Fortrea Holdings Inc. Q3 FY2025 earnings call

• Fortrea delivered solid results in Q3 with revenue of $701.3 million, adjusted EBITDA of $50.7 million, and backlog over $7.6 billion. Book-to-bill ratio improved to 1.13x. • New business wins in Q3 included significant awards with new and repeat clients. Clinical Pharmacology saw growth with robust wins from pharma and biotechs, increasing average contract size and growth in various disease areas. Global Clinical Development had diverse awards across therapeutic areas, including repeat business and new strategic partnerships. • Client and operational highlights: Sequential improvement in Net Promoter Scores, with measurable delivery achievements like reducing time to site selection by 33%, accelerating recruitment, and finishing enrollment early in studies. Adoption of technology and AI, such as Accelerate Risk Radar and Start My Day tools, to drive productivity gains. • Strategic pillars: Commercial excellence focusing on reach, relevance, repeat; Operational excellence on quality, productivity, and biotech operating model; Financial excellence on rightsizing organization and margin expansion.

Third quarter revenue was $701.3 million, 3.9% higher than the prior year quarter. The Clinical Pharmacology business saw an increase due to higher demand and study mix with increased pass-through costs. The Clinical Development business increased due to recent net new business awards but was partially offset by lower FSP revenue. Clinical Pharmacology contributed to revenue growth driven by higher demand and study mix resulting in increased pass-through costs. Clinical Development growth was from net new business awards but offset by lower FSP revenue. Revenue contribution details weren't split into exact percentages but both segments contributed to the overall revenue increase.

• For 2025, revenue guidance revised to $2.7 billion to $2.75 billion. Adjusted EBITDA outlook narrowed to $175 million to $195 million. • Targeting marginally negative operating cash flow for full year 2025 with positive operating cash flow expected in Q4 2025. • Continued focus on optimizing capital structure and maintaining healthy liquidity with undrawn revolver and ample available liquidity.

Q: Eric Coldwell of Baird asked about new to Fortrea clients and progress, and on Bill Sharbaugh joining the board.

A: Anshul Thakral mentioned RFP volume from new to Fortrea clients was up almost 40% q-over-q, win rates for biotechs doubled, and emphasized renewed focus on account management and sales strategy. Also noted excitement about Bill Sharbaugh joining the board.

Q: Brendan on for Patrick Donnelly of Citi asked about bookings backdrop between large pharma and biotech and pricing environment.

A: Anshul Thakral said saw neutral to favorable trends in both segments. Biotech decision-making timelines improving, biopharma customers resilient. Pricing environment competitive but disciplined, with bid margins consistent and shying away from unattractive FSP pricing.

Q: David Windley of Jefferies asked about pricing strategy, margin leverage, and biotech client go-to-market strategy.

A: Anshul Thakral said goal is to hold price where possible, being vigilant on deals. Jill McConnell added revenue beat due to higher pass-throughs relative to service fees. On biotech go-to-market strategy, emphasized bespoke approach, upskilling customer-facing resources to solve client root causes.

Q: Luke Sergott of Barclays asked about margin gap vs peers and 2026 top line growth.

A: Anshul Thakral and Jill McConnell said no structural reason to not close margin gap, but requires rightsizing and consistent book-to-bill. Stated not giving 2026 guidance yet, need more time in role.

Q: Justin Bowers of Deutsche Bank asked about industry environment anecdotes and Phase I capacity utilization.

A: Anshul Thakral gave anecdotes about biotech customer turning around Phase III program and pharma customer finalizing R&D plans. On Phase I, mix of work causing higher pass-through costs but good on capacity front.

Q: Jenny on for Jailendra Singh of Truist Securities asked about FSP sales team momentum and pricing in FSP.

A: Anshul Thakral said seeing sequential increase in FSP RFPs but sales cycle longer, proceeding with caution to balance reach and margin. Balancing pricing discipline with competitive environment in FSP.

Q: Alan Chen on for Elizabeth Anderson of Evercore ISI asked about biggest surprises at Fortrea.

A: Anshul Thakral said morale, commitment, and work ethic of colleagues across continents and geographies was reassuring, confirming initial hypothesis of strong engagement.