Fortrea Holdings Inc.

Ladies and gentlemen, thank you for standing by and welcome to Fortria fourth 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 will 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 Hema Nguva, Head of Investor Relations and Corporate Development. Please go ahead.

Good morning, and thank you for joining Fortria's fourth 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 page of our website for TRIA.com. During this call, we'll make certain forward-looking statements within the meaning of 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 regarding 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 3, 2025, 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 measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most 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.

Thanks, Hema. Good morning, everyone, and welcome to the call. Today, we're pleased to share Portria's fourth quarter results and look forward to what's ahead in 2025. I'll start with our commercial success. In the fourth quarter, we delivered a strong book-to-bill of 1.35, resulting in a 1.29 for the second half. Since our spin, our book-to-bill has averaged 1.2 times, which is what we had targeted. Our year-ending backlog has grown to $7.7 billion. We're pleased with the transformation of Fortrea's sales capabilities over this past 18 months. We delivered these sales with pricing discipline. Let me provide some color. We saw continued strong new business in our market-leading phase one clinical pharmacology services business, which we call CPS. This included significant repeat awards from our largest CPS customer. In fact, the fourth quarter was our most successful quarter ever in CPS sales, where we've made major investments in our network of clinics, strengthening our offering and increasing capacity. Beyond CPS, our awards for full-service clinical work from large pharma were also strong, including global oncology studies and a sole source award in gastroenterology. We were also selected as the sole provider for drug safety services by a larger pharma customer, with an innovative solution that has an integrated AI tool for literature searches and medical writing to support post-market surveillance. Our success in supporting the biotech sector with full-service solutions also continued to pace in the fourth quarter. We were very strong in biotech oncology wins again this quarter based on our expertise and strong study delivery. Beyond oncology, we want to cross a broad range of therapeutic areas from a global phase two infectious disease study to a sole source win in ophthalmology, an area in which we are building a strong reputation. I'd also like to call out a few other commercial highlights from the quarter. We had good sales in Asia Pacific as customers in this region recognized our capabilities to support them with global programs. For instance, this quarter, WINS included a nice global phase three oncology study and a significant medical device program. We are also pleased to have been selected for a global study led out of Asia Pac as part of a collaboration with a large pharma customer. Also, our consulting organization is implementing multiple real-world evidence studies in Asia Pacific for a large U.S.-based large pharma firm looking to grow their business in the region. We delivered a solid performance and functional service provision, which we call FSP, in the fourth quarter as well. In addition to some solid sales in this part of the business, we helped a large customer complete the launch of a safety platform through a very large FSP effort that we will now continue to operate. This implementation was the culmination of almost 24 months of work integrating 11 complex systems and more than 80,000 product licenses, migrating about 3 million cases. Our safety and IT teams collaborated with the customer to deliver the platform ahead of schedule. It's a demonstration of Portrea's capabilities applied to a complex situation for a customer. Our consulting group continues to grow, developing real productivity solutions for the industry and providing customers with science-based strategy from clinical development planning and regulatory strategy to real-world evidence solutions. For example, our team delivered qualitative and quantitative research studies to support FDA acceptance of clinical outcomes assessment endpoint measures and incorporated the novel measures into two SMDA filings with one approval so far for a biotech customer. Our improving clinical pharmacology and later stage full service outsourcing delivery is contributing to our strong book to build, but it's not the only place we're seeing the improvements manifest. One of the first things we established after the spin was a comprehensive customer relationship feedback program including a Net Promoter Score, or NPS measurement system. I'm pleased to share that our NPS scores have significantly improved over the year. We believe that we're creating a better customer experience working with Fortria, as well as understanding additional improvements that we can make. Another highlight worth noting from the fourth quarter is the successful exit of most of the Transition Service Agreement, or TSA, with our former parent. That success has continued in Q1, and after this quarter, we expect payments to our former parent to be a fraction of what they were. Our team has delivered. It was no small feat. For example, to transition to the new Fortria digital environment, we migrated 17,000 devices, 8,000 mobile phones, 500 applications, finished building 1,600 servers, as well as the launch of our HR ERP on December 16th and launched for our finance ERP platform on January 2nd. I want to commend both the Portrea team and our effective teaming with technology partners to deliver these incredible results. Now let me transition from customer successes. In both CROs I've run, I view the most important leading metric to be book to bill. Certainly proud that our average book to bill is 1.2 times since then, and it bodes well for the future. However, let me discuss the big issue here. Our targeted revenue and adjusted EBITDA trajectories for 2025 are not in line with our prior expectations. Let me remind you, this spin was lift and shift. We've been using the same management processes and systems that a division of a much larger company used, ideally waiting to update them until we convert them to our own environment. As we implemented our environment in connection with exiting the TSAs, we did a deeper analysis of full-service projects and other inputs to longer-term forecasts. Given this analysis, we have a better picture of the revenues, costs, margins, and timing on the full-service work projects from the pre-spin period, and we understand that they represent a bigger slice of the pie in 2025. This analysis which also took significant time to confirm, indicated that the pre-spin projects, many late in their life cycle, have less revenue and less profitability than expected for 2025. The strong book to bills and spin are creating work that's sold and delivered at good margins. This post-spin work is not coming on fast enough to offset the pre-spin contract economics. This older versus newer continue to negatively impact our financial performance during 2025 until revenue from our new business wins becomes a larger portion of the mix. We're implementing new management systems and processes that are sized with details and granularity appropriate for an independent company of our size. They will enable us to align our resources to the work we need to do to complete trials more efficiently and profitably. Marcus Aurelius, the Stoic and Roman emperor, championed the idea of something called amor fati, which means embrace your difficulties as part of your journey. That is what we have to do here at Portrea. We keep moving forward. Now let me hand over to Jill.