UL Solutions Inc. Q3 FY2025 earnings call

• Strong quarterly results with balanced organic growth across segments. Industrial saw growth in certification testing and ongoing services; Consumer had balanced growth; Software & Advisory benefited from advisory project completions and software growth.
• Notable initiatives: Launch of Landmark Artificial Intelligence safety certification testing, advancements in ULTRUS software platform, groundbreaking of global Fire Science Center of Excellence, and announcement of a restructuring initiative to streamline operations, reduce expenses, and exit nonstrategic service lines.

Consolidated revenues for UL Solutions in the third quarter of 2025 were $783 million, up 7.1% year-over-year and 6.3% organically. By segment: Industrial segment revenues rose 8.2% to $343 million (7.3% organic), with adjusted EBITDA increasing 16.0% to $123 million and margin improving to 35.9%. Consumer segment revenues were $340 million, up 5.9% total (5.3% organic), with adjusted EBITDA at $70 million and margin at 20.6%. Software & Advisory segment revenues were $100 million, up 7.5% total (6.5% organic), with adjusted EBITDA up 60% to $24 million and margin at 24%.

• Strengthened 2025 full year organic revenue growth outlook to 5.5%-6.0%.
• Adjusted EBITDA margin organic improvement expected to ~25% for full year 2025, up from prior guidance of ~24%.
• Capital expenditures expected to be 6.5%-7.0% of revenue in 2025, down from previous range of 7.0%-8%.
• Effective tax rate expected in the range of 25%-26% for 2025.

• Geopolitical and regulatory environment posing challenges to customers' behavior.
• Potential headwind from exiting nonstrategic service lines, which may impact 2026 organic revenue growth.

Q: Curious about customers in China and impact of tariffs.

A: Jenny Scanlon discussed that customers are adapting to a new normal regarding tariffs, with greater certainty in decisions around R&D pipelines and supply chain diversification.

Q: About Software and Advisory business performance.

A: Ryan Robinson mentioned that the third quarter saw completion of many advisory projects leading to high utilization of staff, though performance may vary in future quarters.

Q: Follow-up on tariffs and intra-quarter choppiness.

A: Jennifer Scanlon stated Q3 had a more typical cadence, with steady performance across months, and shifts in ongoing certification services field sites seen in regions like Vietnam, Thailand, India with growth, and traditional manufacturing countries like Germany, Japan, Taiwan showing slight contraction.

Q: Utilization of battery testing labs and impact of EV tax credit expirations.

A: Jennifer Scanlon noted energy storage system batteries are an evolving market, with investments in labs, but utilization details not published, and no specific implications from EV tax credit expirations mentioned yet.

Q: Restructuring program and margin leverage.

A: Ryan Robinson explained the restructuring involves exiting nonstrategic service lines and broader expense reductions, with most savings from people-related costs, and impact on operating income expected in 2027.

Q: Pricing contribution in third quarter.

A: Ryan Robinson said certification testing and non-certification testing had strong growth, with similar contribution from price and volume, and ongoing certification services particularly benefiting from pricing.

Q: Fourth quarter organic revenue growth and service line exits.

A: Ryan Robinson stated Q4 organic revenue growth is affected by tough year-over-year comps, and exiting service lines is more impactful in 2026, not materially affecting Q4.

Q: Areas of business touching data centers.

A: Jennifer Scanlon mentioned examples like energy storage systems, power infrastructure, and cooling systems related to data centers, but total exposure not quantified.

Q: Underlying software business and growth outlook.

A: Jennifer Scanlon highlighted momentum in software business with ULTRUS releases and Verdantix recognition, and Ryan Robinson reassured growth outlook remains intact despite restructuring impact on a small portion of business.

Q: Inorganic growth and software business.

A: Jennifer Scanlon stated the company is disciplined in pursuing inorganic growth opportunities in the product tech space, and timing is key for acquisitions.