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: the risk that we may not realize some or all of the benefits expected to result from the Spin, or that such benefits are delayed; risks and consequences that are a result of the Spin; the impacts of becoming an independent public company; our reliance on Labcorp to provide financial reporting and other financial and accounting information for periods prior to the Spin through the end of the relevant transition agreements, as well as IT, accounting, finance, legal, human resources, and other services critical to our businesses; our dependence on third parties generally to provide services critical to our businesses throughout the transition period and beyond; the risk that establishment of our accounting, enterprise resource planning, and other management systems post the transition period could cost more or take longer than anticipated; our identification of existing material weaknesses in our internal control over financial reporting; the impact of the rebranding of the Company; our ability to successfully implement our business strategies and execute our long-term value creation strategy; risks and expenses associated with our international operations and currency fluctuations; our customer or therapeutic area concentrations; any further deterioration in the macroeconomic environment, 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 or the time period we anticipate, 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 ma…

Excerpt shortened here; the source contains the full paragraph.

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: the risk that we may not realize some or all of the benefits expected to result from the Spin, or that such benefits are delayed; risks and consequences that are a result of the Spin; the impacts of becoming an independent public company; our reliance on Labcorp to provide financial reporting and other financial and accounting information for periods prior to the Spin through the end of the relevant transition agreements, as well as IT, accounting, finance, legal, human resources, and other services critical to our businesses; our dependence on third parties generally to provide services critical to our businesses throughout the transition period and beyond; the risk that establishment of our accounting, enterprise resource planning, and other management systems post the transition period could cost more or take longer than anticipated; our identification of existing material weaknesses in our internal control over financial reporting; the impact of the rebranding of the Company; our ability to successfully implement our business strategies and execute our long-term value creation strategy; risks and expenses associated with our international operations and currency fluctuations; our customer or therapeutic area concentrations; any further deterioration in the macroeconomic environment, 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 or the time period we anticipate, 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 ma…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Our team of approximately 16,000 employees from continuing operations conducts operations in approximately 90 countries and delivers comprehensive phase I – IV clinical trial management, clinical pharmacology and consulting services for our customers. Our offering is scaled to deliver focused and agile solutions to customers globally, streamlining the biopharmaceutical product and medical device development process.

Current wording

Our team of approximately 16,000 employees conducts operations in approximately 100 countries and delivers comprehensive phase I – IV clinical trial management, clinical pharmacology and consulting services for our customers. Our offering is scaled to deliver focused and agile solutions to customers globally, streamlining the biopharmaceutical product and medical device development process.

Previous wording

These expenses were allocated to us based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net revenues or headcount or other reasonable driver, as applicable. We consider the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, us during the periods presented. However, the allocations may not reflect the expenses we would have incurred as an independent company for the periods presented. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as IT and infrastructure. For a period following the Separation, however, some of these functions will be provided by Labcorp under the Transition Services Agreements.

Current wording

These expenses were allocated to us based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net revenues or headcount or another reasonable driver, as applicable. We consider the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, us during the periods presented. However, the allocations may not reflect the expenses we would have incurred as an independent company for the periods presented and may not be representative of future expenses that may be incurred. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as IT and infrastructure. For a period following the Separation, however, some of these functions are provided by Labcorp under the Transition Services Agreement.

Previous wording

On March 9, 2024, the Company, together with its wholly-owned subsidiary, Fortrea Inc. (the “Seller”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Endeavor Buyer LLC, an affiliate of Arsenal Capital Partners, pursuant to which the Seller has agreed to sell, and to cause its affiliates to sell, certain assets relating to its Enabling Services Segment (the “Transaction”), including the sale of equity interests of Fortrea Patient Access Inc. and its subsidiaries and Endpoint Clinical, Inc. and its subsidiaries. The purchase price for the Transaction is $345.0, subject to customary purchase price adjustments, with $295.0 to be paid at closing and $50.0 to be paid upon achievement of certain transition-related milestones. The Transaction is targeted to close in the second quarter of 2024, subject to customary closing conditions and government approvals, as well as the parties entering into certain services and operating agreements. The decision to sell such assets relating to the Enabling Services segment represented a strategic shift that had a significant effect on the Company's results and operations and assets and liabilities for the periods presented. As a result, the Company has classified the assets related to the Enabling Services segment as assets from discontinued operations and liabilities from discontinued operations on the condensed consolidated and combined balance sheets as of March 31, 2024 and December 31, 2023. The operations of the Enabling Services segment have been classified as income from discontinued operations on the condensed consolidated and combined statements of operations for all periods presented.

Current wording

Capital Partners, pursuant to which the Seller agreed to sell, and to cause its affiliates to sell, certain assets relating to its Enabling Services Segment (the “Transaction”), including the sale of equity interests of Fortrea Patient Access Inc. and its subsidiaries and Endpoint Clinical, Inc. and its subsidiaries. The final adjusted purchase price for the Transaction was $340.0, subject to customary purchase price adjustments, with $295.0 paid at closing and $45.0 to be paid upon achievement of certain transition-related milestones, which includes certain services provided through a Transition Services Agreement. The Transaction closed during the second quarter of 2024. The decision to sell such assets relating to the Enabling Services Segment represented a strategic shift that had a significant effect on the Company's results and operations and assets and liabilities for the periods presented. As a result, the Company has classified the assets related to the Enabling Services Segment as assets from discontinued operations and liabilities from discontinued operations on the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023. The operations of the Enabling Services Segment have been classified as income or loss from discontinued operations on the condensed consolidated and combined statements of operations for all periods presented.

Previous wording

Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023

Current wording

Three and Six Months Ended June 30, 2024 compared with Three and Six Months Ended June 30, 2023

Previous wording

The Company’s revenues for the three months ended March 31, 2024 were $662.1, a decrease of 4.6% from revenues of $693.9 in the corresponding period in 2023. The change in revenues was due to a decrease in organic revenues of 4.7% offset by a favorable foreign currency translation of 0.1%. The Company defines organic growth as the change in revenues excluding the year over year impact of acquisitions, divestitures and currency. The 4.7% decrease in organic revenues was primarily driven by lower service revenues resulting from the quantity and burn rate of new business wins pre-Spin, and the challenges of mix, partially offset by increased pass through revenues.

Current wording

The Company’s revenues for the three months ended June 30, 2024 were $662.4, a decrease of 8.6% from revenues of $725.1 in the corresponding period in 2023. The change in revenues was due to a decrease in organic revenues of 8.3% and unfavorable foreign currency translation of 0.3%. The Company defines organic growth as the change in revenues excluding the year over year impact of acquisitions, divestitures and currency. The 8.3% decrease in organic revenues was primarily driven by decreased pass through revenues and lower service revenues resulting from the quantity and burn rate of new business wins pre-Spin, and the challenges of mix.

Previous wording

Direct costs increased 2.3% during the three months ended March 31, 2024 as compared with the corresponding period in 2023. Direct costs increased as a percentage of revenues to 83.7% during the three months ended March 31, 2024 as compared to 78.0% in the corresponding period in 2023. The increase in direct costs was primarily due to higher pass through costs. Pass through costs are paid by the customer resulting in revenue fully offset by these direct costs.

Current wording

Direct costs decreased 7.6% during the three months ended June 30, 2024 as compared with the corresponding period in 2023. Direct costs increased as a percentage of revenues to 79.3% during the three months ended June 30, 2024 as compared to 78.4% in the corresponding period in 2023. The decrease in direct costs was primarily due to lower pass through costs. Pass through costs are paid by the customer resulting in revenue fully offset by these direct costs.

Previous wording

Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges, information technology costs, other facility charges, advertising and promotional expenses, administrative travel and credit loss provisions. Selling, general and administrative expenses increased by 2.8% during the three months ended March 31, 2024 as compared with the corresponding period in 2023. The increase was primarily due to an increase in personnel costs as a stand-alone company, transition service agreement costs, and professional fees, partially offset by the removal of Former Parent corporate allocations and decreased credit loss provisions.

Current wording

Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges, information technology costs, other facility charges, advertising and promotional expenses, administrative travel and credit loss provisions. Selling, general and administrative expenses increased by 59.7% during the three months ended June 30, 2024 as compared with the corresponding period in 2023. The increase was primarily due to incremental costs incurred to exit the Transition Services Agreement with Labcorp.

Previous wording

The increase in depreciation expense for the three months ended March 31, 2024, as compared to the corresponding periods in 2023, was due to the increase of property, plant and equipment, primarily IT assets, as part of the Spin.

Current wording

The decrease in depreciation expense for the three and six months ended June 30, 2024, as compared to the corresponding periods in 2023, was due to the decrease in depreciable property, plant and equipment, primarily IT assets.

Previous wording

The increase in amortization of intangibles and other assets during the three months ended March 31, 2024, as compared to the corresponding period in 2023, was not significant.

Current wording

The change in amortization of intangibles and other assets during the three andsix months ended June 30, 2024, as compared to the corresponding period in 2023, was not significant.

Previous wording

During the three months ended March 31, 2024, the Company recorded net restructuring charges of $3.3, which are reflected within restructuring and other charges in the condensed consolidated and combined statements of operations. These charges are associated with Company actions to reduce overcapacity, align resources, and restructure certain operations and include eliminating redundant positions and aligning resources for cost improvement and to meet customer requirements.

Current wording

During the three and six months ended June 30, 2024, the Company recorded net restructuring charges of $10.4 and $13.7, respectively, which are reflected within restructuring and other charges in the condensed consolidated and combined statements of operations. These charges are associated with Company actions to align resources, and restructure certain operations and include eliminating redundant positions and aligning resources for cost improvements and to meet customer requirements.

Previous wording

During the three months ended March 31, 2023, the Company recorded net restructuring charges of $0.6. These costs were associated with general cost improvement and headcount reduction initiatives at various locations around the world.

Current wording

During the three and six months ended June 30, 2023, the Company recorded net restructuring charges of $3.6 and $4.2, respectively. These costs were associated with general cost improvements, eliminating redundant positions and aligning resources for cost improvements and to meet our customer requirements.

Previous wording

The increase in interest expense for the three months ended March 31, 2024, as compared with the corresponding period in 2023, is primarily due to the incurrence of indebtedness, consisting of borrowings under senior secured term loan facilities and senior secured notes.

Current wording

The increase in interest expense for the three and six months ended June 30, 2024, as compared with the corresponding period in 2023, is primarily due to the incurrence of indebtedness, consisting of borrowings under senior secured term loan facilities and senior secured notes, and the write-off of $12.2 of debt issuance costs associated with the pay down of debt in the quarter ended June 30, 2024.

Previous wording

The foreign exchange loss for the three months ended March 31, 2024 and 2023 was primarily due to the relative weakening of the U.S. Dollar against the British Pound and the Euro.

Current wording

The foreign exchange loss for the three and six months ended June 30, 2024 compared to the foreign exchange gain (loss) for three and six months ended June 30, 2023 changed primarily due to the relative weakening of the U.S. Dollar against the British Pound and the Euro.

Previous wording

For the three months ended March 31, 2024, the Company's effective tax rate was 5.4% compared to the 2023 tax rate of 15.8%. The fluctuations in the quarter-to-date period were primarily due to a change in valuation allowance, the geographic mix of earnings and non-deductible compensation expenses.

Current wording

For the three months ended June 30, 2024, the Company's effective tax rate was (12.1)% compared to the 2023 tax rate of 31.7%. The fluctuations in the quarter-to-date period were primarily due to a change in valuation allowance, earnings mix, and non-deductible compensation expenses.

Previous wording

The Organization for Economic Cooperation and Development (“OECD”) has introduced new global minimum tax regulations, known as Pillar Two, that began to come into effect on January 1, 2024. We are monitoring this development and evaluating its potential impact on our tax rate and eligibility to qualify for the safe harbor provisions. For 2024, we currently anticipate meeting the transitional safe harbors in all jurisdictions and do not expect a material impact to our financial statements.

Current wording

The Organization for Economic Cooperation and Development has introduced new global minimum tax regulations, known as Pillar Two, that came into effect beginning on January 1, 2024. We are monitoring this development and evaluating its potential impact on our tax rate and eligibility to qualify for the safe harbor provisions. For 2024, we currently anticipate meeting the transitional safe harbors in all jurisdictions and do not expect a material impact to our financial statements.

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 have 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 7 - Debt to our condensed consolidated and combined financial statements above. We previously entered into an accounts receivable purchase program (“ARPP”), which established a receivables factoring facility that permits the Company to sell up to $80.0 in customer receivables to a financial institution based on the availability of certain eligible receivables and the satisfaction of certain conditions. As of March 31, 2024, the Company had no outstanding factored customer receivables, and the ARPP was terminated in May 2024.

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 7 - Debt to our condensed consolidated and combined financial statements above. During the three and six months ended June 30, 2024, we paid down $64.0 and $70.2, respectively, on term loan A and $411.0 and $412.5, respectively, on term loan B.

Previous wording

Cash Flows for the three months ended March 31, 2024 and 2023

Current wording

Cash Flows for the six months ended June 30, 2024 and 2023

Previous wording

Cash and cash equivalents at March 31, 2024 and 2023 totaled $92.8 and $118.2, 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 June 30, 2024 and 2023 totaled $126.2 and $108.9, 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

Net cash used for investing activities for the three months ended March 31, 2024 was $9.2 as compared to net cash used for investing activities of $16.2 for the three months ended March 31, 2023. The $7.0 decrease in net cash used for investing activities for the three months ended March 31, 2024, was primarily due to a year over year decrease in capital expenditures. Capital expenditures were $9.3 and $16.2 for the three months ended March 31, 2024 and 2023, respectively. Capital expenditures in 2024 were 1.4% of revenues, primarily in connection with projects to support growth in the Company's core businesses. The Company intends to continue to pursue selective investments in key therapeutic areas and geographies to drive growth and to improve efficiency of the Company's operations. Such expenditures are expected to be funded primarily by cash flow from operations.

Current wording

Net cash provided by investing activities for the six months ended June 30, 2024 was $256.2 as compared to net cash used for investing activities of $25.5 for the six months ended June 30, 2023. The $281.7 increase in net cash provided by investing activities for the six months ended June 30, 2024 was primarily due to $276.6 of net proceeds from the sale of the Enabling Services Segment and a year over year decrease in capital expenditures. Capital expenditures were $20.5 and $25.8 for the six months ended June 30, 2024 and 2023, respectively. Capital expenditures in 2024 were 1.5% of revenues, primarily in connection with projects to support growth in the Company's core businesses. The Company intends to continue to pursue selective investments in key therapeutic areas and geographies to drive growth and to improve efficiency of the Company’s operations. Such expenditures are expected to be funded primarily by cash flow from operations.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 was $21.3 compared to cash provided by financing activities of $24.5 for the three months ended March 31, 2023. Cash provided by financing activities was related to net proceeds from the revolving credit facility offset by principal payments on the term loan A and term loan B.

Current wording

Net cash used for financing activities for the six months ended June 30, 2024 was $482.7 compared to cash used for financing activities of $125.4 for the six months ended June 30, 2023. Cash used for financing activities for the six months ended June 30, 2024 was related to principal payments on the term loan A and term loan B and payments on the revolving credit facility.

Previous wording

The Company does not have transactions or relationships with “special purpose” entities, and the Company does not have any off-balance sheet financing other than normal operating leases and letters of credit.

Current wording

The Company does not have any off-balance sheet financing other than normal operating leases and letters of credit.

Previous wording

We have chosen accounting policies that management believes are appropriate to accurately and fairly report our operating results and financial position in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). We apply these accounting policies in a consistent manner. Significant accounting policies are summarized in Note 2 to the combined financial statements included in the Annual Report on Form 10-K.

Current wording

We have chosen accounting policies that management believes are appropriate to accurately and fairly report our operating results and financial position in conformity with U.S. GAAP. We apply these accounting policies in a consistent manner. Significant accounting policies are summarized in Note 2 to the consolidated and combined financial statements included in the Annual Report on Form 10-K.