Fortrea Holdings Inc.

Previous wording

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and industry development are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties discussed in the “Risk Factors” Section of our Form 10-K, as filed with the SEC. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include, among other things: our dependence on third parties generally to provide services critical to our businesses; our ability to successfully implement our business strategies and execute our long-term value creation strategy; the possibility that Delaware law, our organizational documents, our stockholder rights agreement, and our existing and future debt agreements may impede or discourage a takeover; risks and expenses associated with our international operations including but not limited to currency fluctuations and trade policies; our customer or therapeutic area concentrations; our adoption and use of technology within our business and the risks that we may not be able to capture the anticipated benefits of such technology or that such technology may have negative effects; the outcome and impact of pending or future litigation; any deterioration in the macroeconomic environment, particularly within the pharmaceutical and biotechnology industries, which could lead to defaults or cancellations by our customers; the risk that our backlog and net new business may not grow to the extent we anticipate over a specified period of time, that such measures may not be indicative of our future revenues and that we might not realize all of the anticipated future revenue reflected in our backlog; our ability to generate sufficient net new business awards, or the risk that net new business awards are delayed, terminated, reduced in scope, or fail to go to contract; the risk that we may underprice our contracts, overrun our cost estimates, or fail to receive approval for, or experience delays in documentation of change orders; and other factors described in the Form 10-K and from time to time in documents that we file with the SEC.

Current wording

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and industry development are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties discussed in the “Risk Factors” Section of our Form 10-K, as filed with the SEC. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include, among other things: our dependence on third parties generally to provide services critical to our businesses; our ability to successfully implement our business strategies and execute our long-term value creation strategy; the possibility that Delaware law, our organizational documents, our stockholder rights agreement, and our existing and future debt agreements may impede or discourage a takeover; risks and expenses associated with our international operations including but not limited to currency fluctuations and trade policies; anticipated benefits of our acquisition of the Early Phase Services division of Worldwide Clinical Trials; our customer or therapeutic area concentrations; our adoption and use of technology within our business and the risks that we may not be able to capture the anticipated benefits of such technology or that such technology may have negative effects; the outcome and impact of pending or future litigation; any deterioration in the macroeconomic environment, particularly within the pharmaceutical and biotechnology industries, which could lead to defaults or cancellations by our customers; the risk that our backlog and net new business may not grow to the extent we anticipate over a specified period of time, that such measures may not be indicative of our future revenues and that we might not realize all of the anticipated future revenue reflected in our backlog; our ability to generate sufficient net new business awards, or the risk that net new business awards are delayed, terminated, reduced in scope, or fail to go to contract; the risk that we may underprice our contracts, overrun our cost estimates, or fail to receive approval for, or experience delays in documentation of change orders; and other factors described in the Form 10-K and from time to time in documents that we file with the SEC.

Previous wording

Our backlog consists of anticipated future revenue from business awards that either have not started, or that are in process and have not been completed. Our backlog also reflects any cancellation or adjustment activity related to these awards. The average duration of our contracts will fluctuate from period to period based on the contracts comprising our backlog at any given time. The majority of our contracts contain early termination provisions that typically require notice periods ranging from 30 to 90 days. We adjust backlog for foreign currency fluctuations and exclude from backlog amounts that have been recognized as revenue in our statements of operations. Our backlog was $7.8 billion as of June 30, 2026.

Current wording

Our backlog consists of anticipated future revenue from business awards that either have not started, or that are in process and have not been completed. Our backlog also reflects any cancellation or adjustment activity related to these awards. The average duration of our contracts will fluctuate from period to period based on the contracts comprising our backlog at any given time. The majority of our contracts contain early termination provisions that typically require notice periods ranging from 30 to 90 days. We adjust backlog for foreign currency fluctuations and exclude from backlog amounts that have been recognized as revenue in our statements of operations. Our backlog was $7.3 billion as of September 30, 2026. During the quarter, in addition to ordinary course cancellations and scope reductions contracted during the period, we reduced backlog by approximately $558 to reflect the cumulative impact of estimated changes in scope and study delivery requirements across our customer contracts. The adjustment was not driven by any recent material customer communication and is not expected to have a material impact on our near-term revenue expectations.

Previous wording

Three and Six Months Ended June 30, 2026 compared with Three and Six Months Ended June 30, 2025

Current wording

Three and Nine Months Ended September 30, 2026 compared with Three and Nine Months Ended September 30, 2025

Previous wording

The Company’s revenues for the six months ended June 30, 2026 were $1,314.7, a decrease of 3.4% from revenues of $1,361.6 in the corresponding period in 2025. The change in revenues was due to a decrease in organic revenues of 4.0%, partially offset by favorable foreign currency translation of 0.6%. The 4.0% decrease in organic revenues was due to lower pass through costs as well as lower demand for our functional service provider business. These decreases were partially offset by an increase in our clinical pharmacology business, driven by an increase in net new business and study mix.

Current wording

The Company’s revenues for the three months ended September 30, 2026 were $691.5, a decrease of 1.4% from revenues of $701.3 in the corresponding period in 2025. The change in revenues was due to a decrease in organic revenues of 1.4%, driven by lower clinical development revenues, resulting primarily from lower pass through costs, as well as lower demand for our functional service provider business, which more than offset revenues from net new business. These decreases were partially offset by an increase in our clinical pharmacology business, including higher pass through costs.

Previous wording

The Company’s revenues for the three months ended June 30, 2026 were $678.2, a decrease of 4.5% from revenues of $710.3 in the corresponding period in 2025. The change in revenues was due to a decrease in organic revenues of 4.9%, partially offset by favorable foreign currency translation of 0.4%. The 4.9% decrease in organic revenues was due to lower pass through costs as well as lower demand for our functional service provider business. These decreases were partially offset by an increase in our clinical pharmacology business, driven by an increase in net new business and study mix.

Current wording

The Company’s revenues for the nine months ended September 30, 2026 were $2,006.2, a decrease of 2.7% from revenues of $2,062.9 in the corresponding period in 2025. The change in revenues was due to a decrease in organic revenues of 3.1%, partially offset by favorable foreign currency translation of 0.4%. The 3.1% decrease in organic revenues was due to lower clinical development revenues, resulting primarily from lower pass through costs, as well as lower demand for our functional service provider business, which more than offset revenues from net new business. These decreases were partially offset by an increase in our clinical pharmacology business, including higher pass through costs.

Previous wording

Direct costs decreased 5.4% during the six months ended June 30, 2026 as compared with the corresponding period in 2025. The change in direct costs was due to a decrease in organic direct costs of 6.9%, partially offset by unfavorable foreign currency translation of 1.5%. Direct costs decreased as a percentage of revenues to 80.0% during the six months ended June 30, 2026 as compared to 81.6% in the corresponding period in 2025. The 6.9% decrease in organic direct costs was primarily due to lower pass through and stock-based compensation costs, as well as lower personnel costs, including the benefit of restructuring actions. These decreases were partially offset by a year over year increase in variable compensation expense and clinical pharmacology study related costs.

Current wording

Direct costs decreased 4.6% during the three months ended September 30, 2026 as compared with the corresponding period in 2025. The change in direct costs was due to a decrease in organic direct costs of 4.5% and favorable foreign currency translation of 0.1%. Direct costs decreased as a percentage of revenues to 79.8% during the three months ended September 30, 2026 as compared to 82.5% in the corresponding period in 2025. The 4.5% decrease in organic direct costs was primarily due to lower pass through and stock-based compensation costs, as well as lower personnel costs, including the benefit of restructuring actions. These decreases were partially offset by a year over year increase in variable compensation expense and the impact of merit wage increases.

Previous wording

Direct costs decreased 6.6% during the three months ended June 30, 2026 as compared with the corresponding period in 2025. The change in direct costs was due to a decrease in organic direct costs of 7.4%, partially offset by unfavorable foreign currency translation of 0.8%. Direct costs decreased as a percentage of revenues to 79.5% during the three months ended June 30, 2026 as compared to 81.2% in the corresponding period in 2025. The 7.4% decrease in organic direct costs was primarily due to lower pass through and stock-based compensation costs, as well as lower personnel costs, including the benefit of restructuring actions. These decreases were partially offset by a year over year increase in variable compensation expense and clinical pharmacology study related costs.

Current wording

Direct costs decreased 5.1% during the nine months ended September 30, 2026 as compared with the corresponding period in 2025. The change in direct costs was due to a decrease in organic direct costs of 6.1%, partially offset by unfavorable foreign currency translation of 1.0%. Direct costs decreased as a percentage of revenues to 79.9% during the nine months ended September 30, 2026 as compared to 81.9% in the corresponding period in 2025. The 6.1% decrease in organic direct costs was primarily due to lower pass through and stock-based compensation costs, as well as lower personnel costs, including the benefit of restructuring actions. These decreases were partially offset by a year over year increase in variable compensation expense and the impact of merit wage increases.

Previous wording

Selling, general and administrative expenses decreased by 18.2% during the three months ended June 30, 2026 as compared with the corresponding period in 2025. The decrease was primarily due to lower information technology and personnel costs, including the benefit of restructuring actions, as well as lower credit loss provisions. These decreases were partially offset by a year over year increase in variable compensation expense.

Current wording

Selling, general and administrative expenses decreased by 2.8% during the three months ended September 30, 2026 as compared with the corresponding period in 2025. The decrease was primarily due to lower personnel costs, including the benefit of restructuring actions, as well as lower credit loss provisions. These decreases were partially offset by a year over year increase in variable compensation expense and the impact of merit wage increases.

Previous wording

Selling, general and administrative expenses decreased by 17.8% during the six months ended June 30, 2026 as compared with the corresponding period in 2025. The decrease was primarily due to lower information technology and personnel costs, including the benefit of restructuring actions, as well as lower credit loss provisions. These decreases were partially offset by a year over year increase in variable compensation expense.

Current wording

Selling, general and administrative expenses decreased by 13.3% during the nine months ended September 30, 2026 as compared with the corresponding period in 2025. The decrease was primarily due to lower information technology and personnel costs, including the benefit of restructuring actions, as well as lower credit loss provisions. These decreases were partially offset by a year over year increase in variable compensation expense and the impact of merit wage increases.

Previous wording

The change in depreciation expense for the three and six months ended June 30, 2026, as compared to the corresponding periods in 2025, was not significant.

Current wording

The change in depreciation expense for the three and nine months ended September 30, 2026, as compared to the corresponding periods in 2025, was not significant.

Previous wording

The change in amortization of intangibles and other assetsfor the three and six months ended June 30, 2026, as compared to the corresponding periods in 2025, was not significant.

Current wording

The change in amortization of intangibles and other assetsfor the three and nine months ended September 30, 2026, as compared to the corresponding periods in 2025, was not significant.

Previous wording

There were no goodwill and other asset impairments for the three and six months ended June 30, 2026. Goodwill impairment for the three and six months ended June 30, 2025 was $309.1 and $797.9, respectively. This impairment was specific to the Clinical Development reporting unit.

Current wording

There were no goodwill and other asset impairments for the three and nine months ended September 30, 2026. Goodwill impairment for the three and nine months ended September 30, 2025 was $— and $797.9, respectively. The impairment for the nine months ended September 30, 2025 was specific to the Clinical Development reporting unit.

Previous wording

The decline in restructuring expense for the three and six months ended June 30, 2026, as compared to the corresponding periods in 2025, was primarily due to the planned progression of the Company’s restructuring programs, which resulted in lower restructuring charges.

Current wording

The decline in restructuring expense for the three and nine months ended September 30, 2026, as compared to the corresponding periods in 2025, was primarily due to the planned progression of the Company’s restructuring programs, which resulted in lower restructuring charges.

Previous wording

The decrease in interest expense for the three and six months ended June 30, 2026, as compared with the corresponding periods in 2025, was due to lower average debt outstanding during the first and second quarters of 2026, driven by the repurchase of $75.7 of senior secured notes in 2025 and no borrowings on the revolving credit facility during the first half of 2026, as well as lower effective interest rates on term loan A and term loan B.

Current wording

The decrease in interest expense for the three and nine months ended September 30, 2026, as compared with the corresponding periods in 2025, was due to lower average debt outstanding during the first three quarters of 2026, driven by the repurchase of $75.7 of senior secured notes in 2025 and no borrowings on the revolving credit facility during the first three quarters of 2026, as well as lower effective interest rates on term loan A and term loan B.

Previous wording

The change in foreign exchange gain (loss) for the three and six months ended June 30, 2026 compared to the foreign exchange gain (loss) for three and six months ended June 30, 2025, was primarily due to the fluctuations in the U.S. Dollar against the British Pound and the Euro.

Current wording

The change in foreign exchange gain (loss) for the three and nine months ended September 30, 2026 compared to the foreign exchange gain (loss) for three and nine months ended September 30, 2025, was primarily due to the fluctuations in the U.S. Dollar against the British Pound and Euro.

Previous wording

The decline in other, net for the three and six months ended June 30, 2026, as compared with the corresponding periods in 2025, was primarily due to income recognized in the prior-year periods related to services provided under transition services agreements that terminated in 2025.

Current wording

The decline in other, net for the three and nine months ended September 30, 2026, as compared with the corresponding periods in 2025, was primarily due to income recognized in the prior-year periods related to services provided under transition services agreements that terminated in 2025, as well as accretion income associated with contingent consideration from the Enabling Services divestiture which was received in 2025.

Previous wording

For the three months ended June 30, 2026, the Company's effective tax rate was (1000.0)% compared to (1.1)% for the corresponding period in 2025. For the six months ended June 30, 2026, the Company's effective tax rate was (172.6)% compared to (2.1)% for the corresponding period in 2025. The fluctuations in the quarter-to-date and year-to-date periods were primarily due to goodwill impairment with no associated tax benefit and BEAT for the three and six months ended June 30, 2025 and the impact of valuation allowance primarily related to expected interest deductibility limitations for the three and six months ended June 30, 2026.

Current wording

For the three months ended September 30, 2026, the Company's effective tax rate was 116.7% compared to 44.6% for the corresponding period in 2025. For the nine months ended September 30, 2026, the Company's effective tax rate was (111.7)% compared to (0.7)% for the corresponding period in 2025. The fluctuations in the quarter-to-date and year-to-date periods were primarily due to goodwill impairment with no associated tax benefit and BEAT for the three and nine months ended September 30, 2025 and the impact of valuation allowance primarily related to expected interest deductibility limitations for the three and nine months ended September 30, 2026.

Previous wording

The Company manages cash flow to fund and invest in operational growth, capital expenditures, and credit facility repayments. In connection with the Spin, we incurred indebtedness in an aggregate principal amount of $1,640.0, which consists of borrowings under senior secured term loan facilities and senior secured notes. We have also entered into a senior secured revolving credit facility, which consists of a five-year facility in the principal amount of up to $450.0 as further discussed in Note 6, “Debt” to our condensed consolidated financial statements. As of June 30, 2026, there was no balance outstanding on the Company’s revolving credit facility and there were $2.3 in letters of credit issued under the letter of credit sublimit, resulting in $447.7 available for borrowing. The maximum revolver borrowing outstanding was $— and $135.5 during the six months ended June 30, 2026 and 2025, respectively.

Current wording

The Company manages cash flow to fund and invest in operational growth, capital expenditures, and credit facility repayments. In connection with the Spin, we incurred indebtedness in an aggregate principal amount of $1,640.0, which consists of borrowings under senior secured term loan facilities and senior secured notes. We have also entered into a senior secured revolving credit facility, which consists of a five-year facility in the principal amount of up to $450.0 as further discussed in Note 6, “Debt” to our condensed consolidated financial statements. As of September 30, 2026, there was no balance outstanding on the Company’s revolving credit facility and there were $2.3 in letters of credit issued under the letter of credit sublimit, resulting in $447.7 available for borrowing. The maximum revolver borrowing outstanding was $— and $138.0 during the nine months ended September 30, 2026 and 2025, respectively.

Previous wording

On February 24, 2026, the Company amended its Receivables Facility, which had been scheduled to terminate on May 6, 2027. The amended Receivables Facility is scheduled to terminate on February 23, 2029, unless terminated earlier pursuant to its terms.

Current wording

On February 24, 2026, we amended our Receivables Facility, which had been scheduled to terminate on May 6, 2027. The amended Receivables Facility is scheduled to terminate on February 23, 2029, unless terminated earlier pursuant to its terms.

Previous wording

Cash Flows for the Six months ended June 30, 2026 and 2025

Current wording

Cash Flows for the Nine months ended September 30, 2026 and 2025

Previous wording

Cash and cash equivalents at June 30, 2026 and 2025 totaled $168.6 and $81.2, respectively. Cash and cash equivalents consist of highly liquid instruments, such as commercial paper, time deposits and other money market instruments, which have maturities when purchased of three months or less.

Current wording

Cash and cash equivalents at September 30, 2026 and 2025 totaled $220.6 and $131.3, respectively. Cash and cash equivalents consist of highly liquid instruments, such as commercial paper, time deposits and other money market instruments, which have maturities when purchased of three months or less.

Previous wording

During the six months ended June 30, 2026, the Company’s operations provided $11.9 of cash as compared to $102.4 of cash used by operations during the six months ended June 30, 2025. The increase in cash provided of $114.3 for the six months ended June 30, 2026 was primarily due to a decrease in cash used for accounts payable and interest, as well as an improvement in net loss excluding non-cash income and expense items. These cash increases were partially offset by higher use of cash for accrued expenses.

Current wording

During the nine months ended September 30, 2026, the Company’s operations provided $72.7 of cash as compared to $15.6 of cash used by operations during the nine months ended September 30, 2025. The increase in cash provided of $88.3 for the nine months ended September 30, 2026 was primarily due to an improvement in net loss excluding non-cash income and expense items, as well as a decrease in cash used for accounts payable and interest. These cash increases were partially offset by a decrease in cash received from accounts receivable and prepaid expenses and other assets, as well as higher use of cash for accrued expenses.

Previous wording

Net cash used for investing activities for the six months ended June 30, 2026 was $15.0 as compared to net cash provided by investing activities of $8.6 for the six months ended June 30, 2025. The $23.6 increase in net cash used for investing activities for the six months ended June 30, 2026 was primarily due to receipt of the first milestone payment related to the sale of the Enabling Services segment during the six months ended June 30, 2025 and a period over period increase in capital expenditures. Capital expenditures were $17.0 and $10.4 for the six months ended June 30, 2026 and 2025, respectively. Capital expenditures for the six months ended June 30, 2026 were 1.3% of revenues, primarily in connection with projects to support growth in the Company's core businesses. The Company also intends to continue to pursue selective investments in key therapeutic areas, business areas and geographies to drive growth and to improve efficiency of the Company's operations. Such expenditures are expected to be funded by cash flow from operations.

Current wording

Net cash used for investing activities for the nine months ended September 30, 2026 was $23.3 as compared to net cash provided by investing activities of $21.9 for the nine months ended September 30, 2025. The $45.2 increase in net cash used for investing activities for the nine months ended September 30, 2026 was primarily due to receipt of the first and second milestone payments related to the sale of the Enabling Services segment during the nine months ended September 30, 2025 and a period over period increase in capital expenditures. Capital expenditures were $25.3 and $17.7 for the nine months ended September 30, 2026 and 2025, respectively. Capital expenditures for the nine months ended September 30, 2026 were 1.3% of revenues, primarily in connection with projects to support growth in the Company's core businesses. The Company also intends to continue to pursue selective investments in key therapeutic areas, business areas and geographies to drive growth and to improve efficiency of the Company's operations. Such expenditures are expected to be funded by cash flow from operations.