All right. Good morning, everybody. Thank you for joining us. I'm Dave Windley with Jefferies' Healthcare Equity Research. I cover CROs among other sectors, and we're very pleased to have you here with us. Also very grateful for Fortrea Holdings management team to be here with us. Company's not brand new, but relatively new CEO, Anshul Thakral. This is by definition his first time with us in that role, and Jill McConnell, the company's CFO. Thank you very much for carving time out of your very busy schedules. Anshul, you've had a busy what, three quarters of a year, I guess- Something like that. about that since you joined. Done a really nice job of stimulating demand and landing some bookings since your start date, three quarters in a row of book to bill above 1.1. Let's just start with describing the demand trends as you see them through the lens of Fortrea for us. Sure. Happy to, David. I can dissect that a little further into the sub-segments of the market. Look, I think the overarching message is, I think the demand environment has gotten better. When we talk every quarter, over the last couple of quarters, it continues to get better. I'm not quite ready to jump up on a table and start pounding that we're in a high-growth market, but certainly the market is not contracting, and certainly the demand environment has gotten better. We're seeing it in different places, in different paces at which the demand is coming back. If you think about the broad customer segments, large pharma versus biotech, small to mid-size pharma, however you want to segment it, we are seeing constructive dialogues across the board. RFPs flowing through from large pharma have started up. Dialogue with large pharma has been a lot more constructive than it was in 2025. With biotech, recovery tends to be a little bit faster. Certainly over the past couple of months, we are seeing that RFP flow really starting to pick up. If you look at various segments of the market, there was a period of time where we were not seeing as much demand as you would anticipate from the U.S. biotech sector, and that demand has picked up. That's really reassuring, too. All of these are signs towards a demand environment that is continuing to get better. I don't want to get into percent growth here, but certainly a demand environment that's continuing to get better. I'm feeling better about it today than I was, say, in January. Great. In some of my conversations with your peers, I'm hearing FSO, or for the audience that doesn't know the acronyms, full service type business. Whereas all the talk for a couple of years has been FSP, maybe overly so. Within the improvement in demand, how would you characterize the mix across, say, FSP, FSO? I'd also ask you to talk about your clin pharm business as well. Sure. FSO, FSP mix, certainly demand here in the last few months, we're seeing more in the FSO space. It's good to see the FSO demand return. Remember, for a period of time, when the markets were really constrained, possibly even contracting in 2024, 2025, the only way someone can move market share in an environment like that is through price. That's where I think the FSP dialogue really picked up. People saw an opportunity both from the pharma side and the CRO side. That's a lot of what I've talked about in the past, happened in 2025. What I like about what we're seeing now is a return to the kinds of demands I'm used to seeing in this industry. Robust demands across various phases of clinical research, robust demand for FSO services across various therapeutic areas. You mentioned clinical pharmacology. I think clinical pharmacology, as you know, is a business I'm very proud of at Fortrea. Demand has started to return even faster in clinical pharmacology. We're seeing a lot more both small to mid-size biotech companies as well as large pharma companies starting to get a bit more constructive in terms of starting phase I studies. Not just healthy volunteer, but phase I studies across the board. We're seeing a faster ramp-up with that demand in our clinical pharmacology business. Being one of the stronger players in that business, we're benefiting from it. Yeah, for sure. It probably goes without saying in the way that you've described this, but is it right to think that what you're seeing land in bookings, thinking about chronology, the strength that you're seeing in bookings is at least reflected also further back in the sales funnel? Yes. If not better? If not better. For example, Dave, you do a great job of putting these monthly reports together around biotech funding. I started really looking at the trend lines in your report starting back in November. Remember, some of the monies that were reported out as great funding events in November, those are showing up in bookings now in Q2. Right? I think what we're seeing in our pipeline versus what we've seen in our last two quarters, the pipeline's slightly stronger. Because much of this funding demand that picked up from November through March, that hasn't translated into bookings for our industry yet, and it will over the next couple of quarters. I'm hovering on this longer than I probably should, but I'm going to give you an opportunity to. You pick up on the fact that I read your reports all the time? I'm going to give you an opportunity. We'll highlight my blind spot. As we talk about, we collect mostly what you would think of as true financial pure transactions. Your team highlighted licensing deals and- Yeah. BD activity has also been hot. Right. which is not something that we pick up particularly well. If you want to add anything on that, too. We like licensing and BD activity. There's multiple reasons for that. I won't talk about specific clients, as you know I won't do that. We've had several instances in the past several months where a small company has been acquired by a large pharma company where we may not have a partnership, and we've now ended up in a de facto partnership position. Because if we're doing really good work across the industry, you don't switch out your CROs. For that purpose and that purpose on the type of activity that we see in acquisitions in M&A, I see that as a tailwind, and I see that as a positive. When we look at demand data, when you see BD&L happening, you will see licensing happening from private companies by larger biotech companies or larger pharma companies. You'll see licensing of assets ex-U.S. being licensed by biotech and pharma companies in the U.S., and that may not show up in all of the financing numbers, but that is a type of financing activity. If anything, that's a little bit of additional demand on top of if one was to translate just the investing demand that you look at. Yeah. Does that- Yeah, that's great. We use a lot of acronyms, as all industries do. BD&L, business development and licensing for you, right? Correct. Yes. Correct. On translating this now to revenue, let's think about revenue. Your guidance, I think, is for about a 4.5% revenue decline. That's reflective of some of the historical bookings. We've kind of preached that there's a lag in this business. We have that trending kind of ramping and ending the year closer to a positive number. Maybe you could put some shape around how the year progresses. Yeah, let's talk about that a little bit. That decline, as you know, Dave, we've talked about it was three things. It was a reduction in pass-through because of some mix. It was some volume and price not issues, but we talked about some FSP contracts where we had to take some price as a result of some of the things that have been happening in the industry. There was a little bit because the first half of last year had softer bookings. The largest impact there is pass-through. I think if you exclude the pass-through impact, and you can see that in some of the disclosures that we provide, the underlying service fee revenue is trending increasingly towards flat as we go through the course of the year. All the work we're doing now focusing on book-to-bill and new business is to try to position us then to be able to return to growth. I don't think you're going to see, there's no hockey stick in the back end of the year, but slowly seeing that underlying service fee revenue come closer to flat and perhaps slightly positive at the end of the year. Obviously, as we go forward. Got it. For clarity, service fee trending toward flat, that's a by the end of the year statement, not a for the year statement. Yes, by the end of the year. Yeah. Yes. Okay. As you presume, go across the quarters. Okay. Let's transition to margin and cost savings, obviously a topic near and dear to your heart. You're targeting, I think for this year, $70 million-$80 million- Yeah. of gross cost savings, $40 million-$50 million net. Yes. Help us kind of shine a light on how you identify those costs surgically, with the balance being, how do I keep my people that are really important to winning new business while also driving to a margin that we think is more appropriate for- Yeah. A CRO and for your company? That is obviously the balance that you have to strike. every time we look at cost savings initiatives, and as a people-based business, you have to be mindful. we always are looking at what's the customer impact of any proposed adjustment that we're making, and we also are staying very connected with our employees. Two things that give us some confidence that we're striking the right balance is that our NPS scores, Net Promoter Score, with our customers are continuing to improve since the spin, and they continue to improve. from an engagement perspective, we've actually seen engagement both in terms of people who participate, we do twice-a-year surveys, both participation rates, but also engagement scores are higher than benchmarks for what our survey team tells us is for the industry. I think that we are managing to strike that. We have to be very careful. there are more things besides people. We've been thoughtful about the facilities footprint. We've been trying to rationalize applications. in the supporting functions, we've leveraged third parties because they will be able to help us accelerate that journey and also when we return to growth, be able to scale without having to add back capacity. Dave, can I add one thing here? Please. The thing about cost-cutting, the way I talk about it with our employees, because when you go through cost cuts over a couple of years, you have to communicate with employees. You have to be transparent so people understand what you're doing and why you're doing it. There's sort of three waves to think about it. There's a wave when you come out of a spin. In any company that has ever gone through a spin, there are costs that are not necessary to operate in that new business environment. That's sort of the first round of things that you go through. For us, a little bit of a perfect storm of coming out of a spin while the market was constrained. That pressure on revenues led to a second round, which was to right-size the business for the new revenue base. When we do cost-cutting now, I'm making it part of our culture, and I talk about it with our employees. It's not for the sake of cost-cutting. It's for the sake of becoming a more efficient and becoming a more effective organization. Our belief is if we continue to think through how we are less bureaucratic, how we have less layers, how we have more accountability, all of this stuff, while yes, it yields the cost savings that we're looking for, it actually yields higher win rates in the marketplace for us. It allows us to actually come across as a more effective, nimble organization that is purely focused on execution. This is how we've switched the narrative internally, and it works. Believe it or not, we have employees that will self-identify areas in which we can be more effective and more efficient. Interesting. I'd love to revisit a couple of things, Jill, that you mentioned. NPS scores improving. What do you think, I'm sure it's a multitude of factors, but what one or two factors would you highlight that move the needle on NPS the most? I think, and Anshul certainly can weigh in here, but the absolute focus on quality and execution and discipline and how we communicate with the customers more proactively along the journey. I think that the dialogues and the conversations are much richer now, and the relationships that we're building all across the leadership of the organizations and our company is really important. Our employees understand that they are the face of the customer. We've made that very clear. They are the experience that customer has. Making sure they understand that in all their interactions, how they show up is really critical. Quality, execution, and predictability. That's what sponsors care about- Yeah. When it comes to working with a CRO. Yeah. I want to emphasize that predictability point. Yeah. I think that's coming up more and more. Yeah. it's probably something that my audience is not maybe used to focusing on. The other point that you made, Jill, was kind of a reminder, facilities footprint, rationalizing applications, those are part of a list of things that- you were attacking post-spin- perhaps haven't gotten the air time, which maybe means they're in better shape. Are you still on that journey? Is most of that journey done? Yeah. revisit of that. You're never not on the journey, right? Yeah. In terms of because the technology and automation is just moving every moment. What I think sets us apart is because we had to do a complete reset at the spin, we were able to be very intentional with how we built out the enterprise applications and all that functionality so that we could be thinking about the future. In some respects, we believe we were able to leapfrog. You're not trying to pull forward systems and things you've had in place. You're able to build knowing what the future here is. I think leveraging the third parties as well in the supporting functions helps us accelerate that journey because they're bringing cutting-edge things to us as well. Very good. Okay, I've beaten that topic up enough. I'll move on. Anshul, in conversations you and I have had, we've talked about client concentration, and you made the right and interesting kind of reminder point to me that basically every CRO has one or a few very large, outsized, important clients. In Fortrea's case, to the outside at least, looks like you do have one that is substantially larger than two and beyond. What are the keys to managing that? Sure. I'll let you answer that. Go ahead, please. I think, yeah, as we've talked about, Dave, every CRO, and frankly, I think every services company and every services industry, you always have a couple of anchor clients that provide a big base. The thing that people have to remember, client concentration to some extent can have negative consequences, but I'm sure this is where we're going and things you have to work on, but some of the positive consequences are it allows you to build capabilities. It allows you to build scale in therapeutic areas and things of that nature that can be leveraged across the board. In Fortrea's case, I think not having growth over the last couple of years exacerbates the numbers and what you see in terms of the client concentration. If you look at the last couple of quarters of revenue, our client concentration with that one large client is coming down, not because we're not growing in that client. It's because we're growing in general, and that allows for diversification of the portfolio, and that's really where I'm focused. In terms of managing this client, any time you have a client of size, in fact, I think all clients are important, I spend my time with wherever I can be most impactful. If I can be most impactful at our largest client, then I'm spending vast majority of my time there. Right now, we've got a 14-year history. We've got thousands of people that work on this. It's an incredibly robust and strong partnership that we're actually very proud of. Over the next couple of quarters, I think you'll see that client concentration number come down, not because we're not growing with one of our flagship clients, but because we're continuing to grow outside, and we're continuing to diversify that base. Is that revenue stream a benefit or detriment to your margin improvement goals? I think the interesting part is when you talk about that, you have to talk about a variable margin versus a fixed margin. Whenever you have a client of large scale equals pricing equals competition, right? The larger the scale, you're going to have lower pricing. That's just basic economics 101. At the same time, scale also allows you to build things that you may not otherwise be able to build. That scale allows you to build cell and gene therapy capabilities in countries like China and Japan that you may not have otherwise built. Looking at just a margin on an incremental basis isn't the right way to think about it. We think about the importance, but at the end of the day, yeah, volume and pricing do go hand in hand. Maybe more specifically, can you speak to, as you think about this mid-teens margin goal, can it help you to get there? Yes, it can. As we continue to grow, look, I think the most important piece for Fortrea right now isn't on the cost containment. We've done that. Continuing to keep that culture and make that a continuous journey, as Jill talked about, that's important. The most important goal is growth. As we grow within our largest clients, it's not just that one, within our largest clients, but also as we expand our aperture to clients that we don't currently work with, especially in biopharma and biotech across both sectors, across geographies. That's how we get to grow. Right now, we have a cost basis that, as Jill has pointed out several times, that can absorb the next couple percentage of growth coming our way. As that growth comes our way, and we can absorb that growth without having to hire back, that's where you're going to start seeing the margin accretion come from. I'm going to move to sales. We mentioned the strong track record, improving track record in the last three quarters since you joined. How have you realigned the sales force or changed incentives to, or changed the focus to- Yeah. to not only target the business you want to target, but actually win a decent amount of it? Yeah. Look, first was defining what do we mean by sales. Sales is not sales reps alone. Sales reps are a small portion of an overall selling process. Ensuring that we recognize that a commercial team, an operational team, a customer-facing finance team, and a customer-facing legal team, all four are required to be able to change your commercial model. First and foremost, we got the company focused in areas that matter the most to us, where we see growth coming, making sure we have selling models across those four functions that are fit for purpose, not a one size fits all. We did not take our attention off of selling into big pharma. We doubled down on that attention, but in a different model, and then focused in selling to mid-size, small biotech companies, but in a different model. Different way of working, different way of thinking. The biggest feedback I've gotten from customers over the past couple of months has been we're a lot easier to work with. That's not just a sales thing or a sales incentive thing. That goes across how all of those functions to work with. We're bringing a lot more technical expertise to the table. One of the ways in which we can bring technical expertise to the table is realizing when there's a very low odds of winning something because we're not the right CRO to run that study, pull ourselves out of it, so we can refocus in efforts in where we are fully confident that we are the right CRO to run that. That's the kind of feedback I'm getting, but that selling approach hasn't just been about sales reps or incentives or focus. It's about getting the organization and all elements that are customer-facing, rowing in the same direction, and understanding customer phenotypes and how you row differently for customer A versus customer B. Is it right to think that operational people, the right types of operational people, have sales incentives somehow in their comp? Well, I will tell you all of our leaders, all of our top several hundred folks, all of our leaders, our bonus pools, et cetera, are measured on both revenue and EBITDA, but also we have net bookings as part of our executive compensation for all of our leaders. We don't give sales targets to folks in operations. You can't achieve your targets if we're not doing well in delivering the existing work and we're not doing well in attracting new work. Our incentives are set up as such appropriately across all of our functions. Got it. While we're in sales and business development, we talked earlier about FSO improving, which is encouraging. FSP work is something that I think you, and honestly since the spin, the message I think has been we want to be relatively selective. Yeah. what we go after in FSP. This recent renewal that Jill mentioned earlier where you said you had an FSP contract renewal with some price concessions, can you put some color around that? Why was the decision that you should, in that case, keep that business as opposed to being more selective? Look, I think at the end of the day, this was a client that we have worked for a long time with, and we have a lot of colleagues dedicated to that client. Our belief was not only would it be disruptive to our organization, and frankly, it would be disruptive to their mission in bringing medicines to market. In this particular case, it was a strategic client where we've done decades of work, and we have longstanding relationships and an ability to grow in other service lines. It made sense for a variety of reasons for us to take the price concessions we needed to retain the client. Now, at the same time, in this particular case, we were offered more volume for lower price concessions as some of our competitors that you've interviewed in this room, I think, offered, and we chose not to do that. We chose to retain the business we have instead, or grow the business we have in this particular case. Sometimes when you look at these things, you have to figure out what the right answer is, and the right answer, yes, involves the economics of the deal, but also involves employees and also involves the science that is being pushed forward. In this particular case, Jill and I sat together and weighed that decision and decided it was the right thing for us to do. Okay. I want to make sure I understand that point. You had the opportunity, if you go lower on price, you'd get more volume, and you passed on that. We did. We ended up being the highest price of the CROs that they kept. Okay. I think there was some allusion to opportunities to chase is maybe not the right word, but to pursue maybe adjacent business, be that in clin pharm or other areas. Is that the right way to think about that? That's the right way to think about it. Maybe put some color on that. That's the right way to think about it. Look, this is a very large pharmaceutical company. They work with various CROs across a variety of services, and if we have an opportunity to grow other service lines over the course of the next few years, we want to be in the best position to do so. I would do that across all of our customers- Sure. you're happening to talk about this particular one. Certainly. Let's move to AI and wrap in that area. It's almost good to do that in the last three or four minutes. Right. Yeah, it's small topic. It's kind of an aside. I'm going to ask you this way. What are clients saying, doing, requiring in AI as you're engaging around projects? A lot more on the saying than the doing currently. I can't think of a client conversation where AI isn't a topic that gets discussed. I think if you asked me a year ago, that wasn't the case. now, I was having dinner with a client last night, CEO of a company where we're working on a program for the next couple of months here to start something pretty big with them. In a particular case like this, the AI was a conversation topic, but the conversation topic was around the lines of, "Hey, I'm getting asked a lot of questions from my board. We don't have great answers around this. What do you think, and how can we work together on ensuring that we don't get left behind a couple years from now if there's efficiency gains to be had in our current programs?" I had a meeting earlier in the week on Monday with a large pharma company where the conversation was different, which was, "Hey, we're investing tens of millions of dollars in getting our own agentic solutions off the ground. How can you guys integrate into it? Can we do a bit of a show-and-tell and figure out how to develop the best of both breeds?" There hasn't been a conversation today that is of the flavor of, "Well, we can't work with you because somebody else has got a better solution in AI." There has not been a conversation of, "Here's a perfect solution, and we have it. How do we implement it?" Those are the two flavors of conversations, Dave, that we've been having across the industry, and they do tend to matter big pharma versus small pharma, and the smaller the pharma, the less likely they've had the ability to invest and move forward. Probably also more caution. Yeah. The larger the pharma, the more likelihood that they are co-investing right now. the conversations in those cases tend to be, how do we collaborate? How do we jointly develop, and what do we build together? I think the areas where I've spent, probably wasted a lot of brain cells, is trying to ferret out the risk aversion side of the industry in this. Yeah. Really, and maybe the better word to use is validation. Yeah. perhaps that example where you said the client, "Hey, we're investing a bunch in our AI. How can you integrate into that?" I'm wondering if you get to some degree in the weeds, where are they in that journey and Sure. what's realistic relative to when they really will operationalize these kind of things in a meaningful way? I will say something that may be unpopular because I'm here, and I'm going to spend a lot of time with our current and hopefully future investors. The conversations I have with our investors don't quite look like the conversations I have with our customers. There's a three or four year lag in these conversations. I appreciate you putting a number on it. That's good. The conversations I'm having with our investors are all about what can we do in 2026? How do you think about AI changing the industry in 2026? The conversations I have with our customers are, okay, this is going to take three or four years before we can actually start changing workflow that matters. What are incremental proof points that we can get in 2027 and '28? What are some of the co-development testing that we can do? By the way, how are you thinking about it from an eCRO perspective? How are you tackling this from an FDA perspective? The conversations are so nuanced and so complex. It's a multi-year journey before there's actual meaningful impact where a client says, "Hey, I am now ready to let you change workflow X to be an AI-enabled workflow." That concept of, I am a client telling you, CRO, you can change workflow X to be AI-enabled. That hasn't even entered the realm of possibility yet. That's several years away. That's the hard part, especially when I'm here, Dave. Yeah. The conversations with our investors and with our clients are lagging by several years. Yeah. Very good. Probably goes without saying, but if I were to ask then, are AI demands manifesting in price and scope negotiations? After what you just said, I got to believe the answer is no, but I'll let you say it. If you cannot credibly stand up and say you have a plan, a strategy, and you have an ability to meet the client where they need you to be in 2030, then you'll be competitively disadvantaged. I'll- That does not mean that today's RFPs are showing up with AI as a pricing tactic. Got it. I see it flashing at me. Given this topic, I'll let you just in a minute, how does Fortrea Intelligent Technology fit into your picture? Sure. The biggest thing for us is the thing I'm pushing in the company is AI cannot be the thing we talk about over here on the left or the right. Our Xcellerate platform is the core of how we do work, how data gets processed, how our clients as well as our teams can centralize the data, look at it in a data lake in a centralized manner, and be able to do the various activities across all our workflows. What FIT is instead of AI being a "thing," we're building an intelligence layer on top of the current systems we use. We want to be able to embed the intelligence layers into our current systems, into our current processes, with the hope and goal, at different degrees, all of the information and how we access the information, we're able to access it through an intelligence layer. If you're accessing that information to be able to do medical writing, you're probably going to be able to do that faster. The intelligence layer is going to be more robust. If you're accessing it to do site selection, right now that intelligence layer is under development. In a year it'll be better, and a year after that it'll be even better, and then you'll get to a point where you're doing site selection through an intelligence layer. The whole idea of fit is not to talk about AI as a separate thing. Make it an embedded layer so that the user accesses the data through a layer of intelligence. make it embedded in the workflow. That takes time. All right. Very good. Thank you for that. I'm a minute and a half beyond, so we'll yield to the next. Thank you for your attendance, Jefferies Global Healthcare Conference, and enjoy the rest of the last day. All right, Dave. Thanks. Thank you very much. Appreciate the time