What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-12 · 92 added, 65 removed, 144 unchanged (52% of the section changed)

13 unchanged sentences

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 impacts of becoming and our limited operating history as an independent public company;

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;

the risk that establishment of our accounting and other management systems, and our efforts to improve them, could cost more than anticipated or impact internal controls;

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;

the possibility that Delaware law, our organizational documents, our stockholder rights agreement, and our existing and future debt agreements may impede or discourage a takeover;

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

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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;

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 approximately 15,000 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 conducts 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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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 $7.7 billion as of March 31, 2025.

Our backlog was $7.5 billion as of June 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 Months Ended March 31, 2025 compared with Three Months Ended March 31, 2024

Three and Six Months Ended June 30, 2025 compared with Three and Six Months Ended June 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 March 31,

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

2025 2024 Change

$ 710.3 $ 662.4 7.2 % $ 1,361.6 $ 1,324.5 2.8 %

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’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 change in revenues was due to an increase in organic revenues of 6.6% and favorable foreign currency translation of 0.6%.

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

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.

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 change in revenues was due to an increase in organic revenues of 2.7% and favorable foreign currency translation of 0.1%.

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 .

Direct Costs, Exclusive of Depreciation and Amortization

Three Months Ended March 31,

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

2025 2024 Change

$ 576.8 $ 525.3 9.8 % $ 1,111.6 $ 1,079.5 3.0 %

2 unchanged sentences

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.

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.

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.

This increase was partially offset by lower headcount and personnel 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,

2025 2024 Change

Selling, general and administrative expenses

1 unchanged sentence

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.

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.

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.

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

Depreciation Expense

Three Months Ended March 31,

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

2025 2024 Change

Depreciation expense

$ 5.0 $ 6.3 (20.6) % $ 10.0 $ 12.9 (22.5) %

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.

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.

Amortization Expense

Three Months Ended March 31,

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

2025 2024 Change

Amortization of intangibles and other assets

$ 14.6 $ 15.1 (3.3) % $ 29.1 $ 30.4 (4.3) %

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.

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 .

Goodwill and other asset impairments

Three Months Ended March 31,

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

2025 2024 Change

Goodwill and other asset impairments

$ 488.8 $ — nm

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

$ 309.1 $ — 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 months ended March 31, 2024.

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

Restructuring and Other Charges

Three Months Ended March 31,

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

2025 2024 Change

Restructuring and other charges

$ 10.3 $ 10.4 (1.0) % $ 16.8 $ 13.7 22.6 %

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.

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.

Interest Expense

Three Months Ended March 31,

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

2025 2024 Change

Interest expense

$ 23.3 $ 45.2 (48.5) % $ 45.6 $ 79.5 (42.6) %

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.

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.

Foreign Exchange Loss

Three Months Ended March 31,

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

2025 2024 Change

Foreign exchange loss

$ (19.9) $ (1.5) 1226.7 % $ (25.5) $ (6.8) 275.0 %

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.

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.

Dollar against the British Pound and the Euro.

Three Months Ended March 31,

2025 2024 Change

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

2025 2024 Change 2025 2024 Change

Other, net $ 2.8 $ 9.0 (68.9) % $ 2.8 $ 10.3 (72.8) %

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.

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.

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

Income Tax Expense

Three Months Ended March 31,

Income tax (benefit) expense

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

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

2025 2024 2025 2024

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.

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)%.

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.

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

During the six months ended June 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 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.

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.

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

As of June 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 three months ended March 31, 2025 and 2024

Cash Flows for the six months ended June 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:

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 provided by financing activities 88.4 21.3

Six Months Ended June 30,

Net cash (used for) provided by operating activities $ (102.4) $ 248.1

Net cash provided by investing activities 8.6 256.2

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

Effect of exchange rate changes on cash and cash equivalents 7.1 (4.0)

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Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2025 and 2024 totaled $101.6 and $92.8, respectively.

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

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.

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 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.

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.

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.

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Cash Flows from Financing Activities

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.

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.

Off-Balance Sheet Arrangements

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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.

During the first and second quarters of 2025, due to sustained declines in our share price and uncertainties in global macroeconomic conditions, we determined that indicators of impairment existed.

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

Based upon the results of the quantitative assessment as of June 30, 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 $309.1.

For the Clinical Pharmacology reporting unit, the fair value of the business substantially exceeded the book value as of March 31, 2025 and June 30, 2025.

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.

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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.

There can be no assurance that the estimates and assumptions used in our goodwill impairment testing performed as of March 31, 2025 and June 30, 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