Fortrea (FTRE, Financial), a contract research organization previously part of LabCorp (LH, Financial), has seen its shares drop to yearly lows following disappointing Q1 results and a reduction in FY24 revenue and adjusted EBITDA forecasts. This marks the first year-over-year revenue decline since its July 2023 spinoff, with a nearly 5% drop to $662.1 million, attributed to slower-than-expected recovery post a weak Q4.
FTRE is currently navigating several changes:
- The company is distancing itself from LH and enhancing its own brand.
- FTRE is selling its Enabling Services unit, Endpoint Clinical, to Arsenal Capital Partners, aiming to focus solely on Phase 1 to 4 clinical services and raising $345 million in the process.
- Despite a robust drug development market and healthy biotech funding in Q1, FTRE missed its book-to-bill target of 1.2 due to some transactions not materializing.
- The company has revised its FY24 revenue outlook downwards from $3.14-$3.21 billion to $2.79-$2.86 billion, citing timing issues, although it reports a growing opportunity pipeline in both quantity and dollar value.
- FTRE is progressing in its transformation, anticipating overcoming spin-off complexities by 2025. It has exited about half of its transition service agreements (TSAs) with LH, which are impacting its margins, and plans to exit most of the remaining TSAs by end of 2024.
Despite these challenges, FTRE's strategic direction remains steady, but it may take additional quarters for business normalization.
