Fortrea (FTRE) - 2024 Q4 - Annual Report

Financial Performance - Fortrea's revenues for the year ended December 31, 2024, were $2,696.4 million, a decrease of 5.1$2,842.5 million in 2023, primarily due to a 5.2% decrease in organic revenues [284]. - The company experienced a decrease in organic revenues in 2024 due to lower service revenues and a slower backlog burn rate [285]. - Revenues for 2024 were $2,696.4 million, a decrease of 5.1$2,842.5 million in 2023 [376]. - Operating loss for 2024 was $(161.9) million, compared to an operating income of$32.0 million in 2023 [376]. - Net loss for 2024 was $(328.5) million, significantly higher than the net loss of$(25.2) million in 2023 [378]. - Basic and diluted earnings per share from continuing operations for 2024 were $(3.03), compared to$(0.36) in 2023 [376]. - Comprehensive loss for 2024 was $(395.9) million, compared to a comprehensive income of$34.1 million in 2023 [378]. Expenses and Costs - Direct costs for 2024 were $2,162.2 million, a decrease of 4.0$2,251.9 million in 2023, with direct costs as a percentage of revenues increasing to 80.2% [287]. - Selling, general and administrative expenses increased by 25.1% in 2024 to $560.7 million, driven by higher professional fees and costs associated with exiting the Transition Services Agreement with Labcorp [290]. - Total costs and expenses increased to$2,858.3 million in 2024, up from $2,810.5 million in 2023, reflecting a rise of 1.7$50.1 million in 2024, a 136.3% rise from $21.2 million in 2023, and down from$25.9 million in 2022 [294]. - Interest expense rose to $123.8 million in 2024, a 77.6$69.7 million in 2023, primarily due to a higher debt balance and a $12.2 million write-off of debt issuance costs [297]. Cash Flow and Liquidity - Net cash provided by operating activities for 2024 was$262.8 million, an increase of $94.4 million from$168.4 million in 2023 [311]. - Net cash provided by investing activities was $251.6 million in 2024, a significant turnaround from$(31.8) million in 2023, primarily due to proceeds from the sale of the Enabling Services Segment [313]. - Net cash used for financing activities increased to $(497.8) million in 2024 from$(140.8) million in 2023, mainly due to principal payments on term loans [315]. - Cash and cash equivalents at December 31, 2024, totaled $118.5 million, up from$108.6 million in 2023 [310]. Assets and Liabilities - As of December 31, 2024, total assets decreased to $3,579.2 million from$4,332.6 million in 2023, reflecting a decline of approximately 17.3% [374]. - Current liabilities increased to $949.5 million in 2024, up from$778.4 million in 2023, representing a rise of about 21.9% [374]. - Long-term debt, less current portion, decreased to $1,049.7 million in 2024 from$1,565.9 million in 2023, a reduction of approximately 32.9% [374]. - The company reported an accumulated deficit of $397.0 million as of December 31, 2024, compared to$68.5 million in 2023, indicating a significant increase in losses [374]. - Accounts receivable and unbilled services decreased to $659.5 million in 2024 from$988.5 million in 2023, a decline of approximately 33.3% [374]. Spin-off and Corporate Structure - Fortrea completed its spin-off from Labcorp on June 30, 2023, and began trading as a separate public company on NASDAQ under the ticker FTRE on July 3, 2023 [273]. - Following the spin-off, Fortrea has established primary office locations in five countries, including the United States, the United Kingdom, China, India, and Singapore, to enhance its global market access [385]. - Fortrea's financial statements for periods prior to the spin-off were prepared on a "carve-out" basis, reflecting the historical financial position and results of operations derived from Labcorp's consolidated financial statements [393]. Goodwill and Impairment - The company recorded no goodwill and other asset impairments in 2024, compared to an impairment charge of $9.8 million in 2022 [291]. - The Company has recorded$1,710.4 million and $1,739.4 million of goodwill as of December 31, 2024 and 2023, respectively [332]. - The fair value of the Clinical Development reporting unit exceeded the book value by approximately 10$24.0 million in the first quarter of 2024 related to the Enabling Services Segment [453]. Revenue Recognition and Contracts - The Company recognizes revenue from software-as-a-service (SaaS) arrangements on a straight-line basis over the contracted hosting period [323]. - The Company’s contracts generally take the form of fixed-price, fee-for-service, or software-as-a-service arrangements, with revenue recognized based on performance obligations [321]. - Fortrea's contracts typically include a single performance obligation, with revenue recognized based on the proportional-performance basis for fixed-price contracts [405]. Market Risks and Financial Flexibility - The Second Credit Amendment increased the maximum quarterly Total Leverage Ratio from 5.30:1.00 to 6.00:1.00 for certain fiscal quarters, providing additional financial flexibility [275]. - The company expects to continue facing market risks associated with interest rate movements on its variable rate debt, with a hypothetical 1% increase in interest rates potentially resulting in increased interest expenses of $5.7 million [349]. - The Company utilizes a program of risk management to address exposure to market risks, including foreign currency exchange rates and interest rates [344]. Customer Concentration - As of December 31, 2024, two pharmaceutical customers accounted for approximately 22.2% and 13.8% of the Company's combined gross accounts receivable and unbilled services [420]. - For the year ended December 31, 2024, two customers accounted for approximately 14.3% and 10.5% of revenue, compared to 11.6% and 11.4% for the year ended December 31, 2023 [420].