What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-29 compared with 2026-05-05 · 78 added, 55 removed, 125 unchanged (52% of the section changed)

33 unchanged sentences

On June 30, 2023, we completed the Spin from Labcorp.

We leverage our global scale, scientific and therapeutic expertise, clinical data insights, technology innovation, industry network and decades of experience as a standalone company and as a business unit prior to the Spin to deliver tailored solutions to our customers.

We leverage our global scale, scientific and therapeutic expertise, clinical data insights, technology innovation (including Fortrea Intelligent Technology TM ), industry network and decades of experience as a standalone company and as a business unit prior to the Spin to deliver tailored solutions to our customers.

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

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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 $7.8 billion as of March 31, 2026.

Our backlog was $7.8 billion as of June 30, 2026.

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 OPERATIONS

Three Months Ended March 31, 2026 compared with Three Months Ended March 31, 2025

Three and Six Months Ended June 30, 2026 compared with Three and Six Months Ended June 30, 2025

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

The Company defines organic growth as the change in revenues and direct costs excluding the year over year impact of foreign currency translation.

Three Months Ended March 31,

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

2026 2025 Change

$ 678.2 $ 710.3 (4.5) % $ 1,314.7 $ 1,361.6 (3.4) %

The Company’s revenues for the three months ended March 31, 2026 were $636.5, a decrease of 2.3% from revenues of $651.3 in the corresponding period in 2025.

The change in revenues was due to a decrease in organic revenues of 3.2% and favorable foreign currency translation of 0.9%.

The Company’s revenues for the three months ended June 30, 2026 were $678.2, a decrease of 4.5% from revenues of $710.3 in the corresponding period in 2025.

The change in revenues was due to a decrease in organic revenues of 4.9%, partially offset by favorable foreign currency translation of 0.4%.

The 4.9% decrease in organic revenues was due to lower pass through costs as well as lower demand for our functional service provider business.

These decreases were partially offset by an increase in full service revenue, driven by an increase in net new business.

These decreases were partially offset by an increase in our clinical pharmacology business, driven by an increase in net new business and study mix.

The Company’s revenues for the six months ended June 30, 2026 were $1,314.7, a decrease of 3.4% from revenues of $1,361.6 in the corresponding period in 2025.

The change in revenues was due to a decrease in organic revenues of 4.0%, partially offset by favorable foreign currency translation of 0.6%.

The 4.0% decrease in organic revenues was due to lower pass through costs as well as lower demand for our functional service provider business.

These decreases were partially offset by an increase in our clinical pharmacology business, driven by an increase in net new business and study mix.

Direct Costs, Exclusive of Depreciation and Amortization

Three Months Ended March 31,

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

2026 2025 Change

$ 539.0 $ 576.8 (6.6) % $ 1,051.9 $ 1,111.6 (5.4) %

Direct costs as a % of revenues

80.6 % 82.1 %

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

Direct costs decreased 4.1% during the three months ended March 31, 2026 as compared with the corresponding period in 2025.

The change in direct costs was due to a decrease in organic direct costs of 6.3% and unfavorable foreign currency translation of 2.2%.

Direct costs decreased as a percentage of revenues to 80.6% during the three months ended March 31, 2026 as compared to 82.1% in the corresponding period in 2025.

Direct costs decreased 6.6% during the three months ended June 30, 2026 as compared with the corresponding period in 2025.

The change in direct costs was due to a decrease in organic direct costs of 7.4%, partially offset by unfavorable foreign currency translation of 0.8%.

Direct costs decreased as a percentage of revenues to 79.5% during the three months ended June 30, 2026 as compared to 81.2% in the corresponding period in 2025.

The 7.4% decrease in organic direct costs was primarily due to lower pass through and stock-based compensation costs, as well as lower personnel costs, including the benefit of restructuring actions.

These decreases were partially offset by a year over year increase in variable compensation expense.

These decreases were partially offset by a year over year increase in variable compensation expense and clinical pharmacology study related costs.

Direct costs decreased 5.4% during the six months ended June 30, 2026 as compared with the corresponding period in 2025.

The change in direct costs was due to a decrease in organic direct costs of 6.9%, partially offset by unfavorable foreign currency translation of 1.5%.

Direct costs decreased as a percentage of revenues to 80.0% during the six months ended June 30, 2026 as compared to 81.6% in the corresponding period in 2025.

The 6.9% decrease in organic direct costs was primarily due to lower pass through and stock-based compensation costs, as well as lower personnel costs, including the benefit of restructuring actions.

These decreases were partially offset by a year over year increase in variable compensation expense and clinical pharmacology study related costs.

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

Three Months Ended March 31,

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

2026 2025 Change

Selling, general and administrative expenses

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

Selling, general and administrative expenses decreased by 17.5% during the three months ended March 31, 2026 as compared with the corresponding period in 2025.

The decrease was primarily due to lower information technology and personnel costs, including the benefit of restructuring actions.

Selling, general and administrative expenses decreased by 18.2% during the three months ended June 30, 2026 as compared with the corresponding period in 2025.

The decrease was primarily due to lower information technology and personnel costs, including the benefit of restructuring actions, as well as lower credit loss provisions.

These decreases were partially offset by a year over year increase in variable compensation expense.

Selling, general and administrative expenses decreased by 17.8% during the six months ended June 30, 2026 as compared with the corresponding period in 2025.

The decrease was primarily due to lower information technology and personnel costs, including the benefit of restructuring actions, as well as lower credit loss provisions.

These decreases were partially offset by a year over year increase in variable compensation expense.

Depreciation Expense

Three Months Ended March 31,

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

2026 2025 Change

Depreciation expense

$ 5.0 $ 5.0 — % $ 10.2 $ 10.0 2.0 %

The change in depreciation expense for the three months ended March 31, 2026, as compared to the corresponding period in 2025, was not significant.

The change in depreciation expense for the three and six months ended June 30, 2026, as compared to the corresponding periods in 2025, was not significant.

Amortization Expense

Three Months Ended March 31,

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

2026 2025 Change

Amortization of intangibles and other assets

$ 14.6 $ 14.6 — % $ 29.2 $ 29.1 0.3 %

T he change in amortization of intangibles and other assets during the three months ended March 31, 2026 , as compared to the corresponding period in 2025, was not significant.

T he change in amortization of intangibles and other assets for the three and six months ended June 30, 2026 , as compared to the corresponding periods in 2025, was not significant.

Goodwill and Other Asset Impairments

Three Months Ended March 31,

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

2026 2025 Change

Goodwill and other asset impairments

$ — $ 488.8 nm

There were no goodwill and other asset impairments for the three months ended March 31, 2026.

Goodwill impairment for the three months ended March 31, 2025 was $488.8 and was specific to the Clinical Development reporting unit.

$ — $ 309.1 nm $ — $ 797.9 nm

There were no goodwill and other asset impairments for the three and six months ended June 30, 2026.

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.

Restructuring and Other Charges

Three Months Ended March 31,

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

2026 2025 Change

Restructuring and other charges

$ 2.7 $ 10.3 (73.8) % $ 9.4 $ 16.8 (44.0) %

The change in restructuring and other charges for the three months ended March 31, 2026, as compared to the corresponding period in 2025, was not significant.

The decline in restructuring expense for the three and six months ended June 30, 2026, as compared to the corresponding periods in 2025, was primarily due to the planned progression of the Company’s restructuring programs, which resulted in lower restructuring charges.

Interest Expense

Three Months Ended March 31,

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

2026 2025 Change

Interest expense $ 19.3 $ 23.3 (17.2) % $ 38.4 $ 45.6 (15.8) %

The decrease in interest expense for the three months ended March 31, 2026, as compared with the corresponding period in 2025, was due to lower average debt outstanding during the first quarter of 2026, driven by the repurchase of $75.7 of senior secured notes in 2025 and zero borrowing on the revolver in the quarter, as well as lower effective interest rates on term loan A and term loan B.

The decrease in interest expense for the three and six months ended June 30, 2026, as compared with the corresponding periods in 2025, was due to lower average debt outstanding during the first and second quarters of 2026, driven by the repurchase of $75.7 of senior secured notes in 2025 and no borrowings on the revolving credit facility during the first half of 2026, as well as lower effective interest rates on term loan A and term loan B.

Foreign Exchange Gain (loss)

Three Months Ended March 31,

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

2026 2025 Change

Foreign exchange gain (loss) $ 3.5 $ (19.9) (117.6) % $ 13.2 $ (25.5) (151.8) %

The change in foreign exchange gain (loss) for the three months ended March 31, 2026 compared to the foreign exchange gain (loss) for three months ended March 31, 2025, was primarily due to the fluctuations in the U.S.

The change in foreign exchange gain (loss) for the three and six months ended June 30, 2026 compared to the foreign exchange gain (loss) for three and six months ended June 30, 2025, was primarily due to the fluctuations in the U.S.

Dollar against the British Pound and the Euro.

Three Months Ended March 31,

2026 2025 Change

Other, net $ 0.5 $ — nm

The change in other, net for the three months ended March 31, 2026, as compared with the corresponding period in 2025, was not significant .

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

2026 2025 Change 2026 2025 Change

Other, net $ (0.2) $ 2.8 (107.1) % $ 0.3 $ 2.8 (89.3) %

The decline in other, net for the three and six months ended June 30, 2026, as compared with the corresponding periods in 2025, was primarily due to income recognized in the prior-year periods related to services provided under transition services agreements that terminated in 2025.

Income Tax Expense

Three Months Ended March 31,

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

2026 2025 2026 2025

Income tax expense

Income tax expense as a % of loss before tax

For the three months ended March 31, 2026, the Company's effective tax rate was (91.9)% compared to (2.7)% for the corresponding period in 2025.

The fluctuation was primarily due to goodwill impairment with no associated tax benefit and BEAT for the three months ended March 31, 2025 and the impact of valuation allowance primarily related to expected interest deductibility limitations for the three months ended March 31, 2026.

For the three months ended June 30, 2026, the Company's effective tax rate was (1000.0)% compared to (1.1)% for the corresponding period in 2025.

For the six months ended June 30, 2026, the Company's effective tax rate was (172.6)% compared to (2.1)% for the corresponding period in 2025.

The fluctuations in the quarter-to-date and year-to-date periods were primarily due to goodwill impairment with no associated tax benefit and BEAT for the three and six months ended June 30, 2025 and the impact of valuation allowance primarily related to expected interest deductibility limitations for the three and six months ended June 30, 2026.

Liquidity, Capital Resources and Financial Position

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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 6, “Debt” to our condensed consolidated financial statements.

As of March 31, 2026, there was no balance 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 $— and $98.5 during the three months ended March 31, 2026 and 2025, respectively.

As of June 30, 2026, there was no balance 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 $— and $135.5 during the six months ended June 30, 2026 and 2025, respectively.

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 March 31, 2026, the Company had sold $300.0 of receivables, which were derecognized from the Company’s consolidated balance sheet.

As of June 30, 2026, the Company had sold $300.0 of receivables, which were derecognized from the Company’s consolidated balance sheet.

On February 24, 2026, the Company amended its Receivables Facility, which had been scheduled to terminate on May 6, 2027.

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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 three months ended March 31, 2026 and 2025

Cash Flows for the Six months ended June 30, 2026 and 2025

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

Three Months Ended March 31,

Net cash used for operating activities $ (17.0) $ (124.2)

Six Months Ended June 30,

Net cash provided by (used for) operating activities $ 11.9 $ (102.4)

Net cash (used for) provided by investing activities (15.0) 8.6

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Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2026 and 2025 totaled $147.5 and $101.6, respectively.

Cash and cash equivalents at June 30, 2026 and 2025 totaled $168.6 and $81.2, 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 three months ended March 31, 2026, the Company’s operations used $17.0 of cash as compared to $124.2 of cash used by operations during the three months ended March 31, 2025.

The decrease in cash used of $107.2 for the three months ended March 31, 2026 was primarily due to an increase in cash received from accounts receivable, a decrease in cash used for accounts payable, and an increase in net income exclusive of non-cash goodwill and other asset impairments.

These cash increases were partially offset by higher use of cash for accrued expenses, including variable compensation.

During the six months ended June 30, 2026, the Company’s operations provided $11.9 of cash as compared to $102.4 of cash used by operations during the six months ended June 30, 2025.

The increase in cash provided of $114.3 for the six months ended June 30, 2026 was primarily due to a decrease in cash used for accounts payable and interest, as well as an improvement in net loss excluding non-cash income and expense items.

These cash increases were partially offset by higher use of cash for accrued expenses.

Cash Flows from Investing Activities

Net cash used for investing activities for the three months ended March 31, 2026 was $8.0 as compared to net cash provided by investing activities of $16.1 for the three months ended March 31, 2025.

The $24.1 decrease in net cash (used for) provided by investing activities for the three months ended March 31, 2026 was primarily due to receipt of the first milestone payment related to the sale of the Enabling Services Segment during the three months ended March 31, 2025 and a period over period increase in capital expenditures.

Capital expenditures were $8.0 and $2.9 for the three months ended March 31, 2026 and 2025, respectively.

Capital expenditures for the three months ended March 31, 2026 were 1.3% 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.

Net cash used for investing activities for the six months ended June 30, 2026 was $15.0 as compared to net cash provided by investing activities of $8.6 for the six months ended June 30, 2025.

The $23.6 increase in net cash used for investing activities for the six months ended June 30, 2026 was primarily due to receipt of the first milestone payment related to the sale of the Enabling Services segment during the six months ended June 30, 2025 and a period over period increase in capital expenditures.

Capital expenditures were $17.0 and $10.4 for the six months ended June 30, 2026 and 2025, respectively.

Capital expenditures for the six months ended June 30, 2026 were 1.3% of revenues, primarily in connection with projects to support growth in the Company's core businesses.

The Company also 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.

Such expenditures are expected to be funded by cash flow from operations.

Cash Flows from Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2026 was $— compared to cash provided by financing activities of $88.4 for the three months ended March 31, 2025.

Cash provided by financing activities for the three months ended March 31, 2025 was primarily related to net proceeds from the revolving credit facility.

The Company did not draw on the revolving credit facility during the three months ended March 31, 2026.

Net cash provided by financing activities for the six months ended June 30, 2026 was $— compared to cash provided by financing activities of $49.4 for the six months ended June 30, 2025.

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

The Company did not draw on the revolving credit facility during the six months ended June 30, 2026.

Off-Balance Sheet Arrangements

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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