Fortrea Aktie

Good day, and thank you for standing by. Welcome to the Fortrea Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Tracy Krumme, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Fortrea's Second Quarter 2026 Earnings Conference Call. Before we begin, please note that this call is being webcast. There is an accompanying slide presentation, which can be found in the Investor Relations section of our website, fortrea.com.

During this call, we'll make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the reports filed with the SEC regarding these risks and uncertainties, in particular, those that are described in the cautionary statement concerning forward-looking statements and risk factors in our press release and presentation that are posted on our website.

Please note that any forward-looking statements represent our views as of today, July 29, 2026, and that we assume no obligation to update the forward-looking statements even if estimates change. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to nor a replacement for the comparable GAAP measures, but we believe these measures provide investors with a more complete understanding of results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and presentation slides provided in connection with today's call.

With that, I would like to turn the call over to Anshul Thakral, Chief Executive Officer. Anshul, please go ahead.

Thank you, Tracy. Good morning, everyone, and thank you for joining us to discuss Fortrea's second quarter 2026 results. Before discussing the quarter, I would like to take a moment to reflect as it's been nearly 1 year since I joined Fortrea as CEO. During that time, I've had the privilege of meeting with colleagues, clients, investors and partners around the world. What has stood out most consistently is the strength of this organization, our deep scientific and operational capabilities, our patient-inspired mission and a team that is increasingly focused on execution and accountability.

We also recently celebrated Fortrea's Founders' Day, marking 3 years as an independent company. This milestone is meaningful. It serves as an important reminder of how much has been accomplished and reinforces our focus on restoring sustainable growth and margin expansion. Today, we are pleased to report another quarter of steady progress on that journey, improving our full year revenue and adjusted EBITDA guidance. Our second quarter results reflect continued execution against the priorities we have outlined. First, improving commercial traction; second, strengthening operational delivery; and third, maintaining financial discipline.

Now I would like to address a recent matter. Our new CFO, Jason Madlock, is not currently able to act as a CFO for Fortrea due to an ongoing proceeding relating to restrictive covenants with this former employer. While I will not comment on the specifics, we believe we've acted appropriately in connection with Jason's appointment and plan to support Jason as we work through this matter. What I can share is that our finance function and team are in excellent hands until this matter is resolved.

Our Board member, David Smith, is serving as our Chief Financial Officer on an interim basis and is on the call today. David has served as Audit Committee Chair since Fortrea was established as an independent company. He previously served as CFO at Charles River Laboratories, a global CRO. His familiarity with Fortrea will support continuity in our finance and executive leadership. David has stepped down from his committee assignments in connection with his interim role, and Aaron Russell will chair the Audit Committee. I would like to personally thank David and Aaron for their support of Fortrea.

I would also like to thank Jill McConnell, who is on the call today and will review our second quarter financial update. Jill has helped guide Fortrea through an important period of transition and transformation. I will share a bit more about Jill before turning the call over to her. First, let me share further details about the quarter. As we discussed over the past several quarters, we are managing the business through a disciplined framework of 3 pillars: commercial excellence, operational excellence and financial excellence. This framework continues to guide how we measure progress, what we prioritize and how we create value for clients, employees and shareholders.

Starting with commercial excellence, we have continued to be cautiously optimistic about the market environment. The broader demand backdrop has continued to improve with more constructive customer engagement across both pharma and biotech. Biotech funding has continued to strengthen and large pharma procurement processes are more normalized than they were in the recent past. With that environment, I remain pleased with the mix of clients and projects across our portfolio and the progress we are making on our commercial strategy. Large pharma has remained a cornerstone for Fortrea, and our relationships with strategic customers are important sources of work across multiple service lines and development models.

At the same time, we have continued to see encouraging growth with new and existing biotech clients. Our commercial strategy remains grounded in the 3 Rs: reach, relevance and repeat. Reach means expanding the aperture of our customer relationships and bringing more opportunities into our pipeline. Relevance means showing up with differentiated scientific, operational and therapeutic expertise and repeat means earning follow-on work through consistent execution and a better client experience. In the second quarter, that strategy continued to produce tangible progress with $720.4 million in net new business weighted towards biotech.

Our book-to-bill was 1.06x, representing our fourth consecutive quarter above 1.0x and resulting in a trailing 12-month book-to-bill of 1.12x. Importantly, first half 2026 net new business awards increased 19% year-over-year, reinforcing that our progress is not limited to a single quarter but reflects sustained commercial momentum, particularly within biotech. We continue to see healthier activity levels across the pipeline and increased momentum as we engage our new biotech customers. The volume and value of RFPs issued in the second quarter increased across large pharma and biotech, including both new to Fortrea and existing biotech clients. While book-to-bill can vary from quarter-to-quarter, the broader trend of elevated bookings gives me continued confidence that our commercial execution is improving.

I want to highlight that our Clinical Pharmacology Services business, or CPS, was an area of strength in the quarter. CPS continues to benefit from strong scientific capabilities and integrated global network and increasing demand from customers. As we have said before, this business burns faster than most later phase programs. So CPS momentum continues to support revenue conversion as later phase program awards move through the project life cycle. More importantly, it reinforces the value of differentiated scientific and operational expertise in helping sponsors advance therapies from the earliest stages of development.

Stepping back, I would like to describe our commercial progress this way. The environment has become more supportive, but our results are not simply the result of market recovery. These are the results of deliberate actions we have taken to strengthen commercial execution, including better coordination across our global teams, sharper focus on where we can win and a clear understanding of how we create value for different customer segments.

Our second pillar is operational excellence. In the services business, consistency is paramount. Clients trust us not only for our ability to innovate, but for our ability to execute and deliver results. We help them with critical development questions. Can I move faster? Can I make better decisions? Can I see around the corner? Can you help us get to milestones with fewer surprises? That is where Fortrea is focused. We are one of a small number of truly global CROs with the scale and capabilities to manage complex clinical development challenges. But scale alone is not enough. What matters is how we use that scale to deliver greater predictability, better quality and a differentiated customer experience.

We made continued progress in operations during the second quarter. We remain focused on project management, site activation, enrollment performance and quality because those are the areas where consistent execution matters most. Our on-time delivery performance has remained a key differentiator, demonstrating our continued focus on execution quality and predictability for customers. Our customer satisfaction trajectory has continued to improve, reflecting the work our teams are doing every day to strengthen delivery discipline and client experience.

A central part of our operational strategy is Fortrea Intelligent Technology or FIT. FIT is our clinical trial intelligence ecosystem that integrates data, analytics and machine learning, risk analytics and AI across the clinical trial life cycle. Since launching FIT externally in April, we have continued to brand its use across ongoing studies and new project starts. For example, our CRA mobile app is now deployed in more than 50 countries with early results showing some meaningful efficiency gains, including reducing site visit preparation time, for example, by nearly 30 minutes per visit in one study in Spain. We are encouraged by the early adoption and remain confident as we scale the benefits globally.

Our goal with AI is not automation for the sake of automation. It is to create a force multiplier for our people and our clients. Automation improves efficiency, judgment improves outcomes. It does not replace the accountability, domain expertise and leadership that are essential to clinical development. That is why FIT is designed as an integrated platform strategy, bringing together trial execution, oversight and intelligence. Our goal is to improve predictability, reduce cost to serve, safeguard quality, strengthen the way we partner with clients.

Over time, we believe this will become an increasingly important differentiator, not because AI is separate from operations, but because it is embedded in how we execute. This is also why our people remain at the center of the strategy. We are a people business, and I am pleased about how strong our level of employee engagement remains across Fortrea. Our revenue strength, our quality, our client relationships and our ability to innovate all depend on the expertise and judgment of our colleagues.

We've equipped our nearly 14,000 employees with Microsoft Copilot on their desktop, and we have recently launched a comprehensive company-wide AI literacy program. These investments are not about replacing people. These investments are about giving our teams better tools so they can deliver with speed, consistency and insight. We are taking a deliberate and responsible approach to AI adoption that meets our high standards and to enable every individual at Fortrea to be ready to develop their careers in an AI era.

Now let me turn to our third pillar, financial excellence. We continue to make progress on our journey to growth and margin expansion. In the second quarter, we delivered revenues of $678.2 million and adjusted EBITDA of $58.7 million. Results were supported in part by strong CPS performance, and we delivered adjusted EBITDA through a disciplined balance of cost management and targeted investment. We continue to drive the business with financial rigor. Some of our margin improvement is a result of cost actions and efficiency initiatives, but increasingly, the next phase of margin expansion will come from growth, mix improvement and operating leverage. That is why commercial execution matters so much.

Sustainable revenue growth remains a key driver for our long-term margin expansion journey. At the same time, we remain disciplined in our approach. We are investing where we see opportunities to accelerate growth, including commercial coverage, therapeutic and medical expertise, technology enablement and differentiated delivery capabilities. We do so with a clear focus on returns, cash generation and long-term shareholder value creation.

Looking ahead, let me address our improved financial guidance. Given the CFO transition, I will talk to it this quarter, and Jill will focus our remarks on our second quarter performance. We increased our full year 2026 guidance and now expect revenue in the range of $2.62 billion to $2.69 billion and adjusted EBITDA in the range of $205 million to $220 million. These improvements reflect our solid performance in the first half of the year, driven by execution against an improving mix in our backlog, continued operational optimization and our confidence in the business.

Our capital allocation priorities remain unchanged: investing in organic growth, improving in productivity and continuing to delever. In short, we are strengthening Fortrea's financial position while investing in the capabilities that support sustainable growth. In closing, as I reflect on the quarter and nearly a year in the role, there are 3 takeaways I would like to emphasize. First, commercial excellence. Our momentum continues to build. We are seeing stronger engagement across pharma and biotech, continued progress on our 3Rs and solid new business wins that reflect improving execution.

Second, operational performance is strengthening the foundation of sustained profitable growth. We remain focused on delivering quality, predictability and efficiency at scale, while embedding FIT and AI-enabled capabilities that force multipliers across our workflows to enhance productivity, insight and client outcomes. Third, financial discipline remains central to our transformation. We are on track to achieve our improved full year guidance, managing costs carefully while investing with discipline to support growth and margin expansion.

We also remain focused on the balance sheet and capital allocation, and we continue to expect positive free cash flow for the remainder of 2026 and for the full year. As we enter the second half of 2026, I'm encouraged by what we are seeing across the business. While there is still work to do, we are executing against a clear strategy, operating with greater discipline and building momentum across our commercial, operational and financial priorities.

Most importantly, none of this would be possible without the dedication of our colleagues around the world. The progress we are making reflects their focus, resilience and commitment to our clients and to patients. We are asking a great deal of this organization as we return to growth, and our teams continue to respond with dedication, accountability and energy.

Now before I turn the call over for our review of our second quarter financial results, I would like to recognize Jill for her exceptional leadership and the many contributions she has made to Fortrea over the past 8 years, including leading the spin and building the financial foundation, which sets Fortrea up for further and future success. We are deeply grateful for her dedication, sound judgment and commitment to Fortrea.

Jill, I'll turn the call over to you to walk us through the results of the quarter.

Thank you, Anshul, and thank you to everyone for joining us today. In my remarks, I will focus exclusively on our second quarter and year-to-date performance as Anshul commented on guidance and outlook in his prepared remarks. The second quarter was another solid quarter that exceeded our expectations. I am very proud of what the team achieved.

And before getting into the details, I'd like to briefly highlight our progress against financial excellence, the third pillar of our growth strategy. First, we achieved a book-to-bill ratio of 1.06x in the quarter, bringing our trailing 12-month ratio to 1.12x. This reflects continued momentum in our commercial performance and improved demand trends across our end markets. Notably, we saw strong contributions from new to Fortrea biotech customers, underscoring our progress towards broadening and diversifying our pipeline. Second, we continue to drive improvements in adjusted EBITDA, reflecting the benefits of our cost optimization initiatives, which have remained on track and the ongoing focus on operational efficiency.

Now I'll cover the financial results in more detail. Second quarter revenue was $678.2 million, a 4.5% decrease year-over-year due primarily to lower pass-through costs in both our clinical pharmacology and clinical development businesses as well as continued FSP headwinds. These decreases were partially offset by service fee growth in our Clinical Pharmacology business, driven by increased net new business and a more favorable study mix.

On a GAAP basis, direct costs in the quarter decreased 6.6% versus the prior year, primarily due to lower pass-through and stock-based compensation costs as well as lower headcount-related personnel costs. These reductions were achieved despite a year-over-year increase in variable compensation expense and clinical pharmacology study-related costs due to project mix.

SG&A in the quarter decreased 18.2% year-over-year, driven primarily by lower IT and headcount-related personnel costs, partially offset by higher variable compensation expense. Interest expense for the quarter was $19.3 million, down $4 million versus the prior year quarter, reflecting the $75.7 million repurchase of senior secured notes in the fourth quarter of last year, lower interest rates on variable rate debt and no revolver borrowings during the quarter. Of note, we had no revolver borrowings throughout the first half of 2026.

Backlog was $7.8 billion and cancellations remained in line with historical trends. Backlog burn of 8.6% in the second quarter was higher sequentially, in line with our expectations, driven primarily by service fee growth in our Clinical Pharmacology business as well as sequentially higher pass-through revenue in both the Clinical Pharmacology and Clinical Development businesses. Adjusted EBITDA for the quarter was $58.7 million compared to $54.9 million in the prior year period. The increase versus the prior year quarter was driven primarily by the benefits of our cost savings initiatives and operational efficiencies and to a lesser extent, lower credit loss provisions.

Moving to net loss and adjusted net income. In the second quarter of 2026, net loss was $13.2 million compared to a net loss of $374.9 million in the prior year period. Note that the prior year was impacted by a noncash pretax goodwill impairment charge. Adjusted net income for the quarter was $22.7 million compared to $17.6 million in the prior year period. Adjusted basic and diluted earnings per share for the second quarter of 2026 were $0.24 and $0.23, respectively.

In terms of customer concentration, our top 10 customers represented 55.4% of revenue for the quarter ended June 30, 2026. Our largest customer accounted for 16.8% of second quarter revenue. For the quarter ended June 30, 2026, operating cash flow was positive $28.9 million compared to positive $21.8 million in the prior year period, and free cash flow was positive $19.9 million compared to positive $14.3 million in the second quarter of 2025.

Customer DSOs were 20 days, in line with the prior quarter and 26 days lower than the second quarter of 2025. Net accounts receivable and unbilled services were $654.4 million as of June 30, 2026, compared to $739.2 million in the prior year quarter. This reduction is primarily driven by the sustained improvement in our order-to-cash processes and when combined with our undrawn revolver, resulted in available liquidity in excess of $0.5 billion. Since the spin, we have paid down approximately 35% of our original debt. This has strengthened our balance sheet and improved our capital position, underscoring our disciplined approach to financial management.

Touching on our ongoing cost actions, we continue to strike a balance between maintaining high-quality customer delivery while driving continued operational efficiency. In the quarter, we delivered $18 million in new gross cost savings, bringing our year-to-date gross savings total to $34 million, and we delivered $10 million in new net cost savings, bringing our year-to-date net savings total to $19 million. Note that the net savings were partially impacted by a higher-than-expected variable compensation accrual rate based on our current business performance.

In closing, we are pleased to have delivered another solid quarter, demonstrating continued progress against our commercial, operational and financial excellence objectives. These results reflect the dedication of our teams across the organization and their commitment to helping clients accelerate the development of patient therapies around the world.

Before I conclude, I would like to thank the entire executive team and the Board for their support. It has been the privilege of my professional career to date to serve as Fortrea's CFO and to work alongside such a talented and committed team. I am proud of what we have accomplished together, and I'm grateful for the multitude of relationships and experiences I have gained during my 8-year tenure. I wish the company continued success in the years ahead, and I believe the best is yet to come for Fortrea.

Now we'll open the call for Q&A.

[Operator Instructions] Our first question comes from Elizabeth Anderson with Evercore ISI.

Congratulations on a nice quarter. Can you talk a little bit about -- I think, Anshul, you talked about sort of on the margin side, there's still a little bit of FSP drag, but better in pharmacology and sort of better study mix. Can you unpack that a little bit further so we can sort of understand like how much longer the FSP drag is and sort of how to think about like the contributors of go-forward revenue contribution, particularly on the margin front going forward?

Sure. Elizabeth, thanks for the question. Happy to take the question on margin. I think there's multiple pieces to this. I think the first is the journey that we've been on and started in rightsizing the organization, and that clearly has been showing up. And as Jill has mentioned in her remarks, we're on track with our cost savings targets, such as on the SG&A front and nonbillable front. We continue to do really good work there.

The second is, as we continue to grow and diversify our bookings and diversify the backlog that is now burning off into revenue, we're seeing some higher-margin projects burning off into revenue.

And the third is a continued focus on operational discipline, both in our global clinical development group as well as in our clinical pharmacology group, continuing to stay very tight within our expected parameters to be able to deliver these studies. And that's where you're seeing the impact in gross margins as well.

Got it. And as a quick follow-up, your free cash flow progression came up nicely as you guys expected. Can you talk about your expectations as we go through the back half of the year?

Yes. I think we've outlined that a bit. We do expect to continue to be free cash flow positive through the remainder of the year.

Our next question comes from Eric Halwood with Baird.

Your bookings obviously were much improved from the book-to-bill ratios and amounts over the last 2 second quarters reported, but you have had historically some seasonality in second quarters. And I'm curious if you have any thoughts on that, what might have driven the second quarter net book-to-bill being lower than what you typically achieve on a full year basis? Any other comments around that? And again, I would highlight that had you not beaten revenue by $31 million, your net book-to-bill would have been above 1.1, which is very good compared to the last 2 years. But I do have a follow-up after that as well.

Eric, first of all, thanks for your question, and thanks for -- I know a few of the folks in the early morning notes have done that extra math around the denominator effect here. I am very proud of the team and their continued success in delivering against our objectives on the commercial front. Look, I know you've brought up this comment to seasonality in the past. I've only been here a year, so I don't have the benefit of that seasonality.

But as I've diagnosed and looked at the numbers, there has always been one factor or reason as this company has gone through various changes over the past few years during the spin, not necessarily seasonality due to anything within our client base necessarily. So what transpired here in Q2 was continued actions that we've taken since August of last year, strengthening the commercial team and continuing to diversify our client base and not being reliant on any singular client or singular deal to be able to make the quarter. It's the diversification and it's the commercial execution that's yielded these results, and I'm proud of what the team has been able to accomplish.

The follow-up I have is just, obviously, the marketplace demand RFPs, client willingness to engage, all of those topics have continued to improve, and we're hearing that from you today as well as from your peer set. I am curious if you've seen any changes in the competitive environment or how that has evolved over the last year, whether it be particular companies with changing business patterns or behaviors or client expectations within various cohorts from emerging biopharma to big pharma. Just any change in the competitive landscape compared to a marketplace that does appear to be generally improving over the last year?

Eric, I think you hit the nail on the head in terms of the marketplace continuing to improve. I remain cautiously optimistic. I listened to the calls of some of the other competitors. And I think we're all kind of seeing the same trends in an improvement in the underlying market. So that's good. That's good for all of us. It's good for the industry. It's good for society as we continue to develop new innovative medicines.

In terms of competitive behaviors, this has always been a very competitive industry. It continues to be a very competitive industry in all sectors, in all product categories. And I would say the one thing I have noticed, and I said it in the last 2 calls as well is going into 2026, some of the temporal irrational behavior we saw on pricing in FSP that has subsided and those processes were completed last year. What I'm seeing in 2026 is a return back to a normal environment with lots of rational behavior, both from competitors as well as from clients. But again, it remains a competitive industry. As I tell my teams, we have to win every single deal with as much intensity as possible.

Our next question comes from Luke Sergott with Barclays.

This is Anna Kruszenski on for Luke. We were wondering if there were any updates you can give on the customer contracts that are still in the renegotiation and repricing stage? And if there's anything that you've changed in your approach to pricing and if you feel like you've gotten more leverage than before?

So thanks for the question. I won't speak to any specific customers. There's constantly moves in terms of negotiations in all of our partnerships. I would tell you your second question is around pricing. Again, I won't comment on pricing because it's very dependent from deal to deal. I would tell you there's a more -- as I said to Eric, a more rational return to a normal pricing behavior. It's a very competitive environment. Everybody is continuing to go after growth here, but pricing seems to be rational.

Awesome. And then if I could just ask one more on how to think about pacing for the second half. Just given where burn rates are ticking up and that bookings are more consistent in the first half, should we expect less seasonality between 3Q and 4Q? Or just anything you can share there?

Sure. Look, I think we've given a lot of pieces of information, and we provided updated guidance based on the strength of the first half. And as I mentioned or as we mentioned in our comments in the Q1 call, we anticipated a modest step-up in Q2, which is what we saw with relatively stable and flat performance in the second half. And I think we've updated our guidance in accordance to that. I won't be breaking down Q3, Q4 any further.

Our next question comes from Justin Bowers with Deutsche Bank.

So Anshul, can you expand upon some of the changes you've made to enhance Fortrea's commercial excellence and how you feel about the resources you have in place to execute on the strategy? That's number one. And then number two, just on the algo for CRO, we've all been trying to think about a 1.2 book-to-bill is yielding mid-single-digit growth. Is that still the algo? Or has something changed in the industry post pandemic that would -- that we should be taking into consideration?

Justin, happy to take those 2 questions. So the first question around changes and the commercial excellence. Look, I think the credit to our Chief Commercial Officer, Dray Virkler, who's been working on really enhancing this commercial organization since spin of coming out and establishing an independent selling force that is not reliant on the parent company or its customer relationships. And that's taken some time. Over the last year, we have both partnered together to continue to upgrade talent where necessary, change incentive compensation plans, change territory planning. I can give you a full list, but it would read like a Harvard Business School case study in Sales 101 in terms of going through all of the areas that would enable this commercial team to be successful.

I would say the biggest change is a change in mentality and focus that sales is not only done by sales reps. It is a combination of operational colleagues, it is a combination of medical expertise and medical colleagues as well as sales colleagues and bringing that triangle together has been the real change in terms of how we're going to market and how our customer-facing resources are prioritized.

Then your second question, look, I don't think the algo necessarily has changed, but it's an algorithm that has to really take into account what's happening with pass-throughs. I think that's the only modification that I would think about in that algorithm of 1.2 and what it leaves because in everyone's mix of bookings, backlog, et cetera, there's ways to think about pass-through, especially when you look at different types of clinical trials and mix coming up. That's the only nuance there, but the algo seems to hold, in my opinion, Justin.

I look forward to having that HBS case study with you at some point. And Jill, thanks for all the work over the years.

Our next question comes from Jailendra Singh with Truist Securities.

I want to go back to the second half margin guidance. I know these are ranges, but it does imply some moderation from 2Q trends. Can you if you can provide any color there? Is that primarily a function of your expectation around pass-through revenues ramping up in second half? I know you don't want to give Q3 versus Q4 guidance, but should we see a sequential pickup in margins? Just give some more color about how should we think about the margin trends in the second half.

Yes. Jailendra, thanks for the question. As I said earlier, we certainly will try to break down Q3 and Q4. I don't think there's major changes. I would think about stable, flat things around the things around the edges.

Okay. And then my follow-up is on your AI strategy, you launched in April. Thanks for the color there. But I was curious if you have started to see any meaningful benefits around proposal activity, win rates? Or is it too early? Have any clients like selected FA because of those capabilities? Or should we think of this as more operational benefit than being a part of some commercial strategy? Give me some color there.

I think eventually, it's both operational and commercial benefits, but I think it's too early. Jailendra, I think these things -- this is not -- while the speed at which we all went to using AI to do our Google searches, that speed doesn't translate into the speed at which we can make meaningful operational changes in a highly regulated, very complex environment. I think it's going to take time. I think we're making really good progress. I'm very proud of the team.

I'm especially proud of the team that we've taken an approach, which is not that AI is this bugaboo that sits outside operational strategy. It is integrated into everything we do, whether it's our finance teams, whether it's our HR teams, whether it's our commercial teams, whether it's our operational teams, everyone is now at a point where we are working through how this new technology and this tool can enhance our productivity and enhance the output of what we do in any function. That's one of the reasons we've rolled out an AI literacy program.

We have now Copilot, Microsoft Copilot as the tool that we are using in the hands of every single employee. But these changes will take time. from a marketing perspective, I'd love to pound my chest and say things like it's helping us win, et cetera. But the reality is these changes will take time for them to show meaningful differentiation on the commercial side and for them to show a meaningful impact on the operational side. I hope that answers your question.

[Operator Instructions] Our next question comes from Charles Rhyee with TD Cowen.

This is Lucas on for Charles. I want to ask a similar question to Jailendra's on AI capabilities. More just can you help us understand how customers are prioritizing AI capabilities and your guys' AI road map in RFP processes, particularly for newer customers?

Lucas, I'm happy to take the question. So I would break it down this way. Let's break your question down in are most RFPs that are coming in asking about AI capabilities? The answer to that is yes. Most RFPs coming in are asking about AI capabilities. So if you don't have a thoughtful, credible road map with tangible early results, that is a competitive differentiation point. We do. And so that is a positive competitive differentiator for us. Okay. So that's the first part of that question. If I break it down.

The second part is are customers ready to start making decisions where AI capabilities are the primary factor or a factor that would override operational experience, the capabilities of the team, the team's experience, your experience within those therapeutic areas. The answer to that question is no. And the reason the answer to that question is no, if I take you back to how I responded to Jailendra's question, it is still going to take time where meaningful impact can be perceived from the use of new technologies that are continuing to evolve. I hope that answers your question.

That does. That's helpful. And then my second question, a follow-up. We've heard from your peers that obviously, the biotech funding environment, which has meaningfully improved as well as we're also seeing large pharma time lines improve, which you noted in your prepared remarks, that this is leading to improved opportunities in the market, really kind of showing in first half book-to-bills. I understand that bookings are fairly lumpy quarter-over-quarter, particularly for a CRO of your size. But can you just explain or dive deeper into the opportunities and how they've tracked through your pipeline in first half '26 relative to second half '25?

Okay. I'm not sure I fully understand the question. I'm going to try to answer what I understood. I think what you're asking is -- you're talking about biotech funding, improved market opportunities and how has that flow-through of our pipeline in the first half of '26 look differently in second half of 2025. If that's the question, then the way I would answer it is we continue -- quarter-over-quarter, we continue to see improvement both in terms of the speed at which RFPs are coming our way and into the pipeline. I think that is industry-wide. We think we are working hard to continue to increase our aperture, which is the first Rs, my 3Rs in reach.

And then the second piece is the speed at which decisions are making has started to normalize. There was a period of time in the early part of the second half of 2025, where the speed in which those biotech decisions were made were extraordinarily slow because oftentimes funding was either delayed or off cycle. So the speed at which they're entering the pipeline, the speed at which they're exiting the pipeline, which is how decisions are being made, all of that is starting to normalize and continues to get slightly better quarter-over-quarter. I hope that answered your question, Luke.

That does, yes.

Our next question comes from Jared Haase with William Blair.

It's Christine Rains on for Jared. Hoping you can walk us through how your bookings are trending by therapeutic area. Some of your peers have recently called out shifts related to cardiometabolic and oncology. So curious if you're seeing similar movements and how we should think about the overall impact of your mix evolution on things like study duration burn rates and timing of revenue and pass-throughs contributing going forward?

Yes. I'm happy to take that question. Look, I think we're in a slightly different position than some of the peers that have reported. And I would continue to remind everyone a good majority of our -- like-for-like peers are private companies. So I think you don't get the full answers there. If you have a significant amount of work in vaccines such as COVID and flu vaccines or a significant amount of work in large GLP-1, Phase III GLP-1 studies, as I stated, we don't have either of those 2. And if you have those 2 and the market continues to evolve, you're going to see shift in your therapeutic area mix. I would tell you, we're not seeing any noticeable shift. We're seeing what the market is seeing.

Oncology is still the strongest therapeutic area, and we're happy with the mix that's coming in our pipeline, but nothing to report there. From a month-to-month, quarter-to-quarter, things do move around in terms of what therapeutic areas we are asked to bid on, but there's no material shift in that business. And as I've stated in the past, we have not -- in some cases, fortunate, in some cases, I wish we had, but taken on very large vaccine studies or very large Phase III GLP-1 studies. And as such, our mix has remained steady.

Okay. That's very helpful. And then just shifting to a geographic lens. Last quarter, you called out strong momentum in China. Can you update us on really whether this has continued? And just as a refresher, how large is your China business today? Because just looking at results, it seems like ex U.S. and Europe revenue has declined over the last couple of quarters. And really just overall, does your China business differ meaningfully from your global portfolio in terms of stage of development, therapeutic area pricing or customer size mix?

Just so we're fair, that was like 17 different questions. But I'll do my best to give a picture here. The first part of your question was specifically around China because we called it out last quarter. China continues to be, I think, an innovation hub where we are seeing innovative medicines, not just need medicines come out into the global development sphere. We continue to have a strong presence in China. We think we're a top global player in China. And for our customers who are looking to run global studies in China, we are seen as a strong competitor, we continue to do that work that continues to grow.

But the real growth is coming from -- and the reason I called it out last quarter was from Chinese biotechs and/or U.S. companies that are partnering with Chinese biotechs that are bringing those medicines out into the global landscape. That's an area commercially we've been doing very well and have deep ties and connections. within the entrepreneurs and the community that's bringing those innovative medicines ex U.S., and we are taken on a few of those great clinical trials.

Your other question was around geographical shift and mix. Our geographical shift and mix shifts based on a shift in where clinical trials are being run. So depending on the indication you're talking about, there are some seasonal indications that in certain seasons, you're going to be enrolling patients in such as respiratory diseases. You're going to enroll patients in the summer in the Northern Hemisphere and in the winter in the Southern Hemisphere and vice versa, there's other areas where with the regulatory changes, there may be a desire for more patients coming out of country X versus country Y, and those trials will shift. There isn't anything happening that would cause the shift in our geographical representation that is not due to how the customers are behaving or what is required in those particular clinical trials that we're in.

Our next question comes from Michael Ryskin with Bank of America.

This is Avantika on for Mike. You guys have covered a lot of ground. But I was wondering if you're able to give color on the mix of awards? Like have they shifted towards longer duration studies? Or are you primarily seeing an increase in smaller biotech programs?

I'm sorry, Avantika, could you repeat the first part of your question about which awards?

Yes. Within your bookings, like has the mix shifted towards like larger duration studies? Or given that you're seeing traction with biotech customers, like are you primarily seeing increase in small biotech programs?

Okay. I guess the question is -- if I look back over the last 3 to 4 quarters, it's been relatively stable in terms of our mix of studies that are, let's call them, Phase Ibs all the way to Phase III. And we're now starting to, as we have really strengthened our capabilities do more in the post-approval space. But there's no shift in mix that would cause one to think differently about our backlog, our burn rate or anything of that nature. The word I would use is diversification. We continue to build the backlog that I'm very happy with in terms of the diversity of what's going into the backlog and types of studies in types of customers and geographies, et cetera. But nothing to point out that would lead to any sort of shift in how you think about our business.

And I'm not showing any further questions at this time. I'd like to turn the call back to Anshul for any further remarks.

Sure. Thank you very much everyone, and thank you for your questions, and thank you for your continued engagement. As we close, I want to reinforce that our second quarter performance reflects continued progress against our strategy. We're strengthening our commercial performance. We're improving our operational delivery, and we're maintaining a disciplined approach to growth and profitability. We remain confident in our strategy. We're optimistic about the opportunities ahead, and we're focused on delivering sustainable growth and margin expansion and long-term value creation for our shareholders. Thank you again for joining us today.

Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Welcome to the Fortrea First Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your speaker for today, Tracy Krumme. Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Fortrea's First Quarter 2026 Earnings Conference Call. With me today on the call is Anshul Thakral, Chief Executive Officer; and Jill McConnell, Chief Financial Officer.

Before we begin, please note this call is being webcast. There is an accompanying slide presentation which can be found on the Investor Relations section of our website, fortrea.com.

During this call, we'll make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the reports filed with the SEC regarding these risks and uncertainties, in particular, those that are described in the cautionary statement concerning forward-looking statements and risk factors in our press release and presentation that are posted on our website. Please note that any forward-looking statements represent our views as of today, May 5, 2026, and that we assume no obligation to update the forward-looking statements even if estimates change.

During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to nor a replacement for the comparable GAAP measures, but we believe these measures provide investors with a more complete understanding of results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and the presentation slides that are provided in connection with today's call.

Lastly, I would like to add that Bill Holzmann, Vice President of Treasury and Risk Management, and I will be at the Barclays Leveraged Finance Conference in Austin on May 19. If anyone would like to meet with us on these dates, please contact me or a sales represented from the firm.

With that, I'd like to turn the call over to Anshul Thakral, Chief Executive Officer. Anshul, please go ahead.

Thank you, Tracy. Good morning, everyone, and thank you for joining us today to discuss Fortrea's first quarter 2026 results.

We started the year strong in the first quarter and remain on track with our plans. We made progress on our journey back to growth and margin expansion. We delivered solid results that reflect improving commercial traction, continued operational discipline and a clear focus on the actions we control in a market environment that is gradually becoming more favorable. As always, Jill will share a review of our financial performance, but I will start with a few highlights that clearly show the progress on our journey.

We delivered revenue and adjusted EBITDA putting us on a track to achieve our full year expectations. We had a Q1 book-to-bill of 1.15x and a trailing 12-month book-to-bill of 1.05x, reflecting improved commercial execution for the third consecutive quarter. We also reached a strategic operational milestone with the recent launch of Fortrea Intelligent Technology, or FIT, as we call it. FIT is our technology suite that integrates persona-driven AI-powered solutions to automate workflows and streamline oversight, helping improve trial speed, predictability and quality.

As I get more into the details of the quarter, I'd like to remind you that we are taking a disciplined approach to measure our progress using a framework of 3 pillars: commercial, operational and financial excellence. I'll do a deeper dive into our commercial and operational performance and then Jill will walk through the quarter's financial results.

But first, let me speak to the environment, which continues to stabilize with early signs of improvement. Large pharma is more constructive and biotech funding has inflected positively versus last year, supporting a steadier demand backdrop. In addition, we're seeing operational indicators improving. For example, clinical trial starts rebounded this quarter. To address this growing opportunity, we remain focused on our foundational growth drivers that we call the 3 Rs: reach, relevance and repeat. During the quarter, we continued to see evidence that our commercial actions are translating into healthier activity levels and better quality engagement.

In short, I was pleased with our sales in the quarter. Not only did we deliver a book-to-bill of 1.15x, which is our third quarter in a row of book-to-bills of 1.1x or higher, we also diversified our customer base, with notable success in biotech, a sector where Fortrea has deliberately been sharpening our approach.

Our authorizations in the first quarter skewed toward biotech where we saw a significant year-over-year improvement. These organizations range from early growth innovators with fewer than 200 employees to publicly-listed development-stage companies with core strengths in oncology, cardiovascular, RNA-based therapeutics and other innovative therapeutic areas.

Wins were driven by building new client relationships, senior-level engagement and scientific differentiation. We saw the number of RFPs issued in the first quarter for biotech opportunities increase both sequentially and year-over-year, including an increase in new-to-Fortrea biotech evidence that our reach and visibility are improving across the board. I'm pleased with how we continue to build on previous improvements in sales with new to Fortrea biotechs.

Turning to another priority area for us, that's China, where we also saw strong double-digit growth in our pipeline of opportunities as well as some significant wins in the quarter. We believe we are well positioned in the country with more than 1,000 employees and around 10 strategic clients headquartered in China.

Let me share some additional commercial snippets from the quarter that give me confidence in our underlying progress. We had the best first quarter since our founding for authorizations in clinical pharmacology, supported by both new and repeat customers. Beyond that, I'm extremely proud of our clinical pharmacology team for going beyond simple first-in-human and healthy volunteer studies. This quarter, the team at our Leeds clinic successfully performed its first-in-human dosing in patients with immune thrombocytopenia, a rare blood disorder for which new therapies and treatment options are desperately needed. This accomplishment was the result of great collaboration between our team and the sponsor and is another example of how we are on the cutting-edge of helping to bring life-changing therapies to patients.

Overall, enterprise cancellations remain within an expected historical range. Beyond the metrics, we are seeing third-party validation that Fortrea's brand awareness is rising, consistent with what we're hearing in client conversations and what we're seeing in the sales funnel.

Stepping back, our first quarter performance isn't an accident. It's the result of a deliberate commercial execution, expanding our reach, increasing our relevance through differentiated scientific and operational capabilities, and earning repeat work through better delivery.

And that takes me to our second pillar: operational excellence. Operational excellence is how we deliver quality, predictability and efficiency for clients at scale. A major step forward in that strategy is the launch of Fortrea Intelligent Technology, or FIT, which we announced in April. The launch was met with strong reactions from customers, partners and investors. We saw immediate positive feedback from sponsors and technology partners, and it has helped strengthen our commercial narrative around predictability and execution.

Over time we expect AI technology and innovation enablement to increasingly support win rate, operational efficiency and longer-term differentiation rather than being viewed as a stand-alone initiative. It's important to be clear, FIT is not a single product. It's an AI-enabled integrated platform strategy combining trial execution, oversight and intelligence, designed to improve predictability, reduce cost to serve, improve quality and strengthen the way we partner with our clients.

In light of unveiling FIT, let me say a bit more about AI more broadly as it remains an active discussion topic. Across the industry, leaders have more data, more tools and more AI pilots, yet we haven't seen a commensurate increase in approvals. If we don't redesign how decisions are made, AI will amplify noise rather than improve outcomes.

Our goal with AI is not automation. It is to create a force multiplier. Automation improves efficiency. Judgment improves outcomes. In clinical trials, some of the most valuable calls are when to intervene on enrollment, when to change a study strategy or when risk becomes irreversible. These are judgment-heavy decisions, and that's where AI must help, not replace our leaders.

The expected AI revolution will require rapid evolution of the kind that has become a hallmark of the CRO industry. I believe CROs are ready for the shift just as CROs were ready for the pandemic. CRO stepped up and delivered significant value at the time it was needed. I believe this industry will do it again.

Fortrea's approach is pragmatic and outcomes-focused. It keeps humans in the lead in a tightly connected R&D ecosystem, aided by an integrated and powerful AI-enabled information platform. We are already embedding AI into our workflows and integrating it with our deep therapeutic and domain expertise. We have equipped our award-winning trusted Xcellerate platform with AI and ML, a platform that currently has tens of thousands of users, including employees, clients, SaaS users and even investigator sites. As technology waves continue to revolutionize clinical trials, CROs serve as a change catalyst and as change agents.

Alongside technology, we're staying intensely focused on improving delivery. Because in a services business, consistency is paramount. We continue to strengthen project management to increase speed, predictability and efficiency, with a particular focus on investigator sites and patient enrollment. Notably, we have revamped our approach to site activation, adding greater efficiency to significantly compress the time from site selection to site initiation, resulting in both year-over-year and sequential improvements.

In the first quarter, we further broadened our site navigator program globally, including expansion in China and Japan. Site navigators provide dedicated support to sites. We also leveraged centralized start-up teams and partnerships with site networks in emerging regions, driving more consistent site performance across geographies.

We also strengthened leadership in key areas, including the appointment of Erin Koch to lead our Functional Service Provider or FSP organization, supporting sharper execution and a tighter connection between commercial commitments and delivery.

Quality remains foundational at Fortrea. We continue to advance our risk-based quality management approach and we're proud that our Chief Quality Regulatory Affairs and Sustainability Officer, Sandy Kennedy, was voted Chair of our industry association, ACRO. The appointment shows our credibility and leadership in industry quality standards. As the regulatory landscape around the world shifts to embrace and accelerate innovation that can improve patient outcomes, Fortrea is engaged and ready to help sponsors navigate the changes.

In our Phase I clinical pharmacology services, we're performing well and adding momentum. For example, we're taking advantage of improving MHRA time lines to drive greater utilization of our flagship clinical research unit in Leeds in the U.K., supporting sponsors looking to move efficiently in early development. Clients across all of our services have experienced the difference from our progress in operational excellence. Our customer Net Promoter Score has improved steadily, reflecting ongoing progress in delivery and day-to-day client experience.

Taken together, commercial traction, improving delivery and technology enablement, these actions are reinforcing one another. They strengthen how we compete, how we execute and how we build confidence with sponsors.

Our third pillar is financial excellence, driving margin expansion, disciplined cash management and continued focus on the balance sheet. Jill will cover the details including key themes from our quarter and our guidance framework.

But importantly, I'll highlight that we're making solid progress on margin expansion, as we journey toward mid-teens in adjusted EBITDA margin percentage over the next 3 to 5 years.

Before I close, I want to recognize colleagues from Fortrea for their continued focus and resilience and thank our clients, partners and shareholders for their support. The progress we're making is a result of disciplined execution across the organization and our team's dedication to our patient-inspired mission.

Now let me close with 3 takeaways. First, we're seeing improved commercial momentum, including continued strength in book-to-bill and biotech engagement. Second, we're elevating operational performance through better delivery discipline and the launch of FIT, which we believe will be an increasingly important differentiator over time. And third, we remain committed to disciplined execution and financial rigor as we continue this journey back to growth and improve profitability.

With that, I'll turn the call over to Jill.

Thank you, Anshul, and thank you to everyone for joining us today. As Anshul stated, we delivered a solid first quarter. I am very proud of what the team achieved, and before getting into the details, I'd like to briefly highlight our progress against financial excellence, the third pillar of our growth strategy.

First, as part of our rightsizing initiatives, we delivered quarterly cost savings of nearly $16 million gross and over $9 million net, putting us on track to achieve our full year cost optimization targets. Second, the first quarter of 2026 represented the strongest start to the year since our spin, as evidenced by the year-over-year improvement in margin and in leverage ratios, reflecting our continued focus on rightsizing the business along with improving project mix and delivery.

Now I'll cover the financial results in more detail. First quarter revenue was $636.5 million, down 2.3% year-over-year, consisting of a 3.2% constant currency decline, partially offset by a 0.9% currency benefit. The decline was driven primarily by lower pass-through costs in both our clinical pharmacology and clinical development businesses due to study mix as well as continued FSP headwinds. Importantly, underlying full-service clinical revenue grew year-over-year.

On a GAAP basis, direct costs in the quarter decreased 4.1% versus the prior year primarily due to lower pass-through costs and headcount-related personnel costs. These reductions were achieved despite a year-over-year increase in variable compensation expense and currency headwinds, demonstrating our ability to balance rewarding our talent while maintaining cost discipline.

SG&A in the quarter decreased 17.5% year-over-year, driven primarily by lower IT and headcount-related personnel costs, partially offset by higher variable compensation expense. Interest expense for the quarter was $19.1 million, down $3.2 million versus the prior year quarter, reflecting the $75.7 million repurchase of senior secured notes in the fourth quarter of last year, lower interest rates on variable rate debt and no revolver borrowings in the quarter.

Book-to-bill was 1.15x for the quarter and 1.05x on a trailing 12-month basis. Backlog was $7.8 billion, and cancellations remained in line with historical trends.

Adjusted EBITDA for the quarter was $47 million, compared to $30.3 million in the prior year period. The increase versus the prior year quarter was driven primarily by the benefits of our cost savings initiatives.

Moving to net loss and adjusted net income. In the first quarter of 2026, net loss was $23.6 million, compared to a net loss of $562.9 million in the prior year period. Note that the prior year was impacted by a noncash pretax goodwill impairment charge.

Adjusted net income for the quarter was $15.2 million, compared to $1.9 million in the prior year period. Adjusted basic and diluted earnings per share for the first quarter of 2026 were $0.16.

In terms of customer concentration, our top 10 customers represented 54.8% of revenue for the quarter ended March 31, 2026. Our largest customer accounted for 17.2% of [ first ] quarter revenue. While we are still targeting positive full year 2026 operating cash flow, as expected, our cash generation in the first quarter was negative, primarily due to payments to our employees for variable compensation. However, our lower net loss and continued focus on improving our order-to-cash processes enabled us to offset a large portion of the impact.

For the quarter ended March 31, 2026, operating cash flow was negative $17 million, compared to negative $124.2 million in the prior year period. And free cash flow was negative $25 million, compared to negative $127.1 million in the first quarter of 2025. Recall that negative cash flows in the first quarter of 2025 were primarily timing related due to the implementation of our ERP system.

In the first quarter of 2026, DSO increased slightly compared to December 31, 2025, increasing from 16 to 20 days, consistent with our expectations. Even with this 4-day increase, year-over-year DSO was 31 days lower than the prior year.

Net accounts receivable and unbilled services was $619.6 million as of March 31, 2026, compared to $729 million in the prior year quarter. This reduction is primarily driven by the continued improvements we made in our order to cash processes during 2025.

For the second quarter in a row, we navigated the quarter without using our revolver. This combined with our solid cash position resulted in available liquidity in excess of $0.5 billion.

Looking ahead, we are currently targeting the remainder of 2026 to be operating cash flow positive. With our targeted EBITDA and significant add-backs available under our credit agreement, we expect to maintain ample liquidity and significant flexibility under our financial covenants for the foreseeable future.

Our capital allocation priorities remain driving organic growth, improving productivity and continuing to deleverage. Since the spin, we have paid down approximately 35% of our original debt. This has strengthened our balance sheet and improved our capital position, underscoring our disciplined approach to financial management.

Backlog burn of 8.2% in the first quarter was lower sequentially, driven primarily by the impact of previously communicated pricing concessions on a large pharma FSP contract, the timing of change orders, and to a lesser extent, lower billable volumes consistent with historic patterns in the first quarter.

As we continue on our journey of commercial, operational and financial excellence, we believe that sustainable revenue growth is key to our transformation, which is why we remain laser-focused on strengthening our commercial engine. The second half of 2025 was a step in the right direction, which continued into the first quarter of 2026. As our commercial engine matures and the market environment continues to normalize, we anticipate that these changes could enable more stable book-to-bill performance over time. With targeted value propositions that attract both large pharma and biotech customers, we believe we are well positioned to capitalize on demand across our end markets.

Margin improvement remains a multiyear journey, supported by 2 primary building blocks: revenue diversification and growth, and our ongoing efforts to optimize costs and improve efficiency. Our cost actions continue to strike a balance between maintaining high-quality customer delivery while driving continued operational efficiency.

With this combination, we continue to target an achievable path back to mid-teens adjusted EBITDA margin percentages more in line with peers, and our solid performance in the first quarter of this year is a step in that direction.

Turning now to guidance. We reiterate our targeted full year 2026 revenue guidance in the range of $2.55 billion to $2.65 billion, and targeted adjusted EBITDA guidance in the range of $190 million to $220 million. As a reminder, the year-over-year anticipated decline in revenue primarily reflects the impact of softer bookings in the first half of 2025, continued FSP headwinds and anticipation of lower pass-through costs.

The targeted improvements in adjusted EBITDA are driven by our continued efforts to rightsize the business, improve our efficiency and build a more attractive project mix. As I noted earlier, in the first quarter, we delivered nearly $16 million of new gross savings against our target of $70 million to $80 million, and more than $9 million in new net savings against our target of $40 million to $50 million, with the difference between gross and net being continued investments in our people.

The first quarter slightly exceeded our expectations in terms of the pace and benefit of our rightsizing initiatives, putting us on a solid trajectory to achieve our guidance while allowing for targeted investments in our employees and in areas that we anticipate could support longer-term revenue growth.

For the second quarter, we anticipate a modest sequential increase in revenue, driven by higher underlying service fee revenue and pass-through costs. We anticipate a slight step-up in adjusted EBITDA as the higher revenue will be partially offset by increased variable compensation costs.

In closing, we are pleased to have delivered another solid quarter, demonstrating that we are making progress against our commercial, operational and financial excellence targets on our journey back to growth and margin expansion. Every day our customer-facing and supporting function teams show up with strong engagement and a commitment to accelerating the clinical development process. We remain excited about the future of Fortrea.

Now we'll open the call for Q&A.

[Operator Instructions] Our first question will be coming from the line of Patrick Donnelly of Citi.

Anshul, maybe one for you just on the overall backdrop here. Pretty encouraging book-to-bill performance. Can you talk about what you're seeing? Last quarter, you talked about maybe a little more constructive conversations with biotech. Are you seeing that continued [indiscernible] looks pretty good there for a couple of quarters now, the competitive environment. Would love to just talk through that booking backdrop and the confidence level moving forward here.

Patrick, you're coming in a little bit muffled, but I think the question was around backdrop and the evolution of the backdrop specifically as it relates to the competitive nature in biotech. I think that's right, Patrick. As I said, in the world with large pharma, we're seeing a lot of constructive dialogue. We're seeing pipeline prioritizations have largely passed in 2025. But in biotech, we're seeing a slightly speedier path to recovery. As I mentioned, the RFPs for us were up sequentially in biotech, particularly new-to-Fortrea biotech.

One of the things I'm very proud of our team is the reach component of our commercial strategy seems to be working really well. But I think that answers your question. We are seeing a little bit speedier recovery in the biotech space.

Okay. That's helpful. And then, Jill, maybe one for you, nice progress on the EBITDA front, a little bit of combo on 2Q progression here. Can you talk about the moving pieces? Obviously, the pass-throughs are one impact. Can you talk about the cost levers you guys are pulling and, again, the right way to think about the level of conservatism layered in after the strong performance to start the year here?

Sure, Patrick. Revenue was down sequentially, but I did comment that underlying service fee revenue for the second quarter in a row was up. And so I think that is a good sign that some of the work we've been doing to try to diversify the portfolio and really think about the mix of work we have is starting to recover. We continue to be pleased with our cost optimization efforts. They came in a little bit ahead of where we expected for the quarter. And I think the team just continues to really execute strongly. We've been talking about project efficiencies and how we deliver there. And those things are starting to come together.

I think in terms of the guidance, it's 1 quarter. We want to continue to keep working at it. And if we have upside, quite frankly, there are opportunities where we believe some of those could be used for small investments to try to accelerate future growth. So I think we think sticking with the guidance as it is right now makes the most sense.

And the next question will be coming from the line of Elizabeth Anderson of Evercore.

I was hoping to dig in a little bit on the China comments, Anshul, that you put through. Is that an area of like specific incremental investment given some of the opportunity, the changing market dynamics there? Or is that sort of part of a broader geographic investment mix? That would be helpful to get your broader thoughts on that topic.

Elizabeth, my comment in China is less about an incremental investment. It's a continued strength in China. Fortrea through its legacy has always had strength in operations in China, a little over 1,000 colleagues covering a majority of the clinical trial sites throughout the country. I think it's a comment on our continued strength. And as the market evolves and continues to pick up, we are the beneficiary of that, having a strong customer base in China.

Again, we are focused on China Go Global, meaning assets that are coming out for the global markets, and we're running global clinical trials for those companies.

Elizabeth, hopefully that answers your question.

Yes. No, that's helpful. I was just trying to understand whether -- how that was reflecting. So perfect.

Our next question will be coming from the line of Max Smock of William Blair.

Just wanted to follow up on some of the earlier commentary, particularly around small biotech. And trying to bifurcate, I think, between market improvement versus share gains. And the commentary I thought that you provided on the latter was pretty bullish there. So just in general, can you kind of help us understand like how much of that small biotech -- or improvement, I should say, that you've seen do you think is attributable to the market getting better versus how much is maybe you all taking share from some of the other players?

And in terms of the share gains piece, like what are you all doing that's really resonating and allow you to get a bigger portion of the pie here moving forward?

Max, I think that's a great question. Share gain is always a hard question to answer given that you don't have perfect visibility on the data, especially given how many of our competitors are private. So I'll focus on the fact that we're seeing an uptick in activity. We're seeing an uptick in conversations as well as RFPs coming from small and midsized biotech companies.

What I'm really proud of is our team. The win rates are broadly consistent with what I would want to see from our commercial team. But more importantly, the aperture is increasing. So we are starting to bring forth more new-to-Fortrea biotech into our pipeline and into our mix. And I think it's our commercial execution that I'm most proud of.

That's very helpful. And then maybe just following up with one on margins. I think, Jill, maybe in your prepared remarks, you mentioned mid-teens margins over the next 3 to 5 years, I think that's the first time I've kind of gotten some detail around the time line there. And if I just think about what that means, call it, 15% by 2030, basically 700 basis points of improvement over the next kind of 4 years there at the midpoint, is that a reasonable way or like a reasonable starting point for thinking about margin expansion moving forward?

And then just thinking through the cadence of improvement over the next 3 to 5 years and just the puts and takes behind that improvement as well.

Sure, Max. I think we wanted to start to give some sense of what we saw in terms of how we would be back on that journey. And with the building blocks in place, if you remember last year when we talked about this, we said it's going to be based on continuing to deliver on the cost optimizations, which we've been doing and we're continuing to do. And then most importantly, being able to drive top line growth. And we said it would be really important to be able to see more consistency in our commercial execution. We now have 3 quarters of that with the pipeline growing. And the continued momentum and focus, we believe that we're starting to see the foundation for that, which should allow us to start to have more significant improvements in margin over time.

We've talked about the fact that early on with low levels of growth, we will be able to absorb and use some of the capacity that we have. And then as we grow more, we will we would add back personnel but in a more measured way. And we're creating the environment that will allow us to do that.

So we're thinking -- we talked to you guys last quarter about an Investor Day, we're thinking -- we're planning that logistics and more to come, but in the second half of the year, and that will be the place for us to really lay out more detail about what that margin progression would look like.

And our next question is coming from the line of David Windley of Jefferies.

I think Fortrea wins the award for the cleanest quarter this quarter. So congratulations on that. The question that I have is around the cadence of client renewals, Anshul, I think we talked about this fairly recently. I think your view is that maybe the re-procurement cycle in the last couple of years was a little elevated, but not dramatically so. I guess I'd be curious how you view 2026 or maybe even '26 and '27 in terms of the larger client renewals that you are approaching and when you expect to have -- what your hopes and aspirations are for those and when you expect to have visibility on those.

Sure, David. Yes, we've talked about this in the past. I do think there was some level of elevation in terms of re-procurement conversations happening over the last couple of years. I think it was particularly in FSP, especially as there's opportunities for leverage in terms of price. And as we've talked about that in our own case, in one particular strategic client.

If I look forward into '26 and '27, I see normal levels. I mean remember, in any one given client, they may have multiple outsourcing models. Within that particular client, they may have multiple therapeutic areas and business units within that particular client. So we've got a team that's focused on these renewals. We continue to see some level of steady progress, a couple a year. I won't comment on the specific numbers of the specific clients.

But I think what I will comment on, what is interesting, as our -- as we regain stability in the marketplace and as I rebuilt the commercial excellence framework that we've been talking about, we're getting invited to certain renewals that we weren't invited to in the past, from a large and midsized pharma. And that's actually what gives me some pride in terms of what our commercial team is being able to accomplish here in 2026.

And then you touched on the topic of my follow-up, which was around that FSP concession that you called out. I guess I wanted to understand that a little bit better. Is that -- was that a, say, a rate card or a price level that is baked in and a new level on a go-forward basis? Or Jill, was your call-out, your words, about the first quarter highlighting a specific, say, disproportionately large effect here as we start the year that doesn't necessarily persist? I didn't quite understand the...

I'll make it simple, David. It was a particular client who decided to renew their multiyear FSP contract with several CROs a year early. And it was a rate card impact. And that rate card impact is a go-forward rate. And we've been able to absorb that rate card impact within our business. And some of that shows up here in Q1 because the new rates took effect in Q1. Does that answer your question?

Yes, it does.

And our next question will be coming from the line of Eric Coldwell of Baird.

A couple of things here. First, on the bookings and bookings mix in the quarter, and Anshul, you highlighted your pleasure with the momentum on biotech in particular. Does that by default indicate a heavier skewing towards FSO wins versus FSP? I would assume so, but I'd love your commentary on the kind of the underlying quality of the mix of bookings in the quarter.

And then as an adjunct to that, there was some chatter in the quarter leading up to this about rescue wins and various puts and takes across companies in the space, not necessarily new business in terms of demand, but business shifting from one player to the next. I'm curious if you could -- would be willing to share any perspective on size or quantity of rescue wins on a net basis as well?

Sure. Eric, I'm happy to share. In terms of booking mix, you're correct with your assumption, our bookings skewed more towards FSO than FSP in the first quarter. And our bookings skewed more heavily towards biotech than biopharma in the first quarter. So you're correct in both of your assumptions there in terms of the mix of the backlog. So we've got a quality of backlog going in -- a quality of bookings going into the backlog that I'm very happy to see.

In terms of chatter, Eric, there's always chattered. I'll tell you there's always rescues in any given quarter. Typically, if a CRO has had some financial difficulties or there's been news in the marketplace, everybody is going to counter detail. It's happened to us. We've done it, vice versa, et cetera. But there is no -- there was no trend line necessarily of rescues happening in any given quarter. Look, we took on a rescue or 2. I'm sure every other CRO took on a rescue or 2. But I'll tell you from the perspective of CRO and perspective of sponsor, rescues are not taken lightly. They're not easy. They're not difficult. I mean they're very difficult to execute on. And while they may provide some short-term revenue, they're usually very hard. But there wasn't a trend line, I would say, in Q1 around rescues. Chatter, sure. Counter-detailing, always, but not a trend line. I hope that answers your question.

Yes. That's great. And then I know Jill made the comment that Q2 revenue is expected to be up modestly quarter-over-quarter. And I think there was an implication that that was in absolute dollars, both the service revenue as well as the pass-through revenue. So I wanted to verify pass-through revenue actually reincreasing, if you will, here in the second quarter. And then any kind of a signal you could give us on your expectations for pass-through mix for the full year, whether that's dollars, growth rates, percentages? Just anything to help us get a sense on the pass-through trend line over the next 3 quarters would be great.

Sure. So in terms of the second quarter, you're correct, it's dollars both for service fee revenue as well as pass-throughs, and the step-up being pretty consistent between the 2. It's not going to get to the levels that we saw in Q2 and Q3 of last year. As we had shared on the call from year-end, we had a handful of trials. One, we reached the milestones reporting out a year ahead of time, so that trial was winding down. And then we had a few other very large ones that reached more maintenance stages of their life cycle. So we see it stepping up from Q1, but not to the levels that we saw.

And I think for the remainder of the year, it will be pretty consistent to a slightly higher level than we saw in Q1, but still below last year. Because you'll recall, that's part of why we have a revenue reduction for the year, is related to a lower expectation around pass-throughs for what we see today.

Yes. Good. And then last one for me, variable comp. I was just hoping you could walk through all of the mechanics of that, what it's up in Q1, what your expectation is for incremental cost in calendar '26 now that you're a quarter in and you've realized Q1 results. I'm just curious where the final tally came on variable comp increases, both in Q1 and then for the full year on a year-over-year basis. And I'll wrap it with that.

Sure. So we've been talking to you all about that journey and how it's important in our organization to make sure that we are compensating our employees in line with market and as they deserve. And we were pleased to be able to, for the first time since the spin, have a variable compensation payout for 2025. However, it was still below the norm. So this year, we're going back to what you would consider more normal levels of variable compensation. And in the quarter, that was a more significant increase because we took it up a little bit over the course of last year. So it's a little bit more of a significant headwind in Q1 this year versus Q1 last year. But it was built into our guidance. And as I mentioned earlier, if we continue to perform strongly, we're going to look at ways to continue to navigate how we compensate our employees and think about things that accelerate growth.

Could you give us the number, the incremental increase?

I mean so a full year estimate for us is around about -- it comes in at around $60 million. So last year, we were a little bit north. So we paid out about 2/3, and then this year, we're looking more to be at a normal run rate.

Okay. So consistent with prior commentary.

Yes. Correct.

Eric, you never give up on the number. That's good.

I like numbers.

The next question is coming from the line of Luke Sergott of Barclays.

This is Anna Kruszenski on for Luke. Anshul, you've made a number of leadership changes over the last few months and specifically within the commercial organization. So it would be great to just hear more about any key strategy shift here and how you've seen this drive momentum, especially with the 1Q bookings.

Yes. I think, look, the Q1 bookings are driven through execution. And it's not just the execution of the commercial team, but it's execution of our delivery team, continuing to delight our customers, continuing to ensure we have repeat work and continuing to present strategies in bid defenses that are differentiated and give us a leg-up over competition. It's also driven by execution of our finance team.

So it's execution all around, not necessarily leadership changes, that are driving performance right now. And we continue to look for talented colleagues and individuals at all levels to be able to bring into the organization, especially as we as we return to growth. But it's really execution by our commercial teams, our operational teams and our finance teams that I think is giving us the wins that we need in the marketplace right now.

That was helpful. And then, Jill, if we could go back to margins just a bit, I know you talked about like reinvesting some of the savings that you achieved in the first quarter, but if there's just any other color you can share on like how we should think about the cadence of margins, specifically in the second half of the year, that would be helpful.

Sure, Anna. In terms of margin, again, we would see an incremental step-up, a slight incremental step-up in Q2, and I think it will just trend up slowly over the course of the year as we go forward. You're not going to see the big step-up, because Q1 came in more strongly historically, that 1Q to Q2 has been pretty pronounced. It's going to be much more measured this quarter because of where Q1 came in. And we're really pleased to see how strongly Q1 performed. But I think a slow gradual increase over the course of the year as more of the cost savings initiatives take hold and we continue to see some of the benefits of the new business wins we've had over the last few quarters.

The next question will be coming from the line of Charles Rhyee of TD Cowen.

Can I just follow up there, Jill. You're kind of saying we should see margins kind of still steadily improved. And just to clarify back to some of the other comments, I think you guided to 2Q EBITDA being sort of a step-up from 1Q. But if we think about that, that's like the bulk of the [ range ] for EBITDA for the year. And I think to an earlier question, you had said you feel good about where it is right now and there's some investments that you have coming. Just curious, are those -- do you have like known investments that you plan to make particularly in the second half of the year? Or is that you just want to be prepared for more opportunistic on that?

And then within this question, right, back to David's question around sort of the FSP, and you talked about the rate card impact, is that impact all already embedded within the 1Q performance and already embedded into 2Q? Or is there anything we would expect from that that could also show up in the second half?

Sure. So in terms of investments, I think it's really important, one, we have been talking about how we make sure we compensate our people. We are a people business. Our revenue stream comes through our people, and we want to make sure that we are continuing to compensate them in a market that's starting to get just a touch more competitive, and being ahead of that. And we -- so some of the investments are definitely targeted towards that, continued investments in things like merit.

The other ones, I think, are relatively smaller organic investments, but particular places like therapeutic areas and medical expertise where we believe certain investments and maybe even some target investments in the commercial organization, because we know that the real lever for getting that margins in line with peers is going to be revenue growth, so things that we believe will help to accelerate that growth trajectory. They're relatively small, but important for us to do as we prepare and come in to think about 2027 and beyond.

In terms of FSP impact, it is pretty much already now manifested in the first quarter, probably even slightly more pronounced in the first quarter relative for that drop. But that was fully built into guidance, and so there isn't anything surprised there that we would expect to see.

Okay. That's helpful. I appreciate that. And then maybe, Anshul, I just wanted to -- I appreciate your comments early on when you're talking about sort of AI is for efficiency, but you need people for sort of interpretation and strategic kind of thinking. But I guess the question though is, obviously, with all the focus on AI up and down the chain, what are those discussions like when you're talking with sponsors? Like what are they asking from you in terms of your AI capabilities? And are you starting to see any types of changes in the pricing model to create incentives for partners to use more AI?

Or I'm just trying to understand ways that you can still benefit. Because I think the big fear is that AI is going to drive lower cost, and then lower cost drives lower bid sizes, and that's kind of a negative cycle. Maybe you can talk a little bit how you can -- are there new scenarios where maybe more outcomes-based or risk-based that could be helpful for you going forward?

Sure, Charles, I'm happy to talk about it. This conversation comes up a lot. That's why I wanted to mention it in my prepared remarks and get ahead of it. I will say this, it's early days. And you're going to get tired of me hearing me say it's early days, because it genuinely is early days. I will tell you that most sponsors are having some version of a conversation, but it's looking to CROs as partners in, okay, we've got a tool here that could be a solution to helping speed up clinical trials. How we exactly use it? We don't know.

The tool itself is a singular tool. It's a suite of tools that continue to evolve. The problems that we're solving for are, in some cases, relatively simple, and it's a matter of testing tools, piloting them, and then executing, such as in pharmacovigilance and safety. And then there's problems that are far more complicated, which is having the tool be able to analyze data that leads to better site selection and that leads to better signal detection around things that may or may not be going right or wrong in a clinical trial.

But it's early days. I will tell you, almost every conversation we have is constructive in how do we solve it together rather than what are you going to do for me conversation, which I really appreciate, out of our clients. So far, we haven't seen any push on a commercial model as you're suggesting, because everyone is in the stages of developing, piloting, testing. We don't have active solutions that are rolling out at mass scale.

And when we get there, yes, I'm sure we'll have conversations around commercial models. We'll have various conversations, just like we've had with every form of change, innovation, change to the workflow in this industry over the last 20, 25 years. I think people forget how resilient the CRO industry was in the middle of the pandemic in changing its workflows and models to be able to accommodate a new environment in a very short period of time. And I have full faith, not just in Fortrea, but in the entire industry's ability to do that over the coming years.

Our next question will come from Jailendra Singh of Truist Securities.

So Anshul, I want to stick with the last question around the AI impact. And let me ask it in a slightly different manner and maybe see if you can give us some flavor around how do you think about the directional financial impact for the industry maybe near term and longer term? Would you agree that -- I mean clearly, CROs get paid based on billable hours and tasks, some of which could be automated. But on the flip side, you can argue that AI is driving more drug discovery, which could lead to more larger drug development pipeline longer term. And on margins, you should have more efficiencies.

So would you agree with this view that AI adoption could result in some top line pressure near term, but then neutral to positive impact longer term, but better margin will offset top line headwinds. So any directional color you can provide would be helpful.

Jailendra, I appreciate the question, though I do think you kind of answered your own question to a certain extent, because I know you and I have talked about this in the past. So look, broadly, I think that it's harder to determine what will happen in the nearer term because it's harder to see the impact given all of the -- we have a lot of conversations happening, a lot of noise, a lot -- but not a lot of progress just yet.

But you are right. I think in the near term, we will see certain areas that where workflow can be automated with machine learning, we'll see some margin, I would hope, appreciation for the near term and maybe some revenue headwind. But I would tell you, most, if not all of that, will be countervailed by the fact that, and I've talked about it and other peers have talked about it, is that the industry just continues to invest, reinvest into the next clinical program. We may even see speed pick up in terms of the early phase work as molecules move out of discovery at a greater rate.

But long term, I see this as a tailwind and I see this as a net positive the industry. Longer term, I think we will finally get to a place where clinical trials will get modestly and modestly faster. We haven't seen that in the last decade, but I think we will get there with these new advancements in technology. What that will mean is an opportunity to develop more drugs. They have opportunity to solve more diseases, and CROs continuing to play a vital role in that. So longer term, I do see this as a net-net tailwind for the industry overall, not just for CROs, but for pharmaceutical companies as well as the pace of innovation gets faster.

My quick follow-up on -- I know this is a difficult metric to guide for, but how do you feel about sustaining these strong book-to-bill trends for the rest of the year? Should we still model like 1.1x as a baseline backlog for rest of the year? Or do you have a high confidence that it could probably sustain this 1.15x plus/minus range given recent results?

Look, as I mentioned in the past, I don't think trying to give guidance on book-to-bill is the -- is a prudent thing to do here. The market is recovering. As I've said, I see recovery in biotech, but I do see a constructive recovery in biopharma. I'm not going to guide to a book-to-bill. I'll tell you I'd drive the team to much higher standards. And what I am really happy is that both my operational and commercial teams are responding to the pressure and the high bar that I've set for all of them.

Next question will be coming from the line of Justin Bowers of Deutsche Bank.

This is Sam Martin on for Justin Bowers and Deutsche Bank. Just 2 quick questions building on the previous themes of AI that were asked about. One on the commercial launch of Fortrea Intelligent Technology. Can you just dig in a little bit more to the initial reception where it's most concentrated, is among biotech or pharma, or really broad-based? And some of the earliest use cases that some of your customers are looking at applying it to?

And then beyond that on AI, just given some peer commentary on efficiencies gain versus the cost to actually implement the solutions, what are you thinking about really a time line for the efficiencies to outweigh the cost and the investment required to kind of put AI-related solutions in your workflow?

Sure, Sam. I'm happy to try to answer both questions. Look, our launch of our FIT platform was received very well, both by technology partners and sponsors. I hosted a 2-day workshop in Boston when we launched our FIT platform, inviting both technology partners and sponsor partners. And it was meant as a true workshop in I don't think any 1 company, whether it's a technology company, a CRO or pharma, is going to be able to solve things on their own. We're got to find a way to work together to collaborate to develop solutions. It's another reason why our FIT platform is based on an open source architecture. We want to be able to invite partners both on the sponsor side as well as in the technology partner side to help us develop solutions because, at the end of the day, we're not trying to be a technology company. We want to be a clinical research services company where we're starting to develop solutions that increase efficiency, increase quality and increase throughput of the development pipeline.

That said, all of that said, Sam, the reception was positive. A lot of traction, lots of folks wanting to work on solutions together. It's still early days. We're still in the stage of being able to throw pilots out there to see what's working, what we're able to do at scale, what we're not able to do at scale. And all of this work requires us working with partners, especially our partners on the client side, on the sponsor side.

In terms of your question around AI and when will efficiency gains overcome the costs required, I think there's a lot of initial costs required to make sure you have that kind of infrastructure and platform that Fortrea does. And remember, for us, FIT isn't a stand-alone product. FIT is our way of embedding machine learning and AI into our existing workflow into clinical operations, to our Xcellerate platform. For us, now it's incremental cost. It's incremental cost and, more importantly, the incremental cost of technologies, incremental cost to pilots. It's incremental cost of testing the solution.

I do think in the near to medium term, we'll start seeing that inflection point of efficiency gains outweighing the cost of running those pilots and the cost of developing the incremental agentic solutions.

The next question is coming from the line of Michael Ryskin of Bank of America.

This is [indiscernible] on for Mike. Given several quarters of strong book-to-bill, how should we think about revenue conversion timing from here? And are study durations or start-up time lines changing versus historical levels?

Yes. I mean I think -- [ Andrea ], thanks for the question. In terms of revenue conversion, as we said for the remainder of this year, we're pleased to be affirming our guidance. We will see a bit of a moderate step-up in the second quarter. And as the course of the year plays out, I think you'll see a little bit of continued strength as we go through the course of the year.

We are obviously looking at what we can do to try to return to some level of growth in 2027, continuing to execute on the commercial side and get book-to-bills in line with what you've seen over the last few quarters, will be really important. And as I shared before, we do plan to have an Investor Day later in the year where we can lay out a little bit more about the specific journey going forward.

Thank you. This concludes the Q&A session. I would like to turn the call over to Anshul for closing remarks. Please go ahead.

Thank you, everyone. As we conclude, I want to thank you for your continued engagement and really for your thoughtful questions. Our performance this quarter reflects the discipline and operational and financial rigor that is now embedded across Fortrea.

We continue to make progress on our strategic priorities to drive growth, expand margins and strengthen our ability to serve clients globally. What matters to our clients matters most to us, and we remain focused on delivering high-quality execution and long-term value. We're confident in our strategy and are taking the right steps to drive continued execution. Thank you once again for your time.

This concludes today's program. Thank you for joining. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Fortrea Q4 and Full Year 2025 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tracy Krumme, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Fortrea's Fourth Quarter and Full Year 2025 Earnings Conference Call. With me today on the call is Anshul Thakral, Chief Executive Officer and Director; and Jill McConnell, Chief Financial Officer. Before we begin, please note this call is being webcast. There is an accompanying slide presentation, which can be found on the Investor Relations section of our website, fortrea.com.

During this call, we'll make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the reports filed with the SEC regarding these risks and uncertainties, in particular, those are described in the cautionary statement concerning forward-looking statements and risk factors in our press release and presentations that are posted on our website.

Please note that any forward-looking statements represent our views as of today, February 26, 2026, and that we assume no obligation to update the forward-looking statements even if estimates change. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures provide investors with a more complete understanding of results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and the earnings call presentation slides that are provided in connection with today's call.

Lastly, I would like to add that Anshul, Jill and I will be attending the Barclays Level Healthcare Conference on March 10 in Miami. If anyone would like to meet with us on these dates, please contact me or a sales representative from the firm.

And with that, I'd like to turn the call over to Anshul Thakral, Chief Executive Officer and Director. Anshul, please go ahead.

Thank you, Tracy. Good morning, everyone, and thank you for joining us today. I'm pleased to report our fourth quarter and full year 2025 results.

Before I begin, I want to express my sincere appreciation to our colleagues across Fortrea, our Board of Directors, our clients and our broader stakeholder community. This was my first full quarter here, hard as that is to believe, given how deeply rooted I feel at Fortrea. The progress we will cover today reflects a tremendous amount of dedication across our entire global community, and I'm proud to share it with you today.

We delivered solid fourth quarter and full year performance in line with our guidance despite a challenging and uneven operating environment. Jill will walk through the financials in more detail, but I want to highlight a few key points upfront. We delivered revenue and adjusted EBITDA in line with our full year expectations. We closed the year with a Q4 book-to-bill of 1.14x and a trailing 12-month book-to-bill of 1.02x reflecting improvement in demand during the second half of the year.

We generated positive operating and free cash flow in Q4, resulting in positive operating and free cash flow for the full year. Importantly, we exceeded our gross and net savings targets, delivering approximately $153 million in gross savings and $93 million in net savings for the year. We continued to strengthen our balance sheet through disciplined debt payout using cash on hand, reinforcing our commitment to improving our capital structure. We expanded our leadership team, welcoming Aggie Gallagher as General Counsel in the fourth quarter. More recently, we appointed Dr. Scott Dave to lead our clinical pharmacology business. Dr. Oren Cohen, who previously led this business is now fully dedicated to his role of Chief Medical Officer, where he is focused on strengthening our clinical development and medical expertise as we continue to leverage our scientific and therapeutic experience with customers.

Stepping back to the broader environment, the macro backdrop remains cautious. But importantly, it continues to show signs of stabilization and early recovery. Funding activity rebounded meaningfully in the second half of 2025 with the strongest activity in the fourth quarter. Large pharma budgets have largely stabilized following pipeline reprioritizations and the market is currently signaling improving biotech funding flow through 2026. With this backdrop, we are seeing higher client engagement levels, shorter decision-making time lines and more concrete customer conversations, particularly within biotech. That said, we continue to expect our recovery to be somewhat uneven in the first half of 2026, which reflects the new business wins we saw earlier in 2025.

Looking further ahead, we're cautiously optimistic about building momentum in the second half of the year as outsourcing trends remain steady and access to capital looks to improve. Through all of this, our focus remains unchanged. Disciplined execution and positioning Fortrea to win as demand continues to recover. Our solid performance is built upon 3 pillars of excellence: commercial, operational and financial. We use these pillars to prioritize our actions and measure our progress in our journey to growth and margin expansion. I'll provide an update on our commercial excellence and operational excellence pillars, while Jill will discuss the financial excellence pillar.

Starting with commercial excellence. We secured significant new and repeat wins in the quarter, underscoring both our differentiated capabilities and the strength of our client relationships. Q4 notable wins included a long-term clinical pharmacology partnership award with the top 5 large pharma company, several FSP renewals from long-standing large pharma clients and a healthy balance of Phase II and Phase III global clinical development wins across biotech, midsize pharma and large pharma as well as across various therapeutic areas. Overall, I really like the mix of our current pipeline.

As I said last quarter, we have a commercial framework to expand our commercial opportunities, which we call the 3 Rs: Reach, Relevance and Repeat. These 3 Rs guide how we are rebuilding growth, strengthening execution and improving consistency across the organization.

First, Reach, expanding the top of the funnel and increasing access to customers. Over the last several quarters, we've taken deliberate actions to broaden our operature. We've restructured our global sales organization to increase capacity and capabilities focused on hunting new client relationships. We're building our inside sales, otherwise known as our Reach engine, focused on early-stage qualification needed to Fortrea prospects and general biotech outreach. And we've made executive-led customer engagement a standard part of our go-to-market discipline.

Second, Relevance, creating bespoke solutions that leverage our recognized therapeutic and scientific expertise, in ways that are relevant and resonate with clients. Our clients have come to expect that Fortrea leads with science. Now we are infusing our medical expertise deeper into how we deliver our clinical programs. As I mentioned earlier, Dr. Oren Cohen is now spending all of his time as Chief Medical Officer to deepen relationships with clients. He's engaging earlier in the scientific dialogue and collaborating closely with our physicians and therapeutic leaders to ensure Fortrea's solutions address the complex development challenges our clients face.

We also have been sharpening our focus on biotech opportunities, assembling biotech ready teams that understand the unique constraints and needs of the biotech sector as they advance scientific innovation. On the flip side, we maintained strong discipline, including a willingness to walk away if opportunities do not meet our strategic or margin criteria.

Third, Repeat, earning the next study by delivering consistently and creating long-term relationships. We've strengthened the interface between sales, delivery and project management to ensure seamless handoffs, improved visibility and streamlined client experience. This focus is showing up in execution and our clients are noticing the difference. Our Net Promoter Score which is how we track client satisfaction improved year-over-year.

Now let me share some progress we have made under our operational excellence pillar. As a provider of professional services, operational excellence is baked in how we manage projects. We continue to optimize our approach to project management with a relentless focus on the client experience based on reliable and predictable delivery. Let me share some recent updates.

We've created a stronger alignment to evolving regulatory requirements with risk-based quality management embedded as a cornerstone of how we deliver quality and oversight across the development life cycle. Notably, we've streamlined the design of our project management capabilities reducing touch points for customers and creating more direct interaction with our therapeutic and scientific leads. We have also streamlined our planning and global processes removing repeat actions and simplifying workflows. These process changes are enabled by technology.

Now given technology underpins so much of operational excellence, let me take a pause here from the quarterly updates and address the topic of technology more holistically, particularly as it relates to AI in our industry. I'm very aware that there has been a great deal of discussion and frankly, concerns raised in the recent weeks about how AI will impact the CRO sector. So here's how we are thinking about it.

Speaking broadly, we see AI as a force multiplier that can accelerate execution and ultimately can drive more science, more trials and more growth. AI is a way to advance science faster, which ultimately expands demand for CROs rather than shrinking it. AI is a margin and productivity level, not a people replacement or a cost cutter. AI will automate specific task level work rather than replace core CRO roles. It eliminates routine and repeatable work and improves throughput and standards. It is part of a broader push to compress trial time lines to pause, but with a hard boundary, quality is nonnegotiable.

Examples of AI in use across our industry today include case and take in reporting in pharmacovigilance, central monitoring documentation checks and alert triggers, site selection and study design optimization. At Fortrea, more specifically, we are making focused investments in AI, machine learning and other advanced technologies and workflow automation and orchestration to drive speed, reduce costs and improve quality in clinical research. Our industry-leading accelerate platform remains central to that strategy.

By integrating real-time role-based insights across the trial ecosystem, we are able to reduce manual effort, accelerate decision-making and improve quality at scale. You may recall, last quarter, I reported that the AI-enabled risk radar update to accelerate was in production, and we are beginning to roll out the CRA mobile app Digital Assistant and our start My Day platform to increase CRA productivity. We advanced deployment of these tools in the fourth quarter and introduced further innovation.

Currently, we're wrapping up a pilot of our new feasibility intelligence engine which enables Fortrea partner with clients at the beginning of the program to make better informed feasibility decisions that improve operational outcomes. With all of our investments in technology, we are ultimately driven to improve the efficiency of drug development, streamline the experience for clients and investigator sites and improve the overall quality of clinical trials. From project management, to streamline processes to face deployment of AI-enabled tools, we track our operational excellence progress in terms of outcomes. Are we delivering faster better or changing the experience for our clients. That is the key question.

For example, we recently accelerated recruitment by 3 months in a complex respiratory study and completed enrollment in a Phase II Alzheimer's study. These achievements matter to our clients and make a meaningful difference to the patients who will eventually benefit from new treatments. As a service-driven organization, our people are the foundation of operational excellence. Beyond adoption of new technology and processes, we prioritized employee engagement and development. I'm pleased to report that in our recent annual engagement survey, our overall scores improved year-over-year. Alongside a significant increase in response rate, scores increased across all categories with most exceeding cross industry benchmarks.

I said earlier that I am proud of Forte's performance and recent progress, but I'm even more proud of the impact our work has on patients. I continue to make time to meet with our teams and clients in person around the world. A few weeks ago, I had the pleasure of visiting our clinical research unit in Dallas, Texas, just days after a significant winter storm disrupted the region. While the weather created disruptions, our research did not stop. Members of our team stayed overnight to ensure study volunteers were cared for and that planned dosing continued on schedule.

During the visit, I met with our principal investigator and observed an ESMO bridging study in progress. Demand for these studies is growing as the global regulatory environment evolves, and our global clinical network has earned a tremendous reputation for delivering this critical work. Moments like this reinforce what sets Fortrea apart. The dedication of our physicians and clinical operations teams united by our shared purpose of bringing new treatments to patients faster.

Before I turn it over to Jill, let me close with a few key points. Fortrea is executing against a clear strategy and building momentum. This is a high-quality business with strong fundamentals now operating with greater discipline, focus and accountability. We've taken meaningful steps to strengthen our commercial engine and improve our cost structure. We are advancing operational excellence from streamlining project delivery to transforming our processes and tools and we're innovating in ways that are meaningful to clients. These actions position us well to benefit from an improving market.

While this remains a journey, the direction is clear. Early proof points are in place, and we are confident in our ability to deliver consistent long-term value creation. With that, I'll turn the call over to Jill.

Thank you, Anshul, and thank you to everyone for joining us today. Let me start by thanking the entire Fortrea organization for our solid performance in 2025. We navigated another year of significant change and as always, the grit and resilience of this team persevered. In my prepared remarks, I'll cover the primary factors that influence our fourth quarter performance including progress against our previously shared cost optimization initiatives, improvements in cash flow and our expectations regarding liquidity and capital structure. I will also provide our outlook and 2026 guidance.

As Anshul stated, we delivered a solid fourth quarter and full year 2025. I am very proud of what the team achieved, particularly our ability to execute and deliver results in line with our guidance. Before getting into the details, I'd like to highlight our progress towards financial excellence, the third pillar of our growth strategy.

First, as part of our rightsizing initiatives, we delivered full year cost savings of $153 million growth and $93 million net, exceeding our original target. Second, we generated positive full year operating and free cash flow with another significant improvement in DSO in the fourth quarter, reflecting continued improvement in our order to cash process. Finally, demonstrating our continued commitment to financial discipline and balance sheet strength, we paid down approximately $76 million of our senior secured notes in the fourth quarter using cash on hand.

Now I'll cover the financial results in more detail. Fourth quarter revenue was $660.5 million, 5.2% lower than the prior year quarter. The decline was driven primarily by lower pass-through costs in both our clinical pharmacology and clinical development businesses as well as continued FSP headwinds. The decline in pass-through cost was driven by steady mix.

Full year 2025 revenue of $2,723.4 million, in line with our guidance range, increased 1% year-on-year. The increase was driven primarily by higher revenue in our Clinical Pharmacology business, partially offset by lower FSP revenue. On a GAAP basis, direct costs in the quarter decreased 4.8% year-over-year primarily due to lower head count and personnel costs. These reductions were achieved despite the planned reintroduction of variable compensation as we remain focused on rewarding our talent while maintaining cost discipline. SG&A in the quarter decreased 30.5% year-over-year, driven primarily by lower TSA and IT-related costs.

Looking at underlying controllable SG&A on a sequential basis, fourth quarter SG&A was 4.8% lower than the third quarter of 2025 and 23% lower than our fourth quarter 2024 run rate as a result of execution of our SG&A specific cost optimization initiatives. These results also include the impact of reintroducing variable compensation. I'll discuss progress on our ongoing transformation efforts across the organization later in my remarks.

Net interest expense for the quarter was $23.2 million, broadly in line with the prior year quarter. For the full year, we recorded an income tax charge of $3.2 million, resulting in an effective tax rate of negative 0.3%. The annual rate differed from our statutory rate, primarily due to the nondeductible goodwill impairment. Our book-to-bill for the quarter was 1.14x, broadly in line with the third quarter. Book-to-bill for the trailing 12 months was 1.02x, Backlog was $7.7 billion, and cancellations remained in line with historical trends.

Adjusted EBITDA for the quarter was $54 million, compared to $56 million in the prior year period. The decline versus the prior year quarter was driven primarily by the reintroduction of variable compensation, partially offset by the benefit of our cost savings initiatives. Adjusted EBITDA for the full year was $189.9 million towards the higher end of our guidance range. The decline versus the prior year was primarily the result of lower FSP revenue clinical pharmacology mix, the reintroduction of variable compensation as well as the negative impact of lower research and development tax credits. These impacts were largely offset by the benefits of our cost savings initiatives.

Moving to net loss and adjusted net income. In the fourth quarter of 2025, net loss was $32.5 million compared to a net loss of $73.9 million in the prior year period. Adjusted net income for the quarter was $9.2 million compared to $16.6 million in the prior year period. Adjusted basic and diluted earnings per share for the quarter were $0.10 and $0.09, respectively.

Turning to customer concentration. Our top 10 customers represented 56.8% of revenue for the year ended December 31, 2025. Our largest customer accounted for 18.1% of 2025 revenue. As I comment on cash flows, please note that all references to prior year cash flows are for the entirety of Fortrea, as we had not segregated cash flows from discontinued operations for the businesses sold in June 2024. To more clearly see full year and fourth quarter cash flow metrics, please refer to the investor presentation posted to our website this morning.

Our cash generation in the fourth quarter was particularly strong, enabling us to deliver positive operating cash flow and free cash flow for both the quarter and full year. In the fourth quarter, we generated positive operating cash flow of $129.1 million and free cash flow of $121.6 million, both of which exceeded our expectations. For the year ended December 31, 2025, operating cash flow was $113.5 million compared to $262.8 million in the prior year period. And free cash flow was $88.3 million compared to $237.3 million in 2024. Recall that 2024 benefited from the net proceeds of $297.9 million upon the initiation of our $300 million securitization program.

On a comparable basis, excluding the impact of the securitization, operating cash flow improved year-over-year by $148.6 million and free cash flow improved by $148.9 million reflecting meaningful underlying improvement in cash generation in 2025. Cash flow performance for both the quarter and the year was driven by a significant improvement in day sales outstanding. DSO was 16 days at year-end, improving by 17 days sequentially and 24 days year-over-year, reflecting continued enhancement in our order to cash processing. We also benefited from favorable payment timing during the fourth quarter.

Net accounts receivable and unbilled services for continuing operations were $589.7 million of December 31, 2025, compared to $659.5 million as of December 31, 2024. This reduction is primarily driven by the improved cash collections during 2025. We ended the quarter with no borrowing on the revolver consistent with the third quarter. Our positive operating cash flow in the quarter combined with our undrawn revolver throughout the quarter resulted in available liquidity in excess of $600 million.

Looking ahead, we are currently targeting full year 2026 operating cash flow to be positive. We anticipate first quarter cash flow to be negative, primarily driven by variable compensation payouts and a partial reversal of some timing-related DSO benefits. We are targeting first quarter use of cash to be more than offset by positive cash flow generation over the remainder of the year. With our targeted EBITDA and significant add-backs available under our credit agreement, we expect to maintain ample liquidity and significant flexibility under our financial covenants for the foreseeable future.

Our capital allocation priorities continue to focus on driving organic growth and improving productivity alongside debt repayment, the latter of which was evidenced by the $75.7 million repurchase of our senior notes at par during the fourth quarter of 2025. Since the spin, we have paid down approximately 35% of our original debt. This has strengthened our balance sheet and improved our capital position, underscoring our disciplined approach to financial management. Backlog burn rate of 8.6% in the fourth quarter was lower than in prior quarters due primarily to lower pass-through costs.

Now I'll give an update on execution against our cost reduction plans. I am pleased that we exceeded our annual targets for both growth and net cost reductions in 2025 with the difference between gross and net savings being reinvestments back into our people. Consistent with the timing and expectations we communicated last quarter, the fourth quarter was a strong period of execution, particularly across our SG&A specific savings program.

Turning to our transformation plans for 2026 and beyond. We believe the primary lever to our margin transformation is sustainable revenue growth, which is why we are laser-focused on strengthening our commercial engine. The second half of 2025 was a step in the right direction. We've made several changes that support more stable book-to-bill performance, including strengthening commercial leadership, improving opportunity qualification, simplifying the proposal generation process and engaging the entire leadership team in building and reinforcing customer relationships.

As our commercial engine matures and the market environment continues to normalize, we anticipate that these changes could enable more stable book-to-bill performance over time. With our attractive 50-50 split between large pharma and biotech customers, we believe we are well positioned to capitalize on demand across our end markets.

Margin improvement remains a multiyear journey, supported by 2 primary building blocks. The first is revenue growth, as I mentioned earlier. The second is continued structural cost actions, including ongoing rightsizing of the organization and improvement in efficiency, all while maintaining our commitment to quality delivery. As the element of revenue growth and continued cost optimization come together, we are targeting an achievable path back to adjusted EBITDA margin more in line with peers over time.

Turning now to 2026 guidance. Using exchange rates in effect on December 31, 2025, we are targeting revenue in the range of $2.55 billion to $2.65 billion and adjusted EBITDA in the range of $190 million to $220 million. The year-over-year anticipated decline in revenue primarily reflects the impact of [indiscernible] bookings in the first half of 2025, continued FSP headwinds and anticipation of reductions in pass-through costs. The targeted improvements in adjusted EBITDA are driven by our continued efforts to rightsize the business and improve our efficiency and agility.

We will continue our cost savings programs in 2026 targeting incremental cost reductions of approximately $70 million to $80 million in gross savings and $40 million to $50 million in net savings as we move closer to normalized compensation levels by the end of 2026.

In terms of quarterly progression, the first quarter has historically demonstrated a step sequential reduction as billable hours can be impacted by the timing of holidays and certain expenses increased at the start of the year. We anticipate a similar pattern this year. From a margin perspective, we expect gradual improvement as the year progresses and anticipate exiting 2026 on stronger footing. The team at Fortrea has demonstrated remarkable focus and resilience, and we welcome the opportunity to have our full engagement centered on our customers, our employees and our shareholders. We will continue on our transformation journey sharpening our execution against the 3 pillars previously described.

Through it all, our employees remain engaged and committed to quality delivery. Our customers signaled that their experiences with Fortrea grow stronger and our investors understand that we are putting the right building blocks in place to improve our financial performance over time. We are confident in the direction we are taking and are excited about the future of Fortrea.

Now we'll open the call for Q&A. Operator, please open the line.

[Operator Instructions]

Our first question comes from the line of Patrick Donnelly with Citi.

Anshul, you sound cautiously optimistic on the overall backdrop, particularly on the biotech side, it does seem like the market has firmed up. You talked about the funding piece, obviously. Can you just talk through the outlook a bit? You mentioned the uneven first half. Is that more just a comment on the past bookings rolling through, but feeling better about the position on new bookings front going forward. Just given your conversations with customers, are you seeing any changes on the share front? Would love you to talk through a little bit on the overall backdrop here for bookings going forward?

Sure, Patrick. I'm happy to. Thanks for that question. And let me take the second part of your question first here. The comment around recovery in the first half, that is a comment around the 2025 first half bookings and how that reflects in revenues. But -- what I -- the words I use are cautiously optimistic because I do think the environment is improving. We see signs of improvement. We see signs of stabilization. We see signs of early recovery. Let me give you some evidence.

Our engagement level with clients is significantly higher than it was in the first half of 2025. We think the decision-making time line will come back to more of a normal pace that we would expect within the industry. Our conversations with customers have become a lot more constructive, both big pharma and little pharma. So in the world large pharma, what we're seeing is a lot of the turnaround pipeline reprioritization, all of that sort of subsided as things matured in Q3, Q4, and we moved on to having very constructive dialogues about the 2026 pipeline.

In our world of biotech, we're seeing a shorter time line in terms of decision-making. We're also seeing an increase in our people coming now from our biotech customers. So all of these things added together, I use the words cautiously optimistic because we've had some of this momentum during the back half of '25. I'd like to see some more of that momentum before I drop the word cautious in front of my statement.

Understood. Okay. That's helpful. And then maybe one for Jill. The quarter definitely saw some encouraging signs on the margin, EBITDA cash flow front. It seems like '26 implying continued improvement. Can you just expand a little bit on the key margin levers? It sounds like a steady ramp throughout the year is the right way to think about it there. And if you were to see any upside to revenue, how should we think about the potential flow through to the bottom line? You did talk about revenue growth being the key driver. So I just wanted to talk through that.

Sure, Patrick. Yes, I mean, you're right in my remarks in terms of the progression through the course of the year. We do see usually a bit of a step down in the first quarter, and then it improved over the course of the year. The key drivers, it is revenue growth. And I think as we've said previously, that is going to be the key to getting back to peer margins over time. And in this year, we're seeing a bit of a step back in revenue. It's roughly split quite frankly, between pass-through mix and then some continued headwinds in FSP primarily, but we're going to continue with the cost savings optimization.

So the cost journey is what's going to help us well. Revenue is still a bit measured to continue to expand the bottom line. We're very focused on delivering both margin and adjusted EBITDA dollar improvement. And we think that with what we demonstrated this year around the cost savings and hitting those goals, we feel good. Most of what we've built into the guide has already been initiated for this year. So I think when revenue comes back, assuming the demand environment continues to be supportive, we would expect that to flow through pretty strongly, especially in the beginning as we continue to pick up some of that trapped demand that we have. And obviously, in time as we grow more, we would have to revisit perhaps our -- the people side of things. But for now, we believe you will see pretty strong drop through when the revenue starts to come back.

The next question comes from the line of Elizabeth Anderson with Evercore ISI.

Maybe just to talk about the back half of '25 bookings a little bit more. Anything you would call out in terms of like mix composition or steady start times or something? Or is that sort of very characteristic to what we we generally think about in terms of the timing of those bookings starting to phase in. And then anything to call out timing-wise on the accounts payable side, the debt number seems to have flipped around a little bit, and I just didn't know if there was a timing aspect of that at all?

Elizabeth, thanks for the question. There's nothing specific to call out on the bookings. I think the -- if I look at the mix of our new business coming in, in the last 2 quarters, it's in line with what I expect in terms of therapeutic area mix, in terms of study mix of types of studies that are coming in. We've had strength in both clinical pharmacology as well as our full-service business in the late stage, a mix of Phase II and Phase III. So I'm actually quite happy of the quality and mix of what we're putting into the backlog over the last 2 quarters, but nothing that would be one thing to call out there as ask Jill to comment on the second part.

Sure. Yes. Elizabeth, from an accounts payable perspective, there are a couple of things that are impacting it. It has come down to quite a lower level compared to where we were at the time that it's been in a year ago, there's a few factors for that. One, we had inherited a pretty significant payment hold at the end of the quarter as we completely unwound that. that last year, you would remember, we still had some significant onetime in TSA and other costs that were coming in.

And so those would have been sitting in the AP balance at the end of the year. And then honestly, with the introduction of the new ERP, we've improved those processes and had to -- and that's allowed us to be a lot more efficient in what we're doing. I would expect -- I wouldn't expect the AP levels to go down much more from this. I think they're probably at a place where they would stay or be in and around that level, but it is mostly around improvement and unwinding some of the things that were spin related.

The next question comes from the line of Eric Coldwell with Baird.

You've already addressed a couple of these, but I was hoping maybe you could give a little more color on some of the commentary around RFP flow. It sounds like it's improving. If you could add any detail on that would be great. And then Anshul, you said you're happy with the bookings mix. I was hoping we could get some better directionality on bookings mix in the fourth quarter in terms of FSP versus full service or direct versus indirect. I'm interested in your win rate. And then finally, new to Fortrea clients, are there any updates on that front? Because I know that was a big initiative for you to not only retain and grow existing clients but also to bring new clients into the fold?

Okay. Great, Eric, thanks for the question. I think it's a multipart question. I'll do my best to answer as much of it as I remember. In terms of the mix of bookings, we don't typically comment on pass-throughs versus direct. But I will tell you, there's nothing unusual in Q3, Q4. It is in line with what I would expect to see in terms of the mix of the type of work coming in. It was a good healthy mix of Phase II, Phase III which is good for Fortrea. We'd like to see some more of those larger Phase III come in. So I was very proud of the team in what they were able to achieve.

I'll give a couple more comments around the bookings. We have seen a pickup in full service work, which has been a lot of my push has been to be very selective when it comes to FSD. We want to continue to be strategic and we want to continue to be disciplined. FSP does cause a lot of headwinds when you're on a margin improvement journey. And so I'm very proud of the team that the shape of our pipe, the shape of what's coming in has been towards the FSO world, which is more what I would like, and it is more of where strategically I've been pushing the team.

In terms of our win rate, I think our win rates are where I would like them to be. The win rates have been modestly consistent across Q3, Q4. The new-to-Fortrea customer HICA that the company had in Q2 subsided very quickly in Q3 with the CEO being put in place. And for me, I've instituted that all deals our executive led engagements, all of our biotech and biopharma customers are getting a different level of executive involvement than they typically would have been in the commercial process, and we're doing that pretty consistently. That took away any fears that new-to-Fortrea customers would have, and I saw none of that hesitation in Q4.

What I did like about Q4 from an RFP flow, that was another one of the questions that you asked, but I liked about Q4 was we had a lot more RFP flow coming from biotech. So we saw growth in our biotech RFP flow, which is consistent with, I think, what some of my peers have said and consistent with what we're seeing in the market. And I was very proud of Fortrea's win rates in that space. Hopefully, that helps, Eric.

It does. And I know it was a 4 heart question, but I am going to ask a follow-up. On Q1 specifically in terms of the phasing, I know you briefly touched on that, but just given the lumpiness in the pass-through revenue and how much that can gyrate quarter-to-quarter coupled with the seasonality and the impact of still working through the transition and rebuild of the company, the bad 1H '25 bookings, et cetera. Can you just help us hold our hand a little more on modeling, so we don't get ahead of our skates going into Q1?

Yes. Sure, Eric. Happy to. So I think, again, we know -- I talked about the fact that we saw a bit of a step down sequentially in revenue, a lot of that driven by the pass-through mix. We're expecting that to continue. And in fact, part of the reduction year-on-year, a good chunk of the reduction year-on-year is related to that. So I think revenue-wise, it's going to be broadly similar to what we saw last year. That would be our expectation. But you'll see a little bit of improvement in margin just because of all the cost savings initiatives that we've done.

But Remember, as we've been on the journey to reintroduce variable comp, we did a step change in that in 2025, we have a little bit more headwind to absorb there. Plus we always see some pick up in early on employment some other taxes in the year. So that impacts the first quarter. But that should hopefully give you some sense of what Q1 would look like.

And just to be clear, Jill, when you say revenue similar, are you talking in terms of growth rate or absolute dollars? And then same question on margin, is it -- or profit, is it you said margin would improve a little bit. I assume that was a year-over-year comment while down quarter over quarter up year-over-year. Okay.

Correct Yes.

The next question comes from the line of David Windley with Jefferies.

And appreciate the information. The customer mix, I guess, and revenue growth metrics along with your clinical pharmacology business, I'm trying to disaggregate a little bit. Your top customer appears to have grown in the high 20% range. You also had, as you had earlier described, this kind of large and perhaps somewhat unique, albeit you told me not completely unique clinical pharmacology package in GLP-1s, burned quickly, incorporated a lot of sites, not all of which were yours, which drove some of the excess pass-through. I guess what I'm getting at is to what extent did those overlap, and to what extent are these trends continuing or repeatable?

In other words, is some of the headwind that you have to say, overcome in '26 because you don't get a repeat CP package like that. And maybe you also are not expecting to see a top customer continue to outgrow the rest of the base as fast as it has?

Okay. So I'm going to try to disaggregate some of that, David. And I think when we talk later, we can talk in more detail on that. I'm not sure we're following the same statistic in terms of our largest customer growing 20%. I don't think that was the right math for us, I think. But we can sit back and...

Sorry, in '24, wasn't it 14-ish percent and '25, it was 18%. That's -- so if that's wrong, I apologize.

You're talking about from the full year, sorry.

We thought you were trying to say in the fourth quarter were like looking at fourth quarter data are from full year -- from a full year basis, yes. Yes. For a full year basis, yes. That's correct.

It actually stepped down a little bit though in the fourth quarter just relative. So, yes.

We've been -- the diversification of customers has been clearly a priority, and that's taking shape. And we saw good progress on that metric in Q3 and Q4. You asked a couple of different questions there on clinical pharmacology, let me try to just aggregate them.

Yes, I've mentioned in the past that in our clinical pharmacology business, we saw pass-throughs in the middle of last year that were those we can't predict. They come from 1 or 2 large studies from a client where we need to use multiple sites on the mass of the client. And that study causes those types of pass-throughs. That was a onetime event that has happened, those revenues largely burned last year. Now to say whether or not we would get a study like that this year, I don't see one in the pipeline, but you never know. As their journey continues, our journey also continues in terms of us continuing to be able to do on board on our own sites. But I can't predict when those types of studies are going to come. And that's what we talked about in Q3 also for that type of a clinical pharmacology study.

With that said, we've seen strong demand for our clinical pharmacology business. It continues to grow quarter quarter in terms of not just the pipeline, but the demand for services. So we're actually very happy with how that business is tracking and we continue to make pushes to increase organic capacity within our wherever we can. Hopefully, David, that answers your questions. Let me know if I missed some. It's a multipart question. Let me let know if this one [indiscernible].

[Operator Instructions]

Our next question comes from the line of Jailendra Singh from Tourist Securities.

Anshul, I want to go back to your comment about you describe it the fourth multiplier that accelerate execution and expand demand for CRs. Clearly, the way CRO shares have traded recently. There's a lot of fear out there in terms of CRO services getting disrupted. I would love your thoughts there. And additionally, can you elaborate on how all this focus on beginning to influence customer conversations or your differentiation. For example, our biotech and large pharma looking at AI-enabled execution is a key factor while deciding on ERS? Just give us some a little bit more color there.

Sure, Jailen. I'm happy to talk about this. As you can imagine, this topic comes up very often right now. But I think the topic is being driven more by sentiment and headlines, the changes we're actually seeing on the ground in terms of either customer behavior or demand. As I've mentioned, I think the AI adoption in clinical trials remains early is cautious is highly constrained by regulation, liability, data integrity, GCP requirements.

Many of you on this call have read written papers and reports around this topic. And I think the whole industry is kind of aligned on that. I want to make sure that market sentiment doesn't get too far away from the reality on the ground. As a result, look, we're not seeing AI replace the need for large-scale clinical execution, patient recruitment, monitoring or regulatory grade delivery. I do think AI is going to accelerate pipeline more than it is going to eliminate work.

So I know as I talked to our suite of our large pharma company, AI is already having impact in terms of the world of discovery, in terms of the world of decision-making, in terms of the world of being able to move pipelines forward not necessarily in the terms of replacing human labor, even on the pharma side to be able to run the actual clinical trials and do clinical development.

As I said a couple of times, I think I do see this as a force multiplier, and the more we can move science forward the faster, the more science there is for us to develop. I actually think it will have a positive impact in how our market grows.

As far as the behaviors in outsourcing, that was the second part of your question, we've not seen large pharma or biotech materially change anything in their outsourcing behavior as a result of does AI come up as a topic of conversation and essentially every proposal? Yes, it does. It comes up in all of my conversations. But I find that we as a industry are fairly aligned now how I see in our peers talk and we're fairly aligned with our customers and our clients in biotech and pharma.

So we are seeing AI's ability to improve some oversight, ability to improve some trial design, ability to improve internal decision-making and ability to give us some efficiencies in the areas of past automation. But certainly, it's more of a productivity tool and not a replacement tool and that's been pretty consistent in the conversations I'm having, and it has not been an influence in any RFP or proposal that we've seen thus far. Hopefully, that answers your question, Jailendra.

The next question comes from the line of Max Smock with William Blair.

Maybe just following up on a portion of Eric's question earlier on mix. I wonder if there's any detail you can give around expectations for direct fee revenue versus pass-through revenue in 2026. Just how changes in mix that are going to impact margins this year?

Sure, Max. I mean in terms of the evolution of revenue, I think we're expecting continued growth in our clinical pharmacology business. both service fee, probably more stabilization to some of the points that Anshul made, more stabilization of pass-throughs rather than the significant growth we saw there last year, but it will still be a factor. It does impact clinical pharmacology revenue a bit differently, as you know, just the way revenue recognition works.

And then I mentioned that we are expecting further headwinds in FSP. And then the -- so when you think about year-on-year, if I'm talking about [indiscernible] having stable pass-throughs, the reduction that we're projecting is related to our full-service business. And I think as Anshul said, we've been focused on increasing the pipe in those. But I think '25 was -- there was a phenomenon around a handful of studies some of which I've called out previously that we're driving really high rates of pass-throughs that 1 of them in particular, finished early. We hit the endpoint early as that winds down. We're seeing some of that impact in the numbers for next year.

So when you think about the year-on-year reduction, it's roughly split about half and half between service fee and pass-through with [indiscernible] growing and then the impact on the other business.

The next question comes from the line of Ann Hynes with Mizuho Securities.

Just on the margins, I know you said you want to get to peers over time. Can you give us a sense, is it high teens, low 20s? Like what is your ultimate goal and maybe a timetable, that would be great.

I think that's a great question. I'm happy to give some foot there. I think it's hard to look at peers when most of our peers are not necessarily in the public market. But our belief is mid-teens is where a pure-play CRO like ours is the group have a large central labs business or other ancillary services like SMOs, et cetera, at the lungs. So that is our goal, and that's what we're targeting. It is a multiyear journey, and it is going to take some time to get there. I've been here for about 2 quarters at this point. I'd like to get a full year under my belt and I would like to spend some time doing some form of an Investor Day and actually having some discussions and giving more details around what that time line and time frame looks like well for later this year.

Okay. Great. And then I don't know if I missed this, but did you talk about what -- how cancellations trended? And maybe gross bookings growth, that would be great as well?

Ann, we haven't had a question on it. And I briefly mentioned in the remarks, we've actually continued to see historic low levels and cancellation trends, nothing made around of the ordinary. So just kind of par for the course.

It's been stable and consistent at this point.

Our final question comes from the line of Justin Bowers with DB.

Anshul, appreciate [indiscernible] on in the bottle with respect to AI. But with your comments on accelerating discovery is that -- is that something that you're seeing like more near term or in the last like 12 to 18 months? Or is that just sort of like a longer duration observation over the last several years. So that's part one. And then part 2 would be, when you think about the buckets in clinical trial ops, like, which functions do you think are most addressable in the near term?

Happy to talk about both. And just to be clear, I didn't let the [indiscernible] out of the bond, I think [indiscernible] escaped a couple of weeks ago, and that's been a conversation topic for everybody. Look, in terms of discovery, that's not an area we're in, but this is the conversations we have with our clients. And I would say that has been happening now for a period of time. I can't give you exact time frame, but it's not just the last few months. There's been a lot of conversation around how the use of not just AI, prior to AI in the use of data. and the ability to process large amounts of data, how can our clients get better at what's moving through the discovery funnel and what's getting out to the clinic faster and faster.

And that conversation has continued. It continues to grow. I only offer that as an observation. And what I hear from our clients and where these tools are having the most impact early on. In terms of things that I talked about in earlier too, look, we see levels of task automation in pharmacovigilance. We're already doing it on our end. We have our own tools that have been deployed in pharmacovigilance, such as case being extra. We're seeing it in forms of centralized monitoring, where there's things that we're doing in terms of being able to issue alert earlier, being able to look at the data, being able to automate some fairly mundane tasks in centralized monitoring. We're already seeing some impact there.

And we're starting to see some early impact in the world of data management when it comes to data cleaning, when it comes to being able to look at queries and being able to actually reduce some into labor in what we have to do in that space. We're not seeing an impact in anything that we would be doing at the site itself. Relationships or the size conversations with the sites, the actual physical monitoring of the data right now. Hopefully, Justin, that answers your question.

I was just seeing if we were done with the questions, then I would close out, but I wanted to answer.

Thank you. As we come to a close today, I want to thank you for your thoughtful questions. and continued engagement. Our performance this last quarter reflects the discipline and operational rigor we have really embedded throughout this organization. We continue to make progress against our strategic initiatives. We continue to strengthen our foundation and enhance our ability to serve clients globally.

What matters to our clients is what matters to us most, and we remain focused on delivering high-quality execution and long-term value. The message is we are focused, we're disciplined, and we are focused on executing and executing well, and we're confident in the direction that the company is beginning to take. So with that, I thank you for your time. And for those that will be in town and look forward to seeing the Barclays conference on March 10. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good morning, everyone. My name is Taiye Opabunmi and I'm delighted to welcome you to the 44 JPMorgan Healthcare Conference. Our next presenting company is Fortrea Holdings. It's -- they're leading global contract research organization dedicated to advancing clinical development and delivering innovative solutions that accelerate the path from molecule to medicine. And I want you to welcome the CEO, Anshul Thakral, who will be leading the presentation today, and joined by the CFO, Jill McConnell, who will be helping with Q&A.

Thank you very much for the introduction, and thank you for hosting us. We appreciate it and we always enjoy spending time here at the conference. It's a great way to kick start the year for everybody.

Okay. Before I get started, I want to welcome everyone, and thank everybody for joining us. And let me start briefly by showing the mandatory forward-looking statements. And since all of you are familiar with it, I won't read every word and move on with the presentation, okay?

Now I appreciate that some of you have been with us on this journey, and some are new to Fortrea and its story. So here's a quick reminder. We became Fortrea in 2023, spinning out from Labcorp. Our heritage goes back for several decades, our roots being with Covance. Now Labcorp acquired Covance in 2015, and the clinical development part of the business was spun out as Fortrea, with the central labs being carved and remaining with our former parent.

Our distinctive name tells our unique -- our distinctive name tells our unique founding story. We were created with a promise, a promise to solve the complexities that exist within drug development to make life-changing innovation possible. With a new promise came a new name. Our name was created to reflect a unique combination of attributes. We move clinical trials forward with ease, Fortrea. Forward represents the direction that we are dedicated to move treatments and therapeutics for so many people, Trials is at the center of what we do. And so it makes sense that the concept of clinical trials is at the center of our name. It reminds us to stay focused on the core -- on our core business. Ease is our goal, the ease of clinical development process for everyone involved and to create a different experience working with and for a CRO that is unlike any other.

And a little bit of a refresher on who we are, where we are because some folks are new to the story. Over the past 2.5 years as Fortrea, we have built a unique value proposition as a pure-play global CRO with several decades of experience behind us, as I've said. We have the broad scale and capabilities to deliver for our diversified client base from the largest pharmaceutical companies in the world to virtual biotechs with a single asset and a handful of principles, looking for funding in the halls of JPMorgan. We can design and deliver solutions to meet any one of their needs. Most importantly, we have the experience to back that up and do it reliably.

But clients don't just come to Fortrea for it's past. They appreciate how we are focused on modernizing study delivery, leveraging AI and machine learning and focusing on automation and predictive analytics to drive productivity and safeguard the quality of clinical trials. Ultimately, our value is derived from being -- playing a vital role in the spectrum of clinical development. Our leadership team has deep CRO as well as industry experience that enables us to lean into that vital role. I'll spend the next few minutes talking about each one of these points here.

Let's talk a little bit about the market. Now in the presentation right before us, we had the same similar sort of conversation. As we all know, the market environment has been a bit challenging for the past few years. Now at this point, however, we are cautiously optimistic about the return to growth in overall investments in pharmaceutical R&D. We see R&D growth getting back to roughly 3% to 4% here in the near term. This is being driven by big pharma companies going back to prioritizing R&D to build out their pipelines and the near improvement we've seen in biotech funding. Now even with the shift towards growth, I think it's pertinent to remind everybody that it takes a bit of time before you start seeing that in CRO world.

Now turning to Fortrea, talk a little bit about our business and our various services here. We help clients generate evidence to support the development of new and innovative products. Our goal is to bend the cost and time curve of clinical development to advance our clients' programs even as clinical development becomes more complex and even more time consuming. We do this across the clinical trial continuum.

Our clinical pharmacology services performs Phase I first-in-human NDA-enabling clinical studies. Our clinical development solutions are comprehensive, including clinical operations, clinical data management, biostatistics, programming, e-clinical pharmacovigilance and beyond. Our consulting group has a tremendous reputation spanning the spectrum of drug development from regulatory to market access advisory services that are relied on by both our small and midsized clients.

While we are known for our oncology experience, we have deep expertise in more than 20 broad therapeutic areas, including cardiovascular, cell and gene therapies, neurology, ophthalmology as well as rare diseases and pediatric studies. We're a truly global organization with roughly 14,500 colleagues across the globe.

Let's talk a little bit about each of the various businesses. Let's talk a little bit about clinical pharmacology. Our world-class clinical pharmacology network works on some of the most exciting and advanced therapies currently in development. We have 4 clinical research units spanning the U.S. and Europe with more than 1,000 colleagues dedicated 100% to these early phase studies that have very distinct characteristics and very distinct challenges amongst themselves.

We're recognized by clients as a leader in clinical pharmacology. Our ability to provide GMP pharmacy Phase I manufacturing across our network of clinics help save time and money for these clients. We also have bedside data capture that's now been implemented across all 4 of our clinics allowing us to operate in one integrated global solution. Our capabilities and world-leading expertise have enabled us to develop strategic partnerships and truly sticky relationships with our clients which span from large pharma, some of the largest pharma in the world, all the way to small startups who are all utilizing our clinical pharmacology units across the world.

Now let's flip over a bit to the biggest part of our business. Over the past few years, we strengthened our focus as a pure-play CRO with a comprehensive suite of services. Our model is agile, enabling us to create bespoke solutions that are tailored to the specific needs of our clients. These solutions are meant to be highly flexible across full-service outsourcing, FSP as well as hybrid staffing and resourcing models.

Our ability to be flexible and customize our resourcing and project management solutions is especially relevant to some of our small to midsized biotech clients who rely on our ability to deliver what they need, the way they need it, when they need it and with the highest levels of global quality standards.

Over the years, we have become deeply connected within the global R&D ecosystem, including our large investigator site network that enables us not only to place studies globally but allows us to create a different experience for our sponsors that are engaging with these sites. Our pharmacovigilance services have now earned industry-wide recognition as a worldwide leader, underpinning all of our delivery is a relentless focus on project management. You've heard me talk about that a few times, enabling us to become a trusted and accountable partner.

We see ourselves as a world-class professional services company, working with clients on extremely important and complex projects aimed at bringing innovative medicines to market. Patients are waiting, and that is what drives us, and we recognize that.

Fortrea is one of just a handful of global -- truly global CROs that can handle virtually any form of clinical management project across therapeutic areas, across regions, across geographies and across any shape and size. We have the scale, we have the expertise, and we have the operational strength to deliver large-scale development projects or any of the top 10 pharma companies in the world, but we're not so big that some of our midsized and small companies get lost in our size.

We focus very heavily on building a deep level of customer intimacy in every corner of Fortrea. The ability to serve a diverse slate of customers is reflected well in the diversity of our client base which is roughly speaking 50-50 large pharma and biotech. We like this mix, and we continually strive to nurture this balance to enable us to see the best of both worlds between large pharma and small biotech companies.

Excuse me, I've been talking all day. A little water break goes a long way. We are fully embracing and leveraging AI and machine learning across the spectrum of what we do. From clinical trial to commercial, we're constantly striving to bend the time and cost curve, but we are taking a conscious and focused journey to pilot, to fail early and roll out successes.

To share a few examples, we're developing our own agentic solutions. We're modernizing our Accelerate platform, which is the core of how we do clinical delivery and embedding it with AI and ML in virtually every module, and we're working with a variety of innovative partners across the industry. Through these efforts, we are changing how we deliver clinical trials and changing how our employees work. AI and ML is not a catch phrase. It needs to be part of the fabric in how we deliver for our clients, and we're embracing that fully. And we think in some places, we're going to make some leap frog -- leap journeys in front of our competitors as well.

After 2 years as Fortrea, we've got the foundation in place and we've made it through the headwinds that are typical when you emerge out of a spin. Now we are able to completely focus on sustaining revenue growth and margin expansion. Going forward, we will measure our progress against 3 standards, 3 standards of excellence: commercial excellence, growing our business by building trusted partnerships with our clients by growing our reach, relevance and repeat business; operational excellence, executing on projects that our clients have placed in our reliable hands with deeper project management capabilities an enhanced biotech operating model and a digitization of our workflow; financial excellence, continued organizational rightsizing, further SG&A effectiveness improving our operating margins and continuing to optimize our capital structure.

Now we'll be talking more about our Q4 results in February, and we'll release our guidance for 2026 at that time. I am very proud of what the team achieved in Q3 and that in 2025, the team was able to deliver in line with guidance provided. So said another way, we delivered what we said we would and we remain committed to our priorities of margin expansion and top line growth. I'm very pleased to be on this journey with a very seasoned management team that has deep CRO and client experience.

To recap, after 2.5 years as Fortrea, we have built a unique value proposition as a pure-play global CRO with decades of experience behind us. We have the broad scale and the capabilities to address our diversified client base, with a mix of roughly 50-50 large pharma and small biotech clients. We're a leader in clinical pharmacology service. We're a leader in full-service Phase I through Phase IV clinical trials, FSP solutions and we have global scale and expertise spanning across 20 broad therapeutic areas.

We're modernizing study delivery. We're leveraging technology to bend the time and cost curve in clinical development. And now with the spin firmly behind us, we're focused on 3 pillars of excellence that I'm driving the company towards: commercial excellence, operational excellence and financial excellence to drive a culture of sustained revenue growth and margin expansion unlocking value for our shareholders.

Now I want to thank you for the time. This concludes sort of formal remarks, and I want to open this up to questions from Kai and from the rest of the audience as well.

Thank you very much, Anshul. That was a wonderful presentation. So just to flag, we'll take questions from the audience. But to kick us off, I have like 2 questions for Anshul at the moment, is that okay?

Of course.

Okay. All right. So I know you've now spent roughly 6 months in a role. So congratulations on that. And I know you joined Fortrea with a solid understanding of the business. But after spending time with your employees, your client and your investors, how would you see your perspective has evolved since you joined? And then were there like any surprises, positive or negative, relative to your initial expectations?

I think that's a great question, and thank you for that. It has been -- It's been a journey over the past 5-some-odd months. And you're right, I came into this new venture with a pretty firm understanding of what I thought Fortrea strengths were as well as what I thought the challenge is not just in Fortrea but in the industry were more broadly. And my perspective hasn't changed, if anything it sharpened. And having spent a considerable amount of time in the first couple of months traveling across the globe, meeting with our client base, meeting with our colleague base across several continents, the conclusions arrived at were a validation of my hypothesis.

The foundation and the fundamentals are incredibly strong. The team -- the largest majority of the team is focused on delivery and is delivering in a consistent manner is recognized by our customers in delivering in a consistent manner, and we have relatively sticky relationships with our customer base.

And some of the challenges are what I thought they were. We did have, for a period of time in 2025, softening of the market. We've had that since 2024. That creates some challenges. And at the same time, I think the company really needed a sharp focus on execution and commercial execution, operational execution and financial execution, and that's been a large part of where my time has gone and where my priorities have been.

Good. Good. And just to double click on commercial execution. I know you've referenced the Reach, Relevance, and Repeat as a framework that you want to use for Fortrea's commercial engine. Can you sort of walk us through why you think this framework is necessary? And what specifically has changed in terms of like your go-to-market approach? And how are you beginning to see that show up in that customer engagement?

So this is a framework and a conversation that isn't necessarily just met for how I engage our investors and the investment community, but it's really about how I engage our employees and engage our commercial teams. It's about simplifying and getting focused on a handful of priorities that we need to execute on. Reach is really important. I think we do very well with customers that we know very well, but a big focus for me and our commercial teams has been to expand our reach and bring new customers into the fold. It's going to be part of our growth strategy, it's how we return to growth.

Relevance is very important. We need to make sure we're not bidding on things we're not qualified to win. We need to make sure we're really focused on areas where we have expertise, lean into those expertise, be able to design the kind of solutions and bespoke solutions for customers that are more akin to a high-performing professional services organization. And that's why I talk about relevance with our team quite a bit and repeat. There's no reason why we shouldn't be getting the next phase of work and the next study or the next indication within a customer if we're delivering really well.

Biggest part of commercial isn't just a sales team. It's actually our execution and our operations team. How we execute and how we show up on the first study is what leads to the next one and the one after that and one after that. And so Reach, Relevance and Repeat are not just a framework I've been using in conversations like this, but it's been trying to get a very consistent, clear message with our customer-facing teams on what we need to do to continue to sustain growth in the business.

Thank you very much for that. All right. With that, I'll open it up to the audience for any Q&A.

It's always great to go right before lunch. Everyone is focused on what's in the boxed lunches.

All right. Well, I have some other questions for Anshul and Jill. So how would you -- you mentioned like pharma R&D investment in this space, so how would you characterize like the broader pharma budget environment now? And sort of are you seeing increased signs of spending?

Yes. I think a lot of my peers have talked about this, many of the analysts covered in the industry talked about this. I think there's a reasonable amount of consensus amongst us all. I think we all use different words, I mean something similar, but I think we're all cautiously optimistic is a way to think about it. I think in the Charles River presentation just earlier, the CEO was talking about headwinds in 2025, and there were considerable headwinds in terms of in terms of big pharma, still continuing to figure out what the MFN pathway looks like and what does it mean for pricing and what does it mean for investments with AstraZeneca coming to agreement and other companies coming to agreement these are kind of headwinds that are starting to subside.

Biotech companies continuously looking to new sources of funding, looking for sources of funding. We know in the first half of the year, funding environment is more challenged and more constrained. We saw in the back half of the year that getting better. So some of the headwinds that were holding back the capital flow that leads to R&D investment, which is the precursor to what leads to opportunities for us, I think we're seeing some of that subside, not all of it, some of it.

So I think my sentiment would be very similar to what you probably heard from others is a cautious level of optimism. I think I've heard folks talk about different estimates, 3% to 4% return on R&D investment over the course of the near term. That seems in line with what we're seeing and what we're hearing as well.

Good. Thank you very much for that.

[indiscernible]

There is a mic coming.

Can you just talk about outsourcing trends in general and then within that, the mix towards FSP because it seems like that's been another narrative.

Yes, I'm happy to do that. Look, based on where I sit and what I see and what I hear and even my time before Fortrea, I think these trends are in -- going from FSP to FSO, FSO to FSP, they're very dependent on a specific company, where it is in its life cycle, the specific executives that have taken over specific roles. And I think there were several processes over 2024 and 2025 in some pharmaceutical companies where you saw a bit of a shift towards more FSP. Some of that came back.

But these things ebb and flow. And if I go back over the last 10, 15 years, every couple of years, we see some ebbs and flow in that, especially in large pharma, but nothing that has dramatically moved the market, in my opinion. When I look at small to midsized companies and biotech companies, it's been pretty consistent, and the trend has been consistent towards more full-service outsourcing.

I think what we do see more of right now is this concept of more hybrid models. We see this concept of especially midsized companies focusing on full-service outsourcing for everything but data management and treating data management is something different.

So one of the things that helps us at Fortrea is our ability to pivot with our clients, depending on who our client is, our ability to provide either a full-service solution, an FSP solution or more and more what we're seeing some version of a hybrid solution depending on the case.

Any more questions?

Thanks for that.

Okay. All right. I have one question. So investors, they often focus on consistency rather than like single quarter-to-quarter outcomes. What operational and commercial changes sort of give you confidence that Fortrea can deliver more consistent book-to-bill performance going forward?

Yes, I think that's a great question. I think consistency matters the most. But consistency to me is all about discipline and execution. You'll see fluctuations, especially in commercial performance quarter-to-quarter, if you're seeing the same book-to-bill quarter-over-quarter, I doubt those numbers because these things move up and down. But my razor focus right now with all of our customer-facing teams has been on discipline and execution. My focus with the commercial team has been on increasing our aperture and increasing our win rates, increasing the quality of our proposals going from more bespoke solutions and getting a little more forward thinking in what the client needs. And my focus on the execution side has been with our project management organization, how we show up ultimately makes all the difference.

Look, I really think that this is a people business. I think -- I've seen some of our clients actually in the audience. I think at the end of the day, it's not about necessarily the logo. It's about the people. It's a people business. How are people show up and how they engage with clients, how they present proactive solutions, how they think through the strategy and how they build confidence and reliability with our clients and how they are going to be able to deliver over the next few years and how we back that up by ensuring our people are enabled, are empowered, have the tools and resources. Ultimately, that's what wins.

And to get to a level of consistent financial performance, I have to focus on that. I have to focus on discipline and execution.

Thank you. I think this is to both of you. So I know in your presentation, you've emphasized on the next phase in -- about margin improvement and you say it's a multiyear journey. How should investors think about these key building blocks of like cost reduction versus revenue growth? And like what do you think ultimately enables Fortrea to move towards the more industry standard margins over time?

Yes. Maybe I'll take that one, Anshul. So we have been on a journey. And certainly, we know that compared to a peer set, which in our mind, is probably something around mid-teens in terms of margin and where we need to be. There's a lot of opportunity. We have been on a journey and we have more work to do. And it's a combination of cost discipline. So rightsizing the business, we've talked this year about the journey we've been on. we have been communicating our progress towards our goal of about $150 million of gross cost savings this year and getting to about $90 million of net savings. And we're going to continue to be on a rightsizing journey as an organization.

But the other piece that's really critical to that in terms of being able to get to those peer margins is getting revenue growth, driving that top line growth, and that's a lot of that commercial discipline and execution as well as the operational delivery that Anshul mentioned there. We can and will continue to focus on how we rightsize the business, but we cannot get to peer margins just through cost cutting.

And so what he's been very focused on and the entire team has been how do we have that consistent execution commercially so that we can get to a period where we're bringing new business in, and we're executing against it effectively. So it's a multiyear journey. We're not -- as Anshul said, we're not providing our '26 outlook today. We will do that later in February when we provide our full year results with that guidance.

But we also are thinking about how do we share with you all in '26, what that journey looks like and over the term, what it will take to get to margins that are more consistent with peers.

Thank you very much, Jill. Another question that has been on my mind is, the CRO market is very, very competitive. So [indiscernible] in FSP, how are you balancing the pricing discipline? Would you need to win share? And where you draw the line on what there might be dilutive to long-term margins?

Yes. I'm happy to start and you can add in, I think I haven't had a single meeting where that question hasn't come up. So we got a little bit of practice in answering that. I do think the CRO industry is very competitive. I think it's fairly competitive, frankly, because you need to have enough players to be able to drive innovation in any given market. I think you have to look at pricing at both FSP and FSO. What I've said in the past on the full-service outsourcing is I don't think customers buy on price. Even the largest pharma companies, while they have, obviously, volume and negotiating levers, nobody wants to sacrifice the quality of the team or the hours that it takes to deliver a task over price.

I think that really clients buy on team, strategy, output, having conviction that you could actually deliver the results that you're promising. On FSP, on the other hand, I do think price plays a bigger lever. And I think in 2024 and the first part of 2025, we saw some level of discipline drop there and aggressive price competition. There's areas where we drew the line and chose to walk away from business because it didn't fit requirements for what we think is a healthy mix from a customer standpoint and a margin priority standpoint.

That said, as I look at the back half of 2025 and even conversations I'm having now, I do see pricing discipline has returned. I think we see a little bit more of a normal behavior that one would expect.

Thank you very much for that. Jill, I think this one is for you. Okay. So beyond like near-term deleveraging, how should investors think about like your capital allocation priorities over the medium term? And how do these priorities support both growth and your margin expansion?

Sure. And we get that question a lot as well. And I do think coming out of the spin, we inherited a fair amount of debt. And we have, as an organization, been focused throughout the last couple of years, and we remain focused on how do we improve that leverage position. And I'll remind people, we've done some divestitures. We've used that -- those proceeds to pay down debt. And we were really pleased. We announced in November, we paid down roughly $77 million of some of our notes using cash on hand. And so we have demonstrated over time, consistency and discipline in using our cash proceeds to help improve the position.

The other thing that is important is we've made some really significant improvements in our order-to-cash processes, which is showing up in our DSO and our ability to bring cash in. And so we've been on a journey with that. The first quarter of last year, we had some impacts as we launched a new ERP. And I talked about that ahead of time. And I think we've been able to demonstrate over the course of the year that this is an organization that can and is delivering cash flow, and we're committed to that going forward.

So when you think about capital allocation going forward, we will be continue to be focused on how we improve our debt position. We'll think about where the targeted organic investments we make to continue to improve our ability to be relevant and to get the right level of reach and we're kind of thinking about the other things, some of the things that Anshul mentioned in terms of technologies, targeted technology investments that help improve our productivity and quality. But that's where we're focused. And I think we've demonstrated good discipline on that, and we'll continue to do so.

Thank you very much for that, Jill. Just before I ask my last question, I want to see if anyone else have a question from the audience? Okay. So Anshul and Jill, as investors think about Fortrea coming out of this conference, what is the single most important message you want them to take away regarding your company's trajectory and execution?

Yes. Thank you for that, and thanks for the time and hosting us today and asking questions. Look, I think the single most important thing is that Fortrea has completely come out of the spin. The market is getting better. Some of the headwinds that we talked about in the market are starting to subside. Our focus as a management team is purely on our customers right now. Our focus is on execution and getting the whole organization to focus on execution for our customers. We think that is the best path to not only margin expansion but also growth and returning back to a sustainable level of growth.

And so if there's anything I would want folks to walk away from is our mantra right now is focused on execution. And our priorities are our customers and the work that we have signed up to deliver for our customers.

Thank you very much. All right.

Thank you. [indiscernible].

Thank you everyone for coming. All right.

Right. We do look to get started. Thank you for joining us. I'm Patrick Donnelly, the tools diagnostic CRO analyst here at Citi. Happy to have Anshul and Jill with us from Fortrea.

And we can just dive in, Anshul, I guess to start, 3Q, obviously, you saw a nice bounce back on the book-to-bill side. I think it was 1.13x. Can you just discuss what you saw from 2Q to 3Q sequentially on the customer sentiment biotech, large pharma, would be great to just dive into the backdrop and what drove the nice step up for you guys.

Yes, sure. Happy to. Well, first of all, Patrick, thanks for having us here. I think -- thanks for picking a nice warm location. It's awfully cold in New York. So happy to be here.

Look, I think the first thing you have to start off with is what we talked about Q2 being an anomaly. I think we had some customer hesitation around the CEO transition, as I had alluded to when I first joined the company, and as Peter alluded to, that disappeared quicker than thought. I mean, I was able to get out and engage with majority of our top customers, but really be on the road with our sales team and our executive team.

So the noise around the leadership transition disappeared very quickly. So that was obviously a help. I think in general, we are starting to see some bit of a bounce back in the industry. I'd say I'm probably neutral to positive like the rest of my peers. And so I think we're starting to see biopharma move forward with their pipelines.

Not that they canceled anything necessarily was a lot of wait and see. Let's see how things evolve in the landscape. So we saw a bit of that. And I think for us at Fortrea, what really led to the step up was our win rates and our ability to execute commercially. We've really been stepping up our game in how we engage with our clients and specifically in customers that are new to us. And then how we engage with them. And that step up, I think, was largely responsible for our numbers in Q3.

Yes. And then maybe we can just pick up right there in terms of the new to Fortrea clients. I know you talked a little bit about them on the call. Can you give some metrics around it, RFP volumes, win rates, especially on the biotech side? And then what do these new customers look like? Is it biotech, early phase? It would be helpful to dive into that piece.

Yes. It's -- the diversity of mix is important here, and it's a diverse group of customers for us. We are out trying to increase our aperture and be able to get a wider look at the market. So we're refocusing our sales efforts to be able to do that. That is yielding an income of RFP volumes greater than just the market demand picking up, we're out hunting and searching. And so that is customers across the board.

Anything from small biotech companies that might be represented at this conference to large-scale, multibillion-dollar small pharma companies and we're pretty well known within the big pharma sector, but these are companies that are new to us. So we've been out. That's been increasing our RFP volume last quarter, and we're starting to see more of that in this quarter as well. So that's been pretty helpful. And it's pretty diverse across Phase I, across Phase II, across large-scale Phase III trials.

Okay. And it does sound like, to your point, it sounds like that momentum continuing into 4Q, I guess, from that piece.

Our pipeline, as I had mentioned on the call as well, our pipeline is strong in Q4, and I'm proud to see where it is, and we're making incremental effort daily, weekly, monthly.

Yes. Okay. And then I know you guys have kind of a specific biotech operating model. Can you just talk about how that translates to -- kind of its more bespoke go-to-market strategy for clients and the traction you're seeing there?

Sure. So biotech operating model, what do we mean about that? At the end of the day, it's a question of how we resource, who we resource and how we show up for these customers. So biopharma typically will require people of phenotype X because they need them to come in and be able to execute against their set SOPs to be able to work in their framework in their countries in their geographies

We find that more of our small to midsize customers need more than that. They need more senior people at times. They need people specifically located in countries where their headquarters are, where their offices are, more in the U.S. And what we find is that we need to be able to understand that phenotype. We need to then be able to understand the phenotype of our colleagues and employees and be able to make the right match to the phenotype that's necessary for that situation. That's a nuanced way of resourcing and staffing.

And instead of thinking about resourcing and staffing in terms of how many incremental FTEs are we putting on a project, we focus on who needs to be on a project? How do they work with the team on the other side? What kind of dedication do they have? What other things are they working on? Our biotech operating model really is getting behind the science of resourcing and staffing fit for purpose. So we're going to have the best team, not just based on capabilities, but based on phenotype and based on characteristics that's going to work best in that situation.

Yes. And just on the biotech topic, I mean, obviously, funding looks a little bit better. The biotech index seems to hit new highs every day. How long does that stuff take to translate to you guys? Are you sensing a healthier biotech backdrop overall? What are you hearing from that customer base?

Yes. Certainly, hearing a bit of a -- a bit of a comeback. We have biotech customers that were waiting to figure out what the funding environment looks like, waiting to figure out whether or not they were going to be able to get either a pipe or a private investment or an IPO done to be able to get the kind of capital they need for the next stage of trials.

And what we're hearing now is a little bit of an opening of the wallet, a little bit returned back to that funding. But I don't think it's still at the same levels as we saw in 2018 and 2019. I think where we are now is better than where we were a year ago. And so there's reasons for folks to be more cautiously optimistic, but we're still not back at sort of historical levels that we were in 2018. And I think that's going to take a bit more time.

Yes. And I know you've been in the seat, maybe 6 months, maybe it's a little less.

Just throughout 5 months.

5 months. And I thought it was interesting on the 3Q call, I think you said the next 2.5 years are going to look very different than the last 2.5 years. I mean, when you kind of look at that at a high level, what are the key puts takes that you put into that and the real initiatives that you want to kind of implement here at Fortrea?

Sure. I think I look at us Fortrea in, let's say, three horizons here, right? There's Fortrea as a -- several years ago, as a business unit or a business unit within a large company like Labcorp. Management, discipline, ways of working, systems, processes that are really more attuned for Labcorp than they are for what is Fortrea today.

Then there's the last 2.5 years, I look at that as a second horizon. That's the spin. A spin that frankly had -- was accompanied by a perfect storm of other headwinds, a geopolitical landscape that caused a bit of a contraction in our market, an overall lack of growth in terms of pharma outsourcing over the past 2 years. And a company that, through the spin have to create the systems and processes to be able to be completely independent, but the right talent in place to be able and put all the structures in place to be completely independent. That's horizon #2.

Horizon #3, where we're in now is a fully independent company. We're starting to see, as you said, some tailwinds in the market, starting to get some optimism there, starting to see an ability to function in this geopolitical environment and with some of the uncertainty that comes with it being able to function and a return back to growth, and frankly, a new leadership structure, a new focus. So that's how I see Fortrea.

And that's why I'm more optimistic about the next horizon. We've got some of the headwinds behind us, and we're operating under new systems, new processes, new talent. We're still executing just as well as we have for the last several decades, but we're operating without some of those headwinds that we were encountering during the spin.

Yes. And then in terms of -- and you think about some of the initiatives to your point, just cleaning some things up, I mean, what is the time line? I think people were surprised how quickly even the book-to-bill picked up from 2Q where you called out some transition changes. But when you look at some of the operational stuff to your point, how -- what's the time line in terms of some of the bigger changes that you're looking to make?

Well, I wish I had a magic ball. I could guess that time line perfectly it'd be out playing mega millions. Look, I don't have a way to give you a time line of -- but change takes time. Change takes time. Change doesn't happen overnight. And we have already made a lot of progress, frankly, even before I got here. Jill and the rest of the executive management team have made a fair amount of progress.

We accelerated some of that progress in the last several months that I've been here. And we're on a continuous journey -- continuous journey to continuing to focus on our talent, continue to focus on our project management skills, the things I've talked about in the last call that pillars of sort of the strategy or commercial excellence, operational excellence and financial excellence. I don't think there's an end to that journey. I think that's a continuous journey. I think we'll continue to see progress quarter after quarter, but I don't have a time frame that I can put on that. I'm impatient, though.

Yes. I guess on that point, can you talk about how you guys are specifically optimizing project management, streamlining internal structure, just to enhance that, to your point, the operational excellence integrate therapeutic experts more effectively into project delivery? Maybe just talk a little bit about some of those initiatives and you go forward with them.

I think that has a lot to do with -- as you had asked me the question about biotech operating model. At the end of the day, it's about are we getting the right people in the right places at the right time? And then are we empowering them to actually make decisions when they need to make decisions to move a clinical trial forward.

That often requires things like retraining that often requires things like an evaluation to make sure we've got the right people in the right roles that requires a delayering and destructuring. We've gotten somewhat, although entire CRO industry in an effort to go towards efficiency, you get very siloed and you get incredibly good at very vertical tasks that you have to complete in a very efficient manner.

Sometimes when you do too much of that, you lose sight of core project management. You lose sight of being able to bring some of that back. So we need to retool some of our systems and retool some of our processes so that we can have a real focus on project management. To me, I always look at the CRO industry or like a professional services industry. We've got clients, we've got projects that are highly scientific in nature, that are long in duration. That are highly complex, and they need people who are not just trained but enabled and empowered to solve real-time problems.

And so we are working through our project management organization, but it doesn't just impact our project management organization impacts the rest of operations to be able to get to that vision I have of a true professional services organization.

Yes. Okay. And then I want to talk a little bit about the pricing side. That's been a focus across the broader CRO industry. Have you guys sensed any change on the competitive side, pricing pressure, different therapeutics areas, service lines? And then what's your guys' approach on the pricing side? Some competitors have kind of come out and laid out a little bit of a, I don't want to say, aggressive pricing strategy, but winning with price. Are you seeing that in the market? And how do you guys handle it?

Patrick, I think it's a good question. I think we talked about it last time, too. Everybody wants to talk about price. Let me tell you my perspective, I look at price as two pieces. There's the element of the market that's FSP. FSP is more of a commoditized in the market. It's essentially you're providing staff that are your staff to be able to work on either a project or to be able to work across projects, but they're really being managed by the sponsor or the pharma company.

I think in that FSP world, there certainly has been price competition, especially in the last 1.5 years. I think that we've seen real price competition there. I think some of the larger competitors of ours, especially ones that have taken on big cancellations have had to fill their coffers and have gone after that volume. Some of them have publicly stated that they plan to use price as a lever we have not.

Given the journey that we're on, given what I'm trying to accomplish what Jill and I tried to accomplish it Fortrea, we have not gone after trying to win on price. In fact, we've walked away from some of that work when the margins have gotten to a point where we don't think that's healthy for our business. We've actively walked away from the work or pulled out of an RFP process. We have continued to win business in FSP where we think we can make money and make margin at a level that we're satisfied with, but we haven't used price as a lever.

Then there's the other part of the business, the full service outsourcing, full-service outsourcing. We talk about price, but I think price is an artifact of strategy. I think what people have done, we've chosen not to do is gotten aggressive in their bidding strategy making commitments that frankly may or may not be achievable, committing to design a project to bring it in 6 months or a year earlier than the next competitor is saying to bring it in.

What we find is that customers are very smart. I think this is a very sophisticated end customer for us. Whether you're a small biotech company or you're a large pharma company, these are very smart, very sophisticated customers who understand clinical development just as well as anybody and can see through someone's aggressive strategy.

And so therefore, you can argue that, that aggressive strategy is a price. Strategy where you're trying to lower your price to be able to win. I don't think most customers respond. And I think that's why you've seen some of my peers walk away from those comments in the last quarter. We've decided to stay true to our bones, which is only go after business that makes sense for us and present strategies that we know we can sign up for and stand behind.

And have you seen, to your point, some of your peers seem to soften a little bit on the pricing comments this quarter. Did you see a pickup and then ease? Was it really noticeable from your guys' conversations in terms of that competitive pressure? What's the...

There's certainly noticeability earlier in the year where things were soft. The entire industry was softer first half of the year and where large FSP processes were being run, right? I think the thing where we saw the pickup in the drop-down was the counter detailing of Fortrea. I think in Q1, Q2 or especially Q2 of this year, there was very significant counter detailing of Fortrea.

Walked in first day on the job, first customer I talked to gave me the story around what he had heard from a competitor's -- not CEO, but one level down from CEO about our business. The thing is that did last very long between Jill and I, we had maybe dozens and dozens of conversations within my first month on the job. That we were able to cash pretty quickly. Now we always have competitors that are aggressive, but that narrative around us went up and went down within a quarter, we were able to squash.

Okay. And then maybe on the capital allocation side, I mean the balance sheet is certainly a focus for you guys as well. How do you think about debt repayment, where we are today? How does that line up with growth, margin priorities?

Yes, I'll take that one, Patrick. I mean we have been focused on it. So sense the spin. As you know, we divested two noncore businesses, and that led us to pay down about 30% of the debt last year in the second quarter. And we've been continuing to be focused on what we can do there. We were really pleased. A couple of weeks ago, we announced that we paid down $76 -- almost $77 million of our senior secured notes using cash on hand.

And so the focus has been, and you've seen the evolution over the year of us improving our cash flow and being able to improve our DSO and just really being focused on the fundamentals of order to cash. And so longer term, we're going to continue to prioritize that in addition to probably some small targeted investments for organic growth, but the next priority after that is going to be continuing to improve debt paydown and leverage. But I think we've been able to try to optimize that and interest costs associated with it, and we're going to continue to be on that journey.

Okay. And I guess in terms of -- yes, go ahead.

You can elaborate a little bit on that question. So when you were thinking about taking the job and you look at the balance sheet, you have discussions with the Board members and you considered what your options were -- can you share with us a little bit of how you're going to tackle this issue? I mean obviously, there's multiple factors the operations, confidence there's still a lot of debt and you had to have some level of how you're going to handle it.

Same question was quickly. It was on the balance sheet, the debt, your comfort coming in the door on the balance sheet.

Yes. I think that's a great question. I probably wrestled with that a fair amount. And it's -- in order for us to be able to invest in the business, we've got to be able to bring our debt down. That's not a surprise. That's exactly what you're pointing to. I think we can do it. I think that the business is not during the spin with where the TSAs are and where the business is performing commercially wasn't generating as much cash as it needed to be generating.

You can see a very big change in Q3. I think this business is going to continue to generate that level of cash now that we're out of the spin. That was my first piece of my calculus.

The second piece of my calculus was trying to understand where the business was winning and why it was winning when it was winning and why it wasn't winning when it was winning. And I have a level of confidence in an ability to put together the right team to be able to get us back to taking market share and continuing to grow. I think the combination of getting back to the kind of levels of cash flow we have and what I hope we can accomplish from a book-to-bill standpoint, I think it still takes a couple of years.

But if we get that type of a growth that we're looking for, our focus is going to be to use that cash to continue to pay down our debt and to get our debt to a level that is sustainable that we can start going back using our balance sheet for growth. Do I think it's an easy task? No. Do I think it's impossible task? No. And that was my calculus.

Did you think that you have a number in your head better ops near term, I could probably squeeze $100 million to $200 million out. And then through more wins, higher margins, I can move the EBITDA to $250 million, and that's where you start to get to a 3.5 to 4x leverage number. I just want a little more..

Have you snuck into my laptop somehow to I look at my modeling? I mean, look, I don't think we would, in this context, sit here and share exactly that calculus. But you're right on the track, that's the calculus. The calculus is what can we continue doing from rightsizing the organization.

And we do finally talk about 2026, you'll see that. What can we do to continue to rightsize the organization to continue to focus on EBITDA, what can we continue to do on the commercial side to continue to build the backlog and what can we do to continue to be very prudent in how we manage cash flow. And you're seeing some of that stuff in Q3. But those are the three parts of the calculus situation you're asking about.

Yes, I do have a number in mind. And yes, I think we can get there in the medium term. I don't think it's short term. I don't think it happens overnight. I don't think it happens in the year, but I think we can get there in the medium term.

So the last report are the easy divestitures behind us?

I think the businesses we have now are the businesses that we want to be in, and they're important, and there are inner linkages between them. and they're quite strong, right? Our Phase 1 business has continued to grow, which has been fantastic. We've got a really strong Phase 1 business. And then FSP, we've talked about that being a headwind.

Anshul talked about some of the reasons why that is. But we still find places there where we're very good and competitive and can have margin-accretive business, and we're focused on that. And then in FSO, I mean, that's obviously where a lot of his attention on the commercial side is coming in. I think we have demonstrated this year that we can take cost out of the business.

I talked about in my remarks, for example, that our controllable SG&A in Q3 of this year was 20% lower than Q4 of last year, and we're going to continue to be focused on that and then rightsizing on the gross margin side. So I think we've got the discipline now. We have more to do from a rightsizing perspective. But do I think we have a lot more to divest? No, and that's not really how we want to. We want to do it through growing and then continue to be really disciplined about our costs.

Yes. And a good segue on the cost side, Jill, I mean you guys have talked about these targeted initiatives to ensure these cost actions lead to real margin expansion next year. Can you just talk about that what you guys are doing? And again, the confidence level on the margin side, we can dive into some of the moving parts as we go.

Sure, Patrick. We've been really pleased this year to be able to continue to -- we've raised our revenue guidance, and I can talk about that briefly, but we've been able to continue to deliver against our guidance for this year, which is really important.

We know that people need to know that we're going to deliver and do what we said we would do. So this year, we set out on the cost saving side to take about $150 million of gross savings out and about 40% of that being reinvested back in our employees. That was really important because our employees are how we make money as an organization.

And so we've got about $90 million of net savings, and we're on track. So through Q3, we were at $95 million of gross and $53 million of net, but that grew significantly. It was more back-end loaded. So we're still confident that we're on that journey to deliver that. And we have not disclosed '26, but you're going to see similar substantial types of savings that we're going for as we can go forward. But I do think that -- that has been important.

On the SG&A side, we needed to wait until we were exited from the TSAs to really make meaningful change there. So we've done that this year, and we have more to do. And then on the top line in terms of gross margin, that's really just about continuing to rightsize the business relative to the portfolio we have.

And over -- since the spin, we've taken out more than 2,000 resources, and we're going to continue to be on a journey again. you have to be thoughtful there but rightsizing appropriately but still maintaining those customer relationships that are important.

Right. And the SG&A, how does that stack up? The competitors are still several hundred bps away from you guys. Is there a reason why you couldn't get there? Is that the goal? Is there any long-term kind of expectation?

Longer term, we would like to be more in the 11% to 12% as a percent of revenue, we'll have taken out over 100 points basis this year. We've talked about taking out another 100 or so over the next 12 to 18 months. We'll continue to try to be more efficient there through automation. We're using third parties, right-shoring staff. But some of this will be as we get the commercial engine, hopefully restarted here and build on the groundwork that we've laid in Q3. We are able to absorb growth and have that SG&A stay the same. So that is an important part.

So I think that's the key, absorbed growth. We've got to grow into hitting those industry benchmarks.

Yes. And I guess, Anshul, to that point, there's that balancing act right of cutting -- you don't want to cut too deep when you're trying to also rightsize the top line. I guess how do you balance that? And how aggressive do you want to be on the cost side, knowing that potentially the market is firming up here and you want to be poised to kind of pounce on it

Yes. Look, I think there is a fine line. I don't think we're at that fine line. I still see areas of opportunity in the organization. And I think since my first day on the job have been driving towards the 2026 opportunities. And I know we're not talking about that, but we've already started working on it. And I understand that there's a fine line and there's a balance, but I think we have plenty of opportunity. So we're focused on that. We're focused on continuing to get our cost structure and rightsize the organization.

I'm not just rightsizing to hit a cost number. Rightsizing allows us to work and operate differently, allows us to be a bit more nimble, allows us to not be like some of our peers which may be driving an aircraft carrier, but it allows us to drive more of a destroyer or a battleship to be able to navigate the environment to be able to do that.

And frankly, I don't mind hiring to grow. I think hiring to grow is a great idea. And so right now, I'm probably pivoting more towards continuing to rightsize the demand is coming back. We'll continue to go after the demand and when we need to hire back, we'll hire back.

Yes. And then, Jill, you touched on the revenue guide. I think now it's $2.7 billion to $2.75 billion. Can you just talk about the moving piece of clinical pharmacology in there? You have FSP, pass-throughs, maybe just break down what you're seeing, how that's kind of evolved throughout the year? And then, yes, maybe just confidence level as we work our way towards the end of the year here.

Sure. We have been calling up our revenue guidance over the course of the year. The majority of that has come through pass-throughs, both in our Phase I, and I can touch on that quickly, as well as in our full-service business. I think it's an industry trend. It's the types of studies that are out there, the phases.

We've been really fortunate to have won more Phase IIIs in the last few years, and those bring with them a higher amount of pass-throughs. And in our Phase I business, that actually comes where we have such large cohorts that with the clinics that we have, we can only run so many -- they have to often be run simultaneously. You can only run so many at a time and so we have to sometimes work with third parties, but that's good.

I mean that's good because those are strong partnerships with important customers and we win all kinds of work from them. So we've seen that over the course of the year. Pass-throughs are obviously a bit of a margin headwind. So if you exclude the incremental pass-throughs that have come in through the course of the year, we're on track with our guidance to hit the margin we said for this year. We aren't providing guidance for '26, but I think everyone's talking about pass-throughs remaining elevated, but hopefully not the same growth trajectory that we've seen.

So hopefully, not as much of an incremental headwind going forward in terms of the growth of them, but I think they're with us based on the portfolio that we have. But of our revenue streams. The largest is our full-service clinical. Next-in size is the FSP and then the smallest but very strong as our Phase I business.

Yes. Yes. And you touched on the pass-through a few peers have kind of called that out as a potential headwind to margins next year. I guess how do you guys balance, we talked about pricing pass-throughs hopefully a little bit better of a backdrop. How do you just message the moving pieces on margins as we work our way into next year, just high level in terms of tailwinds and tailwinds.

Maybe I'll start with that. I think for us, in terms of messaging on margins. First and foremost is we got to focus on the company returning back to growth. Yes. I think getting consistent book-to-bills similar to Q3, we've got to be able to repeat that quarter after quarter. Some of that is a market backdrop.

Some of that is us just operating and working differently and working better. As we do that and as you start seeing more and more of the impact of the Q3, Q4 cost-cutting and rightsizing we've done and the changes we're already planning for Q1, Q2, some of that story is going to become self-evident.

And look, in a perfect world, you'd be able to -- the entire industry would be showing directs and indirects differently. We don't have that. As Jo indicated to you, if you take out -- if you take out the view of the additional pass-throughs here in 2025, we're right on guidance of what the company has been indicating from the very beginning. I think that's how the story is going to come out on the margin.

Yes. Okay. And yes, maybe on the -- just on the margin front, obviously, the EBITDA number has moved around a little bit. I think now it's $175 million to $195 million

Yes, we've kept the midpoint the same.

Yes. So maybe just talk about some of the inputs there, operational discipline, project mix, variable comp, I think R&D tax credits, I mean, there's a bunch in there. So maybe just talk through what's happened on the EBITDA number this year and yes.

Yes. I think the most important part is that we've been delivering on the cost reduction initiatives. And the good news in terms of revenue is that on the service fee revenue side, which is what drives your margin, we've had really good accuracy with that this year, which I'm really pleased with some of the changes we made in the forecasting processes earlier in the year. So putting aside the pass-throughs, the service fee piece and the bottom line, we're right where we said we would be.

To your point, it's a combination of cost cutting. We have had a little bit of headwinds around some of the R&D tax credits this year. Some of it we expected. Some of it was a little bit more pronounced than we thought. But that we've been able to do enough with the savings to be able to offset those. So I think we're coming in exactly where we expected in terms of all the points, and that gives us more confidence to narrow the range, obviously, but also as we think about '26 and knowing what this business can do that when we can come out with guidance in '26, we'll have good confidence about what we're able to deliver.

Pretty much the same story that there were going to be cost savings from TSAs that they were low-margin business that we would go out and get higher margin new revenues, et cetera, et cetera. So my question really is in the execution of a similar plan, what's the difference? It's the same plan, but it's a different CEO. Can you share with us a little bit like how we're doing things differently and why we'll get a better result.

Look, I appreciate that. I'm not burdened with history the same way you are. So I appreciate and understand the lens that you have and the way you're looking at the problem. I think that the time frame that it took to fully come out of the spin and coming out of the spin isn't just the exiting of the TSAs, but it's being able to build the infrastructure, the systems and processes to work fully independent took longer than anyone would have expected.

I think that's extremely important to know. So even the focus on execution, let's take one of my biggest focuses, project level profitability. I'm entirely focused on our top 10 customers in understanding project level profitability and diving deep on project level profitability. That's what you have to do with the business of the size of this magnitude, you can't manage it in averages.

You've got to get down to an individual project, project level profit. It took time as the company became independent to build the financial systems to be able to do all of that. The difference between the last couple of years and now, if I think about what I'm trying to execute, I have the tools. We're not building the tools.

I don't have the overhang of the exit of the TSA and frankly, don't have the burden of history, have the tools we have the talent, we have the people. So we're managing it. You look at our project level profitability, now and you look at what we're doing on projects and how we're advantaging them, how we're following guidelines on a monthly basis to be able to track these projects and how we're engaging our customers, it looks night and day it did 2 years ago.

I mean that -- it's hard for me to answer the question because I know you're used to having somebody else stand up here and say, we got to focus on execution. We got to focus on execution, and you didn't see the results. What I'm saying is a lot of the headwinds that were -- that the company faced in trying to achieve those results is finally [indiscernible] over the corner of those headwinds. We're able to do the things. We're starting to see some of the results. That's only 1 quarter in so far.

But the way to get this to the results that you're looking for is, one, consistent commercial delivery; and two is to be able to work projects individual project by project to be able to get project profitability right individual project by project.

So you have much better information in how the businesses operate on a day-to-day basis now than...

Much more I have my own -- we have our own systems. We have our information down to a project level. We're able to manage things down to a project level. We're not burdened by our parent company systems, not burdened by our parent companies processes. We're fully self-sustained and fully independent now.

So when we're making decisions, I mean, at the end of the day, running a Fortrea or running a PPD or running an icon or running any other CRO in this industry comes down to how you manage projects. You don't have the right information and you don't have the right systems, you don't have the right management discipline, you don't do a great job with that.

And your -- we have a lot of low-margin business, right? So the issue is -- and they were going to upgrade and improve margins on the business. But they just didn't have the tools to get it.

Yes. So I think this is a narrative that has gotten a little misunderstood. I get where it was from this pre-spin versus post-spin backlog. I don't see the world that way. At the end of the day, it's when you think about it is our ability to influence margin. It's not about low-margin business versus high margins, our ability to influence.

So let's say you're sitting in 2024. You've got a project that was started in 2022. The contract is fine. The contract is valid. But if you don't have the systems and processes to see how the financials are changing within a 3-, 4-month period, you don't have the ability to go ask the customer for something a year, 1.5 years ago.

And if you can't go ask for that, you have a compounding effect of where you've taken on scope or work that you haven't been able to recoup. If you fast forward, whether it's a project that we started in '22 or a project we started in 2025, we now are looking at monthly level of project performance, hours, systems, tooled units being-used and even project started pre-spin. Even project pre-spin, we have the ability to go back to the customer to get what we're owed for scope changes and changes in the project, and we're getting them on a daily, monthly, quarterly basis.

So I know there was this narrative used before I got here around pre-spin, post-spin. I'm trying to walk away from it because that makes an implication that I don't think is the right way to interpret it. The implication is when you come out of the spin, projects that were started before or even started right when you entered the spin. If you don't have the information if you don't have the processes and you don't have the management discipline, you can't maintain the profitability in those projects.

As you build the information and the visibility of the information, the processes and the management discipline, you can now go and maintain the profitability on those projects. And that we are doing on every single project now, whether that project was started 15 years ago or it started 15 months ago.

I don't think investors really understand how a project can over time scope expansions and order changes.

Happy to explain it to you. a 15-year project. In any given month, okay? In any given month, a project that's been going on for a decade, let's say, in any given month, they have paused the project. they paused the project because some new data came out on a different indication or a new FDA commissioner come in and said some X.

And now they issued a protocol amendment to the FDA and others saying, okay, we're going to change this cohort of patients to look at things differently. That project for the life of the remainder of the project is now completely changed. If I don't have the systems, tools and management discipline to go to the customer and say, well, that's a scope change, here's how it's changed, here's my new invoice. Here is my new bill. Here's my new team, here's completely something new, different. Then over the next few months, I'm having margin degradation on that project. It's that level of discipline that you have to manage hundreds and hundreds of projects on a monthly basis.

And maybe I'll show -- just a few minutes left here. Just on the overall backdrop. Can you talk about the cancellations trend, what you're seeing there, what you're hearing from your clients on the cancel side?

Sure. I'm happy to talk about it. I think there's Fortreaand then there's what you're hearing in the marketplace. I think that for us, cancellations have been in accordance with what we expect in accordance to our historical norms. We have a fairly tight policy of what enters our backlog and what doesn't. We have to have a signed -- some sort of a signed contract with the customer before it enters our backlog. So we've been pretty consistent from a cancellation standpoint. They're within expectations.

I think there are some players in the industry where this noise is coming up. There's players in the industry that had high exposure to BARDA-funded studies that had high exposure to COVID and flu vaccine studies that are very large and frankly, have high exposure to large GLP-1 studies. And as pricing comes out, some of those studies are quickly disappearing. It happens that those competitors, some of the larger ones, have exposure to two out of three of those.

And when you have exposure to even one, let alone two out of three, if not three out of three for two of those players, you're going to see large amounts of cancellations. We don't have exposure to any of those three headwinds. That's why our cancellations are within our expected norms. And we see cancellations because a drug fails or a client reprioritizes but it's normal business course in action.

Yes. And maybe last one, just on the pharma backdrop. Obviously, this announcement 2 months ago starting with Pfizer and then kind of picking up steam since then. It feels like it's lifted a lot of the policy uncertainty you talked to a lot of these folks at the high end of their companies. Are you sensing a more willingness to move forward with certain trials? Was there a holdback where now things are moving -- what's the right way to contextualize it.

Yes, I think the right way to conceptualize it is no different than middle of March in 2020, where all kind of froze deer in the headlights. We didn't know how to operate. You didn't know how to run your business. I didn't know how to run my business in middle of 2020 -- March 2020.

But by the time we got to June, we all had adopted the new normal, and you were running your meetings and I was running my meetings and we were all doing business. I think in this new administration, there was a hang on. I don't know what shoe is going to drop. I have a new paradigm in how I'm operating I think Pfizer taking that deal was a first giant step towards, okay, we know how to operate. We know what possibly this looks like.

And yes, that did lift some of the hold that was -- I don't think it's like a floodgate, but it did lift some of the reluctance in the marketplace and moving forward because we understand how to operate in what is the new normal.

Okay. I think we're up on time. Thank you guys so much for coming. Appreciate it.

Appreciate it. Thank you, Patrick. Appreciate it. Thank you for having us.

Good day, and thank you for standing by. Welcome to Fortrea's Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Tracy Krumme, Fortrea's SVP of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Fortrea's Third Quarter 2025 Earnings Conference Call. With me today on the call is Anshul Thakral, Chief Executive Officer; and Jill McConnell, Chief Financial Officer. Before we begin, please note that this call is being webcast. There is an accompanying slide presentation, which can be found in the Investor Relations section of our website, fortrea.com.

During this call, we'll make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the report filed with the SEC regarding these risks and uncertainties, in particular, those that are described in the cautionary statement contain forward-looking statements and risk factors in our press release and presentations that are posted on our website.

Please note that in forward-looking statements, represent our views as of today, November 5, 2025, and that we assume no obligation to update the forward-looking statements even if estimates change. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for comparable GAAP measures but we believe these measures provide investors with a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release in the earnings call presentation, which is provided in connection with today's call.

Lastly, I would like to add that Arshul, Jill and I will be attending the Citi and Evercore Health Care Conferences on December 2 and 3, respectively. If anyone would like to meet with us on these dates, please contact me or sales representatives from the firm.

And with that, I'd like to turn the call over to Anshul Thakral, Chief Executive Officer. Anshul, please go ahead.

Thank you, Tracy. Good morning, everyone, and thank you for joining us today. As I marked my first 100 days in this role, I want to begin by expressing my gratitude for the warm welcome and support I have received colleagues in Fortrea, our Board, our clients and our broad community of stakeholders. I'm pleased to share that Fortrea delivered solid results in the third quarter, in line with our expectations. Revenue for the third quarter was $701.3 million, adjusted EBITDA was $50.7 million, and backlog is over $7.6 billion. Our book-to-bill ratio improved to 1.13x, up sequentially from the second quarter and our trailing 12-month book-to-bill ratio of 1.07x remains in line with the CRO sector.

These results, combined with the continued strength of our pipeline, position us for continued backlog growth. Overall, we saw demand our services growth. Our win rates improved significantly, reaching the highest level in 6 quarters. specifically with biotech clients, our win rates doubled compared to the prior quarter. decision-making time lines for video clients opinions to improve from a low in the first quarter of 2025. We saw continued strong RFP flow across political pharmacology and full-service clinical development and have a robust pipeline that is balanced across biopharma and biotech clients.

While we saw a slight increase in our cancellation rate, it remains within our historical range. The overall demand environment is showing signs of improvement with growth in clinical trial starts so far this year and increased biotech funding in Q3. Biopharma remains resilient and continues to advance its development portfolios reset the underlying strength of the science. Our cash position is robust, bolstered by the receipt of the second and final milestone payment of $25 million from the divestiture of our Enabling Services business. We continue to focus on debt paydown, including agent tender offer to repurchase up to $75.7 million of the company's outstanding senior secured notes funded in part by our improved cash position.

These actions underscore our commitment to maintaining a healthy balance sheet and financial flexibility. We also welcomed Bill Sharbaugh to our Board of Directors this quarter. Bill brings a wealth of experience from his long tenure as an executive in clinical development at Bristol Myers Squibb and PPD. I've had the privilege of working with him previously. His insights will be valuable for our Board as we execute our strategic plan. Let me provide some details on our new business wins in Q3. We secured several significant awards with new and repeat clients that underscore our differentiated capabilities and strong client relationships.

Our clinical pharmacology business continues to grow with robust wins from leading pharma partners as well as biotech. Average contract size continues to increase, consistent with our expertise in managing complex early phase clinical trials. Our portfolio continues to see growth in metabolic disease neurodegenerative disease, immunologic and rheumatologic diseases. We also see growth in studies, including patient cohorts which we are increasingly able to execute internally within our clinical research units or what we call our CRU. This is true for later-phase studies as well where we are able to leverage our CRUs as multipurpose research sets.

Our global Clinical Development business saw diverse wars across multiple therapeutic areas. Our new to Fortrea Biotech awards in the quarter included a Phase II study in a rare neuromuscular disease, we won repeat business from several clients in the quarter. These wins included 2 Phase III ophthalmology studies from a biotech client, a Phase III complex respiratory disease study from a midsized pharma and a Phase II oncology study from a large pharma client. In addition, we were delighted to secure 2 new strategic partnerships with midsized clients.

Turning to [indiscernible] operational highlights. We are pleased to report another sequential improvement in Net Promoter Scores in Q3. And reflecting our ongoing focus on client satisfaction and operational excellence. Our NPS improved further year-over-year, supported by measurable delivery achievement including reducing the time to site selection by 33%, accelerating recruitment in a high-priority complex respiratory study by 3 months and finishing enrollment 5 months early in a Phase II Alzheimer's study. This is the execution excellence that drives client trust. With our culture of innovation, we continue to make strides in technology and AI adoption delivering productivity gains that are expected to improve efficiency, quality and client delivery.

I'll highlight some of the innovations that are part of our Fortrea technology strategy focused on digital modernization of our workflow. Earlier this year, we launched accelerate risk radar, including an AI-powered agent designed to enhance risk-based quality management in clinical trials. It uses AI and to automate risk identification and suggest mitigation strategies, reducing manual effort and improving efficiency and patient safety. Start My Day is a new digital experience that brings actionable insights and prioritized tasks into a single intuitive persona-based interface for CRAs and study teams. This tool is designed to improve daily productivity and decision-making, it's in pilot stage now with broader deployment planned in 2026.

As part of our strategy to modernize CRA workflows, we are broadening the rollout of our ICRA mobile app and digital assistant following [indiscernible] pilots. We are integrating the app with our accelerated platform to provide smart reminders, digital site check-in and risk metrics. Early users report 5% to 10% efficiency gain which should increase as we add further functionality tangible proof that our strategy is delivering. These initiatives streamline processes, reduce manual effort and foster a culture of continuous improvement positioning Fortrea for operational excellence and scalable innovation.

Now I'd like to share more color about our progress on our strategic plans. As I mentioned on our last earnings call, my first 100 [indiscernible] of Fortrea, we're focused on 2 priorities: deepening client-facing activities and employee agement. To that end, I traveled extensively across the United States with members of our executive team as well as to India, China, Japan, the U.K. and Bulgaria, meeting with clients and colleagues. These visits include discussions with many of our top clients to strengthen partnerships as well as joining our sales efforts by attending bid defenses and numerous meetings with biotech executives as part of our new client acquisition actions.

Client feedback on Fortrea has been overwhelmingly positive. Both large pharma and biotech clients value our global delivery, quality, decative attention and operational improvements. Biotech clients, in particular, appreciate our balance of scale, agility and the focus on client times. With that said, we, of course, like all CROs can continue to get better in project management and overall client relationship management. We held in-person employee town halls across various geographies and offices, engaging with about 1/3 of our workforce. We saw firsthand a hackathon in India, showcasing grassroots innovation from our study team. We are instilling a culture amongst our colleagues to continue to focus on efficiency across all aspects of our workflow.

I am proud of our employees' deep experience and their commitment to our mission of bringing life-changing treatments to patients faster. The team moved quickly through our leadership transition without missing a beat, and there is a strong emphasis on employee engagement. They have worked with tireless dedication to serve our clients and position the company for future success. First 100 days also reaffirmed that our strategy should center around 3 critical pillars for the business, commercial excellence, operational excellence and financial excellence. Commercial excellence is how we return to growth, built on the 3 Rs; reach, relevant and repeat. We must continue to expand our reach by growing our pipeline of new opportunities in acquiring new clients. We must also leverage our recognized therapeutic and scientific expertise in ways that are relevant and resonate with clients, doubling down on areas where we are already strong.

Lastly, we're growing our roster of repeat clients through sticky relationships and enhancing our account and portfolio management capabilities. Operational excellence is how we deliver quality and productivity consistently for our clients. We are optimizing project management, streamlining our structure and bringing therapeutic experts closer to delivery. We're also enhancing our biotech operating model and empowering our operational teams to accelerate studies with better technology, tools, training and infrastructure.

Financial excellence means continuing to rightsize our organization while driving margin expansion. While cost actions have begun to reduce our expense base, we are implementing further targeted initiatives to ensure that these translate into margin improvement in 2026. The ability to tightly match resources to demand must remain in Fortis DNA. We continue to optimize our capital structure we remain focused on positive cash flow and stay committed to keeping our DSOs in the low to mid-40s. We're closely monitoring the pricing environment to bale winning new business and achieving attractive margins amidst competitive issues.

I will now turn the call over to Jill for a deeper dive into our financial results.

Thank you, Anshul, and thank you to everyone for joining us today. In my prepared remarks, I'll cover the primary factors that influence our third quarter performance and share an update on our 2025 guidance. I'll highlight our progress against our previously shared cost optimization initiatives. Additionally, I'll spend a few minutes highlighting improvements in our cash flow this quarter and our expectations regarding liquidity and down capital structure that position us well as we move forward. These results demonstrate that our actions are beginning to deliver results.

I wanted to be clear that we are continuing to take appropriate actions to improve our financial performance and capital profile. As Anshul stated, we delivered a solid third quarter. For the quarter, we delivered revenue and adjusted EBITDA that continues our momentum towards our margin optimization initiatives, including delivering nearly 2/3 of our $150 million in gross savings targets in the first 3 quarters of the year. We generated strong positive operating and free cash flow and we delivered a 13-day improvement in DSO versus the second quarter as we have now fully unwound the impact of the invoicing cause related to the launch of our new ERP system during the first quarter.

Now I'll cover the financial results in more detail. Third quarter revenue was $701.3 million, 3.9% higher than the prior year quarter driven by increases in both our Clinical Charmacology and Clinical Development businesses with small benefit from foreign exchange. The increase in our Clinical Pharmacology business was primarily driven by higher demand as well as study mix that is resulting in increased levels of pass-through costs. The clinical development increase was driven by recent net new business awards, including higher pass-through costs, partially offset by lower FSP revenue.

On a GAAP basis, direct costs in the quarter increased 9.9% year-over-year, primarily due to an increase in pass-through and stock compensation costs as well as the negative impact of lower research and development tax credits. This increase was partially offset by lower headcount and personnel costs, which declined despite the reintroduction of variable compensation as we carefully balance investing in our employees while delivering on our transformation efforts. SG&A in the quarter was lower year-over-year by 21.6%, primarily due to low ESA and IT-related costs.

If you look at underlying controllable SG&A sequentially, SG&A in the third quarter is 7% lower than in the second quarter of 2025 and 20% lower than our fourth quarter 2024 run rate. This also includes the absorption of reintroducing variable compensation. I'll discuss progress on our ongoing transformation efforts across the organization later in my remarks. Net interest expense for the quarter was $22.6 million, broadly in line with the prior year quarter.

Turning to our tax rate. We recognized income tax benefit of $12.8 million which resulted in an effective tax rate of 44.6%. The effective tax rate for the 3 months ended September 30, 2025, was higher than the company's statutory tax rate. primarily due to an increase in the company's U.S. operating losses, partially offset by nondeductible compensation expenses, see, valuation allowance and withholding taxes on our non-U.S. earnings. Our book-to-bill for the quarter was 1.13x, significantly improved from the second quarter as we navigated the brief period of leadership transition. Book-to-bill for the trailing 12 months was 1.07x. Our backlog is over $7.6 billion. Although cancellations were slightly higher in Q3 than in the last few quarters, they have continued to be in line with our historical trends.

Adjusted EBITDA for the quarter was $50.7 million compared to adjusted EBITDA of $64.2 million in the prior year period. The reduction versus the prior year quarter is driven primarily by lower margin related to project mix, including a higher proportion of pass-through costs. The reintroduction of variable compensation and a reduction in R&D tax credits. Moving to net loss and adjusted net income. In the third quarter of 2025, net loss of $15.9 million compared to a net loss of $18.5 million in the prior year period.

In the third quarter of 2025, adjusted net income was $11.7 million compared to adjusted net income of $20.7 million in the prior year period. For the current quarter, adjusted basic and diluted earnings per share were $0.13 and $0.12, respectively. Turning to customer concentration. Our top 10 customers represented 60% of third quarter 2025 revenue. Our largest customer accounted for 19.8% of revenues during the quarter ended September 30, 2025. As I comment on cash flow, note that all references to prior year cash flows are for the entirety of Fortrea as we have not segregated cash flows from discontinued operations for the businesses sold in June 2024.

To more clearly see year-to-date and third quarter cash flow metrics, please refer to the investor presentation we posted to our website this morning. For the 9 months ended September 30, 2025, we reported negative operating cash flow of $15.6 million compared to positive operating cash flow of $245.7 million in the prior year period. The positive cash flow in the corresponding prior year 9-month period was attributed primarily to the initial sale of receivables under the securitization program initiated in June 2024. For the third quarter of 2025, we generated positive operating cash flow of $87 million and free cash flow of $80 million, which exceeded our expectations.

Days sales outstanding from continuing operations was 33 days as of September 30, 2025, 13 days lower than June 30, 2025, 17 days lower than the same period last year. The significant reduction versus this quarter primarily demonstrates our continued progress to improve the timeliness of our order to cash processes, although we did benefit from the timing of payments in the quarter. Net accounts receivable and those services for continuing operations were $663.2 million as of September 30, 2021, broadly in line with the $659.5 million balance as of December 31, 2024.

We ended the quarter with no borrowing on the revolver compared to $6 million outstanding as of June 30, 2025. Our positive operating cash flow in the quarter, combined with our undrawn revolver, resulted in available liquidity in excess of $0.5 billion. We currently target full year 2025 operating cash flow to be slightly negative, with the first quarter negative cash flow being mostly offset by positive cash flow generation for the remainder of the year. With our targeted EBITDA and the significant add-backs available under the credit agreement, we expect that we will continue to have ample liquidity for the foreseeable future.

As an important reminder, our credit agreement includes [indiscernible] well beyond what we include in our definition of adjusted EBITDA, such as the pro forma benefit from in-flight cost savings initiatives, our public company costs, and costs as estated by the Spin. The maximum net leverage ratio under the amended credit agreement ranges from 5.5 to 6x over the year 2025 and 2026. And and reverted to 5.3x as of the first quarter of 2027. While we do not disclose our covenant calculations, we have considerable headroom and our covenant leverage under our ratio to our credit agreement is significantly better than our reported leverage ratio, generally at least 1 turn better than our reported leverage.

We are currently and anticipate we will remain fully compliant with the financial maintenance ratio of the credit agreement for the foreseeable future. Our capital allocation priorities continue to be driving organic growth and improving productivity along with debt repayment including the closing of our note repurchase that is required under the venture in connection with the divestiture of our enabling services businesses in 2024, which is expected to take place in the fourth quarter of 2025.

Backlog burn in the third quarter was in line with the second quarter of this year and in line with the prior year period. This was supported by growth in our faster-earning clinical pharmacology business along with our progress in moving clinical development projects into more intensive stages of their life cycle. We anticipate this trend to continue throughout the remainder of 2025.

Now I'll give an update on how we're executing against our transformation plan. As previously shared, we continue to execute against our target of gross cost reductions of $150 million in 2025 with the expected net benefit of around $90 million this year and some of the cost reductions are being offset by the reintroduction of variable compensation. Year-to-date, we have captured more than $95 million in gross savings with roughly $53 million in net savings contributing to improvements in EBITDA. Year-to-date, these savings have benefited largely gross margin more than SG&A but we are seeing an increase in SG&A savings as the year progresses, consistent with our planned timing for executing on the SG&A specific savings program.

Building on our ongoing progress to improve our cost base, through the third quarter, we have further leveraged our third-party relationships to optimize the cost of delivering services out of our SG&A functions. We expect our SG&A optimization programs to extend in 2026 and as we continue our efforts to bring this spend more in line with peers. For full year 2025, we are raising our revenue guidance and narrowing our adjusted EBITDA outlook. Based on exchange rates at December 31, 2024, we are increasing our revenue target to a range of $2.7 billion to $2.75 billion.

At the same time, we are narrowing our adjusted EBITDA target in the range of $175 million to $195 million, reflecting continued operational discipline and confidence in our execution. In terms of cash flow for full year 2025, we are targeting operating cash flow to be marginally negative with positive operating cash flow expected in the fourth quarter of 2020. The team at Fortrea continues to demonstrate commitment and resilience and we are pleased to see improving customer satisfaction scores and continued strong employee engagement amidst our efforts to optimize our profitability. We believe we have laid the groundwork to enable stable financial performance that will improve over time.

We are energized by what lies ahead and our ability to be laser-focused on delighting our customers. As we advance through our transformation phase and target execution against the 3 pillars ancho shared with you in his remarks. We look forward to demonstrating our continued progress towards delivering value for all of our stakeholders.

Now we'll open the call for Q&A. Operator, please open the line.

[Operator Instructions]

Our first question comes from the line of Eric Coldwell of Baird.

I've got a couple. First off, in the past, the company talked about its mix of pre-Spin awards burning through revenue as opposed to post-Spin or next-generation style contracting. And that was -- the majority of that was prespend awards. So that's been navigating towards more post-spend awards. But I'm curious if you can give us an update on where you are and how you see that unfolding through 2026?

Eric, it's nice to talk to you. Thanks for the kind words. It's been a great first 100 days here at Fortrea excited for the entire team stepping up this quarter. So I'm very proud of our team here at Fortrea. I think we talked about this a little bit last time to pre-Spin versus post-Spin, trying to get folks less focused on that vocabulary. I think there are contracts that have been signed with Fortrea long before the company became Fortrea when it was still a business unit at LabCorp and there's limited things that we can do in terms of rightsizing those contracts and limited work we can do. But the team is focused on everything that is possible in terms of rightsizing those contracts, and we continue to do that.

And as far as -- as you call it post-Spin, I just look at it as independent contract side within the Fortrea landscape, we've been very focused, especially these last 2 quarters on ensuring that we're focused on things like out-of-scope work, things like overburn things like ensuring that the teams are staffed appropriately. And we're starting to see some really good results from those efforts. You have a couple of questions, Eric.

Yes. I appreciate that. It sounded like you made some progress with new to Fortrea clients this quarter. Obviously, that was a bit hampered last quarter with the original uncertainties around the CEO transition and some counter detailing by your competitors as well as just the market environment. But I'm hoping you can give a little more detail in terms of maybe, if possible, sizing or giving account of new to Fortrea customers or any kind of quantitative metrics, if possible.

But more importantly, I think talk to us about how you're approaching that marketplace. Is it new sales strategies at higher level executive engagement? What is going to drive a previously inexperienced customer, someone who haven't worked with you? What is going to drive them to come to Fortrea moving forward?

Sure, Eric. Happy to touch on that. Last time we spoke in an earnings call, I think I was on day 2 or day 3 of the job. And now having really for the company completed the CEO transition and frankly, to a solid financial performance, to not in bookings in the second quarter, all of those factors in general just helped creates a level of stability around Fortrea in the eyes of our customers. That renewed confidence got reflected in the number we saw here in Q3. And I'll share some numbers with you, and I want to answer your real question is what are we doing differently?

The thing that I look at is RFP volumes from these new Fortrea customers. RFP volume in Q3 for us was up almost 40%. And quarter-over-quarter with these new customers. Our win rates were where we were really having impact. Our win rates for these new Fortrea biotech doubled quarter-over-quarter. And there've been -- our win rates in general with our biotech customers have been at the highest level we've seen in the last 5 to 6 quarters.

Now your question is, what do we do? It's focus. For all of these customers, whether it's our big customers or biotech customers, it's a renewed focus on account management and renewed focus and how we're showing up in the sales force. I mean, I'll tell you I've spent most of my time now either visiting sites and being with some of our colleagues where I've been on bit Defense is myself, so as the executive team and I've been out at customers almost every single week that I've been here. So it's a renewed focus on our sales strategy. It's bringing a lot more medical expertise and operational expertise into the bidding process earlier. Frankly, Eric, it's a lot of just getting back to the basics.

Yes, that's it. I just want to also say congrats on getting Bill Sharbaugh into the organization. It will be fun to catch up with him. He was fantastic at PPD. So congrats on that.

I'll pass on that message. Thanks, Eric.

Thank you. One mention. Our next question comes from the line of Patrick Donnelly of Citi.

This is Brendan on for Patrick. I want to touch on a little bit on like the bookings backdrop. I wonder if you'd be able to parse out kind of like what you're seeing there between large pharma and kind of small biotech. And kind of more recently as we've seen more headlines on the MSN News and pharma tariffs. Have you seen any increased activity or interest in moving forward previously pending projects?

Yes. Brendon, happy to answer that question. Look, we don't break down specifics around our book numbers between biotech and biopharma. What I'll tell you is, from a trend perspective, we're seeing neutral to favorable trends in both segments, in both markets. Let's take a look at our biotech customers. Historically, let's go back to Q1 of 2025, saw some very depressed decision-making time lines, things taking forever. So we're starting to see that pick up. That trend is pretty important in the biotech segment, and that's led to not just increased RFPs, but a slightly faster sales cycle for us over the course of the third quarter.

As far as our biopharma customers are concerned, what I would tell you about our biopharma customers is they continue to be resilient and persevere through the ever-changing landscape, be it tariffs, be it farm pricing, et cetera. And what we're finding with all of our biopharma customers is their prioritized pipelines that are backed by science and innovation continue to move forward. And our conversations with our biopharma customers continue to move at a healthy pace that we've seen all year.

Appreciate that. And then on the pricing environment, this has definitely been kind of a big focus of kind of the CRO industry. And I was wondering if you've seen any changes in the competitive intensity over the last several months and how do we kind of see that moving forward?

Well, look, I think the pricing environment continues to be competitive but disciplined. Our bid margins, these are margins of the levels at which we submit our proposals and have largely stayed consistent this year. In our full-service CRO work price isn't really a lever we see that wins business at the end of the day. It's leading with science, leading with executive engagement, it's leading with staffing the right operational teams and putting the right delivery solutions in front of the client within the desired time frame.

With that said, in the FSP business, we certainly see more aggressive pricing strategies coming specifically from some of our larger CRO competitors. We tend to shy away from areas where pricing makes the business unattractive for us.

Our next question comes from the line of David Windley of Jefferies.

Congrats on the first quarter. Good to hear your voice. I wanted to ask a question that meanders through a few different topics, but are basically around kind of pricing strategy and margin leverage. So I heard $53 million of delivered savings to the P&L, more of that benefiting gross margin than SG&A. I think you had also talked about in meetings in September kind of a focus on maybe long-term growing revenue to drive operating leverage and improve margin and then we're talking about new to Fortrea client wins among other wins. And so I guess, what I'm interested in is, are you, one, trying to at least hold price, if not walk up price a little bit as a method to drive more operating leverage in the long term thinking that maybe Fortrea in the past has been a little bit low on price at the outset?

And then secondly, given that revenue was strong in the quarter, I'd love for you to disentangle, maybe Jill can disentangle the direct fee versus the pass-through to help us understand why that didn't benefit gross margin instead of seeing this gross margin detriment compared to the prior periods? Sorry, long question.

First of all, David, it's nice to hear your voice too. It's nice to talk to you again. Let me start by giving some of the overarching answers. I noted down about 3 questions and 7 parts here, but I'll do my best walk you through to give you the narrative there. I think -- look, I think that's the question of the day, right? So -- and then I'll have Jill add some commentary here on the specifics. You had several questions. You asked several question. The real question is price strategy and therefore, margin leverage. So let's hit up pricing strategy, let's talk about margin leverage in the quarter and what happened.

My goal is to hold price when and wherever possible. That said, it's a very competitive pricing environment. If there's some strategic reasons for a particular customer, particular therapeutic area for us to be competitive in the marketplace, we will be competitive in the marketplace. But holding price is extremely important. I can tell you there's examples of multiple studies in Q3, where I specifically asked the team to frankly walk away at the last days of the proposal because terms and pricing aren't in convergence with what I'd like to do here is to return for tree back to closer to industry level margins.

So I'm being very vigilant there. And almost any deal from a pricing perspective makes it up to myself or Jill or Mark [indiscernible], and we discuss these things. So there's a lot of holding and being vigilant there. That said, it's this concept that I talked to you about growing revenue to get the operating leverage we need, that's key. But it's not just growing revenue, it's growing direct service fee revenue. I'm going to have Jill comment a little bit about this quarter, so you can understand where our revenue beat is coming from, so you can start articulating that revenue in comparison to margin. But Jill, I can hand that over to you.

Yes, sure. Yes, David, I appreciate the question. So I think if you're thinking holistically about revenue and where it's late this year, a couple of points. In terms of the makeup and the mix, we have seen more upside in pass-throughs than we expected. And when you think about the guidance and how the guidance has been adjusted through the course of the year, that's predominantly been because we've seen an increased mix of pass-throughs relative to service fees. We have a good handle on our service fee revenue now and have been very successful in being able to forecast that for ourselves. So that's very positive.

I think like many of our peers, we're continuing to see increased pass-through. So that's driven a lot of the revenue change over the year, and that's why you're not necessarily seeing it either in the adjusted EBITDA dollar or the margin. Does that help answer your question?

Yes. I mean is it possible to put some numbers on that?

David, I'd love for you to lead the charge on getting the entire industry to start doing that because I spent time in prep sessions yesterday with a team saying, and maybe we should just start doing that. But if you can get the rest of the industry to do it, I'll do it the same, okay?

Got it. I'll ask one much shorter follow-up. Eric asked you the question on new to Fortrea clients, maybe if there's anything specific about -- you mentioned in your prepared remarks, biotech operating model that is -- you obviously have a history there, a successful history there at your prior shop. Is there anything specific that you might add to your answer to Eric about biotech client go-to-market strategy, in particular, given reference to the biotech operating model?

Yes. Sure. I would -- I mean I've spent a career focus on this topic. I think started creating biotech-specific strategies and units before it was a thing or even popular in the CRO industry. What I'll tell you what I've been trying to do here at Fortrea is we just need to be bespoke. Every deal needs a bespoke approach when it comes to biotech, whether it's trying to understand the makeup of what they're trying to solve for with the particular trial, so that we've got our medical and scientific experts leading the deal versus our sales reps leading the deal or we understand that they're trying to solve for a resource gap in how they've been able to build their own clinical operations resource, then it's our clinical team that's leading the deal or we're really trying to solve for something that is much more of a -- right now, we just need some estimates because we're trying to raise funding, then we've got our sales team leading the deal.

So in each one of these cases, what I'm trying to do is Fortrea and what I've done in my past is the upscale our customer-facing resources, our customer-facing resources don't just sit in sales, upscale our customer-facing resources to get to the root cause, just like I do as an engineer problem solve, what is our customer trying to solve for and then figure out which resource and how the Fortrea needs to show up in that specific problem.

I think we did that better than we have in the past in Q3. But do I think we did it as a complete level of satisfaction for me personally, no. But that's the opportunity over the next coming quarters to continue to approach the [indiscernible] customers in a much more bespoke way than Fortrea ever has. Does that answer your question, David?

[Operator Instructions]

Our next question comes from the line of Luke Sergott of Barclays.

I appreciate the talk about like rightsizing the cost structure and stuff, but as we kind of look further out, 1 of the questions we get asked is like the disconnect that you guys have from a margin perspective versus peers. On a normalized basis, is there any reason why you wouldn't be able to close that gap once you kind of engage all these other productivity programs, et cetera. Just kind of thinking about where these margins could go in a more normalized growth and bookings environment for you or operating environment?

Yes, Luke. I think -- and Anshul can speak here because we've actually talked about this, and I think he'll reiterate that over time, we don't see that, he still doesn't see, but he can comment on that. I think part of the margin challenge, as I mentioned in the response that I had previously some of the revenue this year has come from higher pass-throughs, which obviously bring challenges. We've been open about the fact that we've reintroduced variable compensation back this year to try to make sure we retain our key talent and engage.

So we're trying to be thoughtful about how we balance those headwinds. And I think we've done it in the right way because we have managed to keep employee engagement really high. And we know that, that's very important to our customers as we -- they want to have the solidity of those teams. -- over time, you're going to continue to see us focus on bringing down SG&A even as a percent of revenue. We've made progress this year, but there's still more work to be done.

And then Anshul has been saying, and I'll let him weigh in here, we need to continue to rightsize the whole organization relative to where we are as a company. And that is something that we have spent on the journey on, but there's still more work to be done.

Yes. No, that's great. Look, I think it's as Jill said, and I said this before, now 100 days into the company into the weeds, I don't see any structural reason. I don't see any structural reason why we can't return back to more industry standard margins. But it's going to take a few things. It's not just going to take rightsizing, but it's going to take a consistent growth in our backlog. So if I look at Fortrea, where we are right now, 2.5 years into this journey, the next 2.5 years look very different than the past 2.5 years.

In the last 2.5 years, we had headwinds that were market-related headwinds in terms of softening demand, our own issues and coming out of the gate, if you think about the consistency in commercial delivery and inconsistency in how we were building the backlog the series headwinds related to a spin that was probably than anyone could have forecasted and took longer than anyone could have forecasted. And on top of that, we had tons of counter detailing leadership transition happening from a CEO standpoint that took some time.

If I think about it the market is starting to get neutral to positive, as you've heard from all of my peers, as you all have stated in your report we're starting to see great shoots of decision-making time lines and biotech getting better. You saw the funding reports came out this morning. Biotech funding, while not at historical levels, is starting to return. So you're starting to see the market go from neutral to positive, you were completely out of the Spin. We're a fully independent company, not encumbered by the kind of expenses and frankly, distractions people people think about the spin in terms of cost and forget how much effort it takes to complete that Spin.

Those distractions, CEO transition being complete, so many of the structural headwinds that have been holding us back from that type of progress are starting to subside. That said, we have a lot of work to do. I don't see any structural reasons in this company, why we can't get back to more industry standard margins, but it's going to take work. It's going to take work in 2 pillars. One is a continuous rightsizing a DNA that is all about being a midsized nimble CRO.

And the second is a consistent delivery of book-to-bill that gets us to a consistent and diverse building of our backlog. Look, it's probably more than what you wanted, but hopefully, that answers your question.

Yes, it does. It was just more about like the structural if it was something that you guys had from either business mix or something like that. But I think that kind of gets to the crux of the issue.

I could have just said no, instead of long winded answers. That's the feedback I'm receiving live on this call. I got it.

That's all right. That's a good feel right there. As we look at '26, I understand it's pretty early here. But if we kind of just assume this kind of stabilized burn rate and then continued bookings and backlog trends here that kind of gets us to something around like low single to mid-single. Do you think that's a decent starting point to think about top line growth next year?

I think we're not giving any '26 guidance right now. It wouldn't be prudent for us to do that, but it's a good way to try to ask that question and take that in there, but we're not giving 2026 guidance right now. Let me get another 100 days under my belt. No, I appreciate it. Kudos on the try, you almost had me there, but give me another 100 days in seat, and we'll talk about guidance.

Our next question comes from the line of Justin Bowers of Deutsche Bank.

Anshul, just wanted to sort of extend on Luke's question in some ways about the industry environment. So for you, I mean, you guys, I think, did a little better than what people were thinking, and peers are talking about improved industry environment as well. But are there any anecdotes you can provide for us to sort of like to qualify that in terms of maybe terms and decision-making times, et cetera? And then as a follow-up to a lot of the conversation has been focused on biotech, but I'd love to hear what you're seeing in large pharma and some of the conversations you're having there as well?

Sure. Why don't I give you 2 small anecdotes wanted each I just got feedback from Luke of giving long-winded answer. So I'm trying to be careful here. But look, on the biotech, I'll give you 1 anecdote. We have a great customer of ours who awarded us 2 large Phase III programs in Q3. And this is a customer that for the longest time has been sitting on high-quality Q2 data -- high-quality Phase II data. but with some of the uncertainty happening at the FDA and some of the uncertainty happening on who's staying in their particular department and who's not and what the narrative looks like around what's going to be an acceptable approach to this particular Phase III in the [indiscernible].

A lot of that started subsiding over the course of the last 4 or 5 months, I wouldn't say just a quarter, which changed their time line, which changed their ability to make decision, and it went from a, okay, we can make a decision by the end of the year to, hey, Fortrea, how can you get this first patient enrolled by January, we turned that proposal on a dime within 2 weeks and went to contract within 6 weeks. That wasn't -- that's just an anecdote. And of course, I think a really good anecdote, right? But that's to give you a flavor of the types of conversations that are happening and sometimes we'll be working for 9 months on a proposal with the client.

And in this particular case, we had 2 weeks to turn around in the entire study team and a proposal on a Phase III program where we need to get first patient in the first quarter of next year. So that's an anecdote in the biotech sphere. Let me give you an anecdote in our large pharma sphere. In our large pharma, we've had as they won't obviously mention the name of the clients. But as many of these pharma companies start negotiating their deals with the current administration in the U.S., that takes away a certain level of uncertainty.

That doesn't mean it takes away risk or to their financials, but it takes away uncertainty. And that taking away of uncertainty allows them to move internal processes like, okay, we can now finalize our R&D pipeline for 2026. We had 1 of our pharma customers go through that experience. And whether it was them negotiating it or not, the fact that somebody was negotiated with the administration allowed them to get comfortable that, okay, now it's time to lock in our R&D plans for 2026.

And once they lock in their R&D plans for 2026, I'd like to say their first call as the CRO. It's really not, but it's probably their third and fourth call is a CRO to start working through, okay, these are studies I need launched in the first quarter and let's start putting teams together, let's start putting proposals together. Justin, I hope that gives you the sort of anecdotal evidence that you're looking for. All of that to be said, and I think all of my peers have said the same thing neutral to positive. We still have a lot of headwinds and uncertainty in the market. We're not looking at markets that look like 2018. But certainly, there's reasons to think neutral to positive.

And just 1 quick follow-up on Phase 1. You haven't really talked about that on the call how is capacity utilization there? And any progress on bringing more of that in-house?

Yes. So I think -- look, that's a great question. Thank you for asking about our clinical pharmacology business. It's a business I'm actually very proud of. I think the Phase 1 business, we had higher-than-expected growth over the last 2 quarters. We mentioned in the last quarter, we're mentioning at this time as well, which is great because we're seeing utilization rates. If I look at this quarter, as I look at next quarter, utilization rates are where we'd like them to be. They're healthy in our Phase I clinic.

But I want to talk a little bit about this bringing the work in-house versus not bringing the work in-house. So the thing is it's really more about the mix of the work that's coming in. We have certain studies coming in, for example, large high equivalent studies in obesity, for example, these type of studies require significant cohorts to be run simultaneously. And often you need 4, 5, 6 sites to run [indiscernible] design of that study. And when you run those studies simultaneously in multiple sites, due to request the customer design of the program, we end up having to use external sites.

That's not a structural thing we can't do that work in-house. It's just that X number of cohorts need to be run within the same 4-week time frame simultaneously. And in that business, we've seen, as Jill talked about, we've seen some higher-than-normal pass-through plots. Now these are -- from a strategic standpoint, this is good because we're continuing to service our customer, continue to do their pipeline forward. And frankly, we're getting a lot of repeat business from some of these big customers.

But when those kinds of large obesity bioequivalent studies come in, that's just 1 example of several others in the mix, you end up with some higher pass-through costs. So the mix has been really the narrative that we should be talking about in clinical pharmacology. We're doing good on our capacity front.

Our next question comes from the line of Jailendra Singh of Truist Securities.

This is [indiscernible] on for Jailendra. I wanted to ask about the FSP sales team that you recently launched. Just curious how the momentum there in the past quarter. what's the traction for the dedicated FSP sales team? And are you seeing shifts in response to purposes between FSP and FSO? And then just a quick follow-up to that. I know you're maintaining pricing conversations in FSO, but how are you balancing pricing discipline with the competitive environment in the FSP segment?

I think -- look, you've asked several questions around FSP, Jenny, and I'm happy to try to answer them to the best I can. We're seeing some sequential increase in FSP or FSPs right now. We've launched the FSP sort of relaunched our focused effort here on FSP earlier in the year. It's a bit early to see the kind of progress I'd like to see there. we're seeing an uptick in RFPs. But FSP RFPs, when you were talking about anywhere from 10,000 to several hundred resources, the sales cycle on these things are longer than. So that's going to take a little bit more time. Though we are proceeding with a relative amount of caution because what we have to do is we have to balance the reach that we want with these customers and the business that we want in FSP is work that makes sense for us to take on.

Some of the FSP work comes in levels of margins that are, frankly, not great for us. And even in this quarter, we walked our some of that. And much of the FSP work that we are able to take on, we take on when we've got healthy margins. So let's take more time to see how that strategy plays out on FSP.

That's fair. And then just a follow-up on the momentum that you're seeing in large farm are locking in or deciding on 2026 R&D plans and maybe going forward with that in Q1. In the past, I think Fortrea have talked about large pharma for the company being more back-end loaded as large farms decide on what they decide for the next year. So just curious on are you seeing decision-making pushed out a little from back half to maybe early 2026 this year?

I think that's a great question. There isn't any consistent trend right now in decision-making being pushed up by either biotech or biopharma clients, I think we're starting to normalize a little bit on decision-making time lines and time frames. But remember, you're talking about pretty significant -- even for us we're the smaller of the public company CROs that you cover, even for us, it's a pretty significant customer segment.

So you've got ups and downs and puts and takes depending on the particular customer, but there's no consistent trend that I'm seeing in terms of decision-making being pushed, if that's the question.

Our next question comes from the line of Elizabeth Anderson of Evercore ISI.

This is [Alan Chan] on for Elizabeth. I guess a question for Anshul. Given that you're a few months into the ROA, I was wondering, could you talk about what have been the biggest surprise for you in your time at Fortrea so far?

I'm sorry. I'm having a very -- my apologies, I made a very hard time hearing question. It's extremely blank. Would it be okay if you could speak up and repeat that question?

Yes. So given that you're a few months into the role, could you talk about what have been the biggest surprises for you in your time and for gas so far?

Sure. I appreciate the question, and I'll do my best answer biggest surprises. I think I'm kind of consistent in things. I wouldn't call them surprises necessarily, but pleasant surprises, if anything. -- as I toured many of our sites, I had a chance with my -- we have members of the executive team with me on every trip. But we had a chance to engage with close to 1/3 of our colleagues at a personal level over the course of the last 100 days, several thousand people. At our workforce, the morale, the sort of commitment Fortrea, the work ethic and commitment to their clients and the focus remains reliant and strong.

And that was what hypothesis coming into this job and now I've had a chance to get to multiple continents, multiple geographies and multiple countries across world and see that at a consistent level people are engaged, people are focused. Despite the industry level macro trends over the last 1.5 years, 2 years being difficult. And of course, Fortrea's Spin itself being very difficult at the ground, folks that are working on executing on our clients' programs are highly engaged, highly committed and have incredibly strong work at it.

And I got to see that from the ground across multiple continents in multiple countries. And that has been, I wouldn't say a surprise because I anticipated that -- that was my -- I bought this coming into it, but it's been reassuring to have been -- have confirmed that hypothesis.

I'm showing no further questions at this time. I would now like to turn it back to Anshul Thakral, CEO, for closing remarks.

As we come to a close of our time today, I would like to thank all of you for your thoughtful questions and for welcoming me to Fortrea. Fortrea is well positioned as a pure-play midsized global CRO that specializes in the execution of clinical trials from first in human to post approval. We're focused and we're disciplined. That's the message. In addition to our financial progress, it would be remiss of me not to thank our team for making the short list for Best CRO at the Industry Script Award.

I also want to note that we earned a Bronze EcoVadis rating for our stainability program, which we have built from the ground do. Our commitment to sustainability is not just important to our colleagues around the world, but it is a requirement for our global client base. What matters to our clients matters to us. I want to thank you for joining us today, and I look forward to speaking with you soon.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.