Fortrea (FTRE) 10-Q2023 Q2 Quarterly report

Fortrea Holdings Inc. ("Fortrea"), a Delaware corporation incorporated on January 31, 2023, is a leading global contract research organization (“CRO”) providing biopharmaceutical product and medical device development services, patient access solutions and other enabling services to pharmaceutical, biotechnology and medical device customers.

On July 28, 2022, Laboratory Corporation of America Holdings (“Labcorp” or “Former Parent”) announced that its Board of Directors had authorized Labcorp to pursue a spin of its wholly owned Clinical Development and Commercialization Services business (“CDCS” the “Business”, the “Company”) to Labcorp’s shareholders. The CDCS business was transferred to Fortrea and its shares distributed to Labcorp stockholders.

On June 30, 2023, Labcorp completed the spin-off (the “Spin” or the “Separation”) of Fortrea Holdings Inc. ("Fortrea" or the "Company") through a pro-rata distribution of one share of Fortrea common stock for every share of Labcorp common stock held at the close of business on the record date of June 20, 2023. Fortrea began to trade as a separate public company (NASDAQ: FTRE) on July 3, 2023.

The Company entered into several agreements with Labcorp that govern the relationship of the parties following the Separation, including the Separation and Distribution Agreement, the Tax Matters Agreement, the Employee Matters Agreement, and the Transition Services Agreement, which are described in the Company’s Registration Statement on Form 10, as amended (“Form 10”), as filed with the Securities and Exchange Commission (the “SEC”). Under the terms of the Transition Services Agreement, the Company and Labcorp agreed to provide each other certain transitional services. The services and assets to be provided to Fortrea by Labcorp support the Company’s enterprise functions, most notably IT applications, network and security support and hosting as well as finance, human resources, marketing and other administrative support.

Fortrea is a leading global CRO providing clinical development and patient access solutions to pharmaceutical, biotechnology and medical device customers. The Company offers customers highly flexible delivery models that include Full Service, Functional Service Provider, and Hybrid structures. The Company believes it is well positioned to leverage its global scale, access to clinical data-driven insights, industry network, and decades of experience to bring customers tailored solutions. Fortrea intends to capitalize on the global demand for clinical development services across a diverse set of more than 20 therapeutic areas.

The team of approximately 19,000 employees conducts operations in more than 90 countries and delivers comprehensive phase I – IV clinical trial management, clinical pharmacology, differentiated technology enabled trial solutions and post-approval services for our customers. The Company’s offering is scaled to deliver focused and agile solutions to customers globally, streamlining the biopharmaceutical product and medical device development process. Additionally, Fortrea successfully utilizes enabling technologies to optimize processes and evolve with a dynamic marketplace.

The Company manages its business in two reportable segments - Clinical Services and Enabling Services. The Clinical Services segment provides services across the clinical pharmacology and clinical development spectrum. The Enabling Services segment provides patient access and clinical trial technology solutions to customers that streamline complex randomization and optimize the trial drug supply process, while minimizing operational costs and supporting timely and accurate patient dosing. For further financial information about these, see Note 12, Business Segment Information to the condensed consolidated and combined financial statements.

The Company has established access to all key markets worldwide through a strategic footprint of primary office locations in five countries worldwide (the United States, the United Kingdom, China, India and Singapore) with field operations in other jurisdictions.

Fortrea has historically existed and functioned as part of the consolidated business of Labcorp. The Company’s financial statements for periods through the Spin reflect the historical financial position, results of operations and cash flows of the Company, for the periods presented, prepared on a “carve-out” basis and have been derived from the condensed consolidated financial statements and accounting records of Labcorp using the historical results of operations and historical basis of assets and liabilities of the Company and reflect Labcorp’s net investment in the Company. The Company’s balance sheet as of June 30, 2023 is a consolidated balance sheet based on the financial position of Fortrea as a standalone company. Accordingly, the second quarter of 2023 includes condensed consolidated and combined financial statements, whereas all prior periods included combined financial statements. The Company’s unaudited condensed consolidated and combined financial statements for all periods presented are referred to throughout this document as “financial statements.”

The Company’s condensed consolidated and combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated and combined financial statements do not necessarily reflect what the financial position, results of operations, and cash flows would have been had it operated as a standalone company during the periods presented.

The accompanying condensed consolidated and combined financial statements of the Company are unaudited. In the opinion of management, all adjustments necessary for a fair statement of results of operations, cash flows, and financial position have been made. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. The year-end condensed consolidated and combined balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The condensed consolidated and combined financial statements and notes are presented in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not contain certain information included in the Company’s fiscal year 2022 reporting included within the Form 10. Therefore, these interim statements should be read in conjunction with the combined financial statements and notes thereto contained in the Form 10.

The condensed combined statements of operations include all revenues and costs directly attributable to our business. The condensed combined statements of operations also include costs for certain centralized functions and programs provided and administered by Labcorp that were allocated to Fortrea. These centralized functions and programs include, but are not limited to legal, tax, treasury, risk management, sales expenses, information technology, human resources, finance, supply chain, executive leadership and stock-based compensation.

Labcorp utilizes a centralized approach to cash management and financing of its operations. The cash and cash equivalents held by Labcorp at the corporate level are not specifically identifiable to Fortrea and therefore have not been reflected in the Company’s condensed combined balance sheet as of December 31, 2022. Cash and cash equivalents in the condensed consolidated and combined balance sheets represent cash and cash equivalents held by the Company.

As of December 31, 2022, the condensed combined financial statements include certain assets and liabilities that have historically been held at the Labcorp corporate level but are specifically identifiable or otherwise

As of December 31, 2022, a Former Parent investment is shown in lieu of common stock and retained earnings accounts in the condensed combined financial statements. The total net effect of the settlement of the transactions between the Company and Labcorp, exclusive of those historically settled in cash, is reflected in the condensed combined statements of cash flows in cash flows from financing activities as net transfers (to) from Former Parent and in the condensed consolidated and combined balance sheets as Former Parent investment.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and unbilled services.

The Company maintains cash and cash equivalents with various major financial institutions. These financial institutions are generally highly rated and geographically dispersed. The Company evaluates the relative credit standing of these financial institutions and has not sustained credit losses from instruments held at financial institutions.

Substantially all the Company’s accounts receivable and unbilled services are with companies in the pharmaceutical, biotechnology and medical device industries. As of June 30, 2023, no customer accounted for more than 10% of the Company's combined gross accounts receivable and unbilled services. As of December 31, 2022, one pharmaceutical company accounted for approximately 10.5% of the Company's combined gross accounts receivable and unbilled services. Additionally, for the three months and six months ended June 30, 2023 and 2022, no customer accounted for more than 10% of revenues. Concentrations of credit risk are mitigated due to the number of the Company’s customers, as well as their dispersion across many different geographic regions. Additionally, the Company applies assumptions and judgments, including historical collection experience and reasonable and supportable forecasts, for assessing collectability and determining allowances for doubtful accounts.

The Company’s revenues by segment and geography for the three and six months ended June 30, 2023 and 2022 is as follows:

Revenue from the United States comprises substantially all revenue in North America.

The following table provides information about contract asset balances:

The following table provides information about accounts receivable, unbilled services and unearned revenue from contracts with customers:

The Company estimates future expected losses on accounts receivable and unbilled services over the remaining collection period of the instrument.

The rollforward for the allowance for credit losses for the six months ended June 30, 2023 is as follows:

On June 30, 2023, the Separation from Labcorp was effected through a pro-rata distribution of one share of the Company's common stock for every share of Labcorp common stock held at the close of business on the record date of June 20, 2023. As a result, on June 30, 2023, the Company had 88.8 shares of common stock outstanding. This share amount is being utilized for the calculation of basic earnings per share for all periods presented through the Separation date. As of the Separation date, actual outstanding shares are used to calculate basic weighted average common shares outstanding. Basic earnings per share is computed by dividing net earnings attributable to the Company by the weighted average number of common shares outstanding. As of June 30, 2023, there are no dilutive instruments.

The following tables provide basic and diluted earnings per share.

The Company's goodwill and intangible assets are the result of historical acquisitions; primarily the acquisition of Covance in 2015 by Labcorp. Subsequent acquisitions of businesses were allocated to the CDCS business of Fortrea based on the inclusion of the business activities using valuations at the time of acquisition.

The changes in the carrying amount of goodwill for the six months ended June 30, 2023 and 2022 are as follows:

Although the Company believes that the current assumptions and estimates used in its goodwill analysis are reasonable, supportable and appropriate, the Company’s business could be impacted by unfavorable changes, including those that impact the existing assumptions used in the impairment analysis. Various factors could reasonably be expected to unfavorably impact existing assumptions; primarily a worsening economic environment and protracted economic downturn and related impacts, including delays in revenue from new customers; increases in customer termination activity; or increases in operating costs.

Accordingly, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill impairment analysis will prove to be accurate predictions of future performance.

The Company will continue to monitor the financial performance of and assumptions for its reporting units. A significant increase in the discount rate, decrease in the revenue and terminal growth rates, decreased operating margin or substantial reductions in end markets and volume assumptions could have a negative impact on the estimated fair value of the reporting units. A future impairment charge for goodwill or intangible assets could have a material effect on the Company's consolidated financial position and results of operations.

The components of identifiable intangible assets are as follows:

On June 30, 2023, Fortrea entered into a credit agreement (the “Credit Agreement”) providing for (i) a senior secured revolving credit facility in the principal amount of up to $450.0; (ii) a five-year $500.0 first lien senior secured term A loan facility; and (iii) a seven-year $570.0 first lien senior secured term B loan facility. The initial revolving facility includes a $75.0 swingline sub-facility and a $75.0 letter of credit sub-facility.

The Company believes that it is in compliance in all material respects with all statutes, regulations, and other requirements applicable to its drug development support services. The drug development industry is, however, subject to extensive regulation, and the courts have not interpreted many of the applicable statutes and regulations. Therefore, the applicable statutes and regulations could be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that would adversely affect the Company. Potential sanctions for violation of these statutes and regulations include significant civil and criminal penalties, fines, the loss of various licenses, certificates and authorizations, and/or additional liabilities from third-party claims.

Fortrea obtains insurance coverage for certain catastrophic exposures as well as those risks required to be insured by law or contract. The Company is covered by those policies but is responsible for the uninsured portion of losses related primarily to general, professional and vehicle liability, certain medical costs and workers' compensation. The self-insured retentions are on a per-occurrence basis without any aggregate annual limit. Provisions for losses expected under these programs are recorded based upon the Company's estimates of the aggregated liability of claims incurred.

The Company is authorized to issue up to 265.0 shares of common stock, par value $0.001 per share. The Company is authorized to issue up to 30.0 shares of preferred stock, par value $0.001 per share. There were no preferred shares outstanding as of June 30, 2023 and December 31, 2022.

The components of accumulated other comprehensive income (loss) are as follows:

Prior to the Separation, the condensed consolidated and combined financial statements were prepared on a standalone basis and were derived from the condensed consolidated financial statements and accounting records of Labcorp. The following discussion summarizes activity between the Company and Labcorp.

The following table is a summary of corporate and other allocations for the three and six months ended June 30, 2023 and 2022:

As of June 30, 2023, the Company had not entered into any derivative contracts with external counterparties. However, foreign currency forward contracts with external counterparties are utilized to hedge certain foreign currency transactions with exposure predominantly to the Euro and British Pound. These contracts do not qualify for hedge accounting and the changes in fair value are recorded directly to earnings. Earnings related to these contracts were included in the condensed consolidated and combined statements of operations as part of corporate allocations.

Net transfers to and from Labcorp are included within Former Parent company investment on the condensed consolidated and combined statements of changes in equity. The components of the transfers to and from Labcorp during the three and six months ended June 30, 2023 and 2022 were as follows:

The following tables are a summary of segment information for the three and six months ended June 30, 2023 and 2022. The segment information is based upon the way the management of the Company organizes segments within an enterprise for making operating decisions and assessing performance. Financial information is reported on the basis that it is used internally by the chief operating decision maker (“CODM”) for evaluating segment performance and deciding how to allocate resources to segments. The Fortrea chief executive officer has been identified as the CODM.

Through the Spin, the condensed combined statements of operations include costs for certain centralized functions and programs provided and administered by Labcorp that are charged directly to the Company. These centralized functions and programs include, but are not limited to legal, tax, treasury, risk management, sales expenses, information technology, human resources, finance, supply chain, executive leadership and stock-based compensation. These additional allocations were reported as “corporate costs not allocated to segments” in the table below. Operating income of each segment represents revenues less directly identifiable expenses to arrive at operating income for the segment.

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”. Fortrea has historically existed and functioned as part of Laboratory Corporation of America Holdings, 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

This Form 10-Q and other materials we have filed or will file with the Securities and Exchange Commission (the “SEC”) include or will include forward-looking statements. Some of the forward-looking statements can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “anticipates,” or other comparable terms. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this Form 10-Q and include statements regarding our intentions, beliefs, or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects and growth strategies, and the industries in which we operate and include, without limitation, statements relating to our future performance.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and industry development are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties discussed in “Risk Factors” Section of our Information Statement filed with our Registration Statement on Form 10, as amended (the “Form 10”), as filed with the SEC. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include, among other things: the risk that we may not realize some or all of the benefits expected to result from the Spin, or if such benefits are delayed; risks and consequences that are a result of the Spin; the impacts of becoming an independent public company; our reliance on Labcorp to provide financial reporting and other financial and accounting information for periods prior to the Spin through the end of the relevant transition agreements, as well as IT, accounting, finance, legal, human resources, and other services critical to our businesses; our dependence on third parties generally to provide services critical to our businesses throughout the transition period and beyond; the establishment of our accounting, enterprise resource planning, and other management systems post the transition period could cost more or take longer than anticipated; the impact of the rebranding of the Company; our ability to successfully implement our business strategies and execute our long-term value creation strategy; risks and expenses associated with our international operations and currency fluctuations; our customer or therapeutic area concentrations; any further deterioration in the macroeconomic environment, which could lead to defaults or cancellations by our customers; the risk that our backlog and net new business may not rebound after the Spin to the extent or over the time period we anticipate, that such measures may not be indicative of our future revenues and that we might not realize all of the anticipated future revenue reflected in our backlog; our ability to generate sufficient net new business awards, or if net new business awards are delayed, terminated, reduced in scope, or fail to go to contract; the risk that we may underprice our contracts, overrun our cost estimates, or fail to receive approval for, or experience delays in documentation of change orders; and other factors described in the Form 10 and from time to time in documents that we file with the SEC.

All forward-looking statements are made only as of the date of this Form 10-Q and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. For a further discussion of the risks relating to our business, see the “Risk Factors” section of our Information Statement filed with our Form 10.

Fortrea is a leading global contract research organization (“CRO”) providing clinical development and patient access 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 structures. We believe we are well positioned to leverage our global scale, access to clinical data-driven insights, industry network, and decades of experience to bring customers tailored solutions. Fortrea intends to capitalize on the global demand for clinical development services across a diverse set of more than 20 therapeutic areas.

Our team of approximately 19,000 employees conducts operations in more than 90 countries and delivers comprehensive phase I – IV clinical trial management, clinical pharmacology, differentiated technology enabled trial solutions and post-approval 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. Additionally, we successfully utilize enabling technologies to optimize processes and evolve with a dynamic marketplace.

The Company manages its business in two reportable segments - Clinical Services and Enabling Services. The Clinical Services segment comprises services across the clinical pharmacology and clinical development spectrum. The Enabling Services segment provides patient access and clinical trial technology solutions.

On June 30, 2023, Labcorp completed the Spin of Fortrea through a pro-rata distribution of one share of Fortrea common stock for every share of Labcorp common stock held at the close of business on the record date of June 20, 2023. Fortrea began to trade as a separate public company (NASDAQ: FTRE) on July 3, 2023.

The condensed consolidated and combined statements of operations include costs for certain centralized functions and programs provided and administered by Labcorp that were allocated to Fortrea in the periods presented prior to the Separation. These centralized functions and programs include, but are not limited to, legal, tax, treasury, risk management, sales expenses, IT, human resources, finance, supply chain, executive leadership and stock-based compensation.

These expenses were allocated to the Company based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net revenues or headcount or other reasonable driver, as applicable. The Company considers the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, the Company during the periods presented. However, the allocations may not reflect the expenses the Company would have incurred as an independent company for the periods presented. Actual costs that may have been incurred if the Company 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 will be provided by Labcorp under transition services agreements.

The actual costs of services represented by these allocations may vary significantly from the amounts allocated to the Company in the accompanying financial statements.

The Company’s revenues for the three months ended June 30, 2023 were $793.0, essentially flat over revenues of $793.1 in the corresponding period in 2022. The change in revenues was due to an increase in organic revenues of 0.1% and unfavorable foreign currency translation of 0.1%. The Company defines organic growth or decline as the increase or decrease in revenues excluding the year over year impact of acquisitions, divestitures and currency. The 0.1% increase in organic revenues was primarily driven by an increase in pass through revenues offset by lower service revenues driven by the impact of a prior year FSP cancellation, a customer concession and the mix and quantity of recent new business wins.

The Clinical Services segment’s revenues for the three months ended June 30, 2023 were $726.1, an increase of 0.4% compared to revenues of $723.3 in the corresponding period in 2022. The increase in revenues was driven by an increase in pass through revenues offset by lower service revenues driven by the impact of a prior year FSP cancellation, a customer concession and the mix and quantity of recent new business wins.

The Enabling Services segment’s revenues for the three months ended June 30, 2023 were $66.9, a decrease of (4.2)% compared to revenues of $69.8 in the corresponding period in 2022. The decrease in revenues was due to customer cancellations.

Direct costs increased 5.7% during the three months ended June 30, 2023 as compared with the corresponding period in 2022. Direct costs increased as a percentage of revenues to 81.9% during the three months ended June 30, 2023 as compared to 77.5% in the corresponding period in 2022. This increase in direct costs was primarily due to higher pass through costs partially offset by a decrease in personnel costs. Pass through costs are paid by the customer resulting in revenue fully offset by these direct costs.

Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges, advertising and promotional expenses, administrative travel, an allocation of facility charges and IT costs, and corporate allocations. Selling, general and administrative expenses increased by 13.5% during the three months

The increase in depreciation expense for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, was due to the increase of property, plant and equipment as compared to the prior year.

During the three months ended June 30, 2023, the Company recorded net restructuring charges of $3.9, which is reflected within restructuring and other charges in the condensed consolidated and combined statements of operations. The charges comprised of $2.2 in severance and other personnel costs and $1.7 in lease and other facility-related costs associated with general cost improvement and headcount reduction initiatives at various locations around the world.

During the three months ended June 30, 2022, the Company recorded net restructuring charges of $13.0, which is reflected within Restructuring and other charges in the condensed consolidated and combined statements of operations. The charges comprised of $10.5 in severance and other personnel costs and $2.5 in lease and other facility-related costs associated with general cost improvement and headcount reduction initiatives at various locations around the world.

The change in foreign exchange gain (loss) for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, was primarily due to the relative strengthening of the U.S. Dollar against the British Pound resulting in $8.6 in foreign exchange gains offset by $3.2 of allocated hedging losses from the Labcorp hedging program for 2023. For the three months ended June 30, 2022, foreign exchange gains were $18.9 offset by $6.9 of allocated hedging losses from the Labcorp hedging program.

For the three months ended June 30, 2023, the Company's effective tax rate was 27.2% compared to the 2022 tax rate of 20.6%. This fluctuation was primarily due to earnings mix.

Clinical Services operating income was $74.1 for the three months ended June 30, 2023, a decrease of 36.1% from operating income of $116.0 in the corresponding period of 2022. The decrease in operating income was primarily due to lower service revenues driven by the impact of a prior year FSP cancellation, a customer concession, the mix and quantity of recent new business wins and an increased provision for credit losses. This was partially offset by decreased personnel costs.

Enabling Services operating income was $1.2 for the three months ended June 30, 2023, a decrease of 89.0% from operating income of $10.9 in the corresponding period of 2022. The decrease was driven by lower revenues combined with investments in resources related to servicing a recent new award.

The following tables present the financial measures that management considers to be the most significant indicators of the Company's performance.

The Company’s revenues for the six months ended June 30, 2023, were $1,557.2, a decrease of 0.9% over revenues of $1,572.1 in the corresponding period in 2022. The decrease in revenues was due to a decline in organic revenues of 0.2% and unfavorable foreign currency translation of 0.7%. The Company defines organic growth or decline as the increase or decrease in revenues excluding the year over year impact of acquisitions, divestitures and currency. The 0.2% decrease in organic revenues was primarily driven by an increase in pass through revenues offset by lower service revenues driven by the impact of a prior year FSP cancellation, a customer concession and the mix and quantity of recent new business wins.

The Clinical Services segment’s revenues for the six months ended June 30, 2023 were $1,418.1, a decrease of 0.9% compared to revenues of $1,430.4 in the corresponding period in 2022. The decrease in revenues was driven by an increase in pass through revenues offset by lower service revenues driven by the impact of a prior year FSP cancellation, a customer concession and the mix and quantity of recent new business wins.

The Enabling Services segment’s revenues for the six months ended June 30, 2023 were $139.1, a decrease of 1.8% compared to revenues of $141.7 in the corresponding period in 2022. The decrease in revenues was due to customer cancellations.

Direct costs increased 2.6% during the six months ended June 30, 2023 as compared with the corresponding period in 2022. Direct costs increased as a percentage of revenues to 82.6% during the six months ended June 30, 2023 as compared to 79.7% in the corresponding period in 2022. This increase in direct costs was primarily due to higher pass through costs partially offset by a decrease in personnel costs.

Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges, advertising and promotional expenses, administrative travel, an allocation of facility charges and IT costs, and corporate allocations. Selling, general and administrative expenses increased 8.9% during the six months ended June 30, 2023 as compared with the corresponding period in 2022. The change in selling, general and administrative expenses was primarily due to an increase in indirect labor and credit loss provisions.

The increase in depreciation expense for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, was primarily due to the increase of property, plant and equipment as part of the Spin.

The decrease in amortization of intangibles and other assets during the six months ended June 30, 2023, as compared to the corresponding period in 2022, is primarily the result of the impairment of technology assets that occurred in the fourth quarter of 2022.

During the six months ended June 30, 2023, the Company recorded net restructuring charges of $5.1, which is reflected within restructuring and other charges in the condensed consolidated and combined statements of operations. The charges comprised of $3.0 in severance and other personnel costs and $2.1 in lease and other

During the six months ended June 30, 2022, the Company recorded net restructuring charges of $22.6, which is reflected within restructuring and other charges in the condensed consolidated and combined statements of operations. The charges comprised of $13.1 in severance and other personnel costs and $9.5 in lease and other facility-related costs associated with general cost improvement and headcount reduction initiatives at various locations around the world.

The change in foreign exchange gain (loss) for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, was primarily due to the relative strengthening of the U.S. Dollar against most major foreign currencies resulting in $2.1 in foreign exchange gains offset by $2.2 of allocated hedging losses from the Labcorp hedging program for 2023. For the six months ended June 30, 2022, foreign exchange gains of $24.2 were offset by $7.9 of allocated hedging losses from the Labcorp hedging program.

For the six months ended June 30, 2023, the Company's effective tax rate was 23.8% compared to the 2022 tax rate of 18.3%. This change was primarily due to earnings mix.

Clinical Services operating income was $132.5 for the six months ended June 30, 2023, a decrease of 30.7% from operating income of $191.3 in the corresponding period of 2022. The decrease in operating income was primarily due to lower service revenues driven by the impact of a prior year FSP cancellation, a customer concession, the mix and quantity of recent new business wins and an increased provision for credit losses. This was partially offset by decreased personnel costs.

Enabling Services operating income was $3.7 for the six months ended June 30, 2023 a decrease of 76.3% from operating income of $15.6 in the corresponding period of 2022. The decrease was driven by lower revenues combined with investments in resources related to servicing a recent new award.

Historically, our business has generated positive cash flows from operations, and a significant majority of such cash flows was transferred to Labcorp. We participated in Labcorp’s cash pooling arrangements to manage liquidity and fund operations, the effect of which is presented as Former Parent investment in our condensed consolidated and combined financial statements included elsewhere in this Form 10-Q.

We believe our existing cash and cash flows generated from operations as well as funds available under the facilities we entered into in connection with the Spin will be sufficient to cover the needs of our current and planned operations for at least the next 12 months in addition to the one-time cash flow impacts from the Spin.

From time to time, we intend to 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.

In summary the Company's cash flows were as follows:

Cash and cash equivalents at June 30, 2023 and 2022 totaled $114.3 and $95.5, 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 six months ended June 30, 2023, the Company's operations provided $154.2 of cash as compared to $(21.7) of cash during the six months ended June 30, 2022. Net cash provided by operating activities increased by $175.9 for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. Cash flows from operating activities benefited from higher collections of accounts receivable and cash used for accrued expenses offset by a decrease in net income.

Net cash used for investing activities for the six months ended June 30, 2023 was $(25.5) as compared to net cash used for investing activities of $(18.7) for the six months ended June 30, 2022. The $(6.8) increase in net cash

Net cash used for financing activities for the six months ended June 30, 2023 was $(126.7) compared to cash provided by financing activities of $46.1 for the six months ended June 30, 2022. Cash provided by financing activities related to proceeds from term loans and senior note offerings offset by the net transfers to Former Parent.

The Company does not have transactions or relationships with “special purpose” entities, and the Company does not have any off-balance sheet financing other than normal operating leases and letters of credit.

The application of these accounting policies require that we make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, contingent assets and liabilities, and related disclosures. These estimates, assumptions and judgments are based on historical experience, current trends and other factors believed to be reasonable under circumstances. Management evaluates these estimates and assumptions on an ongoing basis. If actual results ultimately differ from previous estimates, the revisions are included in results of operations when the actual amounts become known.

The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the condensed consolidated and combined financial statements, or are the most sensitive to change due to outside factors, are discussed in Management's Discussion and Analysis in the Form 10. Except as disclosed in Note 1 to our condensed consolidated and combined financial statements in this Form 10-Q, pertaining to the adoption of new accounting pronouncements, there have been no material changes in these policies.

We are exposed to market risks in the ordinary course of our business. The level of our interest rate risk is dependent on our debt exposure and is sensitive to changes in the general level of interest rates. Historical fluctuations in interest rates have not been significant for us; however, this may vary in the future as we have incurred certain indebtedness concurrent with the Spin and will incur additional indebtedness in the future.