Good evening. My name is Tejas Sawant, and I'm on the life sciences team here at Morgan Stanley. Before we begin, for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, do reach out to your sales rep. So it's my pleasure this evening to host Fortrea, and speaking on behalf of the company, we have Tom Pike [ CEO] and Jill McConnell [CFO]. So thanks, guys, for doing this. We appreciate it. Maybe Tom, just to kick things off, can you outline Fortrea's, you know, key accomplishments this year against a decidedly tough macro backdrop? What are you particularly proud of, and is there anything you wish you'd done differently?
I think there's always things you wish you did differently. Thank you, Tejas, for having us, by the way, and, yeah, I think, you know, when you consider this company has only been public for a year, we actually have accomplished a tremendous amount. This company was a division of a division of a much larger company. It never operated independently, and then, at the same time, right out of the gates, we had two very strong bookings quarters. Our quarter one bookings were actually decent. You know, people forget that a one point one is a growth story, so you know, in any other industry, one point one's a growth story. And so we feel pretty good about the commercial transformation. We can come back to it.
There's more to do, but we're also making great progress getting out of our parent. You know, you think about how these things work. We have more than a thousand servers and, you know, five hundred applications sitting there with our parent, and we're making great progress getting them out. We've actually transformed the way we think about customer service so that we have multi-level selling taking place. We have, direct interactions with us. We've brought our therapeutic leaders together. We've developed strategies by therapeutic area. We're now targeting both biotechs, molecules, and large pharma. We had a couple of big break-ins. Tejas, we announced, in our last earnings call that we had three break-ins with large pharma during the second quarter.
Mm-hmm.
Two of them, what I'd call footholds, and those footholds really give us the ability to walk around in a large pharma while we're doing a piece of the business, not a formal part, large partnership, but a good partnership. And then one full-service partnership, which should pay real dividends in 2025. So I think, you know, when you step back from it all, from where we started, we put a great team together. Oh, yeah, and one thing Jill just reminded me is we came out, we had a fair amount of debt on us. And we've actually paid down about $500 million of debt, which again, kudos to Jill's team for getting that done. So that's really de-risked- the spin from an investor and a customer standpoint to a great degree.
Got it. So, you know, just double-clicking on the biotech side of things, we'll get to the pharma piece in a second. When you look at, you know, your clinical services offering, you know, last quarter, you know, you called out that the pipeline was actually quite strong, but it didn't translate into, you know, bookings and revenue recognition from your biotech customer base. Was there a difference in behavior between the larger companies versus the emerging ones? And what does your backlog split look like across these two customer sets?
Yeah, I'll let Jill talk about the backlog in a second. You know, we had an interesting thing happen that we probably didn't think enough about early in the year, and that's in the H1 of the year, we had a lot of exposure in our opportunity pipeline to biotech- and a little bit less than normal to large pharma. So one of the things we really like about the business is we're about 50/50, large pharma and biotech, and we had a, you know, more percentage-wise of biotech. I think what we learned is that it's just less predictable contracting with them.
Mm-hmm.
You know, you'll be awarded something, and then, you know, there may be a board decision. They may still be working with a regulatory authority. A number of things can come up, and it's just less predictable. So in the H1 , that really hit us. In the H2 of the year, we actually are more exposed to large pharma in our opportunities as well as biotech.
Mm-hmm.
And large pharma tends to have more predictable processes, procurements involved. They do things to deadlines, so we actually expect that the H2 of the year should be more predictable than the H1 was in terms of what those bookings are. And Jill, I don't know if you want to talk about the backlog.
Yeah, I think in terms of backlog, it generally mirrors our revenue mix, too, which we've, you know, ever since it's been when we did our investor day, we talked about being about 50/50. We really like that mix because it, you know, that balance of the large pharma, where you have more consistent
Yeah
pipelines, relationships with the small. So we, the backlog generally mirrors that.
Got it.
It can vary from quarter- to- quarter, but not bad.
Of course, and between the biotech book of business, specifically, Jill, what's the emerging sort of biotech exposure versus the more mature biotech's?
Yeah, I think when you talk about emerging, you're meaning probably people that are like-
Yeah
... pre-commercial, right?
Exactly.
We do have a portion of that, but it's not the majority of it is-
I see
... commercial stage biotech.
Got it.
We are, you know, we're really careful about when we do work with the pre-commercial, making sure they've got appropriate funding before we put ourselves at risk with work or even bring the order into our into our backlog.
Got it. And Tom, back to you on just the hesitancy in actual execution of bookings. Is it just nervousness surrounding capital markets activity and therefore, you know, what future cash availability could look like? You know, Jim over at Charles River called, you know, the psychology around this being as important as the reality of what's on the balance sheet and those kinds of things. What's your take on that?
It's hard to disagree with Jim about the importance of psychology with them. But I think it's just being a little more prudent and a little bit more involvement of different executives in the decision-making. So where in the past with a biotech, you might have had the R&D portion of the organization, or essentially the research portion of the organization, able to make a decision. Now, you may have board involvement-
You may have an advisory committee involved, and so it's just stretching out a little bit. So for us, our actual pipeline of biotech opportunities is strong enough for us to be able to be successful. It really is just a matter of being a little more predictable in terms of the actual timing. And so what we're trying to do is work with our teams to be more disciplined in asking questions, to make sure we understand exactly what's going on in the decision-making process, so we can set expectations and prioritize better.
Got it. You know, that, that's actually a perfect segue into my next question. Just this difficulty in predicting when biotech are actually going to contract, what are some of the measures you're taking to improve your revenue forecasting for this set of customers? Is it simply a matter of, you know, using more conservative assumptions on conversion rates as it relates to your outlook? Or are there any operational measures that you can put in place to get better at that sort of prediction?
Yeah. I think it's we are doubling down. We're looking at some of our processes to make sure that we go deep enough in our forecasting. So for instance, before Jill and I came up here, we took a second look. We have a normal process, so every Friday, we take a look at our sales pipeline, and every Friday, we look at our opportunities, and we say: Does this need more attention? Is this something that Jill should send an email or call the executive? Should Tom do it? Should some other executive? So we do this. We've added this discipline to the organization so that we're looking every Friday.
However, now for forecasting, we're actually going a little bit deeper, and we're doing multiple scenarios with ins and outs and probabilities, and that helps us again. The main thing is, you know, I don't want to predict a 0.9, I want to make a 1.2 . So the main thing that we're trying to do with that is: How do we reprioritize things? What can we do to intervene to actually make a difference in a sale? And so, it, you know, the goal is. It's more than just predicting accurately. It's actually making the number that we're trying to do.
Got it. Cancellations, I mean, recently, there was some chatter in the market that a smaller CRO that focuses mainly on biotech customers, you know, called out an uptick in cancellations. Is that a dynamic that you see in your book of business at all post-second quarter, or not really?
Jill?
Yeah, we haven't seen that.
Okay.
They've been consistent for us, and, you know, I think relatively low. We haven't seen uptick in cancellations.
Got it. Perfect. You know, we've heard sort of more positive commentary from the Fed around, you know, starting to cut interest rates. Any shift at all from the biotech in terms of, you know, their confidence levels and being a bit less cautious around spend as we get closer to the rate cuts? And has that started to bubble up in terms of actual contracting and bookings at all, or not yet?
Not really. I mean, I don't, I think it's too early to tell. We've all been watching interest rates and the Fed for so long. I think we've all been hoping for some kind of reduction in interest rates. We're finally starting to see some daylight on that. I do think if you just look over time, biotech spending is somewhat correlated with lower interest rates. You know, I think the general view is that that will be a positive, but it's a little bit early to judge from our standpoint on that.
Fair enough. Let's switch to the larger cap sort of customer base. Tom, you mentioned the wins in the second quarter here. I guess, as you went head-to-head with a bunch of other CROs and into those conversations, what really stood out about Fortrea?
Yeah, a few things. You know, we did naturally, as you'd expect, we did debriefs after the fact, and our culture, the agility of the organization, the access to management is very meaningful to them, but also some of the ways we're trying to innovate. It's been noted that we seem to be closer to investigator sites and then really thinking about investigator satisfaction in ways that others aren't. They like our tech strategy. We are close to Veeva, we're close to Medidata. We're probably the leading CRO in terms of using the entirety of the Veeva Suite, and then we're doing some innovative stuff with people like Advarra and WCG as well. So, so they like the way we're leaning into people who are investing heavily in tech.
And then finally, they do like our data strategy. The LabCorp data is still valuable, and they like the fact that we're partnering with others that have really interesting data sources. One, you know, just for instance, we have an exclusive partnership with Verana, who has got an ophthalmology database. We do very well in ophthalmology, and so that gives us an advantage. We've been you know, we're trying to make the most of the ability to develop and leverage relationships with key players, as well as some of this real focus around sites.
Got it. And was what resonated with those customers different based upon, you know, the nature of the contract? Sounded like a couple of them were more on the FSP side, and one was more full service. So was it the same sort of criteria that you just laid out across all three, or was there a distinction?
Yeah, it's a mixture. We didn't really have a big FSP win per save, but we have... You know, some of the... when you think about this business, people think about full service, they think about FSP, but there are other areas like data sciences. So we had some key wins around the data science area. We had key wins around full service, and I think in both of those, they just like the way we're trying to innovate.
Mm-hmm.
One of the things that we're really focused on is how do we improve productivity for the larger pharmaceutical firms? And they really like our approach to that, and how we quantify that, and how we're thinking about it. In fact, Jill and I have a meeting after this, it's going to be focused on productivity for a couple of hours tonight. So it's something we're really trying to lean into, is how do we make the clinical research process better for our customers? And naturally, they like that.
Got it. So, you know, one of the large preclinical CROs in the space, I mean, they called out a sudden and unexpected deterioration on the large pharma side of their book of business in the second quarter, said it continued into July, and also a slower than anticipated recovery in biotech. You know, obviously, you guys are on the clinical side. It's a long cycle business that gives you the benefit of a degree of insulation, but, are you seeing any of those concerns bubble up in your conversations in July or August?
You know, Fortrea is really focused on phase I to phase IV clinical research, so we're very targeted. And the place where we would look to, and we actually discussed that commentary, is does it affect our phase I operation? And what I think we're really pleased about is the fellow who runs that business has repositioned that business to work more with large pharma as well as biotech. And so he's really kind of dodged any early clinical bullet associated with biotech right now, and so we are doing some really interesting stuff, some oral GLP-1s and other interesting drugs that are coming along. And then we're trying to focus on how do we take things from phase I into phase II and really keep that relationship.
Mm-hmm.
In general, I think what Fortrea is exposed to, we have enough biotech for us to be successful. Then we have enough large pharma exposure to really mediate the risk of being too exposed to biotech. Then the large pharma, and we could talk about a little bit, Tejas. The large pharma we're exposed to are a nice mix, so, you know, so far they're performing well for us as well.
Got it. Obviously, you've been around the industry for a while, Tom. As you know, think about the IRA, or rather, as you talk to, you know, your customers, on the IRA, where is their head at? I mean, on the one hand, you see this first round of drug pricing negotiations. The outcome of the first round of drug pricing negotiations. Most of the pharma companies thought it went better than the worst case scenario, and it's a manageable impact starting in 2026. But then when you hear sort of the commentary from the preclinical side, you almost wonder if there's an underlying structural reset in the way they approach innovation.
Are they going to sort of significantly reprioritize pipelines here, looking at, you know, larger indications first, versus going after some of the rare diseases or the smaller indications, and then adding to the label over time? What are you hearing in your sort of conversation?
Yeah. I think the concern that we all have is that there is a risk that we'll reduce innovation in pharmaceutical industry by doing these kinds of programs. And people forget that we very carefully, when we're pricing drugs, we try to think about the benefits to patients, and then we try to price them appropriately versus alternative therapies. And so there's a lot of care that goes into that. So when somebody uses a blunt instrument to reduce the price, it's something that we get concerned about whether we can support the innovation that, frankly, the burden of disease deserves. That being said, I think, like, you know, with so many things, we're talking about Medicare Part D, you know, people thought that was going to be a disaster, and we've learned to live with it.
You know, we think we're learning to live with this as it is. And so it's starting to become a normal part of conversations. For CROs, there could be some benefits because it could bring forward larger populations of patients, larger indications earlier in the patent life of a drug. And that might mean that there are larger trials earlier, which could be good for us because pharmaceutical firms won't want to staff up for it. I do think there's a little bit of worry about if the IRA gets significantly expanded by either administration.
Could happen in either one, that will certainly cause some pause for all of us. But I hope that the government will realize that we don't want to stifle the tremendous innovation going on. I mean, some of the therapies we have today, you know, whether it's a GLP-1, crossing different areas like kidney disease, you know, cardiovascular, other things, or some, the cell and gene therapies, some of the other therapies we have are really incredible, and I think we hope that the IRA doesn't crush that innovation.
Got it. Fair enough. You know, I think you talked about your pipeline at the beginning of the third quarter being up. I think it was 7% or 8% versus 2Q. What is your threshold for adding a project to the pipeline, Tom? And have your criteria for what's in the pipeline evolved in light of some of the forecasting issues you had here in the second quarter?
Yeah, Jill, do you want to talk about that?
Yeah, I don't think so. We vet everything before it goes in. It would be a qualified pipeline.
Got it.
Not every opportunity that we see goes in there. So we'll look at it to say, is it a therapeutic area you know, where we have strength? Is this somebody that we think... You know, sometimes you can tell that they're just, you know, going for a price, a price play. You know, we'll look also, is it an organization that has some level of funding, or is this, you know, more a hypothetical type of opportunity? So we'll do that vetting and put it in there. I don't think we've-- That hasn't changed- since we spun. I, you know, I think we're still treating them the same, and we have been seeing quarter- on- quarter the pipeline grow. So we're pleased with that, and we're going to continue to push to increase the size of the funnel coming into it.
Got it. And just about the conversion velocity, Jill, I mean, has that started to get a little bit better?
So, so burn rate will look better in the H2 . Some of that is because some of the growth that we're projecting for the H2 on the service fee side is from the phase one clinics. You know, Tom talked about some of the repositioning there. We've got some really great projects with one of our partners in particular that have really increased the occupancy in our clinics. That's part of it, and some of it is, you know, we did have very strong book-to-bills in the back half of last year, and those are really kind of coming through as we get to the end of the year. So, and we're also really focused on the productivity of our operations organization. We have a lot of projects going on there to increase that. All those things coming together should drive some improvement in the H2 .
Got it. What does your book-to-bill look like in the back half of the year, Jill? I mean, are you still confident of getting to that one point, the magical one point two?
We're never going to guarantee. We won't guarantee anything. That confident word always, I think, that tripped us up before. We have a strong pipeline. There's a lot of opportunities. We're really focused, as Tom said, you know, we've made some additional changes since Q2. We've talked about believing that we have line of sight to achieving a 1.2 over the course of the H2 , with Q4 being stronger than Q3. And that's still how we feel. You know, the end of every quarter, the last month of every quarter is still really the make or break for the quarter. Just by nature of how the industry works. And so we'll be working hard in September and all through the fourth quarter, but that is still as a one point two overall for the half. Yeah, that's our target.
Got it.
Okay.
Fair enough. I think your largest customer, Tom, is about, you know, 13-14% of sales, and obviously there's some variation in terms of budget pressure across pharma companies, right? In terms of their GLP-1 exposure, some people dealing with COVID runoffs, clinical trial failures, and then obviously patent cliffs. So are there any customer-specific dynamics to be thinking about, either in terms of upside or downside to that backlog conversion rate?
We are pretty well exposed across different types of large pharma, and the way we've started to think about it is that there's really three groups of pharmaceutical firms. There's one group who are being very successful right now, and they're actually increasing their spending on R&Ds, in some cases, because of patent cliffs, where they're going to need to fill in revenue several years from now.
And so that group is doing great. And then we have another group who's restructuring. You know, a number of them are in the news, and they're clearly restructuring their business because they haven't been as successful. And then a group in the middle that we kind of call optimizers, and the optimizers are doing okay, but they're trying to optimize their spend associated with clinical research. We have pretty good exposure to all three, so we're lucky that our customers are spread across all three. I'd love it if we weren't in the restructuring class, but we have, you know, a relationship there that's in the restructuring group, but it's a good relationship. And so again, we feel pretty good about who we're exposed to. I mean, to be perfectly honest with you, would I love more, you know, vaccine exposure?
Would I love more GLP-1 exposure? Absolutely. But as it sits, we're pretty well spread. Again, there's this. Fortrea has this dynamic of diversification that's kind of nice, where we're diversified globally, we're diversified across TAs, and diversified across these customer types. And so we may not have the explosive growth that smaller companies have that are less diversified, but you can kind of count on our customers- being there, so.
Fair enough. Any thoughts on the pricing environment? I mean, that's been a point of focus, of late. Some of the larger CROs- have called out, you know, pricing competition as well.
Yeah, I think it depends a little bit on who you're exposed to. Again, at our size, it's a couple of things. In the clinical pharmacology business, phase one, I would say it's just very normal. There's pricing discipline. We often don't compete purely on price in there. In full service, which is our largest business, it's relatively disciplined.
And basically, if you think about what happens, so somebody gives you a molecule, and they basically outsource it to you. So they outsource the project management plus the clinical research associates. We help them pick sites around the world. We manage the project. And in those cases, our strategy for what sites we choose, what countries we choose, our relationships with those sites, to how we use data and technology, those actually are as important as the price. So we find, in general, customers would prefer a good strategy to the best price, and so we try to compete there. There is this third piece of these businesses, FSP, it's called Functional Service Provision. It's kind of like a staffing business. And in the staffing business, that has become price competitive.
I think we always knew, if you watch what happened with the sales rep business and CROs, if you watch what happened in the staffing business with people like Randstad and others over time, there's just less value added to it. So it's something that is prone to price competition. And I do think you hear from our competitors that there's a fair amount of that. Now, for us, Tejas, we're actually just trying to maintain in that because we want to improve the margins of the business.
Sure.
We don't want to go for low-margin business that would tank our future. And we feel like we have enough opportunity in full service phase one and very selective FSP, that we can grow the way, you know, at attractive above-market growth rates over time by, you know, not having to win the biggest, hairiest lowest priced FSP work. So, so for us, you know, clinical pharmacology, good. Global clinical development, full service, good. FSP, price competition, but we're selective in how we think about that.
Got it. Fair enough. What is the mix, Tom, across your backlog in terms of full service hybrid FSP?
We don't disclose, but what we do disclose is our largest business is full service. And then FSP is behind that, and then clinical pharmacology is behind that.
Got it.
Fair enough. Switching to the guide, Jill, back to you. How are you thinking about the cadence of the improvement here? I know you mentioned obviously, you know, 4 Q being a little bit better than 3 Q. But any sort of further, you know, trends that you can highlight in terms of how that improvement plays out?
For the remainder of this year? Yeah. Yes. So, it will continue to increase over the course of the year. So, there'll be some probably muted improvement in Q3, and then more of an improvement in Q4, where at a point where you'll see a little bit in Q4 of benefit as we do start to formally exit some of the remaining technology TSAs.
Yep.
There'll be a little bit of improvement in late part of the year in our SG&A line. There's still a lot more to do there next year, but you'll see some improvement there. And then the growth, you know, quarter- on- quarter from a service fee perspective will be a little bit in Q3, but more so in Q4 as we start to really see the projects we won in the H2 of last year, plus the productivity work that we've been doing, come to play in the fourth quarter.
Got it. And at this point, I mean, do you have good visibility in terms of how the rest of the year plays out? Just given the cut, I mean, is it fair to call the guide as relatively de-risked?
We believe at this point that the EBITDA guide... I mean, there's always still sometimes a little bit of volatility-
Sure
... in pass-throughs from a revenue perspective, but the EBITDA guide we've given, we feel good about. And, you know, right now, it's all about execution in terms of delivering those numbers. I mean, there's nothing that we would win at this point that would really change this year from a revenue perspective.
Fair enough. And in terms of that pass-through moderation, when does it reach steady state?
I know I've talked to some of my peers about this over time, and everybody struggles to really predict pass-throughs on a consistent basis. We were impacted, in particular, by some biomarker studies with a customer that are, you know, thousands of participants and over several years, and we had some particularly bumpy quarters associated with that. That study is still ongoing, so there's possibility some still movement in that, but probably not to the extent that we've seen it previously. We saw what was kind of a low double-digit number in Q2 of 2023 increase multiple times over the three quarters ensuing, and then kind of reverted to that again in Q2 of this year. So, we think we're probably getting into a little bit more of a steady state with that.
You know, you know, and we're also seeing less. You know, I think the pricing of the sites and what you need to pay for the services is kind of more like balancing out now, following the initial post-COVID era, where they were struggling for staff and prices were going up. So I think over time, we're seeing it moderate a bit more, but there will still be, you know, volatility from quarter- to- quarter.
Got it. And I think you talked about, you know, EBITDA margin in that 11% to 12% range for next year, Jill.
Yeah.
I think it's about 300 basis points better than you know, your midpoint versus 2024 . I guess, if the exit velocity this year in terms of backlog conversion, book of business, et cetera, isn't where you hope it would be, how should we think of, you know, the EBITDA margin range for next year?
Yeah. So, you're right, it's about 300 basis points, midpoint to midpoint if you think about it year- on- year, and we've said roughly half of that improvement will come from SG&A. So that's the TSA exits, and then the additional transformation that we'll do in SG&A over the course of the year-
Yeah
... which will grow over the course of the year. Then the other half will come from improvements, you know, on the top line and the drop through of that as we continue to optimize our cost of sales line In particular, it will be important to achieve that we do get to 1.2 on average over the H2 of this year. So that is one of the variables that we would need to see, but at this point, we believe that is possible, so that's what we're planning for. You know, when you think about the revenue piece, it implies a flattish 2025.
Yep. Mm-hmm.
But that is low single-digit service fee growth being offset by pass-through declining.
Yeah. Yeah.
And obviously, you know, those pass-throughs are dilutive to margin and the service fee growth- especially when you don't have to increase your Cost of Sales line, in particular. It allows them to drop through strongly, which we saw that in the move from Q1 to Q2 as well, this year.
Got it. On the TSAs, you know, I think you've now exited something like 60% of them, right? Realizing that the most difficult part is still ahead in terms of, you know, the software, servers, other tech pieces, do you think you'll still be in good shape to exit the majority of them by year-end? And what could, I guess, bleed over to 2025?
Yeah, so we've actually, I would say, over the last 68 weeks, we've made significant progress- in terms of those server and application migrations. We expect by the time we're announcing our Q3 results, we're going to have the majority of those pieces- moved across, and we'll be down to some of the last systems, like our HCM and ERP. So we do expect to have exited the majority of TSAs by the end of the year. There's a couple of small, I guess, subsets of some of these. For example, if you think about we're using our former parents' HCM to do payroll and people management, and you can't just cut that off at, on 31 December because you have to issue W-2s and everything as you go into the first quarter next year. Also, same thing with the ERP.
Yeah.
You know, you have to close and do your reporting and everything.
Right.
So it'll be subsets of those, but the vast majority of them, and I think based on the momentum we've seen over the last couple of months, we feel really good about our ability to exit these, which you know, it's a significant amount of work, and the team's done a phenomenal job just really laying out the plan and driving against it. So, You know, we feel good about that.
Got it. In terms of, you know, capital deployment, obviously, debt paydown is your, is your top priority. How are you thinking about the rate cuts, and how should we think about interest expense on a year-over-year basis for you next year?
Yeah, so we did use the initial proceeds from the first tranche from the divestiture that we closed in the second quarter towards debt paydown. There are, two other payments that are due for that-
Yeah
You know, pretty much in 2025, which will also the majority be used for that debt paydown. You know, I think beyond that, we are... So that is significantly improving or reducing our interest expense.
Yep, yep.
We obviously are, you know, talking with my team regularly about how we look at the forward curves and try to decide, you know, do we hedge or not hedge? I think there is some additional benefit for us, but we feel good about that. We have plenty of room under our covenant. At this point, you know, with that $500 million paydown that Tom talked about, and taking out about a third of it, we will. But I think now it's going to be about how we use that EBITDA expansion, right?
Yeah.
To really help drive leverage down further. But we're still committed to that, you know, 2 1/2 to 3x over the medium term, and, you know, really have line of sight to, by the end of next year, being, you know, significantly kind of in and around maybe the fours by the end of next year.
Got it. Got it. Tom, back to you. I mean, Fortrea has a strong data lake. You've talked about, you know, using tech partnerships. You've highlighted a couple of them as well, to help, you know, improve and differentiate your product suite, and I think also help with targeting and RFP development you've called out. Can you talk a little bit about the progress you're making here, and what makes your data capabilities differentiated from other players in the market? And as you think about your exclusive agreement with LabCorp running out, what comes next on the other side of that?
Yeah, I mean, I think the whole data market has changed tremendously the last eight years. It went from just a couple of providers, where you had somebody like Optum and IMS as your only choices, to just, you know, tens of providers. So our strategy and our competitive advantage is really: How do you take those tens of providers and really optimize, whether it's in a vertical, like ophthalmology, as I discussed- or whether it's a horizontal, where, you know, it's some global trial and a more traditional, like, cardiovascular indication? How do you optimize? And so, you know, we start with some of the things we learned with LabCorp, using the LabCorp data, plus some other data sources, where we created a tool to be able to comb through that.
And now what we're trying to do, we have this AI innovation center that we've opened. We have an excellent artificial intelligence leader. So we're trying to figure out, how can machine learning complement that? And how can something like large language model actually give us more context and really a more specific, tighter answer that a human wouldn't necessarily come up with because they couldn't process that much knowledge? So we're trying to home in on the areas of whether it's patient recruiting or site identification, and even some other areas, like how do you work a project when you have something like a Microsoft Copilot? You know, what do you do differently with a project-
Because you have the ability to have essentially some kind of automated aide who can always retrieve things for you? You know, over time, I think, we have good relationships with LabCorp. We're excited about that partnership. I was just on the phone with them last week, talking about how we might be able to do more. So I think we expect those relationships will remain long-term. And, you know, we may no longer be the only racer, but we should be in the pole position at least.
Got it
And in terms of that as we go forward.
Fair enough. Just in closing, Tom, you know, in your quest to reinvigorate the top line and improve your margin profile, bring it more in line with your peers, how do you ensure that Fortrea's culture stays intact, and you don't lose that sort of, you know, special customer touch, you know, that sort of the benefit of working with a Goldilocks CRO, as you've called it in the past? Walk us through your thought process.
Yeah. Well, you know, culture is really important for us. So we just held an all-hands call last week, and a good portion of it was discussing the company and its situation with our people, and trying to be candid about how our employees are key stakeholders in Fortrea's future, and we're really reinventing this company together. You know, I've been around this industry for a while, as you say, Tejas, and I think it can still use an organization. A services organization with an exceptional culture can make a big difference in this industry. And so, you know, whether it's improving how we promote, making sure the right people and the right performance takes place, improving career opportunities, giving them excellent work to do, doing innovation, like the artificial intelligence work that we're just talking about...
Interestingly, our artificial intelligence leader has said, you know, he'll take all comers. Any, anyone who has ideas, you know, he'll take on and try to put them to work and help. And I think if we can keep giving people opportunities, we will create that culture that will create the winning organization that will outgrow the rest of the industry.
Fair enough. That's a great place to leave it at. So thanks so much for joining us.
Thanks for having us.
I appreciate it.
All right. Thank you.
Thank you.