UL Solutions Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Second Quarter Performance: Record consolidated revenues up 6.3% y-o-y and 5.5% organically. Adjusted EBITDA grew 13.9%, margin 25.4%. Profitability improved with higher revenue and operating leverage.
• Notable Expansions: Launched European advanced battery testing lab in Aachen, Germany; expanded HVAC testing facility in Carugate, Italy; introduced new testing service for immersion cooling fluids in data centers.
• Business Resilience: Global footprint and diversified services support customers through product development and life cycle certification. Geopolitical uncertainties caused initial slowdown but pickup in June as market clarity increased.

Segment Performance

• Industrial: Revenues rose 7.6% to $338 million (7% on an organic basis). Adjusted EBITDA increased 20.6% to $117 million, with an adjusted EBITDA margin improving to 34.6%. Revenue growth driven by ongoing certification services and lab capacity expansions.
• Consumer: Revenues were $340 million, up 5.6% total and 4.7% organically. Adjusted EBITDA was $65 million, up 6.6%, with a margin of 19.1%. Strength in consumer technology, particularly electromagnetic compatibility testing.
• Software & Advisory: Revenues were $98 million, up 4.3% total and 3.2% organically. Adjusted EBITDA was $15 million, unchanged, with a margin of 15.3% due to unfavorable mix and higher employee compensation.

Guidance

• Affirmed 2025 full year outlook: mid-single-digit organic revenue growth (constant currency, excludes acquisitions/divestitures). Adjusted EBITDA margin expected to be ~24%. Capital expenditures in range of 7%-8% of revenue. Effective tax rate ~26%. Focus on operational leverage, Industrial segment growth, and strategic acquisitions.

Risks

• Geopolitical and regulatory uncertainties impacting customer product development and launch decisions.
• Fluctuations in foreign exchange rates affecting cost of revenue and SG&A expenses.
• Intense competition in the TIC services space, potentially affecting market share.

Question and Answer

• Q: Tariff-related client behavior and lab expansions.

A: Pull forward in Industrial seen in 4th quarter last year (stocking up on labels), and in Consumer in 1st quarter (shipment surge before tariffs). Lab expansions in Europe, North America, Asia Pacific to align with customer demand.

• Q: Full year guide and comps.

A: Mid-single-digit organic revenue growth expected for full year, with tougher comps in second half due to higher prior-year comparisons but confident in business progress.

• Q: Pull forward quantification and margin expansion.

A: Pull forward in Industrial normalized, in Consumer saw 7.7% organic growth in Q1 vs 4.7% reported. Industrial segment margin expanded 370 basis points due to operating leverage.

• Q: Data centers and lab/M&A investments.

A: Data centers tie to multiple mega trends (electrification, digitalization), evaluating lab capacity expansions and M&A in high-value markets to capitalize on growth.

• Q: Tariff improvement and customer decisions.

A: Market clarity increased in June, customers building confidence in supply chain and R&D decisions despite ongoing uncertainties.

• Q: Pull forward awareness and pricing.

A: Mentioned pull forward in Q1 call, pricing contributions from price and volume, ongoing implementation of configure price quote system for value-based pricing.

• Q: Competitor acquisition and Software & Advisory trends.

A: Disciplined in M&A, focusing on strategic fits. Software & Advisory had advisory weakness in US due to policy changes and real estate pressure, but software business had 6% organic growth.