Executive Summary

Q1 2025 revenue of $651.3M beat consensus, with adjusted diluted EPS at $0.02 vs negative consensus, driven by stronger-than-expected pass-throughs in Clinical Pharmacology; full-year 2025 guidance was reiterated (revenue $2.45–$2.55B, adjusted EBITDA $170–$200M) .
GAAP net loss of $(562.9)M (diluted loss per share $(6.25)) reflected a non-cash goodwill impairment of $488.8M in the Clinical Development reporting unit amid macro uncertainty and share price declines .
Book-to-bill was 1.02x in Q1 (TTM 1.14x); backlog grew to $7,721M. Management expects the pipeline to support attractive bookings but noted biotech decision delays and oncology-heavy mix slowing backlog burn .
CEO transition announced: Lead Independent Director Peter Neupert to serve as Interim CEO and Board Chair as Thomas Pike steps down; succession process well advanced. Stock reaction risk skew: leadership change plus impairment vs guidance reaffirmation and revenue/EPS beat .

What Went Well and What Went Wrong

What Went Well

Revenue and adjusted EPS beat consensus; Clinical Pharmacology (CPS) demand and pass-throughs outperformed internal expectations: “Pass-throughs came in higher than we expected… we actually saw some increases in pass-throughs in our clinical pharmacology business” .
Pipeline and bookings remained solid; Q1 book-to-bill 1.02x and TTM 1.14x; backlog >$7.7B and growing 4% YoY, with large pharma steady and biotech pipeline expanding: “We believe our pipeline has the ability to produce attractive book-to-bills for the remainder of the year” .
Execution improvements and cost actions: adjusted EBITDA rose YoY ($30.3M vs $27.1M), headcount reduced ~13% since spin, SG&A programs underway; IT rationalization and AI deployments (Microsoft Copilot) to lift productivity .

What Went Wrong

Large GAAP loss due to $488.8M goodwill impairment in Clinical Development, reflecting macro uncertainty and share price decline; effective tax rate negative (no tax benefit on impairment) .
Operating cash flow was negative $(124.2)M; DSO stretched to 51 days due to ERP cutover invoicing pause; revolver usage rose to $89M outstanding. Management guides for DSO normalization and positive OCF in Q3–Q4 .
Backlog burn slower on oncology-heavy, longer-duration mix and slower biotech startup, weighing on near-term revenue and margins; CPS bookings softer in Q1 before pipeline recovered; FSP revenue a headwind in 2025 .

Financial Results

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue ($USD Millions)	$674.9	$697.0	$651.3
Adjusted EBITDA ($USD Millions)	$64.2	$56.0	$30.3
GAAP Diluted EPS (Continuing Ops)	$(0.21)	$(0.82)	$(6.25)
Adjusted Diluted EPS (Continuing Ops)	$0.23	$0.18	$0.02
Book-to-Bill (x)	1.23x	1.35x	1.02x
Backlog ($USD Millions)	$7,571	$7,699	$7,721

Margins	Q3 2024	Q4 2024	Q1 2025
Adjusted EBITDA Margin %	9.5% (calc from $64.2/$674.9)	8.0% (calc from $56.0/$697.0)	4.7% (calc from $30.3/$651.3)

Q1 2025 Actual vs Consensus	Revenue ($USD Millions)	Adjusted Diluted EPS ($)
Actual	$651.3	$0.02
Wall St. Consensus (S&P Global)	$607.9*	$(0.066)*
Surprise	+$43.4	+$0.086

Values retrieved from S&P Global*

KPIs

DSO (days): 40 at FY24 year-end ; 51 in Q1 2025 due to ERP invoicing pause .
Operating Cash Flow ($M): $(124.2) ; Free Cash Flow $(127.1) .
Liquidity: >$450M; revolver expected to remain available; net leverage covenant amended to 5.5x–6.0x through 2026; revolver outstanding $89M at Q1-end .

Segment breakdown: Not disclosed quantitatively in Q1 8-K; commentary indicates CPS strength, later-stage Clinical Development backlog dominated by oncology, FSP headwind in 2025 .

Guidance Changes

Metric	Period	Previous Guidance (Q4 2024)	Current Guidance (Q1 2025)	Change
Revenue ($USD Billions)	FY 2025	$2.45–$2.55	$2.45–$2.55	Maintained
Adjusted EBITDA ($USD Millions)	FY 2025	$170–$200	$170–$200	Maintained
Book-to-Bill Target	Multi-quarter	~1.2x average over time	Reaffirm path toward ~1.2x; pipeline solid	Maintained
SG&A Net Savings ($USD Millions)	FY 2025	$40–$50 net (of $70 gross)	$40–$50 net (of $150 gross company-wide; $70 SG&A)	Maintained / expanded context
Operating Cash Flow	FY 2025	Positive H2; flat to slightly negative for FY	Positive Q3–Q4; flat to slightly negative for FY	Maintained
DSO	FY 2025	N/A	Target low-to-mid 40s by year-end	New specificity (Q1 call)

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 & Q4)	Current Period (Q1 2025)	Trend
AI/Technology initiatives	90% IT migration to Fortrea environment; TSA exit progress	Enterprise-wide app rationalization; Microsoft Copilot rollout to all licensed employees; 200+ AI use cases; productivity gains targeted	Accelerating adoption
Biotech funding environment	Balanced large pharma/biotech awards; strong biotech oncology wins	Biotech pipeline growing but decision-making slower; funding caution delaying awards; start-up slower than large pharma	Mixed: pipeline up, timing slower
Tariffs/macro/MFN	Macro caution noted; no elevated cancellations	MFN drug pricing news flagged; macro uncertainty elevated; pricing remains disciplined	Heightened uncertainty
Oncology project mix/burn rate	Oncology-heavy portfolio; slower burn impacting revenue/margins	Oncology ~50% of late-stage portfolio; ~20% slower burn; longer durations; backlog burn slower	Continuing headwind
SG&A/Cost optimization	2025 plan: $40–$50M net SG&A savings; restructuring underway	$150M gross cost reduction target (FY25), $90–$100M net; $19M gross captured in Q1; SG&A leverage more in H2	Progressive savings (weighted H2)
TSA exit/ERP	TSA largely exited; HR ERP launched (Dec 16), finance ERP (Jan 2)	ERP cutover caused invoicing pause; DSO up to 51 days; expected normalization	Transition impact fading
Customer NPS/Quality	NPS improving in 2024; strong delivery examples	NPS trending up; CPS exceptional scores; on-time milestones highlighted	Improving
Leverage/covenants/liquidity	Net leverage covenant amended to provide flexibility through 2026; >$0.5B liquidity	>$450M liquidity; covenant headroom; revolver availability expected	Stable
Leadership	N/A	CEO transition: Interim CEO/Chair Peter Neupert; search advanced	Transition (potential catalyst)

Management Commentary

“Fortrea’s first quarter performance represents a solid start to 2025… strengthening our business model to improve our efficiency, and better serving our customers.” — Tom Pike .
“We are now starting to incorporate AI to increase the efficiency, quality and consistency of our proposals, contracts and commercial workflows… CoPilot is improving our productivity and has been rapidly adopted across Fortrea.” — Tom Pike .
“Our backlog is over $7.7 billion and has grown 4% over the past 12 months… adjusted EBITDA for the quarter was $30.3 million compared to $27.1 million in the prior year period.” — Jill McConnell .
“The noncash pretax goodwill impairment charge of $488.8 million related to our clinical development reporting unit… as determination that the unit’s fair value had fallen below its carrying value.” — Jill McConnell .
“We are reaffirming our guidance for the year… revenues $2.45–$2.55 billion and adjusted EBITDA $170–$200 million.” — Jill McConnell .

Q&A Highlights

Revenue cadence and pass-throughs: Q1 revenue beat largely due to stronger pass-throughs in CPS; management doesn’t expect CPS pass-through strength to persist through year, but if trend continues into Q2 there could be upside to FY revenue .
Clinical Pharmacology: CPS pipeline strong despite a softer bookings quarter; strategy shifting from biotech to more large pharma; pricing optimization underway to convert pass-throughs to revenue .
Bookings backdrop/pricing: Competitive environment across CROs; larger CROs visible in biotech; pricing remains disciplined; Q2 bookings path includes more biotech, adding timing uncertainty .
SG&A phasing: Marginal improvement in Q2; more pronounced SG&A reductions in Q3–Q4; ~$40–$50M SG&A net reduction targeted for FY25 .
Cash flow/DSO: DSO expected to move from 51 days toward low-to-mid 40s by year-end; OCF neutral in Q2 and positive in Q3–Q4; FY OCF flat to slightly negative .
Burn rate: 2025 burn rate guided to ~8–8.5; oncology burns ~20% slower; biotech start-up slower but once running can burn faster; mix driving slower burn in 2025 .

Estimates Context

Q1 2025 results vs S&P Global consensus: Revenue beat ($651.3M vs $607.9M*), adjusted diluted EPS beat ($0.02 vs $(0.066)). EBITDA definitions differ (company reports adjusted EBITDA $30.3M; consensus EBITDA $22.7M), driving a positive variance on an adjusted basis .
Values retrieved from S&P Global*

Implications: Street likely needs to raise near-term revenue and EPS estimates if CPS pass-through strength sustains into Q2; however, management cautioned not to extrapolate CPS pass-throughs, and slower backlog burn/mix still weighs on margins .

Key Takeaways for Investors

Q1 beat on revenue and adjusted EPS, but GAAP results were dominated by a non-cash goodwill impairment; watch for Street revisions vs management’s caution on CPS pass-through sustainability .
Guidance reiterated; backlog and pipeline support bookings, yet slower backlog burn and oncology-heavy mix mean margin expansion is H2-weighted and 2025 remains a transformation year .
Cost actions accelerating: $150M gross reduction target in 2025 (net $90–$100M), with SG&A leverage ramping in Q3–Q4; monitor execution and realized savings vs plan .
Operational KPIs to track: DSO normalization from 51→low/mid-40s, positive OCF in Q3–Q4, book-to-bill trending toward ~1.2x; these are key to de-risking the 2025 outlook .
Leadership transition could be a near-term stock catalyst (uncertainty vs fresh perspective); succession is “well advanced” .
Medium-term thesis: As post-spin projects become a larger revenue share (expected majority by H2 2026), margins should lift with better economics; near-term results depend on accelerating burn and executing SG&A/operations programs .
Trading setup: Balance revenue/EPS beat and guidance reaffirmation against impairment and CEO change; watch Q2 bookings (biotech exposure) and CPS pass-through trajectory for directional cues .

Fortrea Holdings Inc. (FTRE)·Q1 2025 Earnings Summary