What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-05 compared with 2025-08-06 · 76 added, 67 removed, 169 unchanged (46% of the section changed)

14 unchanged sentences

our limited operating history as an independent public company;

our ability to maintain financial reporting and other financial and accounting information following the Spin due to the end of the relevant transition agreements, as well as IT, accounting, finance, legal, human resources, and other services critical to our businesses;

our dependence on third parties generally to provide services critical to our businesses;

5 unchanged sentences

our customer or therapeutic area concentrations;

the outcome and impact of pending or future litigation;

any deterioration in the macroeconomic environment, which could lead to defaults or cancellations by our customers;

the risk that our backlog and net new business may not grow to the extent we anticipate over the time period we anticipate, that such measures may not be indicative of our future revenues and that we might not realize all of the anticipated future revenue reflected in our backlog;

the risk that our backlog and net new business may not grow to the extent we anticipate over a specified period of time, that such measures may not be indicative of our future revenues and that we might not realize all of the anticipated future revenue reflected in our backlog;

our ability to generate sufficient net new business awards, or the risk that net new business awards are delayed, terminated, reduced in scope, or fail to go to contract;

the risk that we may underprice our contracts, overrun our cost estimates, or fail to receive approval for, or experience delays in documentation of change orders;

our ability to realize the full purchase price and benefits of the divestiture of Endpoint Clinical and Fortrea Patient Access businesses;

and other factors described in the Form 10-K and from time to time in documents that we file with the SEC.

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With what we believe is a distinctive market offering, Fortrea meets growing global demand for clinical development services.

Our team of more than 14,500 employees conducts operations in approximately 100 countries and delivers comprehensive phase I – IV clinical trial management, clinical pharmacology, and consulting services for our customers.

Our team of more than 14,500 employees is able to conduct operations in approximately 100 countries and delivers comprehensive phase I – IV clinical trial management, clinical pharmacology, and consulting services for our customers.

Our offering is scaled to deliver focused and agile solutions to customers globally, streamlining the biopharmaceutical product and medical device development process.

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The first milestone payment in the amount of $20.0 was received in the first quarter of 2025.

The second and final milestone payment in the amount of $25.0 was received in the third quarter of 2025.

The decision to sell such assets relating to the Enabling Services Segment represented a strategic shift that had a significant effect on the Company's results and operations for the periods presented.

5 unchanged sentences

We adjust backlog for foreign currency fluctuations and exclude from backlog amounts that have been recognized as revenue in our statements of operations.

Our backlog was $7.5 billion as of June 30, 2025.

Our backlog was $7.6 billion as of September 30, 2025.

We do not believe that, as a sole measure, our backlog is a consistent indicator of future revenue because it has been, and likely will continue to be, affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, and changes to the scope of work during the course of projects.

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RESULTS OF CONTINUING OPERATIONS

Three and Six Months Ended June 30, 2025 compared with Three and Six Months Ended June 30, 2024

Three and Nine Months Ended September 30, 2025 compared with Three and Nine Months Ended September 30, 2024

The following tables present the financial measures that management considers to be the most significant indicators of the Company's performance.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change

1 unchanged sentence

$ 701.3 $ 674.9 3.9 % $ 2,062.9 $ 1,999.4 3.2 %

The Company’s revenues for the three months ended June 30, 2025 were $710.3, an increase of 7.2% from revenues of $662.4 in the corresponding period in 2024.

The Company’s revenues for the three months ended September 30, 2025 were $701.3, an increase of 3.9% from revenues of $674.9 in the corresponding period in 2024.

The change in revenues was due to an increase in organic revenues of 3.5% and favorable foreign currency translation of 0.4%.

The Company defines organic growth as the change in revenues excluding the year over year impact of acquisitions, divestitures and currency.

The 6.6% increase in organic revenues was primarily driven by an increase in revenue in our clinical pharmacology business.

Clinical development revenue was relatively flat, as increases driven by recent net new business, including higher pass through costs as newer projects progress through their lifecycle, were offset by the mix of complex and longer duration studies in our portfolio as well as lower functional service provider revenue.

The Company’s revenues for the six months ended June 30, 2025 were $1,361.6, an increase of 2.8% from revenues of $1,324.5 in the corresponding period in 2024.

The 3.5% increase in organic revenues was primarily driven by increases in revenue in both our clinical pharmacology and clinical development businesses.

The increase in clinical pharmacology was primary driven by higher demand and study mix, including higher levels of pass through costs.

Clinical development growth was driven by net new business, including higher pass through costs as projects progress through their lifecycle.

These increases were partially offset by changes in portfolio mix on longer duration studies as well as lower functional service provider revenue.

The Company’s revenues for the nine months ended September 30, 2025 were $2,062.9, an increase of 3.2% from revenues of $1,999.4 in the corresponding period in 2024.

The change in revenues was due to an increase in organic revenues of 3.0% and favorable foreign currency translation of 0.2%.

The 2.7% increase in organic revenues was primarily driven by an increase in revenue in our clinical pharmacology business.

This increase was partially offset by lower clinical development revenues resulting primarily from the mix of complex and longer duration studies in our portfolio as well as lower functional service provider revenue, which more than offset revenue from recent net new business, including higher pass through costs as newer projects progress through their lifecycle .

The 3.0% increase in organic revenues was primarily driven by an increase in revenue in our clinical pharmacology business, including higher pass through costs.

This increase was partially offset by lower clinical development revenues resulting primarily from the mix of complex and longer duration studies in our portfolio as well as lower functional service provider revenue, which more than offset revenue from net new business, including higher pass through costs as projects progress through their lifecycle.

Direct Costs, Exclusive of Depreciation and Amortization

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change

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Direct costs consist primarily of payroll and related benefits for project-related employees, reimbursable expenses (pass through costs), transition services agreement costs, information technology costs, and other direct costs.

Direct costs increased 9.8% during the three months ended June 30, 2025 as compared with the corresponding period in 2024.

Direct costs increased as a percentage of revenues to 81.2% during the three months ended June 30, 2025 as compared to 79.3% in the corresponding period in 2024.

The increase in direct costs was primarily due to an increase in pass through costs and stock compensation, as well as a reduction in research and development tax credits.

Direct costs increased 9.9% during the three months ended September 30, 2025 as compared with the corresponding period in 2024.

Direct costs increased as a percentage of revenues to 82.5% during the three months ended September 30, 2025 as compared to 78.0% in the corresponding period in 2024.

The increase in direct costs was primarily due to an increase in pass through costs and stock compensation, as well as lower research and development tax credits.

This increase was partially offset by lower headcount and personnel costs.

Direct costs increased 3.0% during the six months ended June 30, 2025 as compared with the corresponding period in 2024.

Direct costs increased as a percentage of revenues to 81.6% during the six months ended June 30, 2025 as compared to 81.5% in the corresponding period in 2024.

The increase in direct costs was primarily due to an increase in pass through costs, stock compensation and direct study related expenses, as well as a reduction in research and development tax credits.

Direct costs increased 5.2% during the nine months ended September 30, 2025 as compared with the corresponding period in 2024.

Direct costs increased as a percentage of revenues to 81.9% during the nine months ended September 30, 2025 as compared to 80.3% in the corresponding period in 2024.

The increase in direct costs was primarily due to an increase in pass through costs, stock compensation and direct study related expenses, as well as lower research and development tax credits.

This increase was partially offset by lower headcount and personnel costs.

Selling, General and Administrative Expenses, Exclusive of Depreciation and Amortization

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change

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Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges, transition services agreement costs, information technology costs, other facility charges, advertising and promotional expenses, administrative travel and credit loss provisions.

Selling, general and administrative expenses decreased by 20.1% during the three months ended June 30, 2025 as compared with the corresponding period in 2024.

Selling, general and administrative expenses decreased by 21.6% during the three months ended September 30, 2025 as compared with the corresponding period in 2024.

The decrease was primarily due to lower transition service agreement and information technology costs.

This decrease was partially offset by an increase in personnel costs to support the establishment of our corporate functions as a stand-alone company as well as costs associated with the receivable securitization program.

Selling, general and administrative expenses decreased by 10.7% during the six months ended June 30, 2025 as compared with the corresponding period in 2024.

Selling, general and administrative expenses decreased by 14.3% during the nine months ended September 30, 2025 as compared with the corresponding period in 2024.

The decrease was primarily due to lower transition service agreement and information technology costs.

This decrease was partially offset by an increase in costs to support the establishment of our corporate functions as a stand-alone company as well as costs associated with the receivable securitization program.

Depreciation Expense

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change

2 unchanged sentences

$ 4.8 $ 6.0 (20.0) % $ 14.8 $ 18.9 (21.7) %

The decrease in depreciation expense for the three and six months ended June 30, 2025, as compared to the corresponding periods in 2024, was due to a decrease in depreciable property, plant and equipment, primarily IT assets.

The decrease in depreciation expense for the three and nine months ended September 30, 2025, as compared to the corresponding periods in 2024, was due to a decrease in depreciable property, plant and equipment, primarily IT assets.

Amortization Expense

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change

2 unchanged sentences

$ 14.8 $ 15.2 (2.6) % $ 43.9 $ 45.6 (3.7) %

T he change in amortization of intangibles and other assets during the three and six months ended June 30, 2025 , as compared to the corresponding periods in 2024, was due to certain intangible assets reaching the end of their useful lives during the three and six months ended June 30, 2025 .

T he change in amortization of intangibles and other assets during the three and nine months ended September 30, 2025 , as compared to the corresponding periods in 2024, was due to certain intangible assets reaching the end of their useful lives during the first quarter of 2025.

Goodwill and other asset impairments

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change

2 unchanged sentences

$ — $ — nm $ 797.9 $ — nm

Goodwill impairment for the three and six months ended June 30, 2025 was $309.1 and $797.9, respectively.

This impairment was specific to the Clinical Development reporting unit.

There were no goodwill and other asset impairments for the three and six months ended June 30, 2024.

Goodwill impairment for the three and nine months ended September 30, 2025 was $— and $797.9, respectively.

The impairment for the nine months ended September 30, 2025 was specific to the Clinical Development reporting unit.

There were no goodwill and other asset impairments for the three and nine months ended September 30, 2024.

Restructuring and Other Charges

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change

2 unchanged sentences

$ 4.9 $ 8.8 (44.3) % $ 21.7 $ 22.5 (3.6) %

During the three and six months ended June 30, 2025, the Company recorded net restructuring charges of $10.3 and $16.8, respectively, which are reflected within restructuring and other charges in the condensed consolidated statements of operations.

These charges are associated with Company actions to streamline its operations and eliminate redundant positions including $3.1 in impairment of facility related assets during the six months ended June 30, 2025.

During the three and six months ended June 30, 2024, the Company recorded net restructuring charges of $10.4 and $13.7, respectively.

These charges are associated with Company actions to align resources, and restructure certain operations and include eliminating redundant positions and aligning resources for cost improvements and to meet customer requirements.

During the three and nine months ended September 30, 2025, the Company recorded net restructuring charges of $4.9 and $21.7, respectively, which are reflected within restructuring and other charges in the condensed consolidated statements of operations.

These charges are associated with Company actions to streamline its operations and eliminate redundant positions including $3.2 in impairment of facility related assets during the nine months ended September 30, 2025.

During the three and nine months ended September 30, 2024, the Company recorded net restructuring charges of $8.8 and $22.5, respectively.

These charges are associated with Company actions to align resources, and restructure certain operations and include eliminating redundant positions and aligning resources and facilities for cost improvements and to meet customer requirements.

Interest Expense

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change

2 unchanged sentences

$ 22.6 $ 22.4 0.9 % $ 68.2 $ 101.9 (33.1) %

The decrease in interest expense for the three and six months ended June 30, 2025, as compared with the corresponding periods in 2024, was primarily due to the pay down of $70.2 on term loan A and $412.5 on term loan B, and the write-off of $12.2 of debt issuance costs associated with the pay down, during the six months ended June 30, 2024.

The increase in interest expense for the three months ended September 30, 2025, as compared with the corresponding period in 2024, was not significant.

The decrease in interest expense for the nine months ended September 30, 2025, as compared with the corresponding period in 2024, was primarily due to the pay down of $70.2 on term loan A and $412.5 on term loan B, and the write-off of $12.2 of debt issuance costs associated with the pay down, during the six months ended June 30, 2024.

Foreign Exchange Loss

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change

2 unchanged sentences

$ (2.6) $ (0.2) 1200.0 % $ (28.1) $ (7.0) 301.4 %

The foreign exchange loss for the three and six months ended June 30, 2025 compared to the foreign exchange loss for three and six months ended June 30, 2024 was primarily due to the fluctuations in the U.S.

The foreign exchange loss for the three and nine months ended September 30, 2025 compared to the foreign exchange loss for three and nine months ended September 30, 2024 was primarily due to the fluctuations in the U.S.

Dollar against the British Pound and the Euro.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 Change 2025 2024 Change

Other, net $ 5.1 $ 4.8 6.3 % $ 7.9 $ 15.1 (47.7) %

The decrease in other, net for the three and six months ended June 30, 2025, as compared with the corresponding periods in 2024, was primarily related to a change in the estimated amount of the contingent consideration payment on a sale of a facility to a third party.

The increase in other, net for the three months ended September 30, 2025, as compared with the corresponding period in 2024, was not significant.

The decrease in other, net for the nine months ended September 30, 2025, as compared with the corresponding period in 2024, was primarily related to a change in the estimated amount of the contingent consideration payment on a sale of a facility to a third party.

This decrease was partially offset by income related to services provided under transition services agreements.

Income Tax Expense

Three Months Ended June 30, Six Months Ended June 30,

Income Tax (Benefit) Expense

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

Income tax expense $ 4.2 $ 10.7 $ 19.1 $ 14.8

Income tax expense as a % of loss before tax (1.1) % (12.1) % (2.1) % (9.0) %

For the three months ended June 30, 2025, the Company's effective tax rate was (1.1)% compared to the 2024 tax rate of (12.1)%.

For the six months ended June 30, 2025, the Company's effective tax rate was (2.1)% compared to the 2024 tax rate of (9.0)%.

Income tax (benefit) expense $ (12.8) $ (17.3) $ 6.3 $ (2.5)

Income tax (benefit) expense as a % of loss before tax 44.6 % 48.3 % (0.7) % 1.2 %

For the three months ended September 30, 2025, the Company's effective tax rate was 44.6% compared to the 2024 tax rate of 48.3%.

For the nine months ended September 30, 2025, the Company's effective tax rate was (0.7)% compared to the 2024 tax rate of 1.2%.

The fluctuations in the quarter-to-date and year-to-date periods were primarily due to goodwill impairment with no tax benefit, withholding taxes on 2025 non-U.S.

earnings that are not permanently reinvested, valuation allowance, and non-deductible compensation expense.

earnings that are not permanently reinvested, U.S.

operating losses with a partial valuation allowance, and non-deductible compensation expense.

Liquidity, Capital Resources and Financial Position

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In connection with the Spin, we incurred indebtedness in an aggregate principal amount of $1,640.0, which consists of borrowings under senior secured term loan facilities and senior secured notes.

During the six months ended June 30, 2024, we paid down $70.2 on term loan A and $412.5 on term loan B.

During the nine months ended September 30, 2024, we paid down $70.2 on term loan A and $412.5 on term loan B.

We have also entered into a senior secured revolving credit facility, which consists of a five-year facility in the principal amount of up to $450.0 as further discussed in Note 7, “Debt” to our condensed consolidated financial statements.

As of June 30, 2025, there was $50.0 outstanding on the Company’s revolving credit facility and $400.0 was available for borrowing.

The maximum revolver borrowing outstanding was $135.5 and $75.5 during the six months ended June 30, 2025 and 2024, respectively.

As of September 30, 2025, there were no balances outstanding on the Company’s revolving credit facility and there were $2.3 in letters of credit issued under the letter of credit sublimit, resulting in $447.7 available for borrowing.

The maximum revolver borrowing outstanding was $138.0 and $75.5 during the nine months ended September 30, 2025 and 2024, respectively.

On October 20, 2025, the Company commenced a tender offer to repurchase up to $75.7 of the Company’s outstanding 7.50% Senior secured notes due 2030.

The tender offer, which expires on November 18, 2025, is intended to comply with relevant provisions of the indenture governing the Notes relating to the Company’s requirement to repurchase a portion of the outstanding Notes following Fortrea’s sale of assets relating to its Enabling Services Segment.

The above is a summary provided for informational purposes only and is not an offer to buy or the solicitation of an offer to sell any securities of the Company.

The full details of the debt tender offer, including complete instructions on how to tender notes, are included in the offer to purchase which we distributed to noteholders.

On May 6, 2024, we entered into a three-year $300.0 accounts receivable securitization program (the “Receivables Facility”).

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conveys receivable balances to a wholly-owned, bankruptcy-remote special purpose entity, which in turn, may sell receivables to a third-party financial institution in exchange for cash.

As of June 30, 2025, the Company had sold $300.0 of receivables, which were derecognized from the Company’s consolidated balance sheet.

As of September 30, 2025, the Company had sold $300.0 of receivables, which were derecognized from the Company’s consolidated balance sheet.

We believe our existing cash and cash flows generated from operations, plus existing credit facilities, will be sufficient to cover the needs of our current and planned operations for at least the next 12 months.

1 unchanged sentence

We may also access capital markets through the issuance of debt or equity, which we may use in connection with the acquisition of complementary businesses or other significant assets, or for other strategic opportunities, or general corporate purposes.

Cash Flows for the six months ended June 30, 2025 and 2024

Cash Flows for the nine months ended September 30, 2025 and 2024

The cash flows related to discontinued operations have not been segregated and are included in the condensed consolidated statements of cash flows and the discussion of the cash flow activity.

In summary, the Company’s cash flows were as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash (used for) provided by operating activities $ (15.6) $ 245.7

Net cash provided by investing activities 21.9 248.1

Net cash provided by (used for) financing activities 49.4 (482.7)

Net cash used for financing activities (0.6) (496.7)

Effect of exchange rate changes on cash and cash equivalents 7.1 (0.4)

2 unchanged sentences

Cash and Cash Equivalents

Cash and cash equivalents at June 30, 2025 and 2024 totaled $81.2 and $126.2, respectively.

Cash and cash equivalents at September 30, 2025 and 2024 totaled $131.3 and $105.3, respectively.

Cash and cash equivalents consist of highly liquid instruments, such as commercial paper, time deposits and other money market instruments, which have maturities when purchased of three months or less.

Cash Flows from Operating Activities

During the six months ended June 30, 2025, the Company’s operations used $102.4 of cash as compared to $248.1 of cash provided by operations during the six months ended June 30, 2024.

The increase in cash used of $350.5 for the six months ended June 30, 2025 was primarily due to a decrease in cash received from accounts receivable, driven by the sale of receivables under the Receivables Facility during the six months ended June 30, 2024, and an increase in cash used for accounts payable.

During the nine months ended September 30, 2025, the Company’s operations used $15.6 of cash as compared to $245.7 of cash provided by operations during the nine months ended September 30, 2024.

The increase in cash used of $261.3 for the nine months ended September 30, 2025 was primarily due to decreases in cash received from unearned revenue and accounts receivable, driven by the sale of receivables under the Receivables Facility during the nine months ended September 30, 2024, and an increase in cash used for accounts payable.

These cash decreases were partially offset by lower use of cash for prepaid expenses, interest and income taxes.

Cash Flows from Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2025 was $8.6 as compared to $256.2 for the six months ended June 30, 2024.

The $247.6 decrease in net cash provided by investing activities for the six months ended June 30, 2025 was primarily due to $276.6 of net proceeds from the sale of the Enabling Services Segment during the six months ended June 30, 2024 offset by receipt of the first milestone payment related to the sale during the six months ended June 30, 2025, and a year over year decrease in capital expenditures.

Capital expenditures were $10.4 and $20.5 for the six months ended June 30, 2025 and 2024, respectively.

Capital expenditures for the six months ended June 30, 2025 were 0.8% of revenues, primarily in connection with projects to support growth in the Company's core businesses.

Net cash provided by investing activities for the nine months ended September 30, 2025 was $21.9 as compared to $248.1 for the nine months ended September 30, 2024.

The $226.2 decrease in net cash provided by investing activities for the nine months ended September 30, 2025 was primarily due to $276.6 of net proceeds from the sale of the Enabling Services Segment during the nine months ended September 30, 2024 offset by receipt of the first and second milestone payments related to the sale during the nine months ended September 30, 2025, and a year over year decrease in capital expenditures.

Capital expenditures were $17.7 and $28.7 for the nine months ended September 30, 2025 and 2024, respectively.

Capital expenditures for the nine months ended September 30, 2025 were 0.9% of revenues, primarily in connection with projects to support growth in the Company's core businesses.

The Company intends to continue to pursue selective investments in key therapeutic areas, business areas and geographies to drive growth and to improve efficiency of the Company's operations.

1 unchanged sentence

Cash Flows from Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2025 was $49.4 compared to cash used for financing activities of $482.7 for the six months ended June 30, 2024.

Cash provided by financing activities for the six months ended June 30, 2025 was primarily related to net proceeds from the revolving credit facility.

Net cash used for financing activities for the nine months ended September 30, 2025 was $0.6 compared to cash used for financing activities of $496.7 for the nine months ended September 30, 2024.

Cash used for financing activities for the nine months ended September 30, 2025 was not significant.

Off-Balance Sheet Arrangements

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As a result, we performed interim impairment tests as of March 31, 2025 and June 30, 2025.

There were no indicators of impairment for the three months ended September 30, 2025.

Based upon the results of the quantitative assessment as of March 31, 2025, we concluded that the fair value of the Clinical Development reporting unit was less than its carrying value and recorded a goodwill impairment of $488.8.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis