Financial Performance - Fortrea's revenues for the year ended December 31, 2025, were $2,723.4 million, reflecting a 1.0% increase from $2,696.4 million in 2024, driven by a 0.8% increase in organic revenues and a 0.2% favorable foreign currency translation [285]. - Direct costs increased by 2.7% to $2,219.6 million in 2025, with direct costs as a percentage of revenues rising to 81.5% from 80.2% in 2024 [286][288]. - Selling, general and administrative expenses decreased by 18.6% to $456.4 million in 2025, primarily due to lower transition service agreement and IT costs [289][290]. - The effective tax rate for 2025 was (0.3)%, compared to 1.3% in 2024, influenced by goodwill impairment and increased withholding taxes on non-U.S. earnings [297]. - Net cash provided by operating activities decreased to $113.5 million in 2025 from $262.8 million in 2024, a decline of $149.3 million [308]. - Net cash provided by investing activities was $14.4 million in 2025, down from $251.6 million in 2024, primarily due to $276.6 million of net proceeds from the sale of the Enabling Services Segment in 2024 [309]. - Net cash used for financing activities was $76.3 million in 2025, significantly lower than $497.8 million in 2024, mainly due to the repurchase of senior secured notes [310]. Goodwill and Impairments - Goodwill impairment for 2025 was $797.9 million, specific to the Clinical Development reporting unit, with no impairments recorded in 2024 [291]. - As of December 31, 2025, the Company recorded $960.0 million in goodwill, down from $1,710.4 million in 2024 [326]. - The Company performed interim impairment tests on March 31, 2025, and June 30, 2025, resulting in goodwill impairments of $488.8 million and $309.1 million, respectively [336]. - The fair value of the Clinical Development reporting unit was determined to be less than its carrying value as of March 31, 2025, and June 30, 2025, leading to the recorded impairments [336]. - The discount rates used for the Clinical Development reporting unit were 10.0% and 10.5% for the assessments on March 31, 2025, and June 30, 2025, respectively [337]. Debt and Financing - The Company incurred indebtedness of $1,640.0 million in connection with the Spin, consisting of borrowings under senior secured term loan facilities and senior secured notes [300]. - During Q4 2025, the Company completed a tender offer to repurchase $75.7 million of its outstanding 7.50% Senior secured notes due 2030 [301]. - The Company has access to a senior secured revolving credit facility of up to $450.0 million, with $447.7 million available for borrowing as of December 31, 2025 [302]. - The Company had $572.0 million outstanding related to variable rate debt as of December 31, 2025 [348]. - A hypothetical 1% increase in interest rates would result in increased interest expenses of $5.7 million [348]. - Interest expense decreased by 26.2% to $91.4 million in 2025, attributed to the pay down of term loans totaling $482.7 million [294]. Foreign Exchange and Currency Impact - Foreign exchange loss for 2025 was $(26.9) million, a 153.8% increase compared to $(10.6) million in 2024, primarily due to fluctuations in the U.S. Dollar against the British Pound and Euro [295]. - Approximately 15.5% of the Company's revenues for the year ended December 31, 2025, were denominated in currencies other than the U.S. dollar [344]. - A hypothetical 10% change in average exchange rates would have impacted operating income by approximately $1.2 million and $2.7 million for the years ended 2025 and 2024, respectively [344]. Strategic Initiatives - The Company plans to evaluate strategic opportunities, including potential acquisitions and investments in complementary businesses, to drive growth and improve operational efficiency [305]. - The backlog as of December 31, 2025, was $7.7 billion, reflecting anticipated future revenue from business awards [282]. - Capital expenditures were $25.2 million in 2025, representing 0.9% of revenues, primarily aimed at supporting growth in core businesses [309]. - The Company will continue to monitor financial performance and assumptions for its reporting units to mitigate potential future impairments [341]. Cash and Cash Equivalents - As of December 31, 2025, the Company had $174.6 million in cash and cash equivalents, an increase from $118.5 million in 2024 [307].
Fortrea (FTRE) - 2025 Q4 - Annual Report