Financial Performance - Fortrea's total revenues for Q2 2023 were $793.0 million, essentially flat compared to $793.1 million in Q2 2022, with organic revenue growth of 0.1%[108] - Clinical Services segment revenues increased by 0.4% to $726.1 million in Q2 2023 from $723.3 million in Q2 2022, driven by higher pass-through revenues[109] - Enabling Services segment revenues decreased by 4.2% to $66.9 million in Q2 2023 from $69.8 million in Q2 2022, primarily due to customer cancellations[110] - Total revenues for the six months ended June 30, 2023, were $1,557.2 million, a decrease of 0.9% from $1,572.1 million in the same period of 2022, driven by a 0.2% decline in organic revenues and a 0.7% unfavorable foreign currency translation[120] - Clinical Services segment revenues decreased by 0.9% to $1,418.1 million for the six months ended June 30, 2023, from $1,430.4 million in 2022, primarily due to lower service revenues[121] Costs and Expenses - Direct costs increased by 5.7% to $649.4 million in Q2 2023, with direct costs as a percentage of revenues rising to 81.9% from 77.5% in Q2 2022[110] - Selling, general and administrative expenses rose by 13.5% to $80.8 million in Q2 2023, attributed to increased indirect labor and credit loss provisions[111] - Depreciation expense increased by 33.8% to $9.1 million in Q2 2023, reflecting higher property, plant, and equipment[113] - Direct costs increased by 2.6% to $1,285.6 million for the six months ended June 30, 2023, with direct costs as a percentage of revenues rising to 82.6% from 79.7% in the prior year[122] - Selling, general and administrative expenses rose by 8.9% to $158.8 million for the six months ended June 30, 2023, compared to $145.8 million in 2022, mainly due to increased indirect labor and credit loss provisions[123] Operating Income - Clinical Services operating income decreased by 36.1% to $74.1 million in Q2 2023 from $116.0 million in Q2 2022, impacted by lower service revenues and increased credit loss provisions[117] - Enabling Services operating income fell by 89.0% to $1.2 million in Q2 2023 from $10.9 million in Q2 2022[117] - Clinical Services operating income fell by 30.7% to $132.5 million for the six months ended June 30, 2023, from $191.3 million in the same period of 2022[130] Tax and Restructuring - The effective income tax rate for Q2 2023 was 27.2%, up from 20.6% in Q2 2022, primarily due to earnings mix[117] - The company recorded net restructuring charges of $5.1 million for the six months ended June 30, 2023, a decrease of 77.4% from $22.6 million in the same period of 2022[126] Cash and Debt - Cash and cash equivalents increased to $114.3 million as of June 30, 2023, compared to $95.5 million in 2022[138] - Net cash provided by operating activities was $154.2 million for the six months ended June 30, 2023, a significant increase from $(21.7) million in the same period of 2022[139] - The company incurred approximately $1,640 million of long-term debt in connection with the Spin, with a majority bearing interest at a variable rate[152] - As of June 30, 2023, the company had $1,070 million outstanding related to its variable rate debt[152] - A hypothetical 1.00% increase in interest rates would result in increased interest expenses of $10.7 million[152] Currency and Foreign Exchange - Approximately 16.1% of revenues for the six months ended June 30, 2023, were denominated in currencies other than the U.S. dollar, compared to 18.8% for the same period in 2022[149] - A hypothetical 10% change in average exchange rates would have impacted income before income taxes by approximately $1.2 million for the six months ended June 30, 2023, and by approximately $4.3 million for the year ended December 31, 2022[149] - At June 30, 2023, gross accumulated currency translation adjustments were $48.4 million, compared to $(120.2) million at June 30, 2022[149] Corporate Developments - Fortrea completed its separation from Labcorp on June 30, 2023, and began trading as a separate public company on July 3, 2023[103] - The company intends to evaluate strategic opportunities, including potential acquisitions and investments in complementary businesses[136] Internal Controls - Management has evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2023, concluding they were effective[153] - No changes in internal controls over financial reporting during the quarter ended June 30, 2023, have materially affected the internal controls[155]
Fortrea (FTRE) - 2023 Q2 - Quarterly Report