FTRE 10-K & 10-Q changes, risk factors and insider trading

The following are certain risk factors that could affect our business, financial condition, results of operations, and cash flows. The risks that are highlighted below are not the only risks that we face. Investors should carefully consider each of the following risks and all of the other information contained in this Annual Report on Form 10-K. Some of theseThese risks relate principallyto, toamong ourother Spin from Labcorp, while others relate principally tothings, our business and the industry in which we operate or to the securities markets generally and ownership of our common stock. If any of the following risks actually occur, our business, financial condition, results of operations, or cash flows could be negatively affected.

•We depend on third parties to provide services critical to our business.business and depend on them to comply with applicable laws and regulations.

•If we are unable to achieve and maintain effective internal controls, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

•A failure to identify and successfully close and integrate strategic acquisitions or close other strategic transactions could have a material adverse effect on our business objectives and our revenues and profitability.

•Failure to keep pace with rapid technological changes, including in the development or use of artificial intelligence,changes could adversely affect our business.

•Our revenues depend on the pharmaceutical, biotechnology, and medical device industries.industries and the expenditures they make in R&D; any reductions or delays could materially and adversely affect our business, financial condition, results of operations, and cash flows.

•Costs associated with our debt and our debt covenants may limit cash flow available to invest in our business.

•We may not be able to access the capital and credit markets on terms that are favorable to us or at all.

Risks Relating to Ownership of Our Common Stock

•actions by governmental and/or regulatory authorities;

We experience termination, cancellation and non-renewal of contracts by our customers in the ordinary course of business, and the number and dollar value of cancellations can vary significantly from year to year. If any large customer materially decreases or terminates its relationship with us and we fail to add new customers or expand services to other existing customers to replace lost revenue, our business, financial condition, results of operations or cash flows could be materially adversely affected. For the year ended December 31, 2024,2025, our top ten customers based on revenue accounted for approximately 53%57% of our consolidated revenue and our top ten customers based on backlog accounted for approximately 51%54% of our total backlog. For the year ended December 31, 2024,2025, twoone customerscustomer accounted for approximately 14.3% and 10.5%18.1% of revenue. It is possible that an even greater portion of our revenues will be attributable to a smaller number of customers in the future, including as a result of our entering into strategic provider relationships with customers. Also, consolidation in our potential customer base results in increased competition for important market segments and fewer available customer accounts.

Access to data is foundational to any CRO,CRO. andIn throughaddition to leveraging our uniquein-house relationshipdata, Fortrea maintains relationships with Labcorp we have access to large datasets relevant to clinical trials under a patientbroad range of data providers that provide geographic, therapeutic and site data agreement (the “Patient and Site Data Agreement”). This Patient and Site Data Agreement is set to expire as of June 30, 2025, if not renewed. In addition, we source data from a number of third partiesdatasets, to support our services. With the continual evolution of data offerings and providers, we evaluate existing and new sources on an ongoing basis. An inability to purchase or access the necessary data (from Labcorp pursuant to the Patient and Site Data Agreement or from other third parties) now, or in the future, on commercially reasonable terms or at all, could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to achieve and maintain effective internal controls, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with this Annual Report on Form 10-K, our independent registered public accounting firm is required to express an opinion as to the effectiveness of our internal controls over financial reporting. These reporting and other obligations place significant demands on our management and administrative and operational resources, including our accounting and IT resources. We were previously dependent on Labcorp’s systems to provide financial reporting and other financial and accounting information for periods prior to the Spin and through the period ending December 31, 2024. To fully separate ourselves from our Former Parent, we have (i) replaced / upgraded our systems, including our IT and enterprise resource planning systems, (ii) implemented additional financial, IT, and management controls, (iii) implemented new reporting systems and procedures, and (iv) hired additional management, IT, accounting, finance, legal, human resources, and other administrative staff and third-party service providers. If we are unable to achieve and maintain effective internal controls, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

Building awareness of our brand is an ongoing initiative as we continue to conduct our business under the name Fortrea and certain associated brands, with the potential for new names and systems. Maintaining and continually enhancing the value of our brands is critical to the success of our business. Brand value is based in large part on customer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products. We may not improve upon the brand recognition associated with Labcorp and its historical or associated brands with customers, sites, suppliers, employees and candidates. If we fail to maintain and/or enhance brand recognition associated with the “Fortrea” name, it may affect our relationships with investigator sites or customers, which may adversely affect our ability to generate revenues and could impede our business in a highly competitive industry. Damage to our brand, reputation or loss of customer confidence in our brand or products could result in decreased demand for our products and have a negative impact on our business, results of operations or financial condition.

Epidemics, pandemics, or widespread public health crisis, such as COVID-19,crisis and associated economic repercussionsrepercussions, may have adverselyan impactedadverse impact on our business and results of operations, and may do so in the future.operations.

These and other impacts of a pandemic could also have the effect of heightening many of the other factors described in these “Risk Factors” and other parts of this Annual Report on Form 10-K. TheDespite our efforts to manage the impacts of COVID-19 or other future outbreaks, including epidemics, pandemics or widespread public health crisis to the Company, the ultimate impactimpacts dependsdepend on the severity and duration of a pandemic, including the emergence and spread of variants, the continued availability and effectiveness of vaccines and treatments, and actions taken by governmental authorities and other third parties in response to the pandemic, each of which is uncertain, rapidly changing and difficult to predict. Any of these disruptions could adversely impact our business and results of operations.

We are subject to taxes in the U.S. and foreign jurisdictions. Our provision for income taxes is based on a jurisdictional mix of earnings, statutory tax rates and enacted tax rules, including transfer pricing. Enactment of, or changes in the interpretation of, tax legislation or income tax rates globally could materially impact our financial statements. Our effective tax rate and deferred income taxes could be impacted by changes in tax legislation globally.globally, and due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The Inflation Reduction Act of 2022 (the “IRA”), enacted August 16, 2022, which, among other items, imposes a 15% alternative minimum tax on corporations with three-year average annual adjusted financial statement income exceeding $1 billion and introduces or extends a number of tax credits to promote clean energy development. We continue to monitor the effects of the IRA and other regulatory developments on our financial condition, operating results, and income tax rate.

Our future effective tax rates could be impacted by changes in the mix of earnings in countries with differing statutory tax rates, changes in the assessment regarding the realization of the valuation of deferred tax assets, or changes in tax laws and regulations or their interpretation.

In October 2021, the Organization for Economic Co-operation and Development (the "OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (the "Framework"), which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy. In December 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a minimum tax rate of 15%. An additional “top-up” tax would be incurred in instances where the 15% minimum tax rate is not achieved. To date, various jurisdictions have enacted, or are in the process of enacting, legislation on these rules, and the OECD continues to release additional guidance. While it is uncertain whether the U.S. will enact legislation to adopt the minimum tax directive, certainCertain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement the minimum tax directive. Further, the OECD issued administrative guidance providing transition and safe harbor rules that could delay the impact of the minimum tax directive. We will continue to monitor the implementation of the Framework by the countries in which we operate. WeThere havewas calculated and accrued anno additional top-up tax due under the Pillar Two Framework in certain jurisdictions where the effective tax rate fell below the minimum threshold of 15%. This amount was not significant to the 2024 income tax provision for the Company.2025.

Failure to comply with national, state, local or international environmental, health and safety (“EH&S”) laws and regulations, could result in fines and penalties and loss of licensure, and have a material adverse effect upon our business.

We are subject to laws and regulations relating to the protection of the environment and human health and safety, including laws and regulations relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials, as well as regulations relating to the safety and health of employees. Failure to comply with these laws and regulations could subject us to denial of the right to conduct business, fines, criminal penalties and/or other enforcement actions that could have a material adverse effect on our business. InThe addition,implementation of new or existing EH&S laws, regulations, and industry and customer standards, and any changes to them, which we cannot predict and which have historically become more stringent over time, could increase our costs and require us to reassess our business priorities. Administrative decisions, legal developments, or other governmental or judicial actions may influence the interpretation or enforcement of EH&S laws, regulations, and industry standards, and may thereby increase compliance or other costs, in the jurisdictions in which we operate. Any of these risks or costs, and our ability to assess, prepare for, and fully comply with future legislationEH&S laws or regulations, could imposehave additionala requirementsmaterial adverse effect on usour thatbusiness mayresults, becash costly.flows, financial condition, or prospects.

In addition, implementation of healthcare reform legislation that adds costs could limit the profits that can be made from the development of new drugs and medical products and devices. This could adversely affect R&D expenditures by such companies, which could in turn decrease the business opportunities available to us both in the U.S. and other countries. New laws or regulations may create a risk of liability, increase our costs or limit our service offerings. AtThe this time, it is unclear exactly how the newcurrent U.S. presidential administration willmay further impact the healthcare reform measures ofimplemented theunder previous Bidenadministrations Administration or whether the new Trump Administrationand could impose other reform efforts, including what, if any, impact such changeswhich could haveadversely onaffect our business. The Trump Administration has recently relied on executive orders in lieu of federal legislation to implement regulatory policy and objectives. We may be unable to anticipate changes in regulatory regimes of the U.S. federal government administration and, therefore, be unable to make timely operational or other changes, assuming we are in a position to effectively respond to any such change, which may not be the case, or to ensure compliance with federal regulations or orders. Executive orders or regulatory priorities issued or rescinded by the U.S. federal government administration may require additional capital expenditures or additional costs and may cause a delay or the abandonment of projects which could adversely affect our results of operations or financial condition.

We may also be required to comply with the data privacy and security laws of other countries in which we operate or with which we transfer and receive data. For example, in the European Economic Area, we are subject to the EU General Data Protection Regulation, and in the U.K., we are subject to the U.K. data protection regime consisting primarily of the GDPR and the U.K. Data Protection Act 2018, respectively, which include a range of compliance obligations for subject companies and imposes penalties for noncompliance of up to the greater of €20 million or 4% of worldwide revenue. The U.K. Data (Use and Access) Act 2025 (“DUA”) included further obligations for companies and imposes increased penalties for marketing and cookie non-compliance of up to £17.5 million or 4% of global annual turnover. We have established processes and frameworks to manage compliance with the GDPR.GDPR and DUA. Potential fines and penalties in the event of a violation of the GDPR and/or DUA could have a material adverse effect on our business and operations. In addition, similar data protection regulations addressing access, use, disclosure and transfer of personal data have been enacted or updated in regions where we do business, including in Asia, Latin America, and Europe. We expect to make changes to our business practices and to incur additional costs associated with compliance with these evolving and complex regulations.

In addition to data protection laws and regulations, government agencies have or are considering (or are adopting) other laws, regulations and guidelines that impact the processing of personal information. For example, the evolving landscape surrounding the use of AI and online advertising may lead to additional compliance costs and could increase our overall risk. Our employees and personnel may use generative AI technologies to perform their work, and the disclosure and use of personal data in generative AI technologies is subject to various privacy laws and other privacy obligations. Governments have passed and are likely to pass additional laws regulating generative AI.AI, such as the EU Artificial Intelligence Act 2024. Our use of this technology could result in additional compliance costs, regulatory investigations and actions, and lawsuits. If we are unable to use generative AI, it could make our business less efficient and result in competitive disadvantages.

Anti-corruption laws in the countries where we conduct business, including the U.S. Foreign Corrupt Practices Act (the “FCPA”), U.K. Bribery Act 2010 (the “Bribery Act”), and similar laws in other jurisdictions, prohibit companiescompanies, their employees, agents, representatives, business partners and theirthird-party intermediaries from engagingpromising, authorizing, making, offering or providing, directly or indirectly, improper payments or benefits to recipients in briberythe including improperly offering, promising, payingpublic or authorizingprivate thesector, giving ofincluding anything of value to individualsa or“foreign entitiesofficial” for the purposepurposes of corruptlyinfluencing official decisions or obtaining or retaining business.business, or otherwise obtaining favorable treatment. We operate in some parts of the world where corruption may be common and where anti-corruption laws may conflict to some degree with local customs and practices. We maintain an anti-corruption program including policies, procedures, training and safeguards in the engagement and management of third parties acting on our behalf. Moreover, we continue to evolve business processes, as regulations and business opportunities require, so that compliance risks are appropriately measured, mitigated, and effectively managed in alignment with appropriate risk tolerances. Despite these safeguards, we cannot guarantee protection from corrupt acts committed by employees or third parties associated with us. Violations or allegations of violations of anti-corruption laws could have a significant adverse effect on our business or results of operations.

Part of our strategy involves deploying capital to investments that enhance our business, which includes pursuing strategic acquisitions to strengthen our scientific capabilities and enhance therapeutic expertise, enhance global drug development capabilities, and increase presence in key geographic areas, or to enter into and consummate other strategic transactions, such as joint ventures, collaborations or divestitures. However, we may not be able to identify acquisition targets or other strategic arrangements that are attractive to us or that will have a meaningful impact on our operating results or to conduct other strategic transactions on terms that are acceptable to Fortrea, or at all.all, and we may not be able to realize the benefits of strategic transactions we have completed in the past or that we may complete in the future. Furthermore, the successful closing and integration of a strategic acquisitiontransactions entails numerous risks, including, among others:

Current or future acquisitions or other strategic transactions, if any, or any related integrationintegration, divestiture or transition efforts may not be successful, and we cannot provide assurance that our business will not be adversely affected by any future strategic transactions, including with respect to revenues and profitability. Similarly, any potential gains from strategic transactions, such as cost savings or other operational efficiencies may also not be realized.realized, or may be offset, partially or fully, by post-closing indemnification claims or other retained liabilities. Even if we are able to successfully integrate the operations of businesses that we may acquire in the future, we may not be able to realize the benefits that we expect from such acquisitions.

The following discussion and analysis is intended to provide a summary of significant factors relevant to the financial performance and condition of Fortrea Holdings Inc., which we refer to in this discussion and analysis as “Fortrea,” the “Company,” “our” and “we”. Prior to the spin-off which was completed on June 30, 2023 (the “Spin” or “the Separation”), Fortrea existed and functioned as part of Labcorp Holdings Inc., which we refer to in this discussion and analysis as “Labcorp” or “Former Parent.” The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated and combined financial statements and corresponding notes and other financial information included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A. “Risk Factors.” Actual results may differ materially from these expectations. See “Cautionary Statement Concerning Forward-Looking Statements.”

Our team of approximately 15,50014,300 employees conductsis able to conduct operations in approximately 100 countries and delivers comprehensive phase I – IV clinical trial management, clinical pharmacology, and consulting services for our customers. Our offering is scaled to deliver focused and agile solutions to customers globally, streamlining the biopharmaceutical product, and medical device development process.

These expenses were allocated to us based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net revenues or headcount or another reasonable driver, as applicable. We consider the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, us during the periods presented. However, the allocations may not reflect the expenses we would have incurred as an independent company for the periods presented and may not be representative of future expenses that may be incurred. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as IT and infrastructure. For a period following the Separation, however, some of these functions have beenwere provided by Labcorp under the Transition Services Agreement. The actual costs of services represented by these allocations may vary significantly from the amounts allocated to us in the accompanying financial statements.

On March 9, 2024, the Company, together with its wholly-owned subsidiary, Fortrea Inc. (the “Seller”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Endeavor Buyer LLC, an affiliate of Arsenal Capital Partners, pursuant to which the Seller agreed to sell, and to cause its affiliates to sell, certain assets relating to its Enabling Services Segment (the “Transaction”), including the sale of equity interests of Fortrea Patient Access Inc. and its subsidiaries and Endpoint Clinical, Inc. and its subsidiaries. The final adjusted purchase price for the Transaction was $340.0, subject to customary purchase price adjustments, with $295.0 paid at closing and $45.0 to be paid upon achievement of certain transition-related milestones, which includes certain services provided through a Transition Services Agreement. The Transaction closed during the second quarter of 2024. EstimatedThe proceedsfirst milestone payment in the amount of $285.2,$20.0 was received in the first quarter of 2025. The second and final milestone payment in the amount of $25.0 was received in the third quarter of 2025. The Transaction resulted in a loss on disposal of $19.6, subject to further adjustment based on customary purchase price adjustments.$19.6. The decision to sell such assets relating to the Enabling Services Segment represented a strategic shift that had a significant effect on the Company's results and operations and assets and liabilities for the periods presented. As a result, the Company has classified the assets related to the Enabling Services Segment as assets from discontinued operations and liabilities from discontinued operations on the consolidated balance sheet as of December 31, 2023. The operations of the Enabling Services Segment have been classified as income or loss from discontinued operations on the consolidated and combined statements of operations for all periods presented.operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand our results of operations for the years ended December 31, 2024, 20232025 and 2022.2024. For a comparison of our results of operations for the fiscal years ended December 31, 2024 and 2023, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 3, 2025.

Results of Continuing Operations for the years ended December 31, 2024, 20232025 and 20222024

The Company’s revenues for the year ended December 31, 2024,2025, were $2,696.4,$2,723.4, aan decreaseincrease of 5.1%1.0% over revenues of $2,842.5$2,696.4 in the corresponding period in 2023.2024. The change in revenues was due to aan decreaseincrease in organic revenues of 5.2%,0.8%, partially offset byand favorable foreign currency translation of 0.1%.0.2%. The Company defines organic growth as the change in revenues excluding the year over year impact of acquisitions, divestitures and currency. The 5.2%0.8% decreaseincrease in organic revenues was primarily driven by decreasedan increase in revenue in our clinical pharmacology business, including higher pass through costscosts. andThis increase was partially offset by lower serviceclinical development revenues resulting primarily from the lower quantity of new business wins prior to the Spin, along with the slower backlog burn rate and the mix of maturecomplex and longer duration studies in our portfolio.portfolio Theas decreasewell wasas partiallylower functional service provider revenue, which more than offset by an increase in revenue from clinicalnet pharmacologynew services.business, including higher pass through costs as projects progress through their lifecycle.

Direct costs increased 6.6%2.7% in 20232025, as compared with 20222024, and increased as a percentage of revenues to 79.2%81.5% in 20232025, as compared to 74.5%80.2% in 2022.2024. The increase in direct costs was primarily due to higheran increase in pass through costs, transitionstock services agreement costscompensation and personneldirect costsstudy related expenses, the reintroduction of variable compensation, and lower research and development tax credits. This increase was partially offset by lower headcount and personnel costs, including the removalbenefit of Formerrestructuring Parent corporate allocations and carve-out adjustments Fortrea received prior to the Spin.actions.

Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges, transition services agreement costs, information technology costs, other facility charges, advertising and promotional expenses, administrative travel and administrativecredit travel.loss provisions.

Selling, general and administrative expenses increaseddecreased 25.1%18.6% in 20242025, as compared to 2023.2024. The increasedecrease was primarily due to lower transition service agreement and information technology costs. This decrease was partially offset by an increase in professional fees and other costs to support the exitestablishment of theour Transitioncorporate Services Agreement with Labcorp and personnel and information technology costsfunctions as a stand-alone company.company as well as the reintroduction of variable compensation.

The decrease in depreciation expense for 2024,2025, as compared to 2023,2024, was due to a decrease in depreciable property, plant and equipment, primarily IT assets. The increase in depreciation expense for 2023, as compared to 2022, was primarily due to the increase in of property, plant and equipment, primarily IT assets, as part of the Spin.

The decrease in amortization of intangibles and other assets in 2023,2025, as compared to 2022,2024, iswas primarilydue to certain intangible assets reaching the resultend of thetheir impairmentuseful oflives technology assets that occurred induring the fourthfirst quarter of 2022.2025.

During the years ended December 31, 2024, 20232025 and 2022,2024, the Company recorded net restructuring charges of $50.1, $21.2,$44.1 and $25.9,$50.1, respectively, which are reflected within Restructuring and other charges in the consolidated and combined statements of operations. These charges are associated with Company actions to align resources and restructure certain operations which includes eliminating redundant positions and aligning resources and facilities for cost improvements and to meet customer requirements. In addition, in the fourth quarter of 2024, the Company approved a restructuring plan to streamline its operations and eliminate redundant positions.positions, Theincluding Company$3.2 recordedand a restructuring charge$4.8 of $21.3impairment of facility related toassets thisduring 2024 plan, which relate primarily to severance benefits2025 and are2024, accounted for under ASC 712, Compensation - Nonretirement Postemployment Benefits. Actions under these restructuring plans are expected to continue through 2025.respectively.

The increasedecrease in interest expense for year ended December 31, 2024,2025, as compared with the corresponding period in 2023,2024, is primarily due to the higher overall debt balance, and the write-off of $12.2 of debt issuance costs associated with the pay down of debt in the quarter ended June 30, 2024, including the pay down of $70.2 on term loan A and $412.5 on term loan B.B, and the write-off of $12.2 of debt issuance costs associated with the pay down, which occurred during the six months ended June 30, 2024.

Foreign Exchange Gain (Loss) Gain

The change in foreign exchange gain (loss) gain for the year ended December 31, 2024,2025, as compared to the year ended December 31, 2023,2024, changedwas primarily due to the relativefluctuations weakening ofin the U.S. Dollar against the British Pound and the Euro.

The increasedecrease in other, net for the year ended December 31, 2024,2025, as compared to year ended December 31, 2023,2024, iswas primarily related to a change in the recognitionestimated amount of athe contingent consideration payment on a sale of a facility to a thirdthird-party. partyThis anddecrease was partially offset by income related to services provided under Transition Services Agreements.

Income Tax Expense (Benefit)

For the year ended December 31, 2024,2025, the Company’sour effective tax rate was 1.3%(0.3)% compared to (3.8)%1.3% for the year ended December 31, 2023.2024. The effective tax rate for the year ended December 31, 20242025 was lower than the Company’sour statutory tax rate primarily due to goodwill impairment with no tax benefit, an increase in the valuation allowance, non-deductible employee benefits, foreignwithholding taxes on 2025 non-U.S. earnings taxedthat atare ratesnot higherpermanently than the U.S. statutory ratereinvested and U.S. tax on foreign income inclusions, partially offset by the U.S. R&D credit and certain state tax benefits. The effective tax rate for the year ended December 31, 2023 was lower than the Company’s statutory tax rate primarily due to foreign earnings taxed at rates higher than the U.S. statutory rate, U.S. tax on foreign income inclusions, the base erosion and anti-abuse tax (“BEAT”) and non-deductible employee benefits, partially offset by the U.S. R&D creditcredits and certain state tax benefits. The fluctuation in the effective tax rate for the year-to-date period was primarily due to goodwill impairment with no tax benefit, increased withholding taxes on 2025 non-U.S. earnings that are not permanently reinvested and increased non-deductible employee benefits offset by a reduction in the charge for valuation allowance.

The Organization for Economic CooperationCo-operation and Development (the "OECD") has introduced new global minimum tax regulations, known as Pillar Two, that came into effect beginning on January 1, 2024. We will continue to monitor this development and its potential impact on our future tax rate. In 2024,2025, we havedid calculatednot andaccrue accrued an additionalany top-up tax under the Pillar Two Framework in certain jurisdictions whereas the effective tax rate fell below the minimum threshold of 15%. This amount was not significant to the total 2024 income tax provisionrates for theall Company.our non-US jurisdictions exceeded 16%.

TheWe Company managesmanage cash flow to fund and invest in operational growth, capital expenditures, and credit facility repayments. In connection with the Spin, we incurred indebtedness in an aggregate principal amount of $1,640.0, which consistsconsisted of borrowings under senior secured term loan facilities and senior secured notes. We have also entered into a senior secured revolving credit facility, which consists of a five-year facility in the principal amount of up to $450.0 as further discussed in Note 11, “Debt” to our consolidated and combined financial statements. During the year ended December 31, 2024, we paid down $70.2 on term loan A, and $412.5 on term loan B, respectively.

On May 6, 2024, we entered into a three-year $300.0 accounts receivable securitization program (the “Receivables Facility”). Under this program, Fortrea Inc. conveys receivable balances to a wholly-owned, bankruptcy-remote special purpose entity, which in turn, may sell receivables to a third-party financial institution in exchange for cash. WeAs haveof December 31, 2025, the Company had sold $300.0 of receivablesreceivables, withwhich netwere proceedsderecognized of $297.9 underfrom the ReceivablesCompany’s Facility.consolidated balance sheet.

We believe our existing cash and cash flows generated from operations, plus existing credit facilities, will be sufficient to cover the needs of our current and planned operations for at least the next 12 months. From time to time, we routinely evaluate strategic opportunities, including potential acquisitions, joint ventures or investments in complementary businesses. We may also access capital markets through the issuance of debt or equity, which we may use in connection with the acquisition of complementary businesses or other significant assets, or for other strategic opportunities, or general corporate purposes.

Cash Flows for the Year’s Ended December 31, 2024, 20232025 and 20222024

Cash and cash equivalents at December 31, 2024, 20232025 and 20222024 totaled $118.5, $108.6$174.6 and $110.4,$118.5, respectively. Cash and cash equivalents consist of highly liquid instruments, such as commercial paper, time deposits, and other money market instruments, which have maturities when purchased of three months or less.

During the year ended December 31, 2024,2025, the Company's operations provided $262.8$113.5 of cash as compared to $168.4$262.8 in 2023,2024, ana increasedecrease of $94.4.$149.3. This increasedecrease in cash flows from operating activities was primarily due to decreases in cash received from accounts receivable, includingdriven by the sale of receivables under the Receivables Facility,Facility during 2024, and an increase in cash used for accounts payable. These cash decreases were partially offset by the decrease in net income and higherlower use of cash for prepaid expenses, taxes and interest, and an increase in net income exclusive of non-cash goodwill and other asset impairments, primarily driven by a decrease in selling, general and administrative expenses.

Net cash provided by investing activities for the year ended December 31, 20242025 was $251.6$14.4 as compared to net cash used for investing activities of $(31.8)$251.6 for the year ended December 31, 2023.2024. The $283.4$237.2 increasedecrease in net cash provided by (used for) investing activities for the year ended December 31, 2024,2025, was primarily due to $276.6 of net proceeds from the sale of the Enabling Services Segment andduring athe year overended December 31, 2024 offset by receipt of the first and second milestone payments related to the sale during the year decreaseended inDecember capital31, expenditures.2025. Capital expenditures were $25.5$25.2 and $40.3$25.5 for the years ended December 31, 20242025 and 2023,2024, respectively. Capital expenditures in 2025 and 2024 were 0.9% of revenues, primarily in connection with projects to support growth in the Company's core businesses. The Company intends to continue to pursue selective investments in key therapeutic areas, business areas and geographies to drive growth and to improve efficiency of the Company's operations. Such expenditures are expected to be funded by cash flow from operations.

Net cash used for financing activities for the year ended December 31, 20242025 was $497.8$76.3 compared to cash used for financing activities of $140.8$497.8 for the year ended December 31, 2023.2024. Cash used for financing activities for the year ended December 31, 2025 was primarily related to the repurchase of a portion of the 7.50% Senior secured notes due 2030 as described above. Cash used for financing activities for the year ended December 31, 2024 was primarily related to principal payments on the term loan A and term loan B.

We have chosen accounting policies that management believes are appropriate to accurately and fairly report our operating results and financial position in conformity with U.S. GAAP. We apply these accounting policies in a consistent manner. The Company’s critical accounting policies arise in conjunction with revenue recognition, business combinations, income taxes, and goodwillgoodwill, and indefinite-lived assets.

Fixed-price contracts are typically recognized as revenue over time based on a proportional-performance basis, using either input or output methods that are specific to the service provided. In an output method, revenue is determined by dividing the actual units of output achieved by the total units of output required under the contract and multiplying that percentage by the total contract value. When using an input method, revenue is recognized by dividing the actual costs incurred by the total estimated cost expected to complete the contract, and multiplying that percentage by the total contract value. Contract costs principally include direct labor and reimbursable out-of-pocket costs. The estimate of total costs expected to complete the contract requires significant judgment and estimates are based on various assumptions of events that often span several years. These estimates are reviewed periodically and any adjustments are recognized on a cumulative catch-up basis in the period they become known. During the years ended December 31, 20242025 and 2023,2024, reductions of approximately $61$16 and $60,$61, respectively, were recognized in revenue related to performance obligations partially satisfied in previous periods. DuringThe the2025 year ended December 31, 2022, revenue of approximately $72adjustment was recognizedprimarily fromdriven performanceby changes in estimated effort to complete customer contract obligations. The 2024 adjustment was driven by both changes in estimated effort to complete customer contract obligations that were partially satisfied in a previous period. Substantially all of these adjustments were associated withand changes in scope or price for full service clinical studies. The gross and net amounts of revenue recognized solely from changes in estimates were not material.price.

Fee-for-service contracts are typically priced based on transaction volume or time and materials. For volume based contracts the contract value is entirely variablevariable, and revenue is recognized as the specific product or service is completed. For services billed based on time and materials, revenue is recognized using the right to invoice practical expedient.

The Company maintains current receivable amounts with most of its customers. Fluctuations in accounts receivable, netnet, are attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers, the Company’s assessment of collectability and corresponding provision for bad debt expenseexpense, and the inception, transition, modification or termination of customer relationships. The Company regularly monitors and assesses its risk of not collecting amounts owed by customers. This evaluation is based upon an analysis of current and past due amounts, along with relevant history and facts particular to the customer and the evaluation of the recoverability of amounts due. The Company records its allowance for credit losses based on the results of this analysis. The analysis requires the Company to make significant estimates and, as such, changes in facts and circumstances could result in material changes in the allowance for credit losses.

Prior to the Spin, the Company was included in the combined U.S. federal, state, and foreign income tax returns of Labcorp, where eligible. For the periods after Spin, the Company files income tax returns as a separate company. The income tax provisions,provisions and related deferred tax assets and liabilities reflected in our financial statements represent the Company as separate from Labcorp. The Company accounts for income taxes utilizing the asset and liability method. Under this method, deferred income taxes represent the expected future tax consequences of temporary differences between the financial statements carrying amount and the respective tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. To the extent deferred taxes are recorded to accumulated other comprehensive income, we record the tax effect of any release of deferred taxes using either the specific identification approach or the portfolio approach based on the nature of the underlying item. We elected to not consider the estimated impact of potential future Corporate Alternative Minimum Tax liabilities for purposes of assessing valuation allowances on the Company’s deferred tax balances. The effect on deferred tax assets and liabilities of an enacted change in tax rates is recognized in income in the period that includes the enactment date.

We are subject to income taxes in the U.S. and various foreign jurisdictions. The Company is not currently under tax examination by the Internal Revenue Service (“IRS”) as a separate taxpayer. We are no longer subject to U.S. state income tax audits prior to 2018.2017. ThereWe are subject to ongoing foreign income tax audits as a separate taxpayer in various jurisdictions ranging from 2018 - 2022. While we believe we have adequately accrued for all tax positions, amounts assessed by taxing authorities could be greater than what we have recorded in our financial statements. Accordingly, additional income tax provisions on federal, state and foreign income tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved. Since the timing of resolution of income tax audits are uncertain, it is difficult to predict with certainty the range of reasonably possible significant increases or decreases in the liability related to uncertain tax positions that may occur within the next twelve months.

With limited exception, the Company has considered the earnings of its foreign subsidiaries prior to 2024 to be indefinitely invested outside the United States on the basis of limited foreign cash reserves and plans for the reinvestment of those subsidiary earnings. Our foreign undistributed earnings are computed under the U.S. federal tax earning and profits (“E&P”) principles. The determination of the amount of deferred tax liability that would be recorded for these earnings if they were not indefinitely reinvested is not practicable at this time. In 2024,2025, management has recorded a deferred tax liability related to applicable foreign withholding taxes on approximately $95.3$133.5 of undistributed 2024 U.S. GAAP earnings and profits of its foreign subsidiaries as the Company does not intend to reinvest these earnings will not be indefinitely reinvested outside the United States.

Fortrea, a Delaware corporation incorporated on January 31, 2023, is a leading global contract research organization (“CRO”) providing biopharmaceutical product and medical device development solutions to pharmaceutical, biotechnology and medical device customers. We offer customers highly flexible delivery models that include Full Service, Functional Service Provider (“FSP”), and Hybrid Service structures. We have a rich history of providing clinical development services for over 30 years across more than 20 therapeutic areas, first as Covance and later as Labcorp Drug Development. On June 30, 2023, we completed the Spin from Labcorp. We leverage our global scale, scientific and therapeutic expertise, clinical data insights, technology innovation,innovation (including Fortrea Intelligent TechnologyTM), industry network and decades of experience as a standalone company and as a business unit prior to the Spin to deliver tailored solutions to our customers. With what we believe is a distinctive market offering, Fortrea meets growing global demand for clinical development services.

Our backlog consists of anticipated future revenue from business awards that either have not started, or that are in process and have not been completed. Our backlog also reflects any cancellation or adjustment activity related to these awards. The average duration of our contracts will fluctuate from period to period based on the contracts comprising our backlog at any given time. The majority of our contracts contain early termination provisions that typically require notice periods ranging from 30 to 90 days. We adjust backlog for foreign currency fluctuations and exclude from backlog amounts that have been recognized as revenue in our statements of operations. Our backlog was $7.8 billion as of MarchJune 31,30, 2026.

Three and Six Months Ended MarchJune 31,30, 2026 compared with Three and Six Months Ended MarchJune 31,30, 2025

The Company’s revenues for the three months ended MarchJune 31,30, 2026 were $636.5,$678.2, a decrease of 2.3%4.5% from revenues of $651.3$710.3 in the corresponding period in 2025. The change in revenues was due to a decrease in organic revenues of 3.2%4.9%, andpartially offset by favorable foreign currency translation of 0.9%.0.4%. The 3.2%4.9% decrease in organic revenues was due to lower pass through costs as well as lower demand for our functional service provider business. These decreases were partially offset by an increase in fullour serviceclinical revenue,pharmacology business, driven by an increase in net new business.business and study mix.

Direct costs decreased 4.1%6.6% during the three months ended MarchJune 31,30, 2026 as compared with the corresponding period in 2025. The change in direct costs was due to a decrease in organic direct costs of 6.3%7.4%, andpartially offset by unfavorable foreign currency translation of 2.2%.0.8%. Direct costs decreased as a percentage of revenues to 80.6%79.5% during the three months ended MarchJune 31,30, 2026 as compared to 82.1%81.2% in the corresponding period in 2025. The 6.3%7.4% decrease in organic direct costs was primarily due to lower pass through and stock-based compensation costs, as well as lower personnel costs, including the benefit of restructuring actions. These decreases were partially offset by a year over year increase in variable compensation expense.expense and clinical pharmacology study related costs.

Selling, general and administrative expenses decreased by 17.5%18.2% during the three months ended MarchJune 31,30, 2026 as compared with the corresponding period in 2025. The decrease was primarily due to lower information technology and personnel costs, including the benefit of restructuring actions.actions, as well as lower credit loss provisions. These decreases were partially offset by a year over year increase in variable compensation expense.

The change in depreciation expense for the three and six months ended MarchJune 31,30, 2026, as compared to the corresponding periodperiods in 2025, was not significant.

The change in amortization of intangibles and other assets duringfor the three and six months ended MarchJune 31,30, 2026, as compared to the corresponding periodperiods in 2025, was not significant.

There were no goodwill and other asset impairments for the three and six months ended MarchJune 31,30, 2026. Goodwill impairment for the three and six months ended MarchJune 31,30, 2025 was $488.8$309.1 and $797.9, respectively. This impairment was specific to the Clinical Development reporting unit.

The changedecline in restructuring and other chargesexpense for the three and six months ended MarchJune 31,30, 2026, as compared to the corresponding periodperiods in 2025, was notprimarily significant.due to the planned progression of the Company’s restructuring programs, which resulted in lower restructuring charges.

The decrease in interest expense for the three and six months ended MarchJune 31,30, 2026, as compared with the corresponding periodperiods in 2025, was due to lower average debt outstanding during the first quarterand second quarters of 2026, driven by the repurchase of $75.7 of senior secured notes in 2025 and zerono borrowingborrowings on the revolverrevolving incredit facility during the quarter,first half of 2026, as well as lower effective interest rates on term loan A and term loan B.

The change in foreign exchange gain (loss) for the three and six months ended MarchJune 31,30, 2026 compared to the foreign exchange gain (loss) for three and six months ended MarchJune 31,30, 2025, was primarily due to the fluctuations in the U.S. Dollar against the British Pound and the Euro.

The changedecline in other, net for the three and six months ended MarchJune 31,30, 2026, as compared with the corresponding periodperiods in 2025, was notprimarily significant.due to income recognized in the prior-year periods related to services provided under transition services agreements that terminated in 2025.

For the three months ended MarchJune 31,30, 2026, the Company's effective tax rate was (91.91000.0)% compared to (2.71.1)% for the corresponding period in 2025. For the six months ended June 30, 2026, the Company's effective tax rate was (172.6)% compared to (2.1)% for the corresponding period in 2025. The fluctuationfluctuations wasin the quarter-to-date and year-to-date periods were primarily due to goodwill impairment with no associated tax benefit and BEAT for the three and six months ended MarchJune 31,30, 2025 and the impact of valuation allowance primarily related to expected interest deductibility limitations for the three and six months ended MarchJune 31,30, 2026.

The Company manages cash flow to fund and invest in operational growth, capital expenditures, and credit facility repayments. In connection with the Spin, we incurred indebtedness in an aggregate principal amount of $1,640.0, which consists of borrowings under senior secured term loan facilities and senior secured notes. We have also entered into a senior secured revolving credit facility, which consists of a five-year facility in the principal amount of up to $450.0 as further discussed in Note 6, “Debt” to our condensed consolidated financial statements. As of MarchJune 31,30, 2026, there was no balance outstanding on the Company’s revolving credit facility and there were $2.3 in letters of credit issued under the letter of credit sublimit, resulting in $447.7 available for borrowing. The maximum revolver borrowing outstanding was $— and $98.5$135.5 during the threesix months ended MarchJune 31,30, 2026 and 2025, respectively.

On May 6, 2024, we entered into a three-year $300.0 accounts receivable securitization program (the “Receivables Facility”). Under this program, Fortrea Inc. conveys receivable balances to a wholly-owned, bankruptcy-remote special purpose entity, which in turn, may sell receivables to a third-party financial institution in exchange for cash. As of MarchJune 31,30, 2026, the Company had sold $300.0 of receivables, which were derecognized from the Company’s consolidated balance sheet.

Cash Flows for the threeSix months ended MarchJune 31,30, 2026 and 2025

Cash and cash equivalents at MarchJune 31,30, 2026 and 2025 totaled $147.5$168.6 and $101.6,$81.2, respectively. Cash and cash equivalents consist of highly liquid instruments, such as commercial paper, time deposits and other money market instruments, which have maturities when purchased of three months or less.

During the threesix months ended MarchJune 31,30, 2026, the Company’s operations usedprovided $17.0$11.9 of cash as compared to $124.2$102.4 of cash used by operations during the threesix months ended MarchJune 31,30, 2025. The decreaseincrease in cash usedprovided of $107.2$114.3 for the threesix months ended MarchJune 31,30, 2026 was primarily due to an increase in cash received from accounts receivable, a decrease in cash used for accounts payable,payable and interest, as well as an increaseimprovement in net incomeloss exclusive ofexcluding non-cash goodwillincome and otherexpense asset impairments.items. These cash increases were partially offset by higher use of cash for accrued expenses, including variable compensation.expenses.

Net cash used for investing activities for the threesix months ended MarchJune 31,30, 2026 was $8.0$15.0 as compared to net cash provided by investing activities of $16.1$8.6 for the threesix months ended MarchJune 31,30, 2025. The $24.1$23.6 decreaseincrease in net cash (used for) provided by investing activities for the threesix months ended MarchJune 31,30, 2026 was primarily due to receipt of the first milestone payment related to the sale of the Enabling Services Segmentsegment during the threesix months ended MarchJune 31,30, 2025 and a period over period increase in capital expenditures. Capital expenditures were $8.0$17.0 and $2.9$10.4 for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Capital expenditures for the threesix months ended MarchJune 31,30, 2026 were 1.3% of revenues, primarily in connection with projects to support growth in the Company's core businesses. The Company also intends to continue to pursue selective investments in key therapeutic areas, business areas and geographies to drive growth and to improve efficiency of the Company's operations. Such expenditures are expected to be funded by cash flow from operations.

Net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2026 was $— compared to cash provided by financing activities of $88.4$49.4 for the threesix months ended MarchJune 31,30, 2025. Cash provided by financing activities for the threesix months ended MarchJune 31,30, 2025 was primarily related to net proceeds from the revolving credit facility. The Company did not draw on the revolving credit facility during the threesix months ended MarchJune 31,30, 2026.