Fortrea Holdings Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Fortria First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Hema Nguva, Head of Investor Relations and Corporate Development. Please go ahead.

Good morning, and thank you for joining Fortria's first quarter 2024 earnings conference call. I am Hema Nguva, Head of Investor Relations and Corporate Development at Fortria. On the call with me today are our CEO, Tom Pike, and CFO, Jill McConnell. The call is being webcasted, and the slides accompanying today's presentation have been posted to the Investor Relations website for TRIA.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 we 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 we posted on the website. Please note that any forward-looking statements represent our views as of today, March 13, 2024, and that we assume no obligation to update the forward-looking statements even if estimates change. During this call, we'll also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or replacement for the comparable GAAP measures, but we believe these help investors gain a more complete understanding of our results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. With that, I'd like to turn it over to our CEO, Tom Pike. Tom?

Good morning. I appreciate everyone joining this morning. We have a good deal of ground to cover, so let's get into it. In summary, the environment for and reception of Fortrea's clinical services offerings remains strong and is good enough to meet our growth ambitions. Post spin book to bills are adequate for growth so far and our pipeline is good. Revenues are returning more slowly than planned and we're addressing it. The rest of our transformation is on track. The work we're doing transforming the business is building momentum for 2025, and we expect to be beyond the complexities of the spin and historical challenges. So let's dive deeper into the growth environment. The drug development landscape remains attractive. Biotech funding had a nice first quarter, leading to optimism for the sector, which is good for CROs. The demand for Fortria's services is good and improving. At Fortria, we are building a distinctive CRO that's agile and innovative to help our customers with drug development. My leadership team and I have spent a lot of time with customers this quarter, and customers are responding well. We are spending time on and improving how we interact with customers of all sizes. We call this our commercial transformation, but the positive response is also due to the investments we're making. Our opportunity pipeline has grown versus the prior quarter, both in terms of quantity, up mid-single digits, and up solid double digits on a dollar value basis across the clinical business. We're seeing some potential for new or expanded relationships with larger firms. We've had some very attractive wins since we spun and interesting ones this quarter. Let me share a few examples of some wins. We won a large phase two neuroscience study with a large pharma customer. This award was meaningful both for its size and patient impact, spanning North America, Europe, and Asia Pacific. This award and others confirm that our continued investment and commitment to expanding our neuroscience therapeutic area is working. We're known for our experience in oncology and we're earning repeat business, We were awarded a large oncology program by a mid-sized pharma company based on our delivery of its first oncology molecule. We have good access to large and mid-sized pharma who understand the advantages of our ideal scale. In clinical pharmacology, we were awarded the largest study since Dr. Oren Cohen joined about seven years ago to lead this business. The award was based on our medical and scientific expertise in a sophisticated, exciting therapeutic area. Dr. Cohen is leading from the front with customers. Two other things I should highlight before I move on from our demand situation. First, I want to share that we're at the table in some key partnering discussions. We need to show success this year on these kinds of opportunities to meet our goals. We're already being viewed differently than in the past, competitive with the larger CROs. Second, while the Fortria brand is relatively young, our pipeline and mix of opportunities is attractive and growing. Our plans are to make the pipeline larger as the brand becomes more widely known. This quarter, we continue to advance our differentiation in the market. Our site advisory board has grown in membership and globality, providing us with insights that we're applying to improve site performance for customers. Our customers are responding well to our technology and data partnering and innovation. In addition to these investments and differentiation, we kicked off additional efforts to improve operational effectiveness and operating margins over time. We're excited about these improvements and believe they will also translate into a better experience for our customers. We remain committed to bringing the margins for TRIA in line with peers. While we fell short of our targeted book to bill of 1.2 for Q1, I'm still pleased that we're averaging over 1.2 book to bill since we spun with a good mix. Note that I've said our commercial transformation will take a year. As we told you in January, we had a tough start to the quarter, and we hoped we could still deliver on our target on our last call. Unfortunately, a couple of transactions made the difference. One behind us, given the size and quality of our pipeline, we see no reason we cannot achieve a book-to-bill of 1.2 or greater in coming quarters. As you've seen in our guidance, we believe now we will have slower revenue burn than initially forecast. our analysis is that this is a timing issue. To address this, we put a program in place to track every win in detail and use the power of our team to accelerate from award to first patient enrolled to drive faster overall delivery. Our team is working hard to minimize the impact of less planned revenue in our organization and financials. While the top priorities are winning business, customer delivery, and getting out of these burdensome TSAs, given our situation, We're pushing even harder on expense controls and cost improvements and operations in SG&A. We continue to analyze options to improve the capital structure we inherited. We made two plan changes this quarter, which we noted in a filing on Thursday. Our lenders are very supportive of us. We continue to methodologically work through the books and accounts we inherited from the SPIN. Our accounting team with consultants went very deep this quarter. We're trying to push such spin-related issues behind us. We feel confident about the progress we're making transforming the organization and exiting TSAs. We continue to make strong progress and partner with our former parent effectively. Let me ask you to listen closely to Jill as we had a lot going on this quarter. Listen knowing that our pipeline of opportunities is strong. We're on track with our operations and cost structure improvements. Our hardworking team expects to build momentum through the year and to be clear of these spin-related tactical issues in 2025. We not only expect better results in 2025, but greater clarity and predictability. Jill, over to you.