Fortrea Holdings Inc. (FTRE)·Q2 2025 Earnings Summary

Executive Summary

• Q2 delivered a clean top-line and EPS beat with revenue of $710.3M and adjusted EPS of $0.19, versus S&P Global consensus of ~$631.5M and ~$0.08, respectively; management raised FY25 revenue guidance to $2.60–$2.70B while reaffirming adjusted EBITDA of $170–$200M, signaling operational discipline amid a competitive backdrop . Consensus values marked with an asterisk are from S&P Global; see Estimates Context.
• Mix and execution drove sequentially higher adjusted EBITDA ($54.9M) and improving DSO (46 days; -5 q/q; -8 y/y) as ERP-related invoicing delays rolled off; GAAP results were impacted by a $309.1M non-cash goodwill impairment tied to share price and discount rate changes .
• Commercial indicators were mixed: Q2 book-to-bill was 0.79x (TTM 1.10x), reflecting biotech hesitancy amid the CEO transition, while large pharma win rates held steady; backlog ended at $7.55B, and backlog burn improved, aided by strong Clinical Pharmacology (capacity constrained) .
• Near-term stock catalysts: visible revenue/EPS beat, guidance raise (revenue), new CEO (commercial pedigree), and cost actions tracking toward $90–$100M net savings in 2025; watch H2 revenue phasing (more in line with Q1) and pass-through normalization with margins expected to benefit .

What Went Well and What Went Wrong

• What Went Well

  • Revenue and EPS surprises: $710.3M revenue (+7.2% y/y) and adjusted diluted EPS $0.19 versus prior-year adjusted loss; management raised FY25 revenue guidance to $2.60–$2.70B and reaffirmed EBITDA $170–$200M .
  • Operating execution and cash metrics: sequentially higher adjusted EBITDA ($54.9M) with improving DSO to 46 days; Q2 operating cash flow of $21.8M and FCF $14.3M as ERP invoicing pause impact unwound .
  • Clinical Pharmacology strength and innovation: capacity-constrained demand and ahead-of-schedule delivery; launched AI module RiskRadar within Accelerate to automate risk identification/mitigation in RBQM, improving efficiency and safety .

• What Went Wrong

  • Sub-1.0x quarterly book-to-bill (0.79x) as new-to-Fortrea biotech win rates dipped during leadership transition; backlog still solid at $7.55B, TTM book-to-bill 1.10x .
  • GAAP optics: $(374.9)M net loss (GAAP) driven by a $309.1M non-cash goodwill impairment tied to share price/discount rate; effective tax rate a negative 1.1% impacted by non-deductible items and valuation allowance .
  • Capacity constraints in Phase I/Clinical Pharmacology requiring third-party support; FSP revenue a 2025 headwind (though a dedicated FSP sales team launched in Q3 to re-accelerate) .

Financial Results

Quarterly performance vs prior periods (oldest → newest)

Q2 2025 actual vs S&P Global consensus

• Asterisks denote values retrieved from S&P Global; see Estimates Context.
• Management noted quarterly book-to-bill 0.79x and TTM 1.10x; backlog $7.55B .

KPIs and cash metrics

Segment performance (qualitative; numeric split not disclosed)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Second quarter revenue was $710.3 million with adjusted EBITDA of $54.9 million… Backlog as of 06/30/2025 stood at $7.5 billion and the book to bill ratio for the quarter was 0.79x, resulting in a 1.1 times book to bill for the trailing twelve months.”
• “We generated positive operating and free cash flow and delivered a five day improvement in DSO versus the first quarter as we began to unwind the… invoicing pause related to the implementation of our new ERP system.”
• “For full year 2025, we are raising our revenue guidance… to $2.6 to $2.7 billion and reaffirming our adjusted EBITDA… $170 to $200 million.”
• On AI enablement: “RiskRadar is an AI powered agent designed to enhance risk based quality management in clinical trials… reduces manual effort, improves operational efficiency, and strengthens patient safety protection.”
• New CEO tone: “This is a professional services business… achieving commercial excellence here is about commercial excellence, financial excellence and operational excellence.”

Q&A Highlights

• Pipeline and bookings: Cancellations remained low and slightly improved q/q; win rates steady with existing large pharma/biotech; softness isolated to new-to-Fortrea biotech during CEO transition .
• Clinical Pharmacology capacity: Business remains robust; capacity constraints necessitate third-party support in near term; working to bring more in-house over time .
• H2 outlook/shape: Revenue expected more in line with Q1 (vs Q2), as a large pass-through-heavy study ended early; margins to improve with pass-through moderation and cost saves .
• Pricing/competition: Pricing remains competitive; Fortrea aims to price “at market,” prioritizing quality and margin discipline over being the lowest bid .
• Cost saves cadence: SG&A savings weighted to 2H; supports EBITDA progress in H2 and into 2026 annualization .

Estimates Context

• Q2 2025 S&P Global consensus vs actuals:
  • Revenue: $631.5M* vs actual $710.3M
  • Primary/Adjusted EPS: $0.075* vs actual $0.19
  • EPS estimates count: 11*; Revenue estimates count: 10*
• Implications: Material top-line and EPS beats plus a revenue guidance raise suggest upward revisions to FY25 revenue forecasts, while EBITDA guidance maintained indicates analysts may keep EBITDA ranges but adjust mix/margins in models to reflect pass-through normalization and cost savings cadence .
• Asterisks denote values retrieved from S&P Global.

Key Takeaways for Investors

• Fortrea executed a clear revenue/EPS beat and raised FY25 revenue guidance, while maintaining EBITDA targets—pointing to disciplined cost and mix management despite competitive pricing and sub-1.0x quarterly bookings .
• Commercial puts and takes: Temporary new-biotech softness tied to leadership transition, but large pharma relationships and win rates remain stable; TTM book-to-bill sits at 1.10x, providing some demand durability .
• Margin trajectory: H2 revenue phasing shifts toward Q1 levels with lower pass-through intensity; cost saves weighted to SG&A in 2H should support margin improvement into year-end and 2026 annualization .
• Clinical Pharmacology is a bright spot with strong demand (capacity constrained); incremental internal capacity or mix shift could unlock further burn and profitability gains .
• Liquidity comfortable with >$80M cash, $400M undrawn revolver, and positive Q2 operating cash flow; covenant headroom supported by credit agreement add-backs .
• Watch items: Quarterly book-to-bill recovery, FSP pipeline build, resolution of third-party dependence in Phase I, and execution on AI-enabled operational tools to convert into win-rate and margin benefits .

ENDNOTES:

• All company results and qualitative commentary are from Fortrea’s Q2 2025 8-K and earnings call (citations inline). Prior-quarter data from Q1 2025 and Q4 2024 8-Ks (citations inline).
• S&P Global consensus data are marked with asterisks and may reflect methodology differences (e.g., “Primary EPS” aligns to adjusted diluted EPS this quarter). Values retrieved from S&P Global.