• Revenue: $697 million for Q4 2024, a decline of 1.8% year over year.
• Full Year Revenue 2024: $2,696.4 million, a decrease of 5.1% compared to 2023.
• Adjusted EBITDA: $56 million for Q4 2024; $202.5 million for full year 2024.
• Adjusted EBITDA Margin: 7.5% for full year 2024, down from 8.6% in 2023.
• Net Loss: $73.9 million for Q4 2024; $271.5 million for full year 2024.
• Adjusted Net Income: $16.6 million for Q4 2024; $30.1 million for full year 2024.
• Book-to-Bill Ratio: 1.35 times for Q4 2024; 1.16 times for the trailing 12 months.
• Backlog: $7.7 billion, a growth of 4.2% over the past 12 months.
• Cash Flow from Operating Activities: $262.8 million for the 12 months ended December 31, 2024.
• Free Cash Flow: $237.3 million for 2024.
• Days Sales Outstanding: 40 days as of December 31, 2024.
• 2025 Revenue Guidance: $2.45 billion to $2.55 billion.
• 2025 Adjusted EBITDA Guidance: $170 million to $200 million.
• SG&A Increase: 16.9% year over year for Q4 2024.
• Net Interest Expense: $21.9 million for Q4 2024, a decrease of $12.6 million year over year.

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

Release Date: March 03, 2025

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 strong book-to-bill ratio of 1.35 in the fourth quarter, indicating robust demand and successful sales efforts.
• The company's backlog has grown to $7.7 billion, reflecting a solid pipeline of future work.
• Fortrea's phase one clinical pharmacology services business experienced its most successful quarter ever, driven by significant repeat awards and investments in clinic capacity.
• The company successfully exited most of its Transition Service Agreement with its former parent, reducing associated costs and improving operational independence.
• Fortrea has implemented a comprehensive customer relationship feedback program, resulting in significantly improved net promoter scores, indicating enhanced customer satisfaction.

Negative Points

• Fortrea's revenue and adjusted EBITDA projections for 2025 are below prior expectations due to the impact of pre-spin projects with lower revenue and profitability.
• The company's fourth-quarter revenues declined by 1.8% year-over-year, primarily due to lower late-stage clinical service fee revenue.
• SG&A expenses increased by 16.9% year-over-year, driven by professional fees and one-time costs related to exiting TSA services.
• The adjusted EBITDA margin for full year 2024 decreased to 7.5% from 8.6% in 2023, impacted by lower late-stage clinical service fee revenues and higher SG&A costs.
• Fortrea's net loss for full year 2024 was $271.5 million, a significant increase from the net loss of $31.7 million in 2023, highlighting financial challenges.

Q & A Highlights

Q: Tom, can you discuss the trajectory from 2025 into 2026, particularly regarding the pre-spin projects and their impact on revenue and profitability? Why did it take so long to identify these issues, and how confident are you in the new mix picking up in 2026? A: Tom Pike, Chief Executive Officer: We realized that the systems and processes for forecasting needed more detail to have confidence in 2025. We had some signs, but it took a couple of months to confirm through detailed analysis. The newer work is starting more slowly than expected, partly due to our biotech mix and oncology work, which burns slower. We needed to ensure confidence in our assumptions before presenting this news.

Q: What are the focus points for shareholder return opportunities, especially with the stock dropping below $10? A: Tom Pike, Chief Executive Officer: Our bookings led the industry in the third and fourth quarters, showing we do good work for customers. We are focused on growing our clinical pharmacology business, FSP, and full-service outsourcing while transforming our SG&A. We aim for a $40 million to $50 million improvement in SG&A and continue to optimize operations and IT.

Q: Can you help us understand the cost structure and top-line assumptions for 2025, particularly regarding the burn rate and opportunities with large pharma and FSP? A: Jill McConnell, Chief Financial Officer: We have a detailed project-by-project analysis. Many projects are late in their life cycle, making it difficult to improve margins. We are modeling a 1.15 times book-to-bill, slightly conservative, and aim to optimize efficiency and resource alignment.

Q: Can you discuss the current environment regarding pricing, demand, and cancellations? A: Tom Pike, Chief Executive Officer: The environment is similar to what we've communicated before. We have a solid pipeline with opportunities in large pharma and biotech. Our cancellation rates are not elevated, and the industry seems to be pressing ahead despite macroeconomic concerns.

Q: How are you managing the transition from pre-spin to post-spin projects, and what impact does this have on capacity utilization and SG&A leverage? A: Tom Pike, Chief Executive Officer: We started to see trends in the portfolio, leading to a detailed analysis. We are managing capacity utilization closely to ensure we have the necessary resources to deliver projects with quality. Our operations team is optimizing resources based on demand and project timelines.

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