Q3 2025 Fortrea Holdings Inc Earnings Call

Speaker #1: Good day and thank you for standing by . Welcome to the Fortria Q3 2025 Earnings Conference Call . At this time , all participants are in a listen only mode .

Speaker #1: After the speakers presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one one on your telephone .

Speaker #1: You will then hear an automated message advising your hand is raised to withdraw your question . Please press star one one again . Please be advised that today's conference is being recorded .

Speaker #1: I would now like to hand the conference over to your first speaker today , Tracy Crummy , for Trias , SVP of Investor Relations .

Speaker #1: Please go ahead .

Speaker #2: Thank you . Good morning , everyone , and welcome to portrays Third Quarter 2020 Earnings Conference Call with me today on the call is Angela Shapiro , Chief Executive Officer and Jill McConnell Chief Financial Officer .

Speaker #2: Before we begin , please note that this call is being webcast . There is an accompanying slide presentation , which can be found on the Investor Relations section of our website , com .

Speaker #2: 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 .

Speaker #2: We strongly encourage you to review the reports 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 are posted on our website .

Speaker #2: Please note that any forward looking statements represent our views as of today , November 5th , 2025 , and that we assume no update the forward looking statements , even if estimates change .

Speaker #2: During this call , we will also be referring to certain non-GAAP financial measures . These non-GAAP measures are not superior to or replacement for the comparable GAAP measures , but we believe these measures provide investors with a more complete understanding of results .

Speaker #2: A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and the earnings call presentation , which is provided in connection with today's call .

Speaker #2: Lastly , I would like to add that Joe and I will be attending the City and Evercore Healthcare conferences on December 2nd and third , respectively .

Speaker #2: If anyone would like to meet with us on these dates , please contact me or obligation to sales representatives from the firm . And with that , I'd like to turn the call over to Anshul Thakral , Chief Executive Officer .

Speaker #2: Anshul , please go ahead .

Speaker #3: Thank you . Tracy . Good morning , everyone , and thank you for joining us today . As I mark my first 100 days in this role , I want to begin by expressing my gratitude for the warm welcome and support I have received from colleagues and our board , our clients , and our broader community of stakeholders .

Speaker #3: I'm pleased to share that portray delivered solid results in the third quarter , in line with our expectations . Revenue for the third quarter was $701.3 million .

Speaker #3: Adjusted EBITDA was $50.7 million and backlog is over $7.6 billion . Our book to bill ratio improved to 1.13 times , up sequentially from the second quarter , and our trailing 12 month book to bill ratio of 1.07 times remains in line with the Crow sector .

Speaker #3: These results , combined with the continued strength of our pipeline , position us for continued backlog growth . Overall , we saw demand for our services grow , our win rates improved significantly , reaching the highest level in six quarters .

Speaker #3: Specifically , with biotech clients , our win rates doubled compared to the prior quarter . Decision making timelines for biotech clients have continued to improve from a low in the first quarter of 2025 .

Speaker #3: We saw continued strong RFP flow across political pharmacology and full service clinical development , and have a robust pipeline that is balanced across biopharma and biotech clients .

Speaker #3: While we saw a slight increase in our cancellation rate , it remains within our historical range . The overall demand environment is showing signs of improvement , with growth in clinical trial starts so far this year and increased biotech funding in Q3 , biopharma remains resilient and continues to advance its development portfolios , reflecting the underlying strength of the science .

Speaker #3: Our cash position is robust , bolstered by the receipt of the second and final milestone payment of $25 million from the divestiture of our enabling services business , we continue to focus on debt paydown , including a recent tender offer to repurchase up to $75.7 million of the company's outstanding senior secured notes , funded in part by our improved cash position .

Speaker #3: These actions underscore our commitment to maintaining a healthy balance sheet and financial flexibility . We also welcomed Bill Sharbaugh to our Board of directors this quarter .

Speaker #3: Bill brings a wealth of experience from his long tenure as an executive in clinical development at Bristol-Myers Squibb and PPD . I have had the privilege of working with him previously .

Speaker #3: His insights will be valuable for our board as we execute our strategic plans . Let me provide some details on our new business wins in Q3 .

Speaker #3: We secured several significant awards with new and repeat clients that underscore our differentiated capabilities and strong client relationships . Our clinical pharmacology business continues to grow with robust wins from leading pharma partners , as well as biotech's average contract size continues to increase consistent with our expertise in managing complex early phase clinical trials .

Speaker #3: Our portfolio continues to see growth in metabolic disease , neurodegenerative disease , immunologic and rheumatologic diseases . We also see growth in studies including patient cohorts , which we are increasingly able to execute internally within our own clinical research units , or what we call our cruise .

Speaker #3: This is true for later phase studies as well , where we are able to leverage our cruise as multi-purpose research sites . Our global clinical development business saw diverse awards across multiple therapeutic areas .

Speaker #3: Our new to Fortress Biotech Awards in the quarter included a phase two study in a rare neuromuscular disease . We won repeat business from several clients in the quarter .

Speaker #3: These wins included two phase three ophthalmology studies from a biotech client , a phase three complex respiratory disease study from a mid-size pharma , and a phase two oncology study from a large pharma client .

Speaker #3: In addition , we were delighted to secure two new strategic partnerships with mid-size clients . Turning to client and operational highlights , we are pleased to report another sequential improvement in .

Speaker #3: Net Promoter scores in Q3 , reflecting our ongoing focus on client satisfaction and operational excellence . Our NPS improved further year over year , supported by measurable delivery achievements , including reducing the time to site selection by 33% , accelerating recruitment in a high priority complex respiratory study by three months , and finishing enrollment by months early in a phase two Alzheimer study .

Speaker #3: This is the execution excellence that drives client trust with our culture of innovation . We continue to make strides in technology and AI adoption , delivering productivity gains that are expected to improve efficiency , quality and client delivery .

Speaker #3: I'll highlight some of the innovations that are part of our fortress technology strategy , focussed on digital modernization of our workflow . Earlier this year , we launched Accelerate Risk Radar , including an AI powered agent designed to enhance risk based quality management in clinical trials .

Speaker #3: It uses AI and ML to automate risk identification and suggest mitigation strategies , reducing manual effort and improving efficiency and patient safety . Start My Day is a new digital experience that brings actionable insights and prioritize tasks into a single , intuitive , persona based interface .

Speaker #3: For Cras and study teams . This tool is designed to improve daily productivity and decision making . It's in pilot stage now , with broader deployment planned in 2026 .

Speaker #3: As part of our strategy to modernize workflows . We are broadening the rollout of our Icera mobile app and digital assistant . Following successful pilots , we are integrating the app with our accelerated platform to provide smart reminders , digital site check ins , and risk metrics .

Speaker #3: Early users report 5 to 10% efficiency gains , which should increase as we add further functionality . Tangible proof that our strategy is delivering these initiatives streamline processes , reduce manual effort , and foster a culture of continuous improvement , positioning for for operational excellence and scalable innovation .

Speaker #3: Now , I'd like to share more color about our progress on our strategic plans . As I mentioned our last earnings my first 100 days at Fortria were focused on two priorities deepening client facing activities and employee engagement .

Speaker #3: To that end , I traveled extensively across the United States with members of our executive team , as well as to India , China , Japan , the UK , and Bulgaria meeting with clients and colleagues .

Speaker #3: These visits included discussions with many of our top clients to strengthen partnerships , as well as joining our sales efforts by attending bid defences and numerous meetings with biotech executives .

Speaker #3: As part of our new client acquisition actions , client feedback on Fortria has been overwhelmingly positive . Both large pharma and biotech clients value our global delivery quality , executive attention and operational improvements .

Speaker #3: Biotech clients in particular , appreciate our balance of scale , agility , and the focus on client intimacy . With that said , we of course , like all cro's , can continue to get better in project management and overall client relationship management .

Speaker #3: We held in-person employee town halls across various geographies and offices , engaging with about a third of our workforce . We saw firsthand a hackathon in India showcasing grassroots innovation from our study team .

Speaker #3: We are instilling a culture amongst our colleagues to continue to focus on efficiency across aspects of our workflow . I'm proud of our employees deep experience and their commitment to our mission of bringing life changing treatments to patients faster .

Speaker #3: The team moved quickly through our leadership transition without missing a beat , and there is a strong emphasis on employee engagement . They have worked with tireless dedication to serve our clients and position the company for future success .

Speaker #3: My first 100 days also reaffirmed that our strategy should center around three critical pillars for the business commercial excellence , operational excellence and financial excellence .

Speaker #3: Commercial excellence is how we return to growth . Built on the three R's reach , relevant and repeat . We must continue to expand our reach by growing our pipeline of new opportunities and acquiring new clients .

Speaker #3: We must also leverage our recognized therapeutic and scientific expertise in ways that are relevant and resonate with clients . Doubling down on areas where we are already strong .

Speaker #3: Lastly , we're growing our roster of repeat clients through sticky relationships and enhancing our client account and portfolio management capabilities . Operational excellence is how we deliver quality and productivity consistently for our clients .

Speaker #3: We are optimizing project management , streamlining our structure , and bringing therapeutic experts closer to delivery . We are also enhancing our biotech operating model and empowering our operational teams to accelerate studies with better technology , tools , training and infrastructure .

Speaker #3: Financial excellence means continuing to rightsize our organization while driving margin expansion . While cost actions have begun to reduce our expense base . We are implementing further targeted initiatives to ensure that these translate into margin improvement in 2026 .

Speaker #3: The ability to tightly match resources to demand must remain in portrayals . DNA . We continue to optimize our capital structure . We remain focused on positive cash flow and stay committed to keeping our dsos in the low to mid 40s .

Speaker #3: We're closely monitoring the pricing environment to balance winning new business and achieving attractive margins amid competitive pressures . I will now turn the call over to chill for a deeper dive into our financial results .

Speaker #4: Thank you Anshul , and thank you to everyone for joining us today . In my prepared remarks , I'll cover the primary factors that influence our third quarter performance and share an update on our 2025 guidance .

Speaker #4: I'll 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 and our sound capital structure that position us well as we move forward .

Speaker #4: These results demonstrate that our actions are beginning to deliver results. I want it to be clear that we are continuing to take appropriate actions to improve our financial performance and capital profile.

Speaker #4: As Atul stated , we delivered a solid third quarter for the quarter . We delivered revenue and adjusted EBITDA that continues our momentum towards our margin optimization initiatives , including delivering nearly two thirds of our $150 million in gross savings targets in the first three quarters of the year .

Speaker #4: We generated strong positive operating and free cash flow , and we delivered a 13 day improvement in DSO versus the second quarter . As we have now fully unwound the impact of the invoicing pause related to the launch of our new ERP system during the first quarter .

Speaker #4: Now , I'll cover the financial results in more detail . Third quarter revenue was $701.3 million , 3.9% higher than the prior year quarter , driven by increases in both our clinical pharmacology and clinical development businesses .

Speaker #4: With a small benefit from foreign exchange, the increase in our clinical pharmacology business was primarily driven by higher demand, as well as a study mix that is resulting in increased levels of pass-through costs.

Speaker #4: The clinical development increase was driven by recent net new business awards , including higher pass through costs , partially offset by lower FSP revenue .

Speaker #4: On a GAAP basis , direct costs in the quarter increased 9.9% year over year , primarily due to an increase in pass through and stock compensation costs , as well as the negative impact of lower research and development tax credits .

Speaker #4: This increase was partially offset by lower headcount and personnel costs , which declined despite the reintroduction of variable compensation . As we carefully balance investing in our employees while delivering on our transformation efforts .

Speaker #4: In the quarter was lower year over year by 21.6% , primarily due to lower TSA , and IT related costs . If you look at underlying controllable sequentially , SG&A in the third quarter is 7% lower than in the second quarter of 2025 , and 20% lower than our fourth quarter of 2024 .

Speaker #4: Run rate. This also includes the absorption of reintroducing variable compensation. I'll discuss progress on our ongoing transformation efforts across the organization later in my remarks.

Speaker #4: Net interest expense for the quarter was $22.6 million , broadly in line with the prior year quarter . Turning to our tax rate , we recognized income tax benefits of $12.8 million , which resulted in an effective tax rate of 44.6% .

Speaker #4: The effective tax rate for the three months ended September 30th , 2025 was higher than the company's statutory tax rate , primarily due to an increase in the company's US operating losses , partially offset by Non-deductible compensation expenses .

Speaker #4: Feet valuation allowance and withholding taxes on our non-U.S. earnings . Our book to bill for the quarter was 1.13 times significantly improved from the second quarter .

Speaker #4: As we navigated the brief period of leadership transition . Book to bill for the trailing 12 months was 1.07 times our backlog is over $7.6 billion .

Speaker #4: Although cancellations were slightly higher in Q3 than in the last few quarters . They have continued to be in line with our historical trends .

Speaker #4: Adjusted EBITDA for the quarter was $50.7 million , compared to adjusted EBITDA of $64.2 million in the prior year period . The reduction versus the prior year quarter is driven primarily by lower margin related to project mix , including a higher proportion of pass through costs .

Speaker #4: The reintroduction of variable compensation and a reduction in R&D tax credit . Moving to net loss and adjusted net income in the third quarter of 2025 , net loss was $15.9 million , compared to a net loss of $18.5 million in the prior year period .

Speaker #4: In the third quarter of 2025 , adjusted net income was $11.7 million compared to adjusted net income of $20.7 million in the prior year period .

Speaker #4: For the current quarter , adjusted basic and diluted earnings per share were $0.13 and $0.12 , respectively . Turning to customer concentration . Our top ten customers represented 60% of third quarter 2020 revenues .

Speaker #4: Our largest customer accounted for 19.8% of revenues during the quarter ended September 30th , 2025 . As I comment on cash flows , note that all references to prior year cash flows are for the entirety of Fortria , as we had not segregated cash flows from discontinued operations with the business sold in June 2024 .

Speaker #4: To more clearly see year to date and third quarter cash flow metrics , please refer to the investor presentation we posted to our website this morning .

Speaker #4: For the nine months ended September 30th , 2025 , we reported negative operating cash flow of $15.6 million compared to positive operating cash flow of $245.7 million in the prior year period .

Speaker #4: The positive cash flow in the corresponding prior year nine month period was attributed primarily to the initial sale of receivables under the securitization program initiated in June 2024 .

Speaker #4: For the third quarter of 2025 , we generated positive operating cash flow of $87 million and free cash flow of $80 million , which exceeded our expectations .

Speaker #4: Days Sales Outstanding from continuing operations was 33 days as of September 30, 2025, which is 13 days lower than June 30, 2025, and 17 days lower than the same period last year.

Speaker #4: The significant reduction versus the second quarter , primarily demonstrates our continued progress to improve the timeliness of our order to cash processes . Although we did benefit from the timing of certain payments in the quarter , net accounts receivable and unbilled services were continuing .

Speaker #4: Operations were $663.2 million as of September 30th , 2025 , broadly in line with the $659.5 million balance as of December 31st , 2024 .

Speaker #4: We ended the quarter with no borrowing on the revolver , compared to $50 million outstanding as of June 30th , 2025 . Our positive operating cash flow in the quarter , combined with our undrawn revolver , resulted in available liquidity in excess of a half of $1 billion .

Speaker #4: We currently target full year 2025 operating cash flow to be slightly negative , with the first quarter negative cash flow being mostly offset by positive cash flow generation for the remainder of the year .

Speaker #4: With our targeted EBITDA and the 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 as well , beyond what we include in our definition of adjusted EBITDA , such as the pro forma benefits from in-flight cost savings initiatives .

Speaker #4: Our public company costs and cost necessitated by the spin . The maximum net leverage ratio under the amended credit agreement ranges from 5.5 times to six times over the years 2025 and 2026 .

Speaker #4: And reverts to 5.3 times as of the first quarter of 2027 . While we do not disclose our covenant calculations , we have considerable headroom and our covenant leverage under our ratio , under our credit agreement is significantly better than our reported leverage ratio .

Speaker #4: 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 ratios of the credit agreement for the foreseeable future .

Speaker #4: Our capital allocation priorities continue to be driving organic growth and improving productivity , along with debt repayment , including the closing of our note repurchase that is required under the indenture in connection with the divestiture of our enabling services businesses in 2024 , which is expected to take place in the fourth quarter of 2025 .

Speaker #4: Backlog burn in the third quarter was in line with the second quarter of this year , and in line with the prior year period .

Speaker #4: This was supported by growth in our faster burning clinical pharmacology business , along with our progress in moving clinical development projects into more intensive phases of their life cycle .

Speaker #4: We anticipate this trend to continue throughout the remainder of 2025 . Now I'll give an update on how we're executing against our transformation plans .

Speaker #4: As previously shared, we continue to execute against our target of growth cost reductions of $150 million in 2025, with the expected net benefit of around $90 million this year.

Speaker #4: As some of the cost reductions are being offset by the reintroduction of variable compensation . Year to date , we have captured more than $95 million in gross savings , with roughly $53 million in net savings contributing to improvements in EBITDA .

Speaker #4: Year to date , these savings have benefited largely gross margin more than G&A , but we are seeing an increase in G&A savings as the year progresses .

Speaker #4: Consistent with our planned timing for executing on the specific savings program , building on our ongoing progress to improve our cost base through the third quarter , we have further leveraged our third party relationships to optimize the cost of delivering services out of our SG&A function .

Speaker #4: We expect our SG&A optimization program to extend into 2026 as we continue our efforts to bring this spend more in line with peers .

Speaker #4: For full year 2025 , we are raising our revenue guidance and narrowing our adjusted EBITDA outlook based on exchange rates . As of December 31st , 2024 .

Speaker #4: We are increasing our revenue targets to a range of $2.7 billion to $2.75 billion . At the same time , we are narrowing our adjusted EBITDA target in the range of $175 million to $195 million , reflecting continued operational discipline and confidence in our execution .

Speaker #4: In terms of cash flow for full year 2025 , we are targeting operating cash flow to be marginally negative with positive operating cash flow expected in the fourth quarter of 2025 .

Speaker #4: The team at Gorteria continues to demonstrate commitment and resilience , and we are pleased to see improving customer satisfaction scores and continued strong employee engagement amidst our efforts to optimize our profitability .

Speaker #4: We believe we have laid the groundwork to enable stable financial performance that will improve over time. We are energized by what lies ahead and our ability to be laser-focused on delighting our customers as we advance through our transformation phase and target execution against the three pillars shared with you.

Speaker #4: In his remarks . We look forward to demonstrating our continued progress towards delivering value for all of our stakeholders . Now we'll open the call for Q&A .

Speaker #4: Operator . Please open the line .

Speaker #1: Thank you . At this time , we will conduct the question and answer session . As a reminder to ask a question , you will need to press star one one on your telephone and wait for your name to be announced .

Speaker #1: To withdraw your question , please press star one one again . Please stand by while we compile the Q&A roster . Our first question comes from the line of Eric Caldwell of Baird .

Speaker #1: Your line is now open .

Speaker #5: Thanks very much . Good morning and nice , nice job . And glad to have you here . I've got a couple . First off , in the past , the company talked about its mix of pre-spin awards burning through revenue as opposed to postpone or next generation style contracting .

Speaker #5: And that was , you know , the majority of that was was pre-spin awards . That's been navigating towards more post spin awards .

Speaker #5: But I'm curious if you can give us an update on where you are and how you see that unfolding through 2026 .

Speaker #3: Eric , it's nice to talk to you . Thanks for the for the kind words . It's been a it's been a great first 100 days here at Fortria .

Speaker #3: Excited for the entire team stepping up this quarter . So I'm very proud of our team here at Fortria . You know , I think we talked about this a little bit last time to Pre-spin versus post spin , trying to get folks less focused on on on that vocabulary .

Speaker #3: I think there are contracts that have been signed with Fortria long before the company became Fortria , when it was still a business unit at LabCorp .

Speaker #3: And there's limited things that we can do in terms of right sizing those contracts and limited work . We can do . But the team is focussed on everything that is possible in terms of right sizing .

Speaker #3: Those contracts , and we continue to do that . And as far as as you call it postpaid , I just look at it as independent contract side within the Fortria landscape .

Speaker #3: We've been very focused , especially these last two quarters , on ensuring that we're focused on things like out of scope work , things like overburdens , things like ensuring that the teams are staffed appropriately .

Speaker #3: And we're starting to see some really good results from , from from those efforts . You said you had a couple of questions , Eric .

Speaker #5: Yes , yes . Thank you . I appreciate that the it sounded like you made some progress with new to Fortria clients this quarter .

Speaker #5: Obviously that was a bit hampered last quarter with the original uncertainties around the CEO transition and some counter detailing by your competitors , as well as just the market environment .

Speaker #5: But I'm hoping you can give a little more detail in terms of , you know , maybe if possible , sizing or giving a count of new to Fortria customers or any , you know , kind of quantitative metrics of possible , but more importantly , I think talk to us about how your approaching that marketplace .

Speaker #5: Is it is it new sales strategies ? Is it higher level executive engagement ? What what is going to drive a previously inexperienced customer , someone who hasn't worked with you ?

Speaker #5: What is going to drive them to come to a fortria moving forward ?

Speaker #6: Sure . Eric .

Speaker #3: Happy to touch on that . You know , last time we spoke in an earnings call , I think I was on day two or day three of the job .

Speaker #3: And That all of those factors in general just helped create a level of stability around Fortria in the eyes of our customers that renewed confidence got reflected in the numbers we saw here in Q3 .

Speaker #3: you know , now having really for the company completed the CEO transition . And frankly to a solid financial performance . No not in bookings in the second quarter .

Speaker #3: And I'll share some numbers with you , and I want to answer your real question is what are we doing differently ? You know , the thing I look at is RFP volumes from these new 243 .

Speaker #3: Customers RFP volume in Q3 for us was up almost 40% quarter over quarter . With these new customers . Our win rates were were where we were really having impact .

Speaker #3: Our win rates for these new to fortria biotechs doubled quarter over quarter . And they've been our win rates in general with our biotech customers have been at the highest level we've seen in the last 5 to 6 quarters .

Speaker #3: Now , your question is , what do we do ? It's it's focus for all of these customers , whether it's our big pharma customers or biotech customers .

Speaker #3: It's a renewed focus on account management . It's a renewed focus on how we're showing up in the sales force . I mean , I'll tell you , you know , I've spent most of my time now either visiting sites and being with some of our colleagues or I've been on bid defences myself .

Speaker #3: So as the executive team and I've been out at customers almost every single week that I've been here . So it's a renewed focus on our sales strategy .

Speaker #3: It's bringing a lot more medical expertise and operational expertise into the bidding process . Earlier , frankly , you know , Eric , it's a lot to get .

Speaker #3: Just getting back to the basics .

Speaker #5: That's fantastic . Question . Yeah . That's it . I just want to also say congrats on getting Bill Sharbaugh into the into the organization .

Speaker #5: It'll be fun to catch up with him . He was fantastic at Pbd . So congrats at that .

Speaker #3: I'll I'll pass on that message . Thanks , Eric .

Speaker #5: Thank you .

Speaker #1: One moment for our next question . Our next question comes from of Patrick Donnelly of Citi . Your line is now open .

Speaker #7: Hi , this is Brendan on for Patrick . I want to touch on a little bit on the bookings backdrop . I wonder if you'd be able to parse out kind of like what's you're seeing there between large pharma and small biotech and kind of a more recently , as we've seen more headlines on the MSN news and pharma tariffs , have you seen any increased activity or interest in moving forward previously pending projects ?

Speaker #6: Yeah .

Speaker #3: Brendan happy to answer that question . Look , we don't break down specifics around our bookings numbers between biotech and biopharma . What I'll tell you is from a trend perspective , we're seeing , you know , neutral to favorable trends in both segments , in both markets .

Speaker #3: Let's take a look at our biotech customers . You know , they're historically let's go back to Q1 of 2025 . We saw some pretty depressed decision making timelines , things taking forever .

Speaker #3: So we're starting to see that pick up . That trend is pretty important in the biotech segment . And that's led to not just increased RFPs , but slightly faster sales cycle for us over the course of the third quarter .

Speaker #3: As far as our biopharma customers are concerned , what I would tell you about our biopharma customers is they continue to be resilient and persevere through the ever changing landscape , be it , be it tariffs , be it pharma , pricing , etc.

Speaker #3: and what we're finding with all of our biopharma customers is they're prioritized pipelines that are backed by science and innovation continue to move forward .

Speaker #3: And our conversations with our biotech biopharma customers continue to move at a healthy pace that we've seen all year .

Speaker #7: Appreciate that . Thank you . And then on the pricing environment has definitely been kind of a big focus within the CRO industry .

Speaker #7: And I was wondering if you've seen any changes in the competitive intensity over the last several months . And we kind of see that moving forward .

Speaker #7: Thank you for taking my questions .

Speaker #6: Well , look , I think .

Speaker #3: The pricing environment continues to be competitive , but disciplined . You know , our bid margins , these are margins of the levels of which we submit our proposals and bids have largely stayed consistent this year in our full service CRO work price isn't really a lever .

Speaker #3: We see that wins business at the end of the day , it's leading with science . It's leading with executive engagement , it's leading with staffing .

Speaker #3: The right operational teams and putting the right delivery solutions in front of the client . Within the desired time frame . You know , with that said , in the MSP business , we certainly see more aggressive pricing strategies coming specifically from some of our larger CRO competitors .

Speaker #3: We tend to shy away from areas where pricing makes makes the business unattractive for us .

Speaker #8: Thank you . .

Speaker #1: One moment for our next question . Our next question comes from the line of David Windley of Jefferies . Your line is now open .

Speaker #9: Hi . Good morning . Thanks for taking my question . Congrats on the on the first quarter . Good to hear your voice .

Speaker #9: I wanted to ask a question that meanders through a few different topics , but basically around kind of pricing strategy and margin leverage .

Speaker #9: So I heard $53 million of delivered savings to the PNL . More of that benefiting gross margin than I think . You had also talked about in meetings in September .

Speaker #9: Kind of a focus on maybe long term growing revenue to drive operating leverage and improve margin . And then , you know , we're talking about new to new to fortress , a client wins among , you know , among other wins .

Speaker #9: And so I guess what I'm what I'm interested in is , are you one trying to at least hold price ? If not walk up price a little bit as a as a method to drive more operating leverage in the long term , thinking that maybe fortria in the past has been , you know , a little bit low on price at the outset .

Speaker #9: And then secondly , given that revenue was strong in the quarter , I'd love for you to disentangle . Maybe Jill can disentangle the direct fee versus the pass through to help us understand why that didn't benefit gross margin .

Speaker #9: Instead of seeing this gross margin detriment compared to the to the prior periods , thanks . Sorry . Long question .

Speaker #6: Okay , first of all ,

Speaker #3: David , it's nice to hear your voice too . It's nice to talk to you again . Let me start by giving some of the overarching answers I noted down about three questions and seven parts here , but I'll do my best to walk through to give you give you the narrative .

Speaker #3: There , I think . Look , I think that's the question of the day , right ? So let and then I'll have Jill add some commentary here on the specifics .

Speaker #3: You asked several questions . You know , it's about your the root of your question is pricing strategy . And therefore margin leverage .

Speaker #3: So let's let's hit up pricing strategy . And let's talk about margin leverage in the quarter . And what happened . My goal is to hold on price when and wherever possible .

Speaker #3: That said , it's a very competitive pricing environment . If there's some strategic reasons for a particular customer , a particular therapeutic area for us to be competitive in the marketplace , we will be competitive in the marketplace .

Speaker #3: But holding price is extremely important . I can tell you there's examples of multiple studies in Q3 where I specifically asked the team to frankly walk away at the last days of the proposal because terms and pricing aren't in congruence with what I'd like to do here is to return Fortria back to closer to industry level margins .

Speaker #3: So I'm being very vigilant there . And almost every deal from a pricing perspective makes it up to myself or Jill or Mark Morris , and we discuss these things .

Speaker #3: So there's a lot of holding and being vigilant there . Vigilant there . That said , you know , it's this this concept that I talked to you about growing revenue to get the operating leverage we need .

Speaker #3: That's key . But it's not just growing revenue . It's growing . You know , direct service fee revenue . I'm going to have Jill comment a little bit about this quarter so you can understand where our revenue beat is coming from .

Speaker #3: So you can start articulating that revenue beat in comparison to margin . But Jill can hand that over to you .

Speaker #4: Sure . Yeah . David appreciate the question . So I think if you're if you're thinking holistically about revenue and where it's landed this year , a couple of points .

Speaker #4: In terms of the makeup and the mix , we have seen more upside in Passthroughs than we expected . And when you think about the guidance and how the guidance has been adjusted through the course of the year , that's predominantly been because we've seen an increased mix of passthroughs relative to service fees .

Speaker #4: We have a good handle on our service fee revenue now, and we have been very successful in being able to forecast that for ourselves.

Speaker #4: So that's very positive . I think , like many of our peers , we're continuing to see increased pass through . So that's driven a lot of the revenue change over the year .

Speaker #4: And that's why you're not necessarily seeing it either in the adjusted EBITDA dollar or the margin is that help answer your question .

Speaker #9: Yes . I mean , is it possible to put some numbers on that ?

Speaker #3: You know , David , I'd love for you to lead the charge in getting the entire industry to to start the , you know , doing that because , you know , I spent time in prep sessions yesterday with the team saying , you know , maybe we should just start doing that .

Speaker #3: But , you know , if you can get the rest of the industry to do it , I'll do it the same . Okay .

Speaker #9: Got it . I'll ask . I'll ask one much shorter follow up . Eric asked you the question on new to new to Fortria clients .

Speaker #9: I'll maybe if there's anything specific about you mentioned in your prepared remarks , biotech operating model that is you know , you obviously have a history there , a successful history there at your prior shop .

Speaker #9: Is there anything specific that you might add to your answer to Eric about biotech client go to market strategy in particular , given your reference to the biotech operating model , thanks .

Speaker #3: Yeah , sure . I would . I mean , you know , I've I've spent a career focused on this topic . I think started creating biotech specific strategies and units before it was a thing or even popular in the CRO industry .

Speaker #3: It what I'll tell you what I've been trying to do here at fortress is we just need to be bespoke . Every deal needs a bespoke approach when it comes to biotech , whether it's trying to understand the makeup of what they're trying to solve for with the particular trial so that we've got our medical and scientific experts leading the deal versus our sales reps leading the deal , or we understand that they're trying to solve for a resource gap in in how they've been able to build their own clinical operations resource .

Speaker #3: Then it's our clinical team that's leading the deal , or we're really we're really trying to solve for something that is much more of a right now , we just need some estimates because we're trying to raise funding .

Speaker #3: Then we've got our sales team leading the deal . So in each one of these cases , what I'm trying to do is fortress and what I've done in my past is , is a upskill .

Speaker #3: Our customer facing resources , our customer facing resources don't just sit in sales , upskill our customer facing resources to get to the root cause , just like I do as an engineer .

Speaker #3: Problem solve . What is our customer trying to solve for and then figure out which resource and how does fortress need to show up in that specific problem ?

Speaker #3: I think we did that better than we have in the past . In Q3 , but do I think we did it at a at a complete level of satisfaction ?

Speaker #3: For me personally , no . But that's the opportunity over the next coming quarters for us to continue to approach the biotech customers in a much more bespoke way than fortress ever has .

Speaker #3: Does that answer your question , David ?

Speaker #9: Yes , yes , very helpful . Additional color . Thank you .

Speaker #3: Thank you .

Speaker #1: As a reminder to ask a question , please press star one on your telephone and wait for your name to be announced . Our next question comes from the line of Luke Sagar of Barclays .

Speaker #1: Your line is now open .

Speaker #10: Great ! Thanks for the question guys . I appreciate the the talk about rightsizing the cost structure and stuff , but you know , as we kind of look further out , one of the questions we get asked is , like , the disconnect that you guys have from a margin perspective versus peers on your normalized basis .

Speaker #10: Is there any reason why you wouldn't be able to to close that gap once you kind of engage all these these other productivity programs , etc.

Speaker #10: , just kind of thinking about where these margins could go in a more normalized growth and bookings environment for you or operating environment .

Speaker #4: Yeah . Luke , you know , I think a can speak here because we've actually talked about this . And I think he'll reiterate that over time .

Speaker #4: We don't see that he still doesn't see , but he can comment on that . I think part of the margin challenge , as I mentioned in the in the response that I had previously , some of the revenue this year has come from higher passthroughs , which obviously bring challenges .

Speaker #4: We've been open about the fact that we've reintroduced variable compensation back this year as we try to make sure we retain our key talent and engage .

Speaker #4: So we're trying to be thoughtful about how we balance those headwinds . I think we've done it in the right way because we have managed to keep employee engagement really high , and we know that that's very important to our customers as we , you know , they want to have the solidity of those teams over time .

Speaker #4: You're going to continue to see us focus on bringing down G&A expense as a percent of revenue . We've made progress this year , but there's still more work to be done .

Speaker #4: And then , you know , Angelo has been saying , and I'll let him lay in here . You know , we need to continue to right whole organization relative to where we are as a company .

Speaker #4: And that is something that we have been on the journey on . But there's still more work to be done .

Speaker #3: Yeah . No . That's great . Look , I think it's as Jill said and I've said this before now , 100 days into the to the company , you know , into the weeds .

Speaker #3: I don't see any structural reason . I don't see any structural reason why we can't return back to more industry standard margins . But it's going to it's going to take a few things .

Speaker #3: It's not just going to take right sizing , but it's going to take a consistent growth in our backlog . So if I if I look at where we are right now , two and a half years into this journey , the next , next two and a half years look very different than the past two and a half And the last two and a half years , we had headwinds that were market related headwinds in terms of softening demand .

Speaker #3: Our own issues , and coming out of the gate . If you think about the inconsistency in commercial delivery and inconsistency in how we were building the backlog , the serious headwinds related to a spin that was probably messier than anyone could have forecasted and took longer than anyone could have forecasted .

Speaker #3: And on top of that , you know , we had tons of counter detailing , leadership , transition happening from a CEO standpoint that that took some time .

Speaker #3: If I think about it , the market is starting to get neutral to positive . As you've heard from all of my peers , as you all have stated in your reports , we're starting to see green shoots of decision making , timelines and biotech getting better .

Speaker #3: You saw the funding reports came out this morning , biotech funding , while not at historical levels , is starting to return . So you're starting to see the market go from neutral to positive .

Speaker #3: You were completely out of the spin . We're fully independent company , not in , you know , encumbered by the kind of expenses .

Speaker #3: And frankly , distractions . People , people think about the spin in terms of cost and forget how much effort it takes to complete that spin .

Speaker #3: Those distractions . CEO transition being complete . So , you know , many of the structural headwinds that have been holding us back from that type of progress are starting to subside .

Speaker #3: That said , we have a lot of work to do . I don't see any structural reasons in this company why we can't get back to more industry standard margins , but it's going to take work .

Speaker #3: It's going to take work in two pillars . One is a continuous right sizing a DNA that is all about being a midsized , nimble CRO .

Speaker #3: And the second is a consistent delivery of book to bill . That gets us to a consistent , you know , and diverse building of our backlog .

Speaker #3: Look , there's probably more than what you wanted , but hopefully that answers your question .

Speaker #10: Yeah it does . It was just more about like the structural if it was something that you guys had from either business mix or something like that .

Speaker #10: But I think that that kind of gets to the crux of the issue . And then .

Speaker #3: Just said no , instead of long winded answer , I could have just said no . There's no structure and not giving you a long winded answer .

Speaker #3: That's the feedback I'm receiving live on this call. I get it.

Speaker #10: That's that's all right . That's that's a good CEO right there . So as we look at 26 , you know I understand it's pretty early here .

Speaker #10: But if we kind of just assume this kind of stabilized burn rate and then , you know , continue to bookings and backlog trend here , that kind of gets us to something around like low singles to mid singles .

Speaker #10: Do you think that's a decent starting point to to think about top line growth next year ?

Speaker #3: I think we're not giving any 26 guidance right now . It wouldn't be prudent for us to do that , but it was a good way to try to ask that question and sneak that in there .

Speaker #3: But we're not giving 2026 guidance right now . Let me let me get another 100 days under my belt . Yeah . No , I appreciate it .

Speaker #3: I , you know , kudos on the try . You almost had me there . But give me another 100 days in seat and we'll talk about guidance .

Speaker #10: All right . Thanks .

Speaker #3: Thanks .

Speaker #1: One moment for our next question . Our next question comes from the line of Justin Boers of Deutsche Bank . Your line is now open .

Speaker #11: Hi . Good morning everyone . So I just wanted to to sort of extend on Luke's question in some ways about the industry environment .

Speaker #11: So , you know , for , for you , I mean , you guys I think did a little better than , than what people were thinking .

Speaker #11: And , you know , peers are talking about improved industry environment as well . But are there any anecdotes you can provide for us to sort of like to quantify that in terms of maybe terms and decision making times , etc.

Speaker #11: ? And then , you know , it was a follow up to a lot of the conversations been focused on biotech , but I'd love to hear , you know , what you're seeing in large pharma and some of the conversations you're having there as well .

Speaker #3: Sure . Why don't I give you two small anecdotes , one on each . Just I'm in . I just got feedback from Luke of giving long winded answers .

Speaker #3: So I'm trying to be careful here , but look on the biotech . I'll give you one anecdote . We have a great customer of ours who is who awarded us two large phase three programs in Q3 .

Speaker #3: And this is a customer that for the longest time has been sitting on high quality Q2 data , high quality phase two data , but with some of the uncertainty happening at the FDA and some of the uncertainty happening on who's staying in their particular department and who's not , and what the what , what the narrative looks like around what's going to be an acceptable approach to this particular phase .

Speaker #3: Three in the back and forth , a lot of that started subsiding over the course of the last 4 or 5 months . I wouldn't say just quarter , which changed their which changed their timeline , which changed their ability to make decision .

Speaker #3: And it went from a , okay , we can make a decision by the end of the year to , hey , for tria , how can you get us first patient enrolled by January ?

Speaker #3: We turn that proposal on a dime within two weeks and went to contract within six weeks . That wasn't . That's just an anecdote .

Speaker #3: And of course I picked a really good anecdote . Right ? But that , to give you a flavor of the types of conversations that are happening and sometimes , you know , we'll be we'll be working for nine months on a proposal with a client .

Speaker #3: And in this particular case , we had two weeks to turn around an entire study team and a proposal on a phase three program where we need to get first patient in in the first quarter of next year .

Speaker #3: So that's an anecdote in the biotech sphere . Let me give you an anecdote in our large pharma sphere , in our large pharma sphere , you know , we've had as as they won't , obviously mention the name of the clients , but as many of these pharma companies start negotiating their deals with with the current administration in the US , that takes away a certain level of uncertainty .

Speaker #3: That doesn't mean it takes away risk or to their financials , but it takes away uncertainty . And that taking away of uncertainty allows them to move internal processes like , okay , we can now finalize our R&D pipeline for 2026 .

Speaker #3: We had one of our pharma customers go through that experience , and whether it was them negotiating it or not , the fact that somebody was negotiating with the administration allowed them to get comfortable that , okay , now it's time to lock in our R&D plans for 2026 .

Speaker #3: And once they lock in their R&D plans for 2026 , I'd like to say their first call is the CRO . It's really not , but it's probably their third or fourth call is a CRO to start working through .

Speaker #3: Okay , these are the studies I need launched in the first quarter . Let's start putting teams together . Let's start putting proposals together .

Speaker #3: Justin , I hope that gives you the sort of anecdotal evidence that you're looking for all of that to be said . And I think all of my peers have said the same thing .

Speaker #3: You know , neutral to positive . We still have a lot of , you know , headwinds and uncertainty in the market . We're not looking at markets that look like 2018 , but certainly there's reasons to to think neutral , to positive .

Speaker #11: Thank you . And then just one quick follow up on on phase one . We haven't really talked about that on the call yet .

Speaker #11: How's how's capacity . And utilization there . And any any progress on on bringing more of that in-house .

Speaker #3: Yeah . So I think look that's a great question . Thank you for asking about our clinical pharmacology business . It's a business I'm actually very proud of .

Speaker #3: I think the Phase One business had higher than expected growth over the last two quarters. We mentioned it in the last quarter, and we're mentioning it at this time as well, which is great because we're seeing high utilization rates.

Speaker #3: As I look at this quarter , as I look at next quarter , utilization rates are where we'd like them to be . They're healthy in our in our phase one clinic .

Speaker #3: But , you know , I want to talk a little bit about this , bringing the work in-house versus not bringing the work in-house .

Speaker #3: See , the thing is , it's really more about the mix of the work that's coming in . We have certain studies coming in , for example , large bioequivalent studies in obesity , for example .

Speaker #3: These type of studies require significant cohorts to be run simultaneously . And often you need four or 5 or 6 sites to run because of the design of that study .

Speaker #3: And when you run those studies simultaneously in multiple sites , due to , you know , request of the customer and design to the design of the program , we end up having to use external sites , not because that's not a structural thing .

Speaker #3: We can't do that work in-house . It's just that X number of cohorts need to be run within the same four week time frame simultaneously .

Speaker #3: And in that business , we've seen , as Jill talked about , we've seen some higher than normal pass through costs . Now , these are from a strategic standpoint .

Speaker #3: This is good because we're continuing to service our customers , continuing to move their pipelines forward . And frankly , we're getting a lot of repeat business from some of these big customers .

Speaker #3: But when those kinds of large bioequivalent studies come in , that's just one example of several others in the mix . You end up with some higher pass through costs .

Speaker #3: So the mix has been is been really the narrative that we should be talking about in clinical pharmacology . We're doing good on our capacity front .

Speaker #11: Appreciate that . Thank you .

Speaker #3: Thank you for the question, Justin.

Speaker #1: One moment for our next question . Our next question comes from the line of Jailendra Singh of Truist Securities . Your line is now open .

Speaker #12: Hey , Jill , this is Jenny on for Joe . Thanks for taking my question . I wanted to ask about the FSP sales team that you recently launched .

Speaker #12: Just curious how the momentum there in the past quarter . What's the traction for this dedicated FSP sales team and are you seeing shifts in sponsor preferences between FSP ?

Speaker #12: So, and then just a quick follow-up to that. I know you're maintaining pricing conversations in Episode, but how do you balance pricing discipline with the competitive environment in the FSP segment?

Speaker #3: Yeah I think you've asked several questions there around FSP , Jenny , and I'm happy to try to answer them to the best I can .

Speaker #3: We're seeing some sequential increase in FSP RFP right now . We've launched the FSP sort of , sort of relaunched our focused effort here at FSP earlier .

Speaker #3: Earlier in the year . It's a bit early to see the kind of progress I'd like to see there . We're seeing an uptick in RFPs , but FSP , RFP , when you're talking about anywhere from ten to several hundred resources , the sales cycle on these things are longer than FSO .

Speaker #3: So that's going to take a little bit more time , though . We are proceeding with a relative amount of caution because what we have to do is we have to balance the reach that we want with these customers and the business that we want .

Speaker #3: In FSP with work that makes sense for us to take on , you know , some of the FSP work comes in levels of margins that are frankly not great for us .

Speaker #3: And even in this quarter , we walked away from some of that . And much of the FSP work that we are able to take on , we take on when we've got healthy margins .

Speaker #3: So it's a let's take more time to see how that strategy plays out on FSP .

Speaker #12: That's fair . Thanks for the color . And then just a follow up on on the momentum that you're seeing in large polymer logging in or deciding on 2026 R&D plans .

Speaker #12: And maybe going forward with that in Q1 in the past , I think Fortria has talked about large pharma for for the company being more back end loaded as large pharma's decide on what they'll decide for for the next year .

Speaker #12: So just curious on are you seeing decision making being pushed out a little from back half to maybe early 2026 this year ?

Speaker #3: I think that's a great question . There isn't any consistent trend right now in decision making . Being pushed up by either biotech or biopharma clients .

Speaker #3: I think we're starting to normalize a little bit on decision-making timelines and timeframes. But remember, you're talking about pretty significant events, even for us.

Speaker #3: We're the smaller of the public companies that you cover . Even for us , it's a pretty significant , you know , customer segment .

Speaker #3: So you've got ups and downs and puts and takes depending on the particular customer . But there's no consistent trend that I'm seeing in terms of decision making being pushed .

Speaker #3: If that's the question .

Speaker #12: Right . Thank you so much . One .

Speaker #1: One moment for our next question . Our next question comes from the line of Elizabeth Anderson of Evercore ISI . Your line is now open .

Speaker #13: Hi . Good morning . Thanks for taking my question . This is Alan Chen on for Elizabeth . I guess a question for Anshul , given that you are a few months into the role , I was wondering , could you talk about what have been the biggest surprise for you in your time at forager so far ?

Speaker #13: Thanks .

Speaker #3: I'm sorry . I'm having a very . My apologies . I'm a very hard time hearing your question . It's extremely faint . Would it be okay if you could speak up and repeat that question ?

Speaker #13: Yeah . So given that you're a few months into the role , could you talk about what have been the biggest surprises for you in your time at so far ?

Speaker #13: Thanks .

Speaker #3: Sure . I appreciate the question and I'll do my best to answer it . Biggest surprises I think , you know , I'm kind of consistent in things I wouldn't call them surprises necessarily , but pleasant surprises if anything .

Speaker #3: You know , as I , as I toured many of our sites , I had a chance with my , you know , we had members of the executive team with me on every trip , but we had a chance to engage with close to a third of our colleagues at a personal level over the course of the last 100 days .

Speaker #3: You know , several thousand people , the at our workforce , the morale , the sort of commitment to fortria , the work ethic and commitment to their clients and the focus remains resilient and strong .

Speaker #3: And that was what my hypothesis coming into this job . And now I've had a chance to get to multiple continents , multiple geographies , and multiple countries across roles and see that at a consistent level .

Speaker #3: People are engaged , people are focused , you know , despite the industry level , you know , macro trends over the last year and a half , two years being difficult .

Speaker #3: And of course , portrays spin itself being very difficult at the ground , folks that are working on executing on our clients programs are highly engaged , highly committed and have incredibly strong work ethics .

Speaker #3: And I got to see that , you know , from a from the ground up , across multiple continents and multiple countries , and that has been , I wouldn't say , a surprise because I anticipated that that was my hypothesis coming into it , but it's been reassuring to have been have confirmed that hypothesis .

Speaker #13: Thanks . That's helpful .

Speaker #3: Thank you for the question .

Speaker #1: I'm showing no further questions at this time . I would now like to turn it back to Angela Thakral , CEO , for closing remarks .

Speaker #3: As we come to a close of our time today , I would like to thank all of you for your thoughtful questions and for welcoming me to Fortria .

Speaker #3: Fortria is well positioned as a pure play , mid-sized , global CRO that specializes in the execution of clinical trials from first in human to post-approval .

Speaker #3: We're focused and we're disciplined . That's the message . In addition to our financial progress , it would be remiss of me not to thank our team for making the short list for best CRO at the Industry award .

Speaker #3: I also want to note that we earned a bronze Ecovadis rating for our sustainability program , which we have built from the ground up .

Speaker #3: Our commitment to sustainability is not just important to our colleagues around the world , but it is a requirement from our global client base .

Speaker #3: What matters to our clients matters to us . I want to thank you for joining us today , and I look forward to speaking with you .