Fortrea (FTRE) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the first quarter, revenues were $651.3 million, a decline of 1.6$30.3 million, compared to $27.1 million in the prior year period, indicating year-over-year growth in adjusted EBITDA and adjusted EPS for the first time since the spin [34][39] - The net loss for the first quarter was$562.9 million, compared to a net loss of $79.8 million in the prior year, primarily due to a goodwill impairment charge of$488.8 million [40] Business Line Data and Key Metrics Changes - The clinical pharmacology business saw increased service fee and pass-through revenues, although bookings were slightly softer in the first quarter [36][70] - The backlog grew by 4% over the past twelve months, reaching over 7.7 billion, with a book-to-bill ratio of 1.02 for the quarter and 1.14 for the trailing twelve months [39][46] Market Data and Key Metrics Changes - The market environment remains competitive but stable, with larger customers maintaining consistent opportunities and spending [11][48] - Biotech sentiment is mixed, with some companies being cautious due to regulatory confirmations and funding challenges, while others report timely regulatory meetings [12][76] Company Strategy and Development Direction - The company is focused on improving gross margins and reducing SG&A costs, targeting gross cost reductions of 150 million in 2025 [51] - There is a strategic emphasis on enhancing customer relationships and incorporating AI to improve efficiency and quality in proposals and contracts [17][28] - The company aims to achieve a 1.2 times book-to-bill ratio over time, although current economic uncertainties make it difficult to predict new business wins [48] Management's Comments on Operating Environment and Future Outlook - Management acknowledges challenges in the biotech funding environment, noting that while there are delays in decision-making, the pipeline remains solid [92] - The company reaffirms its guidance for 2025, targeting revenues between $2.45 billion and$2.55 billion and adjusted EBITDA between $170 million and$200 million [46][45] Other Important Information - The company has exited all major transition services agreements and is now operating independently, which has contributed to a reduction in one-time spin-related costs [34] - The company has initiated transformation programs to reduce personnel costs and optimize its operational footprint [51] Q&A Session Summary Question: Revenue cadence and margin improvement - The first quarter revenue was better than expected, but guidance suggests revenue may be flat to down for the rest of the year, with margin expansion expected to be gradual [60][66] Question: Clinical pharmacology RFP volume and win rates - The clinical pharmacology business remains strong, with a return of the pipeline, and efforts are being made to convert pass-through work into revenue [69][71] Question: Bookings backdrop and pricing environment - The biotech pipeline is growing, but there is increased caution regarding funding, leading to slower decision-making [75][92] Question: SG&A expectations and margin perspective - Marginal improvement in SG&A is expected in the second quarter, with more significant improvements anticipated in the latter half of the year [82][84] Question: Cash flow improvement and DSOs - DSOs are expected to improve over the year, targeting low to mid-40s by year-end, with cash flow expected to be positive in Q3 and Q4 [88][89]