• Revenue: $674.9 million, a decline of 5.4% year-on-year.
• Adjusted EBITDA: $64.2 million, a decrease of 5.9% year-over-year.
• Adjusted EBITDA Margin: 9.5%, compared to 9.6% in the prior year period.
• Adjusted Net Income: $20.7 million, an increase of 3% year-over-year.
• Book-to-Bill Ratio: 1.23 for the quarter.
• Backlog: Approximately $7.6 billion, a growth of 6.2% over the past 12 months.
• SG&A Expenses: Increased by 27.6% year-over-year.
• Net Interest Expense: $22.4 million, a decrease of $12.2 million versus the prior year.
• Effective Tax Rate: Benefit of 48.3% for the quarter.
• Cash Flow from Operating Activities: $245.7 million for the nine months ended September 30, 2024.
• Free Cash Flow: $217 million for the first nine months of 2024.
• Days Sales Outstanding: 50 days as of September 30, 2024.

• Warning! GuruFocus has detected 2 Warning Sign with FTRE.

Release Date: November 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Fortrea Holdings Inc (NASDAQ:FTRE) achieved a book-to-bill ratio of 1.23 for the quarter, indicating strong demand and successful project acquisitions.
• The company has made significant progress in exiting from its former parent, with over 90% of servers and application systems migrated to an independent environment.
• Fortrea Holdings Inc (NASDAQ:FTRE) has been recognized externally, being named a finalist in Fierce Healthcare's excellence and data-driven DEI award and the CRO of the Year category in the annual script awards.
• The company reported a solid pipeline of opportunities for the next two quarters, suggesting continued growth potential.
• Fortrea Holdings Inc (NASDAQ:FTRE) has improved its Net Promoter Scores and customer satisfaction since becoming independent, reflecting enhanced customer relationships and service quality.

Negative Points

• Revenues declined by 5.4% year-on-year, driven by lower service fee and pass-through revenues.
• SG&A expenses increased by 27.6% year-over-year, primarily due to professional fees and costs related to exiting the transition services agreement.
• Adjusted EBITDA decreased by 5.9% year-over-year, impacted by lower service fee revenues and higher SG&A costs.
• The company faces ongoing challenges in fully exiting the transition services agreement, which is critical for future margin expansion.
• Fortrea Holdings Inc (NASDAQ:FTRE) has not provided specific guidance for 2025, citing uncertainties related to the timing of TSA exits and the mix of new business awards.

Q & A Highlights

Q: Can you discuss the nature of studies in your clinical pharmacology (clinpharm) unit and whether GLP-1 categories are driving growth? A: Tom Pike, CEO: Our exposure is to large pharmaceutical firms and biotech globally, targeting organizations with strong spending. While we do some work on GLP-1, our exposure is broad across various sophisticated scientific therapies, including an interesting autoimmune compound in the UK.

Q: Can you provide metrics on the improvement in win rates and Net Promoter Scores? A: Tom Pike, CEO: Our win rates have improved since the spin-off, particularly in our CPS unit, and our Net Promoter Scores have also improved. We are proud of these achievements as we move forward.

Q: What are your expectations for normalized interest expense as you exit the TSA and rates change? A: Jill McConnell, CFO: The interest expense seen this quarter is generally representative, with some variability depending on rates and revolver usage. Expect a range of plus or minus 10-15% going forward.

Q: Can you elaborate on the bookings environment and the book-to-bill ratio for the second half? A: Tom Pike, CEO: We are targeting a 1.2 book-to-bill ratio for the second half. The mix of large pharma and biotech gives us predictability, though the holiday schedule in Q4 requires efficient execution. We feel comfortable with Q4 and Q1 pipelines.

Q: How do you view the current environment for large pharma and biotech, and are restructurings nearing completion? A: Tom Pike, CEO: The top 20 pharma companies are categorized into three groups: those growing rapidly, those flat or declining, and those with slower growth. Our exposure is manageable, and the biotech environment remains solid, with recent funding numbers indicating stability.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.