'm pleased to introduce our chairman Peter Newport.
As Peter highlighted, we delivered a solid second quarter as demonstrated in our financial results.
Oh, so okay I got interim CEO in the second quarter, and CFO and Mcconnell as our speakers on the call today call is being webcast. It and the slides accompanying today's presentation have been posted thing Baxter relations pager for website, Oh tier dot com. During this call we will make certain forward looking statements within the meaning of the private securities.
For the quarter, we delivered Revenue growth along with sequentially higher adjusted. Evida following continued execution of our margin optimization initiatives including delivering 1/3 of our 150 million dollars in Gross savings Targets in the first half.
Negation to format of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations.
As expected, we generated positive operating and free cash flow. And we delivered a 5-day Improvement in DSO versus the first quarter. As we begin to unwind, the temporary impact of the invoicing, pause related to the Implement implementation of our new Erp system during the first quarter.
These results reflect Focus execution, across the organization and continued momentum toward our financial goals.
We 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 release and presentation that we posted on the website. Please note that any forward looking statements represent our views as of today August six 2025.
this quarter marked the 2-year anniversary of our spin along with successful exit from our former parents PSA
This Milestone is reflected in the year-over-year. Decline in 1-time, spin related costs as we move towards a more efficient cost structure for for Tria.
Five and that we assume no obligation to update the forward looking statements. Even if estimates change. During this call will also be referring to non-GAAP financial measures. These non-GAAP measures are not superior to or replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results and you can see I shouldn't.
Now, I'll cover the financial results in more detail.
Second quarter Revenue with 710.3 million growing 7.2% versus the prior year. Quarter driven primarily by an increase in Revenue. In our clinical pharmacology reporting unit along with a small benefit from foreign exchange rates.
Such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call I'd like to turn it over to our chairman Peter Newport, Peter Thanks.
Clinical development Revenue was relatively flat as increases driven by recent net new business Awards, including higher pass through costs were offset by lower fsp Revenue.
Thank you Emma and good morning, everyone.
Welcome to onshore and Tracy today.
On a gap basis. Direct costs in the quarter, increased 9.8% year-over-year primarily due to increase in pass through and stock compensation costs, along with the reduction in R&D tax credits.
We're very pleased to have you both onboard and hitting the ground running.
Now, let's turn to the second quarter, which showed another solid quarter of delivery.
Partially offset by lower personnel costs from our ongoing restructuring actions.
<unk> revenue for the second quarter was $710 3 million with adjusted EBIT.
The reductions in direct Personnel costs in the quarter. Continue to more than offset the investments in Merit and variable compensation that we've highlighted previously.
$4 9 million supported by our continued progress against the company's margin optimization initiatives.
The team continues to make progress with its transformation efforts, including reshaping the organization to align with its evolving pipeline mix and customer needs.
Permanent headcount, across. All of phoria, is down. More than 8% over the last 12 months. As we carefully, balance the need to reduce our cost base while continuing to deliver high-quality services to our customers.
Backlog as of June 32025 stood at $7 5 billion and the book to Bill ratio for the quarter was seven nine ex resulting in a one one times book to Bill for the trailing 12 months.
sgna in the quarter, was lower year-over-year by 20.1% primarily due to lower TSA, and it related costs
Partially offset by the yield costs related to the receivable securitization program. Along with an increase in Personnel, costs related to the reinstatement of Merit and variable compensation.
<unk> did not achieve the level of net new business wins, we would have wanted there are positive signals in the quarter.
If you look at sgna sequentially, excluding the impact of 1-time costs and the securitization yield costs.
The volume of RFP opportunities remains high and cancellations continued to be in line with our historical trends, although the company experienced some customer hesitancy in the quarter.
Sgna and the second quarter is 4% lower than in the first quarter of 2025 and 15% lower than our fourth quarter 2024 run rate.
This includes the absorption of merit and variable compensation noted above.
Primarily in new to fortress biotech customers as the team navigated the CEO leadership transition.
Ask more about our ongoing transformation efforts across the organization later in my remarks.
Win rates remained consistent for existing large pharma and biotech customers, but declined for immune to fortress biotech customers.
Australia experienced a similar phenomenon prior to the spin and then saw that in a reasonably brief period of time. It was able to return to solid net new business wins with new customers. Once they saw that the focus on delivery remains strong and <unk> leaders and employees were committed to their best interests.
Net interest expense in the quarter was $23.3 million, a decrease of $21.9 million versus the prior year quarter, primarily due to the $475 million debt paydown across our term loans made in June 2024.
Because of that large, pay down our interest expense in Q2 of last year. Included a 12.2 million, write down of debt, issuance cost.
Other highlights from the second quarter include positive cash flow as expected.
The company's liquidity is sound and its capital structure is balanced.
To better compare, the year-on-year reduction, taking the combination of cash interest expense plus recurring securitization costs. It provides a spend that is approximately 18% lower in the second quarter of this year.
Further <unk> provided updated guidance for the remainder of the year, increasing the revenue range and reaffirming its EBITDA range.
Turning to our tax rate, the effective tax rate for continuing operations. For the quarter was - 1.1%
<unk> business fundamentals are steadily improving as demonstrated in this quarter's performance.
the rate was adversely impacted by an impairment of Goodwill that has no tax benefit and increase in our valuation allowance, the impact of beat
This progress reflects its strengthened operational delivery and position.
Non-deductible compensation expenses and withholding taxes for 2025 non-us earnings that are not permanently reinvested.
<unk>, leading clinical pharmacology services reporting unit is in high demand with a combination of leading science and robust delivery.
For example, the team delivered a bioequivalence trial ahead of schedule.
Adjusted ibid. After the quarter was relatively flat at 54.9 million compared to adjusted ibida of 55.2 million in the prior year period.
Subject to database lock for more than 500 participants and exactly one year earlier than expected.
Sequentially, adjusted ibida margin in the quarter was positively impacted by higher service, fee, Revenue along with lower Personnel, costs and operations as we continue to execute against our margin expansion initiative.
The trial will enable regulatory submissions for oral formulations of the life changing therapeutic that is currently only available injectable form.
Moving to net income and adjusted net income.
And later phase clinical projects second quarter delivery also was strong.
Team had a flawless track record and by that I mean early on time and its delivery of site initiation visits as well as patient enrollment at the halfway mark of the study.
In the second quarter of 2025 net loss was 374.9, Million compared to a net loss of 99.3 million in the prior year period primarily due to a non-cash pre-tax Goodwill impairment charge of 309.1 million related to our clinical development reporting unit.
Similarly, the metrics for ready to enroll sites and last patient in.
Were all better than our benchmark targets.
And then the environment of global complex studies. This level of operational performance stands out and is reflected in our strong customer NPS scores.
The charge was primarily a result of the decline in our share price since March 31, 2025, and to a lesser extent, a market-based increase in the discount rate used for the valuation.
There is no indicator of impairment in our clinical pharmacology, reporting unit.
The company continues to invest in innovation and in its people.
Excluding the impact of the impairment charge, the quarterly net loss decreased year on year driven by the targeted reductions in our cost base.
The second quarter saw the introduction of three new modules and the award winning accelerate software platform.
One example, risk radar is an AI powered agent designed to enhance risk based quality management and clinical trials.
In the second quarter of 2025, adjusted net income was $17.6 million compared to an adjusted net loss of $2.3 million in the prior year period. For the current quarter, adjusted basic and diluted earnings per share were $0.19.
It uses AI and machine learning to automate risk identification and suggest mitigation strategies.
Turning to customer concentration, our top 10, customers represented, 59% of second, quarter, 2025 revenues.
Risk radar reduces manual effort improves operational efficiency and strengthened patient safety protections.
our largest customer accounted for 13.2% of revenues, during the quarter ending June 30th 2025,
I'll wrap up my prepared remarks by thanking for treating employees for their commitment and hard work over the quarter.
I've seen this organization involve over many years now and my role on the board.
As I comment on cash flows note that all references to Prior year, cash flows are for the entirety of for Tria. As we had not segregated cash flows from discontinued operations for the businesses sold in June 2024
Over the past few months I've gained a unique perspective, serving as interim CEO.
I can tell you that this team has not only dedicated to advancing research, but it's also remarkably resilient.
to more clearly see your to date and second quarter. Cash flow metrics please, refer to slide 6 in the investor presentation. We released this morning.
Definitely navigated a challenging journey to independents.
<unk> focused on what matters, most motivated by a shared mission to bring new treatments to patients faster.
For the six months ended June 30, 2025, we reported negative operating cash flow of $102.4 million, compared to positive operating cash flow of $248.1 million in the prior year period.
Supported by our seasoned and collaborative leadership team of industry veterans. They are forward facing and looking to the future with optimism.
The 350.5 million reduction in year-over-year, cash flow can largely be attributed to a few key factors related to our receivables.
I am very pleased to have onshore joining the team as CEO This week.
Let me just say a few words about onshore.
He brings deep experience in life Sciences knows the CRM industry from the inside out.
the year-to-date figure for 2024 included 298 million in proceeds, from our initial sale of receivables under our securitization program in June of 2024,
Only as an executive but also as a customer.
He also has a proven record of building companies and delivering delivering profitable growth.
While 2025 includes the remaining negative impact of the temporary pause and invoicing in the first quarter of 2025 to support our Erp transition.
<unk> has an outstanding and hands on leader and I know the entire Board Board joins me and welcome.
For trio onshore.
So now that <unk> been here for 448 hours would you like to make any comments before we hand the call over to Joe.
For the second quarter of 2025, we generated positive operating cash flow of 21.8 million and free cash flow of 14.3 million in line with our expectations.
Peter Thank you for that introduction I'm very appreciative of the warm welcome from the board and from the portrait of team.
Day sales outstanding from continuing operations was 46 days as a June 30th 2025 5 days, lower than March, 31st 2025 and 8 Days lower than the same period last year.
I've only served as CEO for a couple of days I've already had some opportunities to speak with executives in the pharma and biotech industries, whom I have worked with for many years.
The reduction versus the first quarter demonstrates. Our progress towards catching up on the delayed invoicing from our Erp transition.
In the near term I will be focusing my time on engaging both our customers and colleagues around the world.
For the past few years I have been on the customer side of our industry and a consumer of CRM services.
That coupled with my time as an executive at PPD I hope to bring a fresh perspective and energy to help drive our ambitions at fortress.
24 with the increase versus year. End primarily driven by the increase in DSO, and to a lesser extent higher Revenue,
The fundamental value proposition for <unk> remains solid even as market conditions have been a headwind for the industry in the recent past.
We ended the quarter with $50 million outstanding on the revolver. This balance improved sequentially compared to the 89 million of borrowing outstanding as of March, 31st 2025
For me, it's exciting to see how scientific and technological innovation is shaping the future clinical development.
We are targeting operating cash flow to be positive across the remaining quarters of 2025 driven by lower cash. Outlay for restructuring and spin related costs as well as incremental cash generation from working capital.
Having delivered growth in this environment in my past career I know what it takes for us to be successful.
I want to be clear about this point.
<unk> spoken with current portray our customers both large pharma and biotech I know they are pleased with how we deliver for them Myra.
We believe that for Tria has ample liquidity with 400 million available on our revolver as of June 30th, 2025 plus, more than 80 million dollars of cash on hand.
My role will be to add fuel to our growth engine, bringing energy and discipline in a way that will yield value for our customers our people, our investors and ultimately and most importantly for patients and ready for this opportunity.
We generated positive operating cash flow in the quarter and currently project to do. So, for the remaining quarters of 2025
<unk> wanted to thank her for all her efforts export trade over the past few years. Additionally, I'd like to welcome Tracy to the team Tracy I look forward to working with you once again.
Everything we have done and are doing from our operational execution. Our progress, against our cost-savings initiatives, and reaffirmation of our 2025 guidance, underscores the continued improvement in our underlying financial performance.
With our projected ibida and significant add backs available under the credit agreement, we expect that we will continue to have ample liquidity for the foreseeable future.
But for now let's return the call to the second quarter results and hand, it over to Joe for a deeper dive.
Back over to you.
Thank you Michelle and thank you to everyone for joining us today.
As a reminder, all my remarks relate to continuing operations of <unk> <unk>.
As an important reminder, our credit agreement includes add backs, well beyond what we include in our definition of adjusted ibida, such as proforma benefits from in-flight. Cost-savings Initiative for tozz, public company costs and costs necessitated by the Spin.
Owing the divestiture of our enabling services businesses last year, unless I note otherwise.
I will start by saying that I warmly welcome onshore and Tracy to portray here and look forward to working with them to demonstrate the excellent I know this organization can achieve.
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,
I also want to thank him for her many contributions as we launched <unk> as a Standalone company.
As we put the two year spin transition firmly behind US. We welcome. This next period as a time to take the grit and resilience, we built from the separation effort and apply it fully towards enabling our customers to develop their life changing treatments and make them a reality for patients around the globe.
While we do not disclose our covenant calculations, we have considerable Headroom and our covenant leverage ratio under our credit agreement is significantly better than our reported leverage ratio. Generally, at least 1, turn better than our reported Leverage
We are currently and anticipate that we will remain fully compliant with the financial maintenance, ratios of the credit agreement for the foreseeable future.
It is time.
In my prepared remarks, I'll cover the primary factors that influenced our second quarter performance and share an update on the steps were taking towards achieving our 2025 guidance.
With our TSA exit behind us. We plan to focus our Capital allocation priorities on driving, organic growth, and improving productivity along with debt repayment.
I will highlight our progress against our previously shared cost optimization initiatives.
Additionally, I'll spend a few minutes highlighting improvements in our cash flow this quarter and our expectations regarding liquidity going forward.
Backlog burn this quarter was higher than the first quarter supported by growth in our faster. Burning clinical pharmacology reporting unit along with our progress to move clinical development Awards into more intensive phases of their life cycle.
At the end of this call I wanted to be clear that we are continuing to take appropriate actions to improve our financial performance and capital profile.
We anticipate continuation of these first half Trends in the second half.
As Peter highlighted we delivered a solid second quarter as demonstrated in our financial results.
Although we are still seeing some delays in the startup of Biotech projects, our analysis shows that once underway these projects tend to burn more quickly than large Pharma studies.
For the quarter, we delivered revenue growth along with sequentially higher adjusted EBITDA. Following continued execution of our margin optimization initiatives, including delivering one third of our $150 million in gross savings targets in the first half.
As previously noted, fsp revenue is anticipated to be a headwind in 2025.
As expected, we generated positive operating and free cash flow and we delivered a five day improvement in DSO versus the first quarter as we begin to unwind the temporary impact of the invoicing pause related to implement implementation of our new ERP system during the first quarter fees.
But we are rekindling our efforts in fsp including the launch of a dedicated sales team at the start of the third quarter because we believe we can win attractive, fsp work that can benefit both our margins and our customer base.
We continue to Target driving our commercial team towards achieving book-to-bill ratios in line with our peer set, but giving the ongoing uncertainty, in the macroeconomic environment and the recent leadership transition, it is not prudent to give guidance on book to Bill.
These results reflect focused execution across the organization and continued momentum toward our financial goal.
This quarter marked the two year anniversary of our spin along with a successful exit from our former parent TSA.
The pricing environment remains competitive and we are monitoring pricing feedback closely as we attempt to balance, winning new business, with achieving attractive, margins.
This milestone is reflected in the year over year decline in one time spin related costs as we move towards a more efficient cost structure for our footprint.
As previously shared, we are making targeted Investments this year to expand our commercial coverage of Biotech recognizing that over time. Biotech organizations are expected to remain a compelling source of innovation and growth.
Now I'll cover the financial results in more detail.
Now, I'll give an update on how we're executing against our transformation plans for 2025.
Second quarter revenue was $710 3 million growing seven 2% versus the prior year quarter.
<unk>, primarily by an increase in revenue in our clinical pharmacology reporting unit, along with a small benefit from foreign exchange rate.
Clinical development revenue was relatively flat as increases driven by recent net new business awards, including higher pass through costs were offset by lower FSP revenue.
As previously shared, we continue to execute against our Target of gross cost, reductions of 150 million in 2025, with the expected, net benefit of 90 to 100 million this year, as some of the cost, reductions are being offset by the reintroduction of Merit and variable compensation.
On a GAAP basis, Jack cost in the quarter increased nine 8% year over year, primarily due to increases in pass through and stock compensation costs, along with a reduction in R&D tax credits.
This $90 to $100 million will be split, with roughly $50 million improving growth margins and $40 to $50 million leading to lower SG&A.
Year to date. We have captured more than 50 million dollars in growth savings with roughly 30 million in net savings contributing to improvements in ibida.
Partially offset by lower personnel costs from our ongoing restructuring actions.
The reductions in direct personnel costs in the quarter continued to more than offset the investments in merit and variable compensation that we've highlighted previously.
These savings have largely benefited gross margins. As we are targeting the SG&A savings to be more heavily weighted to the second half.
Permanent head count across all of our <unk> is down more than 8% over the last 12 months as we carefully balanced the need to reduce our cost base, while continuing to deliver high quality services to our customers.
We expect these optimization programs will extend into 2026 as we continue, our efforts to bring our sgna, spend more in line with peers.
SG&A in the quarter was lower year over year by 21%, primarily due to lower TSA and it related costs.
for full year 2025, we are raising our Revenue guidance and reaffirming our adjusted EA Outlook
Partially offset by deal costs related to the receivables securitization program, along with an increase in personnel costs related to the reinstatement of merit and variable compensation.
Based on exchange rates, as of December 31, 2024, we are increasing our revenue targets to a range of $2.6 billion to $2.7 billion.
If you look at SG&A sequentially, excluding the impact of onetime cost and the securitization yield cost.
SG&A in the second quarter is 4% lower than in the first quarter of 2025, and 15% lower than our fourth quarter 2024 run rate.
At the same time we are reaffirming our adjusted ibida Targets in the range of 170 million to 200 million dollars, reflecting continued, operational discipline.
This includes the absorption of merit and variable compensation noted above.
In terms of cash flow for 4 year, 2025 we are targeting operating cash flow to be marginally negative with positive, cash flow generated in the remaining quarters of 2025.
I'll discuss more about our ongoing transformation efforts across the organization later in my remarks.
Net interest expense in the quarter was $23 3 million, a decrease of $21 $9 million versus the prior year quarter, primarily due to the $475 million debt paydown across our term loans made in June 2024.
In terms of modeling the second half of 2025, we are targeting revenues in the third and fourth quarter to be more in line with the first quarter.
The team at Fort Tria has shown phenomenal. Resilience, we've come to a complex spin exited the TSA on time and laid the operational and financial groundwork for the future.
Because of that large paydown, our interest expense in Q2 of last year included a $12 $2 million write down of debt issuance costs.
To better compare the year on year reduction, taking the combination of cash interest expense plus recurring securitization cost. It provides a spend that is approximately 18% lower in the second quarter of this year.
The level of commitment and focus I've seen from our employees is extraordinary. We've endured uncertainty, worked through significant change, and emerged with clarity and stability. And now, we are exclusively focused on what is most important: delighting our customers and executing against our plans to improve our overall financial results.
Turning to our tax rate the effective tax rate for continuing operations for the quarter was negative one 1%.
As we enter the next phase of our journey, as a global leader in clinical development, we are closing the door to our transition phase and embracing our transformation. Phase.
<unk> was adversely impacted by an impairment of goodwill that has no tax benefit and increase in our valuation allowance the impact of beat.
Through it all, we have maintained strong engagement scores from our employees delivered improved, net promoter scores and built the discipline. We need to steadily improve. We are excited about the future of Fort Tria.
Nondeductible compensation expenses and withholding taxes for 2025 non U S earnings that are not permanently reinvested.
Operator. Please open the line for Q&A.
Adjusted EBITDA for the quarter was relatively flat at $54 9 million compared to adjusted EBITDA of $55 2 million in the prior year period.
Sequentially adjusted EBITDA margin in the quarter was positively impacted by higher service fee revenue, along with lower personnel cost and operations as we continued to execute against our margin expansion initiatives.
Thank you as a reminder, to ask a question. Please press star 1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please, press star 1, 1 1. Again, in the interest of time, we ask that you limit yourself to 1 question. And req, if you have an additional question, please stand by while we compile the Q&A roster,
And our first question comes from Eric Caldwell of beard. Your line is open.
Moving to net income and adjusted net income.
In the second quarter of 2025, net loss was $374 9 million compared to a net loss of $99 3 million in the prior year period, primarily due to a noncash pretax goodwill impairment charge of $309 $1 million related to our clinical development reporting unit.
Thanks very much, good morning. Um, I have a a 2-part both related um, first
I'm just curious on these smaller newer to for Tria, uh, hesitant biotech clients. Did they go a different direction or did they simply delay decisions is there?
The charge was primarily a result of the decline in our share price since March 31, 2025 and to a lesser extent our market base based increase in the discount rate used for the valuation.
Some kind of, uh, commentary around, uh, what was lost versus what was delayed coming out of 2q as as there were some hesitancy and then more importantly, um, welcome to angkol. And Tracy, I angel, I'm hoping you can make some additional comments on
There is no indicators of impairment in our clinical pharmacology reporting unit.
Excluding the impact of the impairment charge the quarterly net loss decreased year on year, driven by the targeted reductions in our cost base.
Your commercial style, the skills you bring relationships, you bring to the company. How you approach? Building a successful commercial operation.
In the second quarter of 2025, adjusted net income was $17 6 million compared to adjusted net loss of $2 3 million in the prior year period for the current quarter adjusted basic and diluted earnings per share were <unk> 19.
And whether you've, uh, any, you know, 48 hours in whether you have any, uh, initial views on how your approach to, uh, building and developing the sales force, um, and Commercial marketing team. How that how that might differ from where Fort Tria is today? Thanks very much.
Turning to customer concentration our top 10 customers represented 59% of second quarter 2025 revenues are.
Thanks, Eric. I'll take the first part of that question, then I'll turn it over to [name] for the second part. So with regard to the new [term] for Tria Biotech.
Our largest customer accounted for 13, 2% of revenues during the quarter ending June 32025.
As I comment on cash flows note that all references to prior year cash flows are for the entirety of <unk> as we had not segregated cash flows from discontinued operations for the businesses sold in June 2024.
To more clearly see year to date and second quarter cash flow metrics. Please refer to slide six in the Investor presentation. We released this morning.
For the six months ended June 32025, we reported negative operating cash flow of $102 $4 million compared to positive operating cash flow of $248 1 million in the prior year period.
The $355 million reduction in year over year cash flow can largely be attributed to a few key factors related to our receivables.
I I think, you know, candidly those are those are biotechs that made a decision to go in a different direction. It's, it's not uncommon as we had mentioned, and Peter mentioned his remarks, we saw the same thing. If you recall prior to the spin, when there was some uncertainty about leadership, and we saw that very quickly dissipate, once the leadership was in place and we removed. So in a while unfortunate we're not expecting to have those same, um, uncertainty concerns with customers going forward. So you know, we're hopeful that that is a um a relatively short period in transition um on show I'll turn it over to you. Sure. Eric, thanks for the question you know. Um it's day 3 so I'll answer, I answer what I can in terms of commercial style, you know, a couple of important things to point out to me. Um, this is a Professional Services business and I approached the cro industry like a Professional Services business. It's to figure out what our customers needs. Are figure out what tools and
The year to date figure for 2024 included $298 million and proceeds from our initial sale of receivables under our securitization program in June of 2024.
While 2025 includes the remaining negative impact of the temporary pause in invoicing in the first quarter of 2025 to support our ERP transition.
For the second quarter of 2025, we generated positive operating cash flow of $21 8 million and free cash flow of $14 3 million in line with our expectations.
Potential excellence and operational excellence. That's what it will take to win. The hearts and minds of our customers. But Eric, it's day, 3, ask me again, in Q3 and I'll have spent a lot more time with our customers, by then, and I'll have a deeper answer for you.
Days sales outstanding from continuing operations was 46 days as of June 32025, five days lower than March 31, 2025, and eight days lower than the same period last year.
Sounds good. Uh, again, welcome to the shop. Happy to have you here.
Thanks Eric.
Thank you.
And our next question comes from Justin Bowers of Dory Bank. Your line is open.
The reduction versus the first quarter demonstrates our progress towards catching up on the delayed invoicing from our ERP transition.
Net accounts receivable and Unbilled services for continuing operations were $739 million as of June 32025, compared to $660 million as of December 31, 2024, with the increase versus year end, primarily driven by the increase in DSO and to a lesser.
Hi. Good morning, everyone, and welcome and show. So a 2 part of for me, number 1, can you discuss the overall demand environment, um, inform and biotech and, and how that's evolved throughout the year. And then part 2 was just, um, an update on the phase 1 business. Um, that's been fairly robust for you guys. Are you still leaning on, uh, third party for capacity support? And if so, when do you expect that to normalize?
Higher revenue.
We ended the quarter with $50 million outstanding on the revolver. This balance improved sequentially compared to the $89 million of borrowings outstanding as of March 31, 2025.
We are targeting operating cash flow to be positive across the remaining quarters of 2025% driven by lower cash outlays for restructuring and spin related costs as well as incremental cash generation from working capital.
I want to be clear about this point.
We believe that <unk> has ample liquidity with $400 million available on our revolver as of June 32025, plus more than $80 million of cash on hand.
Um Justin, thanks for the question. Let me take the first part about sort of our demand environment and I'll hand it over to Jill to talk about specifics in our Phase 1 business. Look. You know I'm cautiously optimistic. We are seeing our fair share of our piece. I agree with the broader Market sentiments that's been expressed by others in the industry as well. We too are seeing our pipelines trending upwards both across biotech and large Pharma. Now our lack of exposures to vaccines or government funded programs is a positive
We generated positive operating cash flow in the quarter and currently projected do so for the remaining quarters of 2025.
Everything we have done and are doing from our operational execution, our progress against our cost savings initiatives and reaffirmation of our 2025 guidance underscores the continued improvement in our underlying financial performance.
In this macro environment for us in addition, um, as Jill is indicated, and as Peter has indicated, our strong biotech pipeline, um, is another positive for us and not being over indexed, any 1 customer. Segment is something. I'm excited about here at portrayal. So with that, I'll turn it over to Jill to talk a little bit more about how our CPS business is performing.
With our projected EBITDA and significant add backs available under the credit agreement. We expect that we will continue to have ample liquidity for the foreseeable future.
As an important reminder, our credit agreement includes add backs well beyond what we include in our definition of adjusted EBITDA, such as pro forma benefits from in flight cost savings initiatives.
Thanks anel, Justin, our our clinical pharmacology business continues to be an industry leader and perform incredibly. Well in fact as we have shared previously, our biggest challenge at the moment is capacity constraints and so that has caused us to have to shift some of that work to third parties and we're continuing to refine scheduling to try to improve that and we're hopeful in the future, we'll be able to bring more of those Awards in house, but continue to have great success there, both operationally and and scientifically and we're very excited about, you know, the continued building of that business.
Portray as public company costs and costs necessitated by the spin.
Thank you.
Thank you.
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 our next question comes from Patrick Donnelly of City. Your line is open.
And reverts to five three times as of the first quarter of 2027.
While we do not disclose our covenant calculations, we have considerable headroom and our covenant leverage ratio under our credit agreement are significantly better than our reported leverage ratio generally at least one turn better than our reported leverage we are currently and anticipate that we will remain fully compliant with the financial maintenance ratio.
Hey guys, thank you for taking the questions. Um, maybe just a follow-up on, on the bookings environment. Can you just talk a bit about what you're seeing on the cancellation side, you know, it sounds like, again, the visibility you don't want to talk too much about the go forward book to bill. Um, but just trying to fill out again, what you saw on the call, what the right way to just, just think about that cancel piece is uh, just competitively. Again,
How you guys are doing on, the win rates would be helpful just to talk through that a bit.
Of the credit agreement for the foreseeable future.
With our TSA exit behind US, we plan to focus our capital allocation priorities on driving organic growth and improving productivity along with debt repayment.
Backlog burn this quarter was higher than the first quarter supported by growth in our faster burning clinical pharmacology reporting unit, along with our progress to move clinical development awards into more intensive phases of their lifecycle.
We anticipate continuation of these first half trends in the second half.
Although we are still seeing some delays in the startup of biotech projects. Our analysis shows that once underway. These projects tend to burn more quickly than large pharma studies.
Sure, Patrick, I'll take that 1. So in in terms of cancellations, we have fortunately continued to see cancellations in line with our historic Trends which are relatively low. Um, our cancellations are actually even slightly lower than they were in the first quarter. So from a cancellation perspective, we've been, we've been pleased to see that Trend continue in terms of win rates. They were relatively consistent with our existing large Pharma and biotech customers. But as we call it out, we did see a drop in the new to Fort Tria biotech customers. And again, hopefully, we'll see that start to turn around as we go through the second half.
As previously noted FSP revenue is anticipated to be a headwind in 2025, but were rekindling our efforts in FSP, including the launch of a dedicated sales team at the start of the third quarter. Because we believe we can win attractive FSP work that can benefit both our margin and our customer base.
Okay, understood. Um and then Joe maybe just on on the margin side. Um can you just talk about, you know, the moving pieces there obviously, you know that that has moved around a little bit over the last few quarters. What the right way to think about just that launching Point into next year is and similarly inside that, you know, the pricing environment. You know, it sounds like it's competitive. What that could mean on margins and maybe just a little more colorful pricing. Thank you guys.
We continue to target driving our commercial team towards achieving book to Bill ratios in line with our peer set but given the ongoing uncertainty in the macroeconomic environment and the recent leadership transition. It is not prudent to give guidance on book to Bill.
The pricing environment remains competitive and we are monitoring pricing feedback closely as we attempt to balance winning new business with achieving attractive margins.
Yeah, maybe I'll I'll take pricing first. I mean I, you know, I think many folks have called out that the pricing environment is is very competitive. We think that we're competing well we continue to watch that. Our goal has never been to be the lowest price. We want to be priced at Market. So we're monitoring those Trends and adjusting, you know, as in where we need to but, you know, I think at the moment,
As previously shared we are making targeted investments this year to expand our commercial coverage of biotech.
Moment, we're handling that well but we don't see anything.
Recognizing that over time biotech organizations are expected to remain a compelling source of innovation and growth.
Now I'll give an update on how we're executing against our transformation plans for 2025.
As previously shared we continue to execute against our target of gross cost reductions of $150 million in 2025 with the expected net benefit of $90 million to $100 million. This year as some of the cost reductions are being offset by the reintroduction of merit and variable compensation.
This $90 million to $100 million will be split with roughly $50 million, improving gross margin and $40 million to $50 million leading to lower SG&A.
Towards the second half, they'll have the benefit of those fully in 2026. And we also have talked previously about continuing to drive, you know, additional savings out of sgna next year, while we continue to try to improve gross margin. So I'm, I'm expecting to, you know, be able to share a little bit more about that in the future. But I, you know, I think where we are today, um, for the year, you know, it's a little bit too early to talk about 26 margins.
Year to date, we have captured more than $50 million in gross savings with roughly $30 million and net savings contributing to improvements in EBITDA.
Interesting. Thank you guys.
Thank you.
These savings have largely benefited gross margin as we are targeting the SG&A savings to be more heavily weighted to the second half.
And our next question comes from Elizabeth Anderson of evercore, isi. Your line is open.
Building on what we discussed back in May through the second quarter, we have increased our reduction in office square footage by a further 10% and rationalized a further 5% of the applications, we inherited with the spin we.
We expect these optimization programs will extend into 2026 as we continue our efforts to bring our SG&A spend more in line with peers.
For full year 2025, we are raising our revenue guidance and reaffirming our adjusted EBITDA outlook.
Just on exchange rates as of December 31, 2024, we are increasing our revenue target to a range of $2 6 billion to $2 7 billion.
Hi guys. Um, thanks for the question and welcome on to, it's nice to nice to catch up with you. Um, I had a question just in terms of the, the outlook for the back half of the year, I think you called out that the guidance raised in terms of Revenue was largely driven by FX. Um, and I just wanted to make sure I understood all the moving pieces on the ebit doll line. Um, could you just talk about sort of your, your, um, FX exposure on sort of like a revenue versus see, but D basis. And I know, you know, obviously you have the cost cutting benefits but some planned Investments. So could you just walk us through that? To make sure we have all of our ducks in a row on that, um, point.
At the same time, we are reaffirming our adjusted EBITDA target in the range of $170 million to $200 million.
Reflecting continued operational discipline.
In terms of cash flow for full year 2025, we are targeting operating cash flow to be marginally negative with positive cash flow generated in the remaining quarters of 2025.
In terms of modeling the second half of 2025, we are targeting revenues in the third and fourth quarter to be more in line with the first quarter.
Story Elizabeth, um, I'm happy to know. The the raise is not related to FX when we talked about it. Having a very minor impact, I think it was 60 basis points in this quarter. We're expecting it to be fairly similar as we go forward. I mean, obviously, no, 1 can predict where rates will go, um, but that is not the driver of, of the guidance range on the revenue side. So, you know, I think it's moving our projects more into intensive phases, you know, especially some of the newer awards that we've won and the and you know there are is also some there's impact of passers in there as well.
The team at <unk> has shown phenomenal resilience, we've come through a complex spin exited the TSA on time and laid the operational and financial groundwork for the future.
The level of commitment and focus I've seen from our employees is extraordinary.
Got it. And so just in terms of how that flows down to to ibida, um, if that's the case, you know, is that sort of a reflection of some like incremental Investments or just some conservatism around the call. Just, um, I guess with the revenue increase being more operationally driven, just surprised not to see a little bit more flow through into even Dash, or just want to make sure I have the stuff.
We've endured uncertainty work through significant change and emerge with clarity and stability and now we are exclusively focused on what is most important delighting, our customers and executing against our plans to improve our overall financial results.
As we enter the next phase of our journey as a global leader in clinical development. We are closing the door to our transition phase and embracing our transformation phase.
Yeah, sure. Elizabeth a very fair question but I think at this point it's most prudent for us to maintain our guidance and you know, we'll see how the year plays out. We're pleased with our progress against the margin expansion initiatives, but felt like it was appropriate to maintain our adjusted e. But a guidance at this point
Yep, that makes sense. Thank you very much for that question.
Thank you. Thank you.
Through it all we have maintained strong engagement scores from our employees delivered improved net promoter scores and built the discipline, we need to steadily improve we are excited about the future of for trio.
And our next question comes from Tucker rammer of Jeffries. Your line is open.
Hello, thanks for the question.
Operator, please open the line for Q&A.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Um, just kind of drilling into this second half guidance here. Um, so it sounds like you guys expect a step down in revenue from the second quarter but maybe more in line of first quarter. So I guess I'm just trying to
Put the pieces together of.
Interest of time, we ask that you limit yourself to one question and re queue. If you have an additional question. Please standby, while we compile the Q&A roster.
No, why is kind of burn rate maybe dropping back down in second half. Um, and how do you pass through this play and roll? Um, into that? Thank you.
And our first question comes from Eric Coldwell of Baird. Your line is open.
Thanks, very much good morning, I have a <unk>.
Two parter both related first.
Just curious on these smaller newer to <unk>.
The tank biotech clients did they go a different direction or did they simply delayed decisions is there some kind of commentary around what was lost versus what was delayed coming out of <unk> as there were some hesitancy and then more importantly, welcome to Anshul and Tracy.
So, our Tucker. So I think, um, we are expecting a little bit, especially towards the end of the year in moderation and passes. They're still going to be elevated in the second half. But we actually have a very large, very heavy pass through driven study. That, uh, was successfully ended early. And so, 1 of the things that's been driving some of that higher 1 is that winds down, uh, will will impact revenues in the back. End of the year, I think what you'll see is revenues more in line with the first quarter but with better margins on them, you know as you can see relative to the, you know, maintaining of the adjusted dividends.
As the cost savings initiatives continue to deliver.
got it and then 1 more if I could um,
<unk> I'm, hoping you can make some additional comments on <unk>.
Just on like the large Pharma environment.
Your commercial style the skills you bring relationships you bring to the company how you approach building a successful commercial operation.
And whether you have any.
48 hours and whether you have any.
Um, you know, sort of it. It seemed like that. That environment has been getting a little bit better, um, but maybe more stuck in the butt and second quarter versus earlier in the year. So I guess
Initial views on how your approach to.
Building and developing the sales force and commercial marketing team held up how that might differ from where for Korea is today. Thanks very much.
Can you explain like what large Pharma customers are telling you and kind of where your win rate? Has been with those larger customers? Not the biotech that's sort of they, um, went somewhere else because of the CEO transition and that's all from me. Thanks.
Thanks, Eric I'll take the first part of that question and then I'll turn it over to onshore for the second part so with regard to the new to portray a biotech.
Candidly those are laser biotech that made a decision to go in a different direction.
It is not uncommon as we had mentioned and Peter mentioned in his remarks, we saw the same thing if you recall prior to the spin when there was some uncertainty about leadership and we saw that very quickly dissipate. Once the leadership was in place and we remove so NOL unfortunate we're not expecting to have those same uncertainty concerns with customers going forward.
So we're hopeful that that is a.
We've been pleased to see them continuing to award us new business.
A relatively short period and transition.
Thank you.
Onshore I will turn it over to you sure Eric Thanks for the question.
No.
It's day three so I'll answer the answer what I can in terms of commercial style couple of important things to point out to me.
And our next question comes from Luke Sergot of Barclays. Your line is open.
This is a professional services business and I approach the CRO industry like a professional services business is to figure out what our customers' needs or figure out what tools and.
Hey, this is Jake on for Luke, thanks for the question. So you've given an initial 2026 framework around pre- and post and backlog, and sales mix, but given the bookings. This quarter does the framework still stand and also, what are you doing to increase confidence in those narrative portrayer customers.
Thanks.
The capabilities, we have to meet those needs and more often than not it's about delivering the high quality results and trying to bend the time cost curve everything we did my prior career to me achieving the commercial excellence here.
<unk> is about commercial excellence financial excellence and operational excellence, that's what it will take to win the hearts and minds of our customers, but Eric its phase III Anthony again in Q3, and all have spent a lot more time with our customers by then and I'll have a deeper answer for you.
So I think in terms of the the that the pre and post spin, we did see continued Improvement in in post spin Awards, adding to revenue this quarter, you you saw that a little bit in the uptick in the in the uh, revenues here in the quarter. You know. I think we're continuing to monitor that situation closely and they're progressing in the same direction that we expected. They were of our, of our full service.
Sounds good and again welcome to welcome to the shop happy to heavier.
Thanks, Eric.
Thank you.
Okay.
And our next question comes from Justin Bowers with Deutsche Bank. Your line is open.
Uh, clinical development Revenue. They they're about 30% of that portion of the revenue in the quarter, so a little bit higher than they were at the in the first quarter. So, you know, the, the guidance we had talked about previously about that reaching more than 50% of that subset of Revenue in the back half of next year, cold,
um, you know, I think I'm sorry this was the second
Hi, Good morning, everyone and welcome to actuals. So also a two parter for me number one can you discuss the overall demand environment.
It was the yeah. You want to take that? Yeah, sure. Jake. Um the second question was about how we think about the new to Portrait of customers
Pharma and biotech.
Thats evolved throughout the year and then part two is just an update on the <unk> business.
<unk> been fairly robust for you guys or are you still leaning on third parties for capacity support and if so when do you expect them to normalize.
Justin Thanks for the question, let me take the first part about sort of our demand environment and I'll hand, it over to Joe to talk about specifics in our base business.
You know, I think that's this is this is where getting to the other side of the ca CEO transition is extremely important for us as a company. And, uh, this is where I see having the greatest impact here in the coming months. Um, my role, as I said earlier, in the next few months is going to be to really engage our customers both perspective as well as current and our colleagues around the world. And um uh you know that's how we plan to address it. Great, thanks for that.
Look I'm cautiously optimistic we are seeing our fair share of Rfps.
Thank you.
With the broader market sentiment that's been expressed by others in the industry as well, we too are seeing our pipelines trending upwards, both across biotech and large pharma now our lack of exposures to vaccines or a government funded programs is a positive in this macro environment for US. In addition, as Joe indicated in this Peter.
And our next question comes from Max smok of William Blair. Your line is open.
As indicated our strong biotech pipeline.
Another positive for us and not being over indexed to any one customer segment is something I am excited about here, so with that I'll turn it over to Joe to talk a little bit more about our Cps business is performing.
Hey, good morning, and thanks for taking our questions. I'm sure. I know you've, uh, only been in the seat a couple of days here, but just thinking through, or maybe a strategic 1 from our end, you know, talked about weaning into fsp making yourself more competitive and large Pharma. But at the same time, you're win rights and down in small biotech. How do you think about prioritizing these opportunities moving forward? And where do you really want to lean in or see the most opportunity for share gains in the near future? Thank you.
Thanks onshore Justin our clinical pharmacology business continues to be an industry leader and perform incredibly well in fact as we have shared previously our biggest challenge at the moment is capacity constraints and so that has caused us to have to shift some of that work to third parties and we're continuing to refine scheduling to try to.
Improve that and we're hopeful in the future, we'll be able to bring more of those awards in house, but continue to have great success, there both operationally and scientifically and we're very excited about the continued building of that business.
Thank you.
Thank you.
Um, max happy to take that question. Uh, look, I think, um, with the uncertainty in the market, we did see a dip in the win rate, but as Jill has said, that's been with new, uh, to portray a biotech customers. Our win rates have been fairly consistent, um, uh, with our existing customers in both customer segments. And so where I see opportunity is what I talked about earlier is continue to sharpen our commercial discipline, our financial discipline, and our operational discipline. But uh, give me the 90 days to get out there and talk to our customers and colleagues and come back to you. Uh, and asked me that same question again in 90 days next.
And our next question comes from Patrick Donnelly of Citi. Your line is open.
Fair enough. I'll uh, I'll hold you to that. Um, maybe Jill just to
Hey, guys. Thank you for taking the questions maybe just a follow up on the bookings environment can you just talk a bit about what youre seeing on the cancellation side it sounds like again the visibility.
A quick 1 for me and apologies, if you could cover this, I know we've talked about burn rate a little bit already, but can you just walk through?
Too much about the go forward book to Bill.
But just trying to feel out again, what you saw in the quarter and what the right way to think about that canceled pieces.
Just competitively again, how you guys are doing on the win rates would be helpful. Just to talk to others.
Sure Patrick I'll take that one so in terms of cancellations, we have Fortunately continue to see cancellations in line with our historic trends, which are relatively low or cancellations or actually even slightly lower than they were in the first quarter. So from a cancellation perspective, we've been we've been pleased to see that trend.
What exactly drove that big step up here in the corner and what's really changed? As we head into the back half of the year? I think, even with your guide, anticipating Revenue comes down a little bit, still elevated burn in the back half and before I think we had talked pretty consistently about burn rate continuing to be under pressure. So can you just walk us through again the drivers in terms of what's really changed and what's driving that increase in Burn right here for the remainder of the year.
Can you in terms of win rates they were relatively consistent with our existing large pharma and biotech customers, but as we called out we did see a drop in the new to <unk> biotech customers and again, hopefully we will see that start to turn around as we go through the second half.
Sure, Max. You know I think in the quarter, we really benefited from the clinical pharmacology, reporting unit as that continues to grow. We'll still see some benefit from that. As, you know, it's faster burning and we're continuing to try to find ways to leverage the capacity, we have. And again, very pleased with how that business, uh, is, is performing.
Okay understood and.
Joe maybe just on the margin side.
Can you just talk about the moving pieces, there, obviously dropped a little bit on the last few quarters, what's the right way to think about just that launching point into next year.
You know, with the with the parts of the clinical development business, it's really as we're moving some of the newer Awards into more intensive phases of their life cycle and some of the operational excellence that we've been able to drive, you heard Peter talked about some of those metrics in his remarks, I think is allowing us to to see a path to a slightly improved burn rate in the back half, compared to what we originally, thought, probably in the 8 and a half to 9% range. So, relatively consistent with first half trends,
Similarly inside that the pricing environment is competitive what that could mean, a margin compared to just a little more color on pricing. Thank you guys.
Got it. Thanks again for taking our questions.
Yes, maybe I'll take pricing first I mean, I think many folks have called out that the pricing environment is very competitive we think that we're competing well we continue to watch that our goal has never been to be the lowest price we want to be priced at market. So we're monitoring those trends and adjusting.
And our next question comes from Michael Riskin of Bank of America. Your line is open.
As in where we need to but I think at the moment, we're handling that well, but we don't see anything incredibly aggressive, but I know it continues to be competitive as you know and in terms of margin. We're not at a point, where we're going to talk about 2026, yet, but you can you will expect continuation and <unk>.
For example of the initiatives that we put in place in particular as we've shared those SG&A ones that are more weighted towards the second half. So youll have the benefit of those fully in 2026 and we also have talked previously about continuing to drive additional savings out of SG&A next year, while we continue to try to improve gross margin. So.
Great. Uh, thanks for taking the question. Um, first I want to ask on um, cancellations a little bit more, um, really encouraging commentary, given what we've seen from others. Just especially the fact that you actually have cancellation of food from 1 to 2 queue. Um, just wondering why you think you're seeing, um, better trends that we've seen elsewhere, is this just a function of exposure and cancellations being a little bit more concentrated with certain specific large farm responses, where you may not have a, might not be as, as large, a part of the mix um or just anything, you're executing differently. Um types of programs, you're willing to just any additional color on, uh, why you've been more resilient there and why you think that might continue.
Sure. I'll I'll
Im expecting to be able to share a little bit more about that in the future, but I think where we are today for the year, it's a little bit too early to talk about 'twenty six margins.
I think, you know, in terms of cancellations you're you're right, it is about who you're exposed to, we don't do government work. Generally, we don't have really a book of business in the government related or government funded work and we have very limited exposure on the vaccine side, which I think is some of the issues that our peers have faced.
Understood. Thank you guys.
Thank you.
Okay.
We also have a relatively conservative bookings policy, so I think that also has helped us to keep our cancellation rates in, in check. But we monitor it constantly and we've been pleased to see that. It's, it's really remained in line.
And our next question comes from Elizabeth Anderson of Evercore ISI. Your line is open.
Hi, guys. Thanks for the question and welcome modulus nice nice to catch up with you.
I had a question just in terms of the outlook for the back half of the year I think you called out that the guidance raised in terms of revenue is largely driven by FX and I just wanted to make sure I understood all of the moving pieces on the EBITDA line and.
Could you just talk about sort of your FX.
FX exposure on sort of like a revenue versus EBITDA basis, and I know, obviously, you have the cost cutting benefits, but some planned investments. So could you just walk us through that to make sure. We have all of our ducks in a row on that.
Okay, thanks and, um, Jill, um, just piggybacking on. Um, I think it was Elizabeth's. Question earlier, on the IBA outlook for the second half just thinking through the, you know, what, you've seen in the first half so far and then just the rest of the cost Savings Program. Um, if that gets you another, I think 607 million net in the second. Half that'll own. Should get you more or less to your ibida target for the year? So is this just um, like you said, it's just a little bit of conservatism are those savings on the sgna front coming later in the year. So you won't see the full benefit in the second half. You'll get the more than 26. Maybe you could talk about the timing of those coming through. Um that'd be helpful.
Yeah, sure.
<unk>.
Sure Elizabeth.
Happy to know the raise is not related to FX, when we talked about it having a very minor impact I think it was 60 basis points in this quarter, we're expecting it to be fairly similar as we go forward I mean, obviously no one can predict where rates will go but that is not the driver of the guidance range on the revenue side. So I think it's moving.
Our projects more into intensive phases, especially some of the newer awards that we've won.
I think you're right in that that you know, they're continuing to ramp particularly in the sgna functions. As you remember, we had to fully exit the TSA and and get up and running in the new Erp system. For example which takes a couple quarters before you can start to make shape broader changes. So some of it is the timing and some of it's also function of how the you know, service fee Revenue will play out in the back half of the year with, you know, Revenue numbers being slightly lower than they were in this quarter. There's there's a little bit of that impact as well. Um, and you know, those are the major drivers.
And.
There are also some that there is impact of pass throughs in there as well.
All right. Thank you.
Thank you.
Got it and so just in terms of how that flows down to EBITDA. If that's the case is that sort of a reflection of some like incremental investments or just some conservatism around the call just.
And our next question comes from Joel Anderson of truist. Securities, your line is open.
I guess with the revenue increase being more operationally driven just surprised not to see a little bit more flow through into EBITDA. So just wanted to make sure I have the staff.
Hey, guys.
Yes, sure Elizabeth a very fair question, but I think at this point, it's most prudent for us to maintain our guidance and we'll see how the year plays out we're pleased with our progress against our margin expansion initiatives, but felt like it was appropriate to maintain our adjusted EBITDA guidance at this point.
Yes that makes sense. Thank you very much for the question.
Thank you. Thank you.
And our next question comes from Tucker Remmers of Jefferies. Your line is open.
Thank you, and thanks for taking my questions and congrats, and best wishes on to and Tracy looking forward to working with you, uh, both and hear my best wishes to you as well. And thanks for all the help in recent years. I want to follow up on the win, rate, comments in biotech. It seems you describing win rates outside of the impact, the CEO, uh, Foundation. Pretty stable, just trying to better understand the market environment. There are you seeing increased competition in the space with some of your peers calling out making a push in that pocket. More aggressively have there been any shifts in the average RSP time from issuance to award, just give us a little bit more flavor about the market environment. You're seeing outside of the CEO, transition impact.
Hello, Thanks for the question.
Just kind of drilling into the second half guidance here.
Sounds like you guys expect a step down in revenue from the second quarter, but maybe more in line with first quarter. So I guess I'm just trying to.
The pieces together.
No one is kind of a burn rate, maybe drawing back down in the second half.
Do customers play a role into that thank you.
Stuart Tucker so I think.
We are expecting a little bit, especially towards the end of the year and moderation in passengers. They are still going to be elevated in the second half, but we actually have a very large very heavy passenger driven study that was successfully ended early and so one of the things that's been driving some of that higher one as that winds down.
Yeah. I'm I'm happy to take that question. I think, in terms of win rates, we are, you know, we've I mentioned in my remarks, we're seeing a still a little bit of the delays in the booking, although they they seem to be kind of leveling off. So that's positive in terms of the time, you see them, until the time people are making decisions, good science is still getting funded. We did have the, you know, the impact of the transition in the quarter which creates a perception of uncertainty and that you know again we were really pleased. That that transition period was very short and
Will impact revenues in the back end of the year I think what youll see as revenues more in line with the first quarter, but with better margins on them as you can see relative to the maintaining of the adjusted EBITDA guidance as the cost savings initiatives continue to deliver.
Got it and then one more if I could.
And we expect that to, you know, dissipate very quickly as we go through and have a competition. Yes, I think the market environment is competitive. All of our peers have talked about that, but again, with existing biotech customers, we're still winning consistently. So we think it's just a function of now that we can take some of that leadership transition off the table, um, we will be able to, you know, we'll be, we'll be fine there in terms of the, the new to, for Tria customers. And with existing Pharma we're pleased to continue seeing, you know, good Awards coming through and continuing to win and consistent rates in existing Pharma
Just on like the large pharma environment.
Sort of seemed like that environment has been getting a little bit better.
Maybe more talking about second quarter versus earlier in the year, So I guess to.
Hugely unlike what large pharma customers are telling you and kind of where your win rate has been with those larger customers lots of biotech.
One somewhere else.
Does the CEO transition from.
Thanks.
Sure Tahira.
With our large pharma existing large pharma customers. The relationships are strong there the win rates are consistent we're continuing to get and.
Gone through recently, you’re clearly positive on the CRO industry and longer term. But would you be willing to share some thoughts on trying to put the current environment in some perspective? Like what it takes for the industry to navigate through these challenges? What the focus of technology transition is, and the focus of clients. Just give us a little bit more flavor of putting the current environment in perspective given your experience.
When new work from them and we're pleased with that.
I think in terms of the conversations everyone is dealing with the uncertainty of not knowing exactly where the environment is going to land.
Sure. I'm I'm happy to do that. Um, you know, I went through, I went through this decision, making process. Uh, as I thought about this industry and its fundamentals before joining the team, it portray and I'm extremely excited but the choice I made to join this team. I will tell you, you know,
I think there was talk on the news on the way in this morning that we're going to hear some more news in the next couple of weeks. So we'll all wait and see what that looks like but I think at this point people are moving forward with making decisions and we've been pleased to see them continuing to award us new business.
Thank you.
Okay.
And our next question comes from Luca <unk> of Barclays. Your line is open.
This is Jake on for Louise Thanks for your question. So you've given an initial 2026 framework around pre and post spin backlog and sales mix, Brian given the bookings this quarter does the framework still stand.
So what are you doing to increase confidence in those newer to portray to customers.
Yes.
Yes.
So I think in terms of the.
Yes, you see some headwinds, you see some headwinds due to money of the macro level environment. Um, we've talked about that all of our competitors have talked about that but I remain. Uh, steadfast in the market fundamentals, what? Jill just said a couple seconds ago. Good science continues to get funded and that's the statement that applies. Both at the Pharmaceuticals, large Pharma companies and it applies at the biotech companies. Good science good drugs continue to get developed and the cro industry is a fundamental tool by which these drugs continue to get developed. So I say uh steadfast in the long term fundamentals of the industry and uh listen that's really why I'm here and that's why I'm excited to be here. And as I said a couple of
Pre and post spin we did see continued improvement in post spin awards, adding to revenue this quarter, we saw that a little bit in the uptick in the in the revenues here in the quarter.
Time over the next few months, I'm going to be traveling meeting with our colleagues and our customers, and really getting a feel for how we're going to leverage. Portray us to ranks with that market. Drop backdrop that I just described
I think we're continuing to monitor that situation closely and they are progressing in the same direction that we expected they were of our of our full service.
Okay, thanks guys.
Thank you. I'm showing no further questions at this time. I'd like to turn it back to Peter newer for closing remarks.
Clinical development revenue they are about 30% of that portion of the revenue in the quarter, So a little bit higher than they were at in the first quarter. So.
The guidance, we had talked about previously about that reaching more than 50% of that subset of revenue in the back half of next year holds.
Thank you everybody for listening this exciting time. In the industry is until just said we're, we're excited to have him on board and we look forward to sustaining our relationship with you.
This concludes, thank you.
I think and sorry, this will be the second.
It was yes.
concludes today's conference call, thank you for participating and you may now disconnect
Sure Jake.
Jake.
Second question was about how we think about the new to portray their customers.
Doug.
This is we're getting to the other side of the CEO transition is extremely important for us as a company.
This is where I'd see having the greatest impact here in the coming months.
My role as I said earlier in the next few months is going to be to really engage our customers both perspective as well as currency that our colleagues around the world.
That's how we plan to address it.
Great Thanks for that.
Thank you.
And our next question comes from Max Smock of William Blair. Your line is open.
Hey, good morning, and thanks for taking our questions shall I know you've only been in the seat a couple of days here, but just thinking through or maybe a strategic one for Marc and talked about leaning into FSP, making yourself more competitive in large pharma.
Tim your win rates and down in small biotech how do you think about prioritizing these opportunities moving forward and where do you really want to lean in or exceed the most opportunity for share gains in the near future. Thank you.
Okay.
Thanks happy to take that question.
Look I think with.
With the uncertainty in the market, we did see a dip in the win rates, but as Joe has said thats been with new to.
To portray a biotech customers our win rates have been fairly consistent.
With our existing customers in both customer segments.
So where I see opportunity is what I talked about earlier is continue to sharpen our commercial discipline, our financial discipline and our operational discipline, but.
Give me the 90 days to get out there and talk to our customers and colleagues and come back to U S.
Ask me that same question again in 90 days Max.
Okay fair enough I'll hold you to that.
Yes.
A quick one for me and apologies if you covered this I know we've talked about burn rate a little bit already but can you just walk through.
Exactly drove that big step up here in the quarter and what's really changed as we head into the back half of the year I think even with your guide anticipating revenue comes down a little bit still elevated burn in the back half than before I think we had talked pretty consistently about burn rate continuing to be under pressure. So can you just walk us through again the drivers in terms of whats really changed on what's driving that increase from <unk>.
Burn rate here for the remainder of the year.
Sure Max.
I think in the quarter, we really benefited from the clinical pharmacology reporting unit as that continues to grow we will still see some benefit from that as you know it's faster burning and we're continuing to try to find ways to leverage the capacity, we have and again very pleased with how that business is.
Is performing.
With the with the parts of the clinical development business, it's really as we're moving some of the newer awards into more intensive phases of their lifecycle and some of the operational excellence that we've been able to drive you heard Peter talk about some of those metrics in his remarks, I think is allowing us to see a path to a slightly improved burn rate in the back half compared to what we have.
Originally thought probably in the eight 5% to 9% range, so relatively consistent with first half trends.
Alright, Thanks, again for taking our questions.
Perfect.
Thank you.
And our next question comes from Michael Riskin of Bank of America. Your line is open.
Great. Thanks for taking my question.
First I want to ask on cancellations little bit more.
Really encouraging commentary given what we've seen from others, especially the fact that you're actually a cancellation from from once you get to Q.
Just wondering why you think you're seeing better trends that we've seen elsewhere or is this just a function of.
Exposure and cancellations being a little bit more concentrated with certain specific large pharma sponsors where you may not have might not be as larger part of the mix.
Just anything you're executing differently types of programs Youre linked to just any additional color on why you've been more resilient there in Washington will continue.
Sure I'll take that I think in terms of the cancellations you're right. It is about who you're exposed to.
We don't do government work generally we don't have really a book of business and the government related or government funded work and we have very limited exposure on the vaccine side, which I think is some of the issue that our peers have faced we also have a <unk>.
Relatively conservative bookings policy. So I think that also has helped us to keep our cancellation rates in check, but we monitor it constantly and we've been pleased to see that it's really remained in line.
Okay. Thanks.
Joe.
Just piggybacking on I think it was Elizabeth's question earlier on the EBITDA outlook for the second half just thinking through the.
What <unk> seen in the first half so far and then just the rest of the cost savings program that gets you another $60 million to $70 million in the second half that alone should give.
You're more or less your EBITDA target for the year. So is this just.
It's just a little bit of conservatism or the savings on the SG&A front coming later in the year. So you won't see the full benefit in the second half you'll get the more than 26 that you could talk about the timing of those coming through that would be helpful.
Yes sure.
Youre right in that they are continuing to ramp, particularly in the SG&A functions. As you remember we had to fully exit the TSA and get up and running in the new ERP system. For example, which takes a couple of quarters before you can start to make broader changes that some of it is the timing and some of it is also a function of how the service fee revenue will play out.
In the back half of the year with revenue numbers being slightly lower than they were in this quarter, there's a little bit of that impact as well.
Those are the major drivers.
Alright, thank you.
Alright. Thank.
Thank you.
And our next question comes from Sheila <unk> with Bank of choice Securities. Your line is open.
Thank you and thank you for taking my questions and congrats and best wishes on Colin Tracy looking forward to working with you both and came on best wishes to you as well and thanks for all the housing decent years I want to follow up on the win rate comments.
It seems that you were describing win rates outside of the impact of the CEO.
Are you seeing pretty stable just trying to better understand the market environment are you seeing increased competition in the space and some of your peers, calling out making a push in that pocket more aggressively have there been any shift in the average artist lead time from issuance to evolve just give us a little bit more flavor about the market environment youre seeing outside of the euro tranche.
Impact.
Yes, I'm happy to take that question I think in terms of win rates where we.
I mentioned in my remarks, we're seeing still a little bit of the delays in the booking although they seem to be kind of leveling off. So that's positive in terms of the time you see them until the time people are making decisions. Good science is still getting funded we did have the.
The impact of the transition in the quarter, which creates a perception of uncertainty and that again, we were really pleased that that transition period was very short and we expect that to.
Dissipate very quickly as we go through and have the competition, yes, I think the market environment is competitive all of our peers have talked about that but again with existing biotech customers were still winning consistently. So we think it's just a function of now that we can take some of that leadership transition off the table.
We will be able to we'll be we'll be fine there in terms of the new <unk> customers and with existing pharma. We are pleased to continue seeing.
Good awards coming through and continuing to win and consistent rates in existing pharma.
Okay, and then one for you not asking specific to <unk>, but given you a strong background in the industry.
Love to get your thoughts on radios foundations headwinds tailwind for the industry is going to have highest gone through exactly you are clearly positive on those theato industry in longer term, but would you be willing to share some thoughts on the.
Trying to put the current environment in some perspective like what it takes for the industry to navigate through these challenges.
Our focus off the calendar do you focus on foundation for Costar clients give us a little bit more flavor without putting the current environment perspective, given your experience.
Sure I'm happy to do that.
I went through I went through this decision making process.
As I've thought about this industry and its fundamentals before joining the team as portrayed and I'm extremely excited with the choice I made to join this team I will tell you.
Yes, you see some headwinds you see some headwinds due to many of the macro level environment.
We've talked about that all of our competitors have talked about that but I remain steadfast in the market fundamentals.
<unk> set a couple of seconds ago. Good science continues to get funded and there is a statement that applies both of the pharmaceutical large pharma companies and it applies with the biotech companies. Good science. Good drugs continue to get developed in the CRO industry is a fundamental tool by which these drugs continue to get.
So I see steadfast in the long term fundamentals of the industry.
Listen that's really why I'm here and Thats why im excited to be here and as I've said, a couple of times over the next few months I'm going to be traveling and meeting with our colleagues and our customers and really getting a feel for how we're going to leverage for traders to ranks without market drop backdrop that I just described.
Great. Thanks, guys.
Thank you I'm showing no further questions at this time I would like to turn it back to Peter <unk> for closing remarks.
Thank you everybody for listening please slide in time in the industry as <unk> said, we're excited to have him on board and we look forward to sustaining our relationship with you.
Okay.
This concludes the dividend.
This concludes today's conference call. Thank you for participating and you may now disconnect.