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DATE

Wednesday, July 29, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer - Anshul Thakral
• Interim Chief Financial Officer - David Smith
• Senior Vice President, Investor Relations - Tracy Krumme
• Former Chief Financial Officer - Jill McConnell

TAKEAWAYS

• Revenue -- $678.2 million, representing a 4.5% decrease year over year due to lower pass-through costs and headwinds in the Functional Service Provider segment.
• Adjusted EBITDA -- $58.7 million, reflecting the impact of cost optimization initiatives and improved operational efficiency.
• Net New Business -- $720.4 million, with awards weighted toward the biotechnology sector.
• Book-to-Bill Ratio -- 1.06x for the quarter and 1.12x for the trailing 12 months, marking four consecutive quarters above 1.0x.
• Adjusted Diluted EPS -- $0.23, compared to $0.19 in the second quarter of 2025.
• Backlog -- $7.8 billion, with cancellation rates remaining consistent with historical trends.
• Operating Cash Flow -- $28.9 million, compared to $21.8 million in the prior year quarter.
• Free Cash Flow -- $19.9 million, compared to $14.3 million in the second quarter of 2025.
• Days Sales Outstanding -- 20 days, a 26-day reduction compared to the same period last year.
• Full-Year Revenue Guidance -- increased to a range of $2.62 billion to $2.69 billion.
• Full-Year Adjusted EBITDA Guidance -- increased to a range of $205 million to $220 million.
• Net Cost Savings -- $10 million delivered in the quarter, bringing the year-to-date net total to $19 million.
• Gross Cost Savings -- $18 million in the quarter, bringing the year-to-date gross total to $34 million.
• First Half Net New Business -- increased 19% year over year, driven by commercial momentum with biotech clients.
• Customer Concentration -- the top 10 customers accounted for 55.4% of revenue, with the largest single customer representing 16.8%.
• Interest Expense -- $19.3 million, down from $23.3 million in the prior year quarter following debt repurchases.
• Debt Reduction -- approximately 35% of the original debt balance has been paid down since the company spin.
• Available Liquidity -- exceeded $500 million, including an undrawn revolver and cash on hand.
• Backlog Burn -- 8.6%, driven by service fee growth in the Clinical Pharmacology business.
• Clinical Pharmacology Services -- reported as an area of strength due to faster burn rates compared to later-phase programs.

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RISKS

• Thakral stated, "Our new CFO, Jason Madlock, is not currently able to act as a CFO for Fortrea due to an ongoing proceeding relating to restrictive covenants with his former employer," identifying an unexpected leadership transition.
• McConnell noted that second quarter revenue was "a 4.5% decrease year-over-year due primarily to lower pass-through costs... as well as continued FSP headwinds."

SUMMARY

Fortrea Holdings Inc. (FTRE +4.18%) reported second quarter results characterized by increased full-year 2026 financial guidance and a fourth consecutive quarter of book-to-bill ratios above 1.0x. Management stated that the demand environment is stabilizing, particularly within the biotechnology sector where funding has strengthened and request for proposal volumes have increased. The company is currently managing a leadership transition in the finance department while continuing to execute on its three-pillar strategy of commercial, operational, and financial excellence. Strategic focus is shifting from initial rightsizing toward achieving sustainable revenue growth and margin expansion through operating leverage and improved study mix.

• CEO Thakral noted that Jason Madlock is unable to serve as CFO due to a legal proceeding with a former employer, with board member David Smith assuming the role on an interim basis.
• Management reported that the CRA mobile app, part of the Fortrea Intelligent Technology ecosystem, reduced site visit preparation time by nearly 30 minutes per visit in a Spanish trial study.
• CEO Thakral attributed sales momentum to the "3 Rs" strategy of reach, relevance, and repeat, stating the company has increased its aperture for customer relationships.
• Regarding the integration of artificial intelligence, CEO Thakral stated, "Our goal with AI is not automation for the sake of automation. It is to create a force multiplier for our people and our clients."
• The company has deployed Microsoft Copilot to its nearly 14,000 employees and launched an AI literacy program to support operational productivity.
• Management confirmed expectations for positive free cash flow for the remainder of 2026 and the full year.

INDUSTRY GLOSSARY

• CRO: Contract Research Organization, a company providing research services outsourced by pharmaceutical and biotechnology firms.
• CPS: Clinical Pharmacology Services, a Fortrea business unit focused on early-phase clinical development.
• FIT: Fortrea Intelligent Technology, a clinical trial intelligence ecosystem integrating data, analytics, and machine learning.
• FSP: Functional Service Provider, an outsourcing model where a CRO provides specific functional services rather than full trial management.
• Book-to-Bill Ratio: A financial metric measuring the ratio of orders received to revenue recognized; a ratio above 1.0x indicates growth.
• DSO: Days Sales Outstanding, the average number of days it takes for a company to collect payment after a sale.
• RFP: Request for Proposal, a formal solicitation for services issued by pharmaceutical companies to CROs.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Fortrea Second Quarter 2026 Earnings Conference Call. Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Tracy Krumme, Senior Vice President, Investor Relations. Please go ahead.

Tracy Krumme: Thank you. Good morning, everyone, and welcome to Fortrea's Second Quarter 2026 Earnings Conference Call. Before we begin, please note that this call is being webcast. There is an accompanying slide presentation, which can be found in the Investor Relations section of our website, fortrea.com. During this call, we'll make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations.

We strongly encourage you to review the reports filed with the SEC regarding these risks and uncertainties, in particular, those that are described in the cautionary statement concerning forward-looking statements and risk factors in our press release and presentation that are posted on our website. Please note that any forward-looking statements represent our views as of today, July 29, 2026, and that we assume no obligation to update the forward-looking statements even if estimates change. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to nor a replacement for the comparable GAAP measures, but we believe these measures provide investors with a more complete understanding of results.

A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and presentation slides provided in connection with today's call. With that, I would like to turn the call over to Anshul Thakral, Chief Executive Officer. Anshul, please go ahead.

Anshul Thakral: Thank you, Tracy. Good morning, everyone, and thank you for joining us to discuss Fortrea's second quarter 2026 results. Before discussing the quarter, I would like to take a moment to reflect as it's been nearly 1 year since I joined Fortrea as CEO. During that time, I've had the privilege of meeting with colleagues, clients, investors and partners around the world. What has stood out most consistently is the strength of this organization, our deep scientific and operational capabilities, our patient-inspired mission and a team that is increasingly focused on execution and accountability. We also recently celebrated Fortrea's Founders' Day, marking 3 years as an independent company. This milestone is meaningful.

It serves as an important reminder of how much has been accomplished and reinforces our focus on restoring sustainable growth and margin expansion. Today, we are pleased to report another quarter of steady progress on that journey, improving our full year revenue and adjusted EBITDA guidance. Our second quarter results reflect continued execution against the priorities we have outlined. First, improving commercial traction; second, strengthening operational delivery; and third, maintaining financial discipline. Now I would like to address a recent matter. Our new CFO, Jason Madlock, is not currently able to act as a CFO for Fortrea due to an ongoing proceeding relating to restrictive covenants with his former employer.

While I will not comment on the specifics, we believe we've acted appropriately in connection with Jason's appointment and plan to support Jason as we work through this matter. What I can share is that our finance function and team are in excellent hands until this matter is resolved. Our Board member, David Smith, is serving as our Chief Financial Officer on an interim basis and is on the call today. David has served as Audit Committee Chair since Fortrea was established as an independent company. He previously served as CFO at Charles River Laboratories, a global CRO. His familiarity with Fortrea will support continuity in our finance and executive leadership.

David has stepped down from his committee assignments in connection with his interim role, and Aaron Russell will chair the Audit Committee. I would like to personally thank David and Aaron for their support of Fortrea. I would also like to thank Jill McConnell, who is on the call today and will review our second quarter financial update. Jill has helped guide Fortrea through an important period of transition and transformation. I will share a bit more about Jill before turning the call over to her. First, let me share further details about the quarter.

As we discussed over the past several quarters, we are managing the business through a disciplined framework of 3 pillars: commercial excellence, operational excellence and financial excellence. This framework continues to guide how we measure progress, what we prioritize and how we create value for clients, employees and shareholders. Starting with commercial excellence, we have continued to be cautiously optimistic about the market environment. The broader demand backdrop has continued to improve, with more constructive customer engagement across both pharma and biotech. Biotech funding has continued to strengthen and large pharma procurement processes are more normalized than they were in the recent past.

With that environment, I remain pleased with the mix of clients and projects across our portfolio and the progress we are making on our commercial strategy. Large pharma has remained a cornerstone for Fortrea, and our relationships with strategic customers are important sources of work across multiple service lines and development models. At the same time, we have continued to see encouraging growth with new and existing biotech clients. Our commercial strategy remains grounded in the 3 Rs: reach, relevance and repeat. Reach means expanding the aperture of our customer relationships and bringing more opportunities into our pipeline. Relevance means showing up with differentiated scientific, operational and therapeutic expertise.

And repeat means earning follow-on work through consistent execution and a better client experience. In the second quarter, that strategy continued to produce tangible progress, with $720.4 million in net new business weighted towards biotech. Our book-to-bill was 1.06x, representing our fourth consecutive quarter above 1.0x and resulting in a trailing 12-month book-to-bill of 1.12x. Importantly, first half 2026 net new business awards increased 19% year-over-year, reinforcing that our progress is not limited to a single quarter but reflects sustained commercial momentum, particularly within biotech. We continue to see healthier activity levels across the pipeline and increased momentum as we engage our new biotech customers.

The volume and value of RFPs issued in the second quarter increased across large pharma and biotech, including both new to Fortrea and existing biotech clients. While book-to-bill can vary from quarter-to-quarter, the broader trend of elevated bookings gives me continued confidence that our commercial execution is improving. I want to highlight that our Clinical Pharmacology Services business, or CPS, was an area of strength in the quarter. CPS continues to benefit from strong scientific capabilities and integrated global network and increasing demand from customers. As we have said before, this business burns faster than most later phase programs. So CPS momentum continues to support revenue conversion as later phase program awards move through the project life cycle.

More importantly, it reinforces the value of differentiated scientific and operational expertise in helping sponsors advance therapies from the earliest stages of development. Stepping back, I would like to describe our commercial progress this way. The environment has become more supportive, but our results are not simply the result of market recovery. These are the results of deliberate actions we have taken to strengthen commercial execution, including better coordination across our global teams, sharper focus on where we can win and a clear understanding of how we create value for different customer segments. Our second pillar is operational excellence. In the services business, consistency is paramount.

Clients trust us not only for our ability to innovate, but for our ability to execute and deliver results. We help them with critical development questions. Can I move faster? Can I make better decisions? Can I see around the corner? Can you help us get to milestones with fewer surprises? That is where Fortrea is focused. We are one of a small number of truly global CROs with the scale and capabilities to manage complex clinical development challenges. But scale alone is not enough. What matters is how we use that scale to deliver greater predictability, better quality and a differentiated customer experience. We made continued progress in operations during the second quarter.

We remain focused on project management, site activation, enrollment performance and quality because those are the areas where consistent execution matters most. Our on-time delivery performance has remained a key differentiator, demonstrating our continued focus on execution quality and predictability for customers. Our customer satisfaction trajectory has continued to improve, reflecting the work our teams are doing every day to strengthen delivery discipline and client experience. A central part of our operational strategy is Fortrea Intelligent Technology or FIT. FIT is our clinical trial intelligence ecosystem that integrates data, analytics and machine learning, risk analytics and AI across the clinical trial life cycle.

Since launching FIT externally in April, we have continued to brand its use across ongoing studies and new project starts. For example, our CRA mobile app is now deployed in more than 50 countries with early results showing some meaningful efficiency gains, including reducing site visit preparation time, for example, by nearly 30 minutes per visit in one study in Spain. We are encouraged by the early adoption and remain confident as we scale the benefits globally. Our goal with AI is not automation for the sake of automation. It is to create a force multiplier for our people and our clients. Automation improves efficiency, judgment improves outcomes.

It does not replace the accountability, domain expertise and leadership that are essential to clinical development. That is why FIT is designed as an integrated platform strategy, bringing together trial execution, oversight and intelligence. Our goal is to improve predictability, reduce cost to serve, safeguard quality, strengthen the way we partner with clients. Over time, we believe this will become an increasingly important differentiator, not because AI is separate from operations, but because it is embedded in how we execute. This is also why our people remain at the center of the strategy. We are a people business, and I am pleased about how strong our level of employee engagement remains across Fortrea.

Our revenue strength, our quality, our client relationships and our ability to innovate all depend on the expertise and judgment of our colleagues. We've equipped our nearly 14,000 employees with Microsoft Copilot on their desktop, and we have recently launched a comprehensive company-wide AI literacy program. These investments are not about replacing people. These investments are about giving our teams better tools so they can deliver with speed, consistency and insight. We are taking a deliberate and responsible approach to AI adoption that meets our high standards and to enable every individual at Fortrea to be ready to develop their careers in an AI era. Now let me turn to our third pillar, financial excellence.

We continue to make progress on our journey to growth and margin expansion. In the second quarter, we delivered revenues of $678.2 million and adjusted EBITDA of $58.7 million. Results were supported in part by strong CPS performance, and we delivered adjusted EBITDA through a disciplined balance of cost management and targeted investment. We continue to drive the business with financial rigor. Some of our margin improvement is a result of cost actions and efficiency initiatives, but increasingly, the next phase of margin expansion will come from growth, mix improvement and operating leverage. That is why commercial execution matters so much. Sustainable revenue growth remains a key driver for our long-term margin expansion journey.

At the same time, we remain disciplined in our approach. We are investing where we see opportunities to accelerate growth, including commercial coverage, therapeutic and medical expertise, technology enablement and differentiated delivery capabilities. We do so with a clear focus on returns, cash generation and long-term shareholder value creation. Looking ahead, let me address our improved financial guidance. Given the CFO transition, I will talk to it this quarter, and Jill will focus her remarks on our second quarter performance. We increased our full year 2026 guidance and now expect revenue in the range of $2.62 billion to $2.69 billion and adjusted EBITDA in the range of $205 million to $220 million.

These improvements reflect our solid performance in the first half of the year, driven by execution against an improving mix in our backlog, continued operational optimization and our confidence in the business. Our capital allocation priorities remain unchanged: investing in organic growth, improving in productivity and continuing to delever. In short, we are strengthening Fortrea's financial position while investing in the capabilities that support sustainable growth. In closing, as I reflect on the quarter and nearly a year in the role, there are 3 takeaways I would like to emphasize. First, commercial excellence. Our momentum continues to build.

We are seeing stronger engagement across pharma and biotech, continued progress on our 3Rs and solid new business wins that reflect improving execution. Second, operational performance is strengthening the foundation of sustained profitable growth. We remain focused on delivering quality, predictability and efficiency at scale, while embedding FIT and AI-enabled capabilities that are force multipliers across our workflows to enhance productivity, insight and client outcomes. Third, financial discipline remains central to our transformation. We are on track to achieve our improved full year guidance, managing costs carefully while investing with discipline to support growth and margin expansion.

We also remain focused on the balance sheet and capital allocation, and we continue to expect positive free cash flow for the remainder of 2026 and for the full year. As we enter the second half of 2026, I'm encouraged by what we are seeing across the business. While there is still work to do, we are executing against a clear strategy, operating with greater discipline and building momentum across our commercial, operational and financial priorities. Most importantly, none of this would be possible without the dedication of our colleagues around the world. The progress we are making reflects their focus, resilience and commitment to our clients and to patients.

We are asking a great deal of this organization as we return to growth, and our teams continue to respond with dedication, accountability and energy. Now before I turn the call over for our review of our second quarter financial results, I would like to recognize Jill for her exceptional leadership and the many contributions she has made to Fortrea over the past 8 years, including leading the spin and building the financial foundation, which sets Fortrea up for further and future success. We are deeply grateful for her dedication, sound judgment and commitment to Fortrea. Jill, I'll turn the call over to you to walk us through the results of the quarter.

Jill McConnell: Thank you, Anshul, and thank you to everyone for joining us today. In my remarks, I will focus exclusively on our second quarter and year-to-date performance as Anshul commented on guidance and outlook in his prepared remarks. The second quarter was another solid quarter that exceeded our expectations. I am very proud of what the team achieved. And before getting into the details, I'd like to briefly highlight our progress against financial excellence, the third pillar of our growth strategy. First, we achieved a book-to-bill ratio of 1.06x in the quarter, bringing our trailing 12-month ratio to 1.12x. This reflects continued momentum in our commercial performance and improved demand trends across our end markets.

Notably, we saw strong contributions from new to Fortrea biotech customers, underscoring our progress towards broadening and diversifying our pipeline. Second, we continue to drive improvements in adjusted EBITDA, reflecting the benefits of our cost optimization initiatives, which have remained on track and the ongoing focus on operational efficiency. Now I'll cover the financial results in more detail. Second quarter revenue was $678.2 million, a 4.5% decrease year-over-year due primarily to lower pass-through costs in both our clinical pharmacology and clinical development businesses as well as continued FSP headwinds. These decreases were partially offset by service fee growth in our Clinical Pharmacology business, driven by increased net new business and a more favorable study mix.

On a GAAP basis, direct costs in the quarter decreased 6.6% versus the prior year, primarily due to lower pass-through and stock-based compensation costs as well as lower headcount-related personnel costs. These reductions were achieved despite a year-over-year increase in variable compensation expense and clinical pharmacology study-related costs due to project mix. SG&A in the quarter decreased 18.2% year-over-year, driven primarily by lower IT and headcount-related personnel costs, partially offset by higher variable compensation expense.

Interest expense for the quarter was $19.3 million, down $4 million versus the prior year quarter, reflecting the $75.7 million repurchase of senior secured notes in the fourth quarter of last year, lower interest rates on variable rate debt and no revolver borrowings during the quarter. Of note, we had no revolver borrowings throughout the first half of 2026. Backlog was $7.8 billion and cancellations remained in line with historical trends. Backlog burn of 8.6% in the second quarter was higher sequentially, in line with our expectations, driven primarily by service fee growth in our Clinical Pharmacology business as well as sequentially higher pass-through revenue in both the Clinical Pharmacology and Clinical Development businesses.

Adjusted EBITDA for the quarter was $58.7 million compared to $54.9 million in the prior year period. The increase versus the prior year quarter was driven primarily by the benefits of our cost savings initiatives and operational efficiencies and to a lesser extent, lower credit loss provisions. Moving to net loss and adjusted net income. In the second quarter of 2026, net loss was $13.2 million compared to a net loss of $374.9 million in the prior year period. Note that the prior year was impacted by a noncash pretax goodwill impairment charge. Adjusted net income for the quarter was $22.7 million compared to $17.6 million in the prior year period.

Adjusted basic and diluted earnings per share for the second quarter of 2026 were $0.24 and $0.23, respectively. In terms of customer concentration, our top 10 customers represented 55.4% of revenue for the quarter ended June 30, 2026. Our largest customer accounted for 16.8% of second quarter revenue. For the quarter ended June 30, 2026, operating cash flow was positive $28.9 million compared to positive $21.8 million in the prior year period, and free cash flow was positive $19.9 million compared to positive $14.3 million in the second quarter of 2025. Customer DSOs were 20 days, in line with the prior quarter and 26 days lower than the second quarter of 2025.

Net accounts receivable and unbilled services were $654.4 million as of June 30, 2026, compared to $739.2 million in the prior year quarter. This reduction is primarily driven by the sustained improvement in our order-to-cash processes and when combined with our undrawn revolver, resulted in available liquidity in excess of $0.5 billion. Since the spin, we have paid down approximately 35% of our original debt. This has strengthened our balance sheet and improved our capital position, underscoring our disciplined approach to financial management. Touching on our ongoing cost actions, we continue to strike a balance between maintaining high-quality customer delivery while driving continued operational efficiency.

In the quarter, we delivered $18 million in new gross cost savings, bringing our year-to-date gross savings total to $34 million. And we delivered $10 million in new net cost savings, bringing our year-to-date net savings total to $19 million. Note that the net savings were partially impacted by a higher-than-expected variable compensation accrual rate based on our current business performance. In closing, we are pleased to have delivered another solid quarter, demonstrating continued progress against our commercial, operational and financial excellence objectives. These results reflect the dedication of our teams across the organization and their commitment to helping clients accelerate the development of patient therapies around the world.

Before I conclude, I would like to thank the entire executive team and the Board for their support. It has been the privilege of my professional career to date to serve as Fortrea's CFO and to work alongside such a talented and committed team. I am proud of what we have accomplished together, and I'm grateful for the multitude of relationships and experiences I have gained during my 8-year tenure. I wish the company continued success in the years ahead, and I believe the best is yet to come for Fortrea. Now we'll open the call for Q&A.

Operator: Our first question comes from Elizabeth Anderson with Evercore ISI.

Elizabeth Anderson: Congratulations on a nice quarter. Can you talk a little bit about -- I think, Anshul, you talked about sort of on the margin side, there's still a little bit of FSP drag, but better in pharmacology and sort of better study mix. Can you unpack that a little bit further so we can sort of understand like how much longer the FSP drag is and sort of how to think about like the contributors of go-forward revenue contribution, particularly on the margin front going forward?

Anshul Thakral: Sure. Elizabeth, thanks for the question. Happy to take the question on margin. I think there's multiple pieces to this. I think the first is the journey that we've been on and started in rightsizing the organization, and that clearly has been showing up. And as Jill has mentioned in her remarks, we're on track with our cost savings targets, such as on the SG&A front and nonbillable front. We continue to do really good work there. The second is, as we continue to grow and diversify our bookings and diversify the backlog that is now burning off into revenue, we're seeing some higher-margin projects burning off into revenue.

And the third is a continued focus on operational discipline, both in our global clinical development group as well as in our clinical pharmacology group, continuing to stay very tight within our expected parameters to be able to deliver these studies. And that's where you're seeing the impact in gross margins as well.

Elizabeth Anderson: Got it. And as a quick follow-up, your free cash flow progression came up nicely as you guys expected. Can you talk about your expectations as we go through the back half of the year?

Anshul Thakral: Yes. I think we've outlined that a bit. We do expect to continue to be free cash flow positive through the remainder of the year.

Operator: Our next question comes from Eric Coldwell with Baird.

Eric Coldwell: Your bookings obviously were much improved from the book-to-bill ratios and amounts over the last 2 second quarters reported, but you have had historically some seasonality in second quarters. And I'm curious if you have any thoughts on that, what might have driven the second quarter net book-to-bill being lower than what you typically achieve on a full year basis? Any other comments around that? And again, I would highlight that had you not beaten revenue by $31 million, your net book-to-bill would have been above 1.1, which is very good compared to the last 2 years. But I do have a follow-up after that as well.

Anshul Thakral: Eric, first of all, thanks for your question, and thanks for -- I know a few of the folks in the early morning notes have done that extra math around the denominator effect here. I am very proud of the team and their continued success in delivering against our objectives on the commercial front. Look, I know you've brought up this comment to seasonality in the past. I've only been here a year, so I don't have the benefit of that seasonality.

But as I've diagnosed and looked at the numbers, there has always been one factor or reason as this company has gone through various changes over the past few years during the spin, not necessarily seasonality due to anything within our client base necessarily. So what transpired here in Q2 was continued actions that we've taken since August of last year, strengthening the commercial team and continuing to diversify our client base and not being reliant on any singular client or singular deal to be able to make the quarter. It's the diversification and it's the commercial execution that's yielded these results, and I'm proud of what the team has been able to accomplish.

Eric Coldwell: The follow-up I have is just, obviously, the marketplace demand RFPs, client willingness to engage, all of those topics have continued to improve, and we're hearing that from you today as well as from your peer set. I am curious if you've seen any changes in the competitive environment or how that has evolved over the last year, whether it be particular companies with changing business patterns or behaviors or client expectations within various cohorts from emerging biopharma to big pharma. Just any change in the competitive landscape compared to a marketplace that does appear to be generally improving over the last year?

Anshul Thakral: Eric, I think you hit the nail on the head in terms of the marketplace continuing to improve. I remain cautiously optimistic. I listened to the calls of some of the other competitors. And I think we're all kind of seeing the same trends in an improvement in the underlying market. So that's good. That's good for all of us. It's good for the industry. It's good for society as we continue to develop new innovative medicines. In terms of competitive behaviors, this has always been a very competitive industry. It continues to be a very competitive industry in all sectors, in all product categories.

And I would say the one thing I have noticed, and I said it in the last 2 calls as well is going into 2026, some of the temporal irrational behavior we saw on pricing in FSP, that has subsided and those processes were completed last year. What I'm seeing in 2026 is a return back to a normal environment with lots of rational behavior, both from competitors as well as from clients. But again, it remains a competitive industry. As I tell my teams, we have to win every single deal with as much intensity as possible.

Operator: Our next question comes from Luke Sergott with Barclays.

Anna Kruszenski: This is Anna Kruszenski on for Luke. We were wondering if there were any updates you can give on the customer contracts that are still in the renegotiation and repricing stage. And if there's anything that you've changed in your approach to pricing and if you feel like you've gotten more leverage than before?

Anshul Thakral: So thanks for the question. I won't speak to any specific customers. There's constantly moves in terms of negotiations in all of our partnerships. I would tell you your second question is around pricing. Again, I won't comment on pricing because it's very dependent from deal to deal. I would tell you there's a more -- as I said to Eric, a more rational return to a normal pricing behavior. It's a very competitive environment. Everybody is continuing to go after growth here, but pricing seems to be rational.

Anna Kruszenski: Awesome. And then if I could just ask one more on how to think about pacing for the second half. Just given where burn rates are ticking up and that bookings are more consistent in the first half, should we expect less seasonality between 3Q and 4Q? Or just anything you can share there?

Anshul Thakral: Sure. Look, I think we've given a lot of pieces of information, and we provided updated guidance based on the strength of the first half. And as I mentioned or as we mentioned in our comments in the Q1 call, we anticipated a modest step-up in Q2, which is what we saw with relatively stable and flat performance in the second half. And I think we've updated our guidance in accordance to that. I won't be breaking down Q3, Q4 any further.

Operator: Our next question comes from Justin Bowers with Deutsche Bank.

Justin Bowers: So Anshul, can you expand upon some of the changes you've made to enhance Fortrea's commercial excellence and how you feel about the resources you have in place to execute on the strategy? That's number one. And then number two, just on the algo for CRO, we've all been trying to think about a 1.2 book-to-bill is yielding mid-single-digit growth. Is that still the algo? Or has something changed in the industry post pandemic that would -- that we should be taking into consideration?

Anshul Thakral: Justin, happy to take those 2 questions. So the first question around changes and the commercial excellence. Look, I think the credit to our Chief Commercial Officer, Dray Virkler, who's been working on really enhancing this commercial organization since spin of coming out and establishing an independent selling force that is not reliant on the parent company or its customer relationships. And that's taken some time. Over the last year, we have both partnered together to continue to upgrade talent where necessary, change incentive compensation plans, change territory planning.

I can give you a full list, but it would read like a Harvard Business School case study in Sales 101 in terms of going through all of the areas that would enable this commercial team to be successful. I would say the biggest change is a change in mentality and focus that sales is not only done by sales reps. It is a combination of operational colleagues, it is a combination of medical expertise and medical colleagues as well as sales colleagues and bringing that triangle together has been the real change in terms of how we're going to market and how our customer-facing resources are prioritized.

Then your second question, look, I don't think the algo necessarily has changed, but it's an algorithm that has to really take into account what's happening with pass-throughs. I think that's the only modification that I would think about in that algorithm of 1.2 and what it leaves because in everyone's mix of bookings, backlog, et cetera, there's ways to think about pass-through, especially when you look at different types of clinical trials and mix coming up. That's the only nuance there, but the algo seems to hold, in my opinion, Justin.

Justin Bowers: I look forward to having that HBS case study with you at some point. And Jill, thanks for all the work over the years.

Operator: Our next question comes from Jailendra Singh with Truist Securities.

Jailendra Singh: I want to go back to the second half margin guidance. I know these are ranges, but it does imply some moderation from 2Q trends. Can you -- if you can provide any color there? Is that primarily a function of your expectation around pass-through revenues ramping up in second half? I know you don't want to give Q3 versus Q4 guidance, but should we see a sequential pickup in margins? Just give some more color about how should we think about the margin trends in the second half.

Anshul Thakral: Yes. Jailendra, thanks for the question. As I said earlier, we certainly will try to break down Q3 and Q4. I don't think there's major changes. I would think about stable, flat things around the market -- things around the edges.

Jailendra Singh: Okay. And then my follow-up is on your AI strategy you launched in April. Thanks for the color there. But I was curious if you have started to see any meaningful benefits around proposal activity, win rates? Or is it too early? Have any clients like selected Fortrea because of those capabilities? Or should we think of this as more operational benefit than being a part of some commercial strategy? Give me some color there.

Anshul Thakral: I think eventually, it's both operational and commercial benefits, but I think it's too early. Jailendra, I think these things -- this is not -- while the speed at which we all went to using AI to do our Google searches, that speed doesn't translate into the speed at which we can make meaningful operational changes in a highly regulated, very complex environment. I think it's going to take time. I think we're making really good progress. I'm very proud of the team. I'm especially proud of the team that we've taken an approach, which is not that AI is this bugaboo that sits outside operational strategy.

It is integrated into everything we do, whether it's our finance teams, whether it's our HR teams, whether it's our commercial teams, whether it's our operational teams, everyone is now at a point where we are working through how this new technology and this tool can enhance our productivity and enhance the output of what we do in any function. That's one of the reasons we've rolled out an AI literacy program. We have now Copilot, Microsoft Copilot as the tool that we are using in the hands of every single employee. But these changes will take time from a marketing perspective, I'd love to pound my chest and say things like it's helping us win, et cetera.

But the reality is these changes will take time for them to show meaningful differentiation on the commercial side and for them to show a meaningful impact on the operational side. I hope that answers your question.

Operator: Our next question comes from Charles Rhyee with TD Cowen.

Lucas Romanski: This is Lucas on for Charles. I want to ask a similar question to Jailendra's on AI capabilities. More just can you help us understand how customers are prioritizing AI capabilities and your guys' AI road map in RFP processes, particularly for newer customers?

Anshul Thakral: Lucas, I'm happy to take the question. So I would break it down this way. Let's break your question down in are most RFPs that are coming in asking about AI capabilities? The answer to that is yes. Most RFPs coming in are asking about AI capabilities. So if you don't have a thoughtful, credible road map with tangible early results, that is a competitive differentiation point. We do. And so that is a positive competitive differentiator for us. Okay. So that's the first part of that question. If I break it down.

The second part is are customers ready to start making decisions where AI capabilities are the primary factor or a factor that would override operational experience, the capabilities of the team, the team's experience, your experience within those therapeutic areas. The answer to that question is no. And the reason the answer to that question is no, if I take you back to how I responded to Jailendra's question, it is still going to take time where meaningful impact can be perceived from the use of new technologies that are continuing to evolve. I hope that answers your question.

Lucas Romanski: That does. That's helpful. And then my second question, a follow-up. We've heard from your peers that obviously, the biotech funding environment, which has meaningfully improved as well as we're also seeing large pharma time lines improve, which you noted in your prepared remarks, that this is leading to improved opportunities in the market, really kind of showing in first half book-to-bills. I understand that bookings are fairly lumpy quarter-over-quarter, particularly for a CRO of your size. But can you just explain or dive deeper into the opportunities and how they've tracked through your pipeline in first half '26 relative to second half '25?

Anshul Thakral: Okay. I'm not sure I fully understand the question. I'm going to try to answer what I understood. I think what you're asking is -- you're talking about biotech funding, improved market opportunities and how has that flow-through of our pipeline in the first half of '26 looked differently in second half of 2025. If that's the question, then the way I would answer it is we continue -- quarter-over-quarter, we continue to see improvement both in terms of the speed at which RFPs are coming our way and into the pipeline. I think that is industry-wide. We think we are working hard to continue to increase our aperture, which is the first R in my 3 Rs in reach.

And then the second piece is the speed at which decisions are making has started to normalize. There was a period of time in the early part of the second half of 2025, where the speed in which those biotech decisions were made were extraordinarily slow because oftentimes funding was either delayed or off cycle. So the speed at which they're entering the pipeline, the speed at which they're exiting the pipeline, which is how decisions are being made, all of that is starting to normalize and continues to get slightly better quarter-over-quarter. I hope that answered your question, Lucas.

Lucas Romanski: That does, yes.

Operator: Our next question comes from Jared Haase with William Blair.

Christine Rains: It's Christine Rains on for Jared. Hoping you can walk us through how your bookings are trending by therapeutic area. Some of your peers have recently called out shifts related to cardiometabolic and oncology. So curious if you're seeing similar movements and how we should think about the overall impact of your mix evolution on things like study duration, burn rates and timing of revenue and pass-throughs contributing going forward?

Anshul Thakral: Yes. I'm happy to take that question. Look, I think we're in a slightly different position than some of the peers that have reported. And I would continue to remind everyone a good majority of our like-for-like peers are private companies. So I think you don't get the full answers there. If you have a significant amount of work in vaccines such as COVID and flu vaccines or a significant amount of work in large GLP-1, Phase III GLP-1 studies, as I stated, we don't have either of those 2. And if you have those 2 and the market continues to evolve, you're going to see shift in your therapeutic area mix.

I would tell you, we're not seeing any noticeable shift. We're seeing what the market is seeing. Oncology is still the strongest therapeutic area, and we're happy with the mix that's coming in our pipeline, but nothing to report there. From a month-to-month, quarter-to-quarter, things do move around in terms of what therapeutic areas we are asked to bid on, but there's no material shift in that business. And as I've stated in the past, we have not -- in some cases, fortunate, in some cases, I wish we had, but taken on very large vaccine studies or very large Phase III GLP-1 studies. And as such, our mix has remained steady.

Christine Rains: Okay. That's very helpful. And then just shifting to a geographic lens. Last quarter, you called out strong momentum in China. Can you update us on really whether this has continued? And just as a refresher, how large is your China business today? Because just looking at results, it seems like ex U.S. and Europe revenue has declined over the last couple of quarters. And really just overall, does your China business differ meaningfully from your global portfolio in terms of stage of development, therapeutic area pricing or customer size mix?

Anshul Thakral: Just so we're fair, that was like 17 different questions. But I'll do my best to give a picture here. The first part of your question was specifically around China because we called it out last quarter. China continues to be, I think, an innovation hub where we are seeing innovative medicines, not just me-too medicines, come out into the global development sphere. We continue to have a strong presence in China. We think we're a top global player in China. And for our customers who are looking to run global studies in China, we are seen as a strong competitor, we continue to do that work that continues to grow.

But the real growth is coming from -- and the reason I called it out last quarter was from Chinese biotechs and/or U.S. companies that are partnering with Chinese biotechs that are bringing those medicines out into the global landscape. That's an area commercially we've been doing very well and have deep ties and connections within the entrepreneurs and the community that's bringing those innovative medicines ex U.S., and we are taken on a few of those great clinical trials. Your other question was around geographical shift and mix. Our geographical shift and mix shifts based on a shift in where clinical trials are being run.

So depending on the indication you're talking about, there are some seasonal indications that in certain seasons, you're going to be enrolling patients in such as respiratory diseases. You're going to enroll patients in the summer in the Northern Hemisphere and in the winter in the Southern Hemisphere and vice versa. There's other areas where with the regulatory changes, there may be a desire for more patients coming out of country X versus country Y, and those trials will shift. There isn't anything happening that would cause the shift in our geographical representation that is not due to how the customers are behaving or what is required in those particular clinical trials that we're in.

Operator: Our next question comes from Michael Ryskin with Bank of America.

Avantika Dhabaria: This is Avantika on for Mike. You guys have covered a lot of ground. But I was wondering if you're able to give color on the mix of awards? Like have they shifted towards longer duration studies? Or are you primarily seeing an increase in smaller biotech programs?

Anshul Thakral: I'm sorry, Avantika, could you repeat the first part of your question about which awards?

Avantika Dhabaria: Yes. Within your bookings, like has the mix shifted towards like larger duration studies? Or given that you're seeing traction with biotech customers, like are you primarily seeing increase in small biotech programs?

Anshul Thakral: Okay. I guess the question is -- if I look back over the last 3 to 4 quarters, it's been relatively stable in terms of our mix of studies that are, let's call them, Phase Ibs all the way to Phase III. And we're now starting to, as we have really strengthened our capabilities, do more in the post-approval space. But there's no shift in mix that would cause one to think differently about our backlog, our burn rate or anything of that nature. The word I would use is diversification.

We continue to build the backlog that I'm very happy with in terms of the diversity of what's going into the backlog and types of studies and types of customers and geographies, et cetera. But nothing to point out that would lead to any sort of shift in how you think about our business.

Operator: And I'm not showing any further questions at this time. I'd like to turn the call back to Anshul for any further remarks.

Anshul Thakral: Sure. Thank you very much everyone, and thank you for your questions, and thank you for your continued engagement. As we close, I want to reinforce that our second quarter performance reflects continued progress against our strategy. We're strengthening our commercial performance. We're improving our operational delivery, and we're maintaining a disciplined approach to growth and profitability. We remain confident in our strategy. We're optimistic about the opportunities ahead, and we're focused on delivering sustainable growth and margin expansion and long-term value creation for our shareholders. Thank you again for joining us today.

Operator: Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.