Fortrea (FTRE) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenues of $776 million in Q3 2023, representing a 1.8$70.5 million, a decrease of 33% year-over-year compared to $105.2 million in the prior year period [24] - Adjusted net income for the quarter was$21.3 million, down 73.5% from $80.3 million in the prior year period [44] - Year-to-date adjusted basic and diluted earnings per share were$1.22 and $1.21, respectively, compared to$2.48 in the prior year period [25] Business Line Data and Key Metrics Changes - Clinical Services revenues were $712 million, growing 2.1$65 million, broadly flat year-on-year, driven by growth in the Endpoint business [21] - The company achieved a book-to-bill ratio of 1.24, indicating a healthy mix of work [15] Market Data and Key Metrics Changes - The company’s backlog grew 2.2% sequentially, ending the quarter at $7.1 billion [39] - Days sales outstanding (DSO) increased to 92 days, up six days from the previous quarter [45] Company Strategy and Development Direction - The company aims to transform into a competitive independent CRO, focusing on serving biotech and selectively larger pharma [7][34] - Investments are being made in technology and geographic leadership to enhance operational efficiency and customer offerings [47][51] - The company is focused on exiting transition services agreements (TSAs) to reduce costs and improve margins [50][76] Management's Comments on Operating Environment and Future Outlook - Management noted that the demand environment remains solid, with no significant slowdown among larger pharma customers [92] - The company is optimistic about the pipeline for Q4, expecting a solid book-to-bill ratio with a healthy mix of work [134] - Management emphasized the importance of delivering results and maintaining strong customer relationships to drive future growth [80][81] Other Important Information - The effective tax rate for the quarter was 26.8%, with expectations for the full-year adjusted effective tax rate to be between 27% and 30% [23] - The company is undertaking a review of its structure to optimize its tax strategy [43] Q&A Session Summary Question: Can you walk us through the SG&A analysis and how it relates to gross margin? - Management indicated that significant margin expansion opportunities exist, particularly in IT and finance, which are interrelated with exiting TSAs [57][60] Question: How is the competitive landscape evolving post-spin? - Management noted that large wins were competitive with larger CROs, and there is a positive reception from customers regarding the company’s independence [94] Question: Can you elaborate on the demand environment and organic improvements? - Management highlighted ongoing innovation in the industry and a solid flow of RFPs from larger pharma and biotech customers [92] Question: What is the strategy regarding large pharma and biotech? - The company confirmed a nuanced strategy focusing on biotech while selectively engaging with large pharma, emphasizing quality and resource allocation [100][127] Question: What are the expectations for adjusted EBITDA in 2024? - Management refrained from providing specific guidance but indicated a cautious optimism based on new awards and backlog conversion rates [101][119]