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Item 2. Management’s Discussion and Analysis

2025-05-12 compared with 2024-11-08 · 100 added, 116 removed, 109 unchanged (66% of the section changed)

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The following discussion and analysis is intended to provide a summary of significant factors relevant to the financial performance and condition of Fortrea Holdings Inc., which we refer to in this discussion and analysis as “Fortrea,” the “Company,” “our” and “we”.

Prior to the spin-off (the “Spin” or “the Separation”), Fortrea existed and functioned as part of Laboratory Corporation of America Holdings, which we refer to in this discussion and analysis as “Labcorp” or “Former Parent.” The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited combined financial statements and corresponding notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”) and our unaudited condensed consolidated and combined financial statements and corresponding notes in Item 1.

Prior to the spin-off which was completed on June 30, 2023 (the “Spin” or “the Separation”), Fortrea existed and functioned as part of Labcorp Holdings Inc., which we refer to in this discussion and analysis as “Labcorp” or “Former Parent.” The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated and combined financial statements and corresponding notes included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “Form 10-K”) and our unaudited condensed consolidated financial statements and corresponding notes in Item 1.

“Financial Statements.” Unless otherwise noted, the following information and discussion relates to our continuing operations.

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Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include, among other things:

the risk that we may not realize some or all of the benefits expected to result from the Spin, or that such benefits are delayed;

risks and consequences that are a result of the Spin;

the impacts of becoming an independent public company;

our reliance on Labcorp to provide financial reporting and other financial and accounting information for periods prior to the Spin through 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 throughout the transition period and beyond;

the impacts of becoming and 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;

the risk that establishment of our accounting, enterprise resource planning, and other management systems post the transition period could cost more or take longer than anticipated;

our identification of existing material weaknesses in our internal control over financial reporting;

the impact of our rebranding;

the impact of building our brand and increasing our value;

our ability to successfully implement our business strategies and execute our long-term value creation strategy;

risks and expenses associated with our international operations and currency fluctuations;

risks and expenses associated with our international operations including but not limited to currency fluctuations and trade policies;

our customer or therapeutic area concentrations;

any further 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 or 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;

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;

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 disposition of the Endpoint and Patient Access businesses;

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 complete the divestiture of Endpoint Clinical and Fortrea Patient access businesses on time or at all and our ability to realize the full purchase price and benefits of the transaction;

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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Company Overview

Fortrea, a Delaware corporation incorporated on January 31, 2023, is a leading global contract research organization (“CRO”) providing biopharmaceutical product and medical device development services to pharmaceutical, biotechnology and medical device customers.

Fortrea, a Delaware corporation incorporated on January 31, 2023, is a leading global contract research organization (“CRO”) providing biopharmaceutical product and medical device development solutions to pharmaceutical, biotechnology and medical device customers.

We offer customers highly flexible delivery models that include Full Service, Functional Service Provider (“FSP”), and Hybrid Service structures.

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

We leverage our global scale, scientific 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, 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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Our offering is scaled to deliver focused and agile solutions to customers globally, streamlining the biopharmaceutical product, and medical device development process.

Separation from Labcorp

On June 30, 2023, we completed the Spin from Labcorp through a pro-rata distribution of one share of Fortrea common stock for every share of Labcorp common stock held at the close of business on the record date of June 20, 2023.

Fortrea began to trade as a separate public company (NASDAQ:

FTRE) on July 3, 2023.

Incremental Independent Public Company Expenses

The condensed consolidated and combined statements of operations include costs for certain centralized functions and programs provided and administered by Labcorp that were allocated to us in the periods presented prior to the Spin.

These centralized functions and programs include, but are not limited to, legal, tax, treasury, risk management, sales expenses, IT, human resources, finance, supply chain, executive leadership and stock-based compensation.

These expenses were allocated to us based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net revenues or headcount or another reasonable driver, as applicable.

We consider the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, us during the periods presented.

However, the allocations may not reflect the expenses we would have incurred as an independent company for the periods presented and may not be representative of future expenses that may be incurred.

Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as IT and infrastructure.

For a period following the Separation, however, some of these functions are provided by Labcorp under the Transition Services Agreement.

The actual costs of services represented by these allocations may vary significantly from the amounts allocated to us in the accompanying financial statements.

Sale of Assets Relating to the Enabling Services Segment

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The Transaction closed during the second quarter of 2024.

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 and assets and liabilities for the periods presented.

As a result, the Company has classified the assets related to the Enabling Services Segment as assets from discontinued operations and liabilities from discontinued operations on the condensed consolidated balance sheet as of December 31, 2023.

The operations of the Enabling Services Segment have been classified as income or loss from discontinued operations on the condensed consolidated and combined statements of operations for all periods presented.

Backlog and Net New Business

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

As a result, the operations of the Enabling Services Segment have been classified as loss from discontinued operations on the condensed consolidated statements of operations.

Our backlog consists of anticipated future revenue from business awards that either have not started, or that are in process and have not been completed.

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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 $7.6 billion as of September 30, 2024.

Our backlog was $7.7 billion as of March 31, 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 Nine Months Ended September 30, 2024 compared with Three and Nine Months Ended September 30, 2023

Three Months Ended March 31, 2025 compared with Three Months Ended March 31, 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 September 30, Nine Months Ended September 30,

2024 2023 Change

Three Months Ended March 31,

2025 2024 Change

$ 651.3 $ 662.1 (1.6) %

The Company’s revenues for the three months ended September 30, 2024 were $674.9, a decrease of 5.4% from revenues of $713.8 in the corresponding period in 2023.

The change in revenues was due to a decrease in organic revenues of 5.7%, partially offset by favorable foreign currency translation of 0.2%.

The Company’s revenues for the three months ended March 31, 2025 were $651.3, a decrease of 1.6% from revenues of $662.1 in the corresponding period in 2024.

The change in revenues was due to a decrease in organic revenues of 1.1% and unfavorable foreign currency translation of 0.5%.

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

The 5.7% decrease in organic revenues was primarily driven by decreased pass through costs and lower service revenues resulting from the quantity and burn rate of new business wins pre-Spin, along with the mix of later stage and longer duration studies in our portfolio.

The Company’s revenues for the nine months ended September 30, 2024 were $1,999.4, a decrease of 6.3% from revenues of $2,132.8 in the corresponding period in 2023.

The change in revenues was due to a decrease in organic revenues.

The 6.3% decrease in organic revenues was primarily driven by lower service revenues resulting from the quantity and burn rate of new business wins pre-Spin, the mix of later stage and longer duration studies and decreased pass through costs.

The 1.1% decrease in organic revenues was primarily driven by lower clinical development revenues resulting primarily from a slower backlog burn rate resulting from the mix of complex and longer duration studies in our portfolio as well as slower study start up on our biotech studies.

This decrease was partially offset by an increase in revenue resulting from higher pass through costs and growth in our clinical pharmacology business.

Direct Costs, Exclusive of Depreciation and Amortization

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

2024 2023 Change

Three Months Ended March 31,

2025 2024 Change

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82.1 % 83.7 %

Direct costs decreased 6.6% during the three months ended September 30, 2024 as compared with the corresponding period in 2023.

Direct costs decreased as a percentage of revenues to 78.0% during the three months ended September 30, 2024 as compared to 79.0% in the corresponding period in 2023.

The decrease in direct costs was primarily due to lower headcount as well as lower pass through costs, partially offset by an increase in stock compensation and professional fees.

Direct costs decreased 4.1% during the nine months ended September 30, 2024 as compared with the corresponding period in 2023.

Direct costs increased as a percentage of revenues to 80.3% during the nine months ended September 30, 2024 as compared to 78.5% in the corresponding period in 2023.

The decrease in direct costs was primarily due to lower headcount as well as lower pass through costs, partially offset by an increase in stock compensation and professional fees.

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 decreased 3.5% during the three months ended March 31, 2025 as compared with the corresponding period in 2024.

Direct costs decreased as a percentage of revenues to 82.1% during the three months ended March 31, 2025 as compared to 83.7% in the corresponding period in 2024.

The decrease in direct costs was primarily due to lower headcount and personnel costs.

This decrease was partially offset by an increase in pass through costs and professional fees, as well as a reduction in research and development tax credits.

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

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

2024 2023 Change

Three Months Ended March 31,

2025 2024 Change

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$ 121.8 $ 120.1 1.4 %

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 increased by 27.6% during the three months ended September 30, 2024 as compared with the corresponding period in 2023.

The increase was primarily due to an increase in professional fees and other costs to support the exit of the Transition Services Agreement with Labcorp and personnel and information technology costs as a stand-alone company.

Selling, general and administrative expenses increased by 28.4% during the nine months ended September 30, 2024 as compared with the corresponding period in 2023.

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 increased by 1.4% during the three months ended March 31, 2025 as compared with the corresponding period in 2024.

The increase was primarily due to an increase in personnel costs and professional fees to support the establishment of our corporate functions as a stand-alone company as well as $4.4 of costs associated with the receivable securitization program.

This increase was partially offset by lower transition service agreement costs.

Depreciation Expense

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

2024 2023 Change

Three Months Ended March 31,

2025 2024 Change

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$ 5.0 $ 6.6 (24.2) %

The decrease in depreciation expense for the three and nine months ended September 30, 2024, as compared to the corresponding periods in 2023, was due to a decrease in depreciable property, plant and equipment, primarily IT assets.

The decrease in depreciation expense for the three months ended March 31, 2025, as compared to the corresponding period in 2024, was due to a decrease in depreciable property, plant and equipment, primarily IT assets.

Amortization Expense

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

2024 2023 Change

Three Months Ended March 31,

2025 2024 Change

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$ 14.5 $ 15.3 (5.2) %

T he change in amortization of intangibles and other assets during the three and nine months ended September 30, 2024 , as compared to the corresponding periods in 2023 , was not significant.

Restructuring and Other Charges

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

T he change in amortization of intangibles and other assets during the three months ended March 31, 2025 , as compared to the corresponding period in 2024, was due to certain intangible assets reaching the end of their useful lives during the three months ended March 31, 2025.

Goodwill and other asset impairments

Three Months Ended March 31,

2025 2024 Change

Goodwill and other asset impairments

$ 488.8 $ — nm

Goodwill impairment for the three months ended March 31, 2025 was $488.8.

This impairment was specific to the Clinical Development reporting unit.

There were no goodwill and other asset impairments for the three months ended March 31, 2024.

Restructuring and Other Charges

Three Months Ended March 31,

2025 2024 Change

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$ 6.5 $ 3.3 97.0 %

During the three and nine months ended September 30, 2024, the Company recorded net restructuring charges of $8.8 and $22.5, respectively, which are reflected within restructuring and other charges in the condensed consolidated and combined statements of operations.

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.

During the three and nine months ended September 30, 2023, the Company recorded net restructuring charges of $10.1 and $14.3, respectively.

These costs were associated with general cost improvements, eliminating redundant positions and aligning resources and facilities for cost improvements and to meet our customer requirements.

The increase in restructuring and other charges for the three months ended March 31, 2025, as compared to the corresponding period in 2024, was due to continued charges associated with the Company’s actions to streamline its operations and eliminate redundant positions including $3.2 in impairment of facility related assets during the three months ended March 31, 2025.

Interest Expense

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

2024 2023 Change

Three Months Ended March 31,

2025 2024 Change

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$ 22.3 $ 34.3 (35.0) %

The decrease in interest expense for the three months ended September 30, 2024, as compared with the corresponding period in 2023, is primarily due to the pay down of $70.2 on term loan A and $412.5 on term loan B in the six months ended June 30, 2024.

The increase in interest expense for the nine months ended September 30, 2024, as compared with the corresponding period in 2023, is primarily due to the incurrence of indebtedness, consisting of borrowings under

senior secured term loan facilities and senior secured notes, and the write-off of $12.2 of debt issuance costs associated with the pay down of debt in the quarter ended June 30, 2024.

Foreign Exchange Gain (Loss)

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

2024 2023 Change

The decrease in interest expense for the three months ended March 31, 2025, as compared with the corresponding period in 2024, is primarily due to the pay down of $70.2 on term loan A and $412.5 on term loan B in the six months ended June 30, 2024.

Foreign Exchange Loss

Three Months Ended March 31,

2025 2024 Change

Foreign exchange gain (loss)

Foreign exchange loss

$ (5.6) $ (5.3) 5.7 %

The foreign exchange loss for the three and nine months ended September 30, 2024 compared to the foreign exchange gain (loss) for three and nine months ended September 30, 2023 changed primarily due to the relative weakening of the U.S.

The foreign exchange loss for the three months ended March 31, 2025 compared to the foreign exchange loss for three months ended March 31, 2024 was primarily due to the fluctuations in the U.S.

Dollar against the British Pound and the Euro.

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

2024 2023 Change 2024 2023 Change

Three Months Ended March 31,

2025 2024 Change

Other, net $ — $ 1.3 (100.0) %

The increase in Other, net for the three and nine months ended September 30, 2024, as compared with the corresponding periods in 2023, is primarily related to the recognition of a contingent consideration payment on a sale of a facility to a third party that is no longer in use by the Company and income related to services provided under Transition Services Agreements.

The decrease in other, net for the three months ended March 31, 2025, as compared with the corresponding period in 2024, is 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 September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Income tax (benefit) expense

$ (17.3) $ (5.8) $ (2.5) $ 7.3

Income tax (benefit) expense as a % of income (loss) before tax

(2.7) % (5.4) %

For the three months ended September 30, 2024, the Company's effective tax rate was 48.3% compared to the 2023 tax rate of 26.5%.

For the nine months ended September 30, 2024, the Company's effective tax rate was 1.2% compared to the 2023 tax rate of 30.2%.

The fluctuations in the quarter-to-date and year-to-date periods were primarily due to valuation allowance, employee benefits, and a foreign rate differential impact.

The Organization for Economic Cooperation and Development has introduced new global minimum tax regulations, known as Pillar Two, that came into effect beginning on January 1, 2024.

We are monitoring this development and evaluating its potential impact on our tax rate and eligibility to qualify for the safe harbor provisions.

For 2024, we currently anticipate meeting the transitional safe harbors in all jurisdictions and do not expect a material impact to our financial statements.

For the three months ended March 31, 2025, the Company's effective tax rate was (2.7)% compared to the 2024 tax rate of (5.4)%.

The fluctuation was 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.

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.

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 and combined financial statements.

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

During 2024, we paid down $70.2 on term loan A, and $412.5 on term loan B, respectively.

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 March 31, 2025, there was $89.0 outstanding on the Company’s revolving credit facility and $361.0 was available for borrowing.

The maximum revolver borrowing outstanding was $98.5 and $75.5 during the three months ended March 31, 2025 and 2024, 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 September 30, 2024, we had sold $300.0 of receivables with net proceeds of $297.9.

As of March 31, 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.

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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 nine months ended September 30, 2024 and 2023

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

Cash Flows for the three months ended March 31, 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:

Nine Months Ended September 30,

Net cash provided by operating activities $ 245.7 $ 150.0

Three Months Ended March 31,

Net cash used for operating activities $ (124.2) $ (25.6)

Net cash provided by (used for) investing activities 16.1 (9.2)

Net cash used for financing activities (496.7) (133.1)

Net cash provided by financing activities 88.4 21.3

Effect of exchange rate changes on cash and cash equivalents 2.8 (2.3)

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Cash and Cash Equivalents

Cash and cash equivalents at September 30, 2024 and 2023 totaled $105.3 and $103.8, respectively.

Cash and cash equivalents at March 31, 2025 and 2024 totaled $101.6 and $92.8, 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 nine months ended September 30, 2024, the Company’s operations provided $245.7 of cash as compared to $150.0 of cash provided by operations during the nine months ended September 30, 2023.

The increase of $95.7 for the nine months ended September 30, 2024 was primarily due to cash from accounts receivable, including the sale of receivables under the Receivables Facility, offset by higher use of cash for interest and income taxes and the decrease in net income.

During the three months ended March 31, 2025, the Company’s operations used $124.2 of cash as compared to $25.6 of cash used by operations during the three months ended March 31, 2024.

The increase in cash used of $98.6 for the three months ended March 31, 2025 was primarily due to a decrease in cash received from accounts receivable partially offset by lower use of cash for prepaid expenses and interest.

Cash Flows from Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2024 was $248.1 as compared to net cash used for investing activities of $22.8 for the nine months ended September 30, 2023.

The $270.9 increase in net cash provided by investing activities for the nine months ended September 30, 2024 was primarily due to $276.6 of net proceeds from the sale of the Enabling Services Segment and a year over year decrease in capital expenditures.

Capital expenditures were $28.7 and $30.9 for the nine months ended September 30, 2024 and 2023, respectively.

Capital expenditures in 2024 were 1.4% 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 and geographies to drive growth and to improve efficiency of the Company’s operations.

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

Net cash provided by investing activities for the three months ended March 31, 2025 was $16.1 as compared to net cash used for investing activities of $9.2 for the three months ended March 31, 2024.

The $25.3 increase in net cash provided by (used for) investing activities for the three months ended March 31, 2025 was primarily due to receipt of the first milestone payment related to the sale of the Enabling Services Segment and a period over period decrease in capital expenditures.

Capital expenditures were $2.9 and $9.3 for the three months ended March 31, 2025 and 2024, respectively.

Capital expenditures for the three months ended March 31, 2025 were 0.4% 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.

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

Cash Flows from Financing Activities

Net cash used for financing activities for the nine months ended September 30, 2024 was $496.7 compared to cash used for financing activities of $133.1 for the nine months ended September 30, 2023.

Cash used for financing activities for the nine months ended September 30, 2024 was related to principal payments on the term loan A and term loan B.

Net cash provided by financing activities for the three months ended March 31, 2025 was $88.4 compared to cash provided by financing activities of $21.3 for the three months ended March 31, 2024.

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

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet financing other than normal operating leases and letters of credit.

The Company does not have any off-balance sheet financing other than short term operating leases and letters of credit.

Critical Accounting Policies and Estimates

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We apply these accounting policies in a consistent manner.

Significant accounting policies are summarized in Note 2 - Summary of Significant Accounting Policies to the consolidated and combined financial statements included in the Annual Report on Form 10-K.

The application of these accounting policies require that we make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, contingent assets and liabilities, and related disclosures.

The Company’s critical accounting policies are summarized in Note 2, “Summary of Significant Accounting Policies” to the consolidated and combined financial statements included in the Annual Report on Form 10-K.

The application of these accounting policies requires that we make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, contingent assets and liabilities, and related disclosures.

These estimates, assumptions and judgments are based on historical experience, current trends and other factors believed to be reasonable under the circumstances.

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If actual results ultimately differ from previous estimates, the revisions are included in results of operations when the actual amounts become known.

The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the condensed consolidated and combined financial statements, or are the most sensitive to change due to outside factors, are discussed in Management’s Discussion and Analysis in the Form 10-K.

Except as disclosed in Note 1 - Basis of Financial Statement Presentation to our condensed consolidated and combined financial statements in this Form 10-Q, pertaining to the adoption of new accounting pronouncements, there have been no material changes in these policies.

The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the condensed consolidated financial statements, or are the most sensitive to change due to outside factors, are discussed in Management’s Discussion and Analysis in the Form 10-K.

Our policy is to assess goodwill for impairment annually as of October 1, with more frequent assessments if events or changes in circumstances indicate the carrying amount may not be recoverable.

Based on the annual test performed on October 1, 2024, it was previously determined that the fair values of our reporting units were greater than the carrying values, resulting in no impairment.

For the Clinical Development reporting unit, the fair value of the business exceeded the book value by approximately 10% as of October 1, 2024.

During the three months ended March 31, 2025, due to a sustained decline in our share price and uncertainties in global macroeconomic conditions, we determined that an indicator of impairment existed.

As a result, we performed an interim impairment test.

Based upon the results of the qualitative and quantitative assessments 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.

For the Clinical Pharmacology reporting unit, the fair value of the business substantially exceeded the book value.

Although we believe that the current assumptions and estimates used in our goodwill impairment analysis are reasonable, supportable, and appropriate, continued efforts to maintain or improve the performance of these businesses could be impacted by unfavorable or unforeseen changes which could impact the existing assumptions used in the impairment analysis.

Various factors could reasonably be expected to unfavorably impact existing assumptions:

primarily delays in new customer bookings and the related delay in revenue from new customers, increases in customer termination activity or increases in operating costs.

Accordingly, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill impairment analysis will prove to be accurate predictions of future performance.

It is possible that our conclusions regarding impairment or recoverability of goodwill in any reporting unit could change in future periods.

There can be no assurance that the estimates and assumptions used in our goodwill impairment testing performed as of March 31, 2025 will prove to be accurate predictions of the future, if, for example, (i) the businesses do not perform as projected, (ii) overall economic conditions in 2025 or future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies for a specific reporting unit change from current assumptions, including loss of major customers, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA.

If our share price was to suffer further sustained declines in the future, or other indicators of impairment are present in future reporting periods, additional impairment testing will be required, which could result in further impairment charges in future periods.

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