Fortrea (NASDAQ:FTRE) reported fourth-quarter and full-year 2025 results that management said were in line with guidance despite what CEO Anshul Thakral described as a “challenging and uneven operating environment.” Thakral, who said this was his first full quarter in the role, pointed to improving demand indicators in the second half of the year, alongside cost savings and cash flow improvements.
Fourth-quarter results and full-year performance
CFO Jill McConnell said fourth-quarter revenue was $660.5 million, down 5.2% from the prior-year quarter. She attributed the decline primarily to lower pass-through costs in both clinical pharmacology and clinical development, as well as continued headwinds in the company’s functional service provider (FSP) business. McConnell said the decline in pass-through costs was driven by study mix.
Adjusted EBITDA in the fourth quarter was $54 million, compared to $56 million in the prior-year period. McConnell said the decline was driven primarily by the reintroduction of variable compensation, partially offset by benefits from cost savings initiatives. Full-year adjusted EBITDA was $189.9 million, toward the higher end of guidance, but down from the prior year. McConnell cited lower FSP revenue, clinical pharmacology mix, the reintroduction of variable compensation, and lower research and development tax credits as drivers of the decline, largely offset by savings initiatives.
Fortrea posted a fourth-quarter net loss of $32.5 million, compared to a net loss of $73.9 million a year earlier. Adjusted net income in the quarter was $9.2 million, compared to $16.6 million in the prior-year period. Adjusted basic and diluted EPS were $0.10 and $0.09, respectively.
Bookings, backlog, and demand signals
Fortrea ended the year with a fourth-quarter book-to-bill of 1.14x and a trailing twelve-month book-to-bill of 1.02x, which Thakral said reflected improved demand in the second half of 2025. McConnell reported backlog of $7.7 billion and said cancellations remained in line with historical trends.
On the demand environment, Thakral said the macro backdrop “remains cautious” but shows “signs of stabilization and early recovery.” He highlighted that funding activity “rebounded meaningfully in the second half of 2025,” with the strongest activity in the fourth quarter. He also said large pharma budgets have “largely stabilized” after pipeline reprioritizations and that the market is signaling improving biotech funding flow through 2026.
During Q&A, Thakral said client engagement levels were “significantly higher” than in the first half of 2025, decision-making timelines have returned closer to normal, and conversations with customers have become “more constructive.” He noted increased RFP flow from biotech customers in the fourth quarter and said the company saw a pickup in full-service work, while remaining “very selective” in FSP due to margin headwinds.
Cost savings, margins, and balance sheet actions
Management emphasized progress on cost optimization. Thakral said Fortrea exceeded its savings targets, delivering approximately $153 million in gross savings and $93 million in net savings for 2025. McConnell reiterated those figures and said the difference between gross and net savings reflected reinvestments in people, including the planned reintroduction of variable compensation.
On expenses, McConnell said GAAP direct costs in the fourth quarter decreased 4.8% year-over-year, primarily due to lower headcount and personnel costs. SG&A decreased 30.5% year-over-year, driven primarily by lower transition services agreement (TSA) and IT-related costs. She added that controllable SG&A in the fourth quarter was down 4.8% sequentially and 23% versus the fourth-quarter 2024 run rate, reflecting the company’s SG&A savings program.
Fortrea also continued to pay down debt. McConnell said the company repurchased $75.7 million of senior notes at par during the fourth quarter using cash on hand, and noted that since the spin, Fortrea has paid down about 35% of its original debt.
Cash flow improvement and working capital
McConnell said fourth-quarter cash generation was “particularly strong,” with operating cash flow of $129.1 million and free cash flow of $121.6 million, both exceeding expectations. For full-year 2025, operating cash flow was $113.5 million and free cash flow was $88.3 million. She contrasted this with 2024 figures that benefited from the net proceeds of a $300 million securitization program, and said that excluding the securitization impact, operating and free cash flow improved year-over-year by about $149 million each in 2025.
The company cited days sales outstanding (DSO) improvements as a key driver. McConnell said DSO was 16 days at year-end, improving 17 days sequentially and 24 days year-over-year, reflecting enhancements in order-to-cash processes, as well as favorable payment timing in the fourth quarter. Fortrea ended the quarter with no revolver borrowings and reported available liquidity in excess of $600 million.
2026 guidance and priorities
For 2026, Fortrea guided to revenue of $2.55 billion to $2.65 billion and adjusted EBITDA of $190 million to $220 million. McConnell said the anticipated year-over-year revenue decline reflects the impact of software bookings in the first half of 2025, continued FSP headwinds, and expected reductions in pass-through costs, while the adjusted EBITDA improvement is tied to continued right-sizing and efficiency initiatives.
McConnell said the company plans to continue cost savings efforts in 2026, targeting incremental gross savings of $70 million to $80 million and net savings of $40 million to $50 million, as Fortrea moves closer to normalized compensation levels by the end of 2026. She also said the company expects first-quarter 2026 cash flow to be negative due to variable compensation payouts and some reversal of timing-related DSO benefits, but is targeting positive full-year operating cash flow.
When asked about longer-term margin objectives, Thakral said management believes a “mid-teen” adjusted EBITDA margin is appropriate for a pure-play CRO like Fortrea and characterized the effort to reach that level as a multi-year journey. He also said he would like to provide more detail around the timeline after having a full year in the role and suggested an investor day could occur later in 2026.
Thakral also addressed investor concerns about artificial intelligence disrupting the CRO industry, calling the current debate more driven by “sentiment and headlines” than changes in client behavior. He said AI adoption in clinical trials is early and constrained by regulation and quality requirements, and framed AI as a productivity and throughput lever rather than a replacement for core clinical execution.
About Fortrea (NASDAQ:FTRE)
Fortrea, Inc is a global contract development and manufacturing organization (CDMO) that provides integrated solutions for pharmaceutical and biotechnology companies. Established as a spin-off from Thermo Fisher Scientific’s Pharma Services business in October 2023, Fortrea leverages a legacy of scientific expertise and manufacturing scale to support drug development from early-stage research through commercial production. The company’s comprehensive offerings address the complex needs of both small-molecule and biologics programs, making it a single source for clients seeking to accelerate timelines and manage costs.
Fortrea’s core services encompass analytical and formulation development, process optimization, clinical and commercial manufacturing, and packaging services.
