UL Solutions Inc. Q4 FY2025 earnings call

Highlights include 2025 being a record year exceeding guidance, investing in global testing infrastructure like new facilities in various locations, expanding certification services and software platforms, disciplined capital allocation, realigning segments with divestiture of noncore EHS software business and moving advisory services to Industrial segment to focus on high-quality growth and customer value.

Industrial segment: Fourth quarter revenues rose 7.3% to $352 million or 6.1% on an organic basis. Adjusted EBITDA increased 21.9% to $128 million, with margin improving 440 basis points to 36.4%. Full year 2025 growth was 6.9% with 6.1% organic. Consumer segment: Fourth quarter revenues were $335 million, up 8.4% from 2024 quarter or 7.1% on an organic basis. Adjusted EBITDA for the quarter was $66 million, an increase of 46.7% versus the fourth quarter of last year, with margin at 19.7% (increase of 510 basis points). Full year 2025 growth was 6.5% with 6.1% organic. Software & Advisory segment: Fourth quarter revenues were $102 million, essentially flat year-over-year in both total and on an organic basis. Adjusted EBITDA for the quarter was $23 million, a 21.1% increase, with margin at 22.5% (increase of 390 basis points). Full year 2025 growth was 4% with 3.7% organic.

Expect 2026 consolidated organic revenue growth in mid-single-digit range. Expect adjusted EBITDA margin to be in range of 26.5% to 27% in 2026. Capital expenditures expected to be approximately 7% to 8% of revenue in 2026. Estimate effective tax rate in 2026 to be approximately 26%. Q1 typically lowest revenue quarter due to seasonality, expect more modest growth in Q1 and more margin improvement in second half of 2026.

Trade policy shifts and geopolitical uncertainties, impact of OECD's Pillar 2 provisions on effective tax rate, risks related to restructuring plan execution such as timing and cost uncertainties, potential impact of divestiture on business operations and performance.

Q: Maybe just starting with the '26 margin guide that definitely stands out, looks pretty good. Just some of the biggest drivers, how much of that restructuring leverage, stuff like that?

A: Jennifer Scanlon said it's a continuation of continuous improvement philosophy. Ryan Robinson said themes of improvement in '26 are driving operational leverage through price and volume, utilizing lab capacity and staff, with restructuring initiative helping on cost side but also having revenue reductions, and FX going together to guide to 26.5% to 27% adjusted EBITDA margin in 2026.

Q: As I think about the underlying performance of the business, could you talk a bit about maybe where you're seeing some of your strong outperformance. For example, you called out introducing your first EGOLOGO for -- ECOLOGO for industrial products and the like. Could you talk and see if the organic growth that you've seen in at least the fourth quarter, are these higher-margin verticals or end markets?

A: Jennifer Scanlon said it's all of the above, with focus on megatrends like energy transition, digitalization, sustainability yielding double-digit growth, initiatives giving operating leverage, and industrial continuing to have higher growth than consumer.

Q: All your comments so far have been very helpful and very clear. I just thought maybe I would ask specifically on pricing. Ryan, in the past, you've talked about like kind of half of your growth-ish has been attributable to price. And I think historically, that's been a comment that you've been able to say kind of more confidently around your ongoing certification. Just wondering kind of how it evolved in the quarter? And I know it's harder to pin down on the non- the cert testing portion. But do you feel like -- can you comment on the order of magnitude that you think you're seeing in pricing in those businesses as well?

A: Ryan Robinson said typically focus on certification testing and non-certification testing, in fourth quarter and full year there were similar contributions in revenue growth of both, pleased with overall growth in certification testing in fourth quarter and plan to generally continue to grow with that mix.

Q: You mentioned that you saw a surge of demand in consumer in 4Q, and it sounds like that may have potentially pulled forward some business from 1Q. So do I have that right? Can you just explain what that -- what caused that dynamic?

A: Jennifer Scanlon said biggest cause is consumers moving quickly with innovation opportunities to get to market quickly, and emphasis on customer centricity and ability to respond allowing that, with strength in consumer technology and small appliances.

Q: In the Industrial segment, we've seen organic revenue growth normalize from double digits in 2024 to mid-single digits exiting 2025. To what extent do you think industrial organic growth will reaccelerate? And what are the key drivers? Or conversely, do you view current mid-single-digit growth as the new steady state for industrial growth?

A: Jennifer Scanlon said normalized level is higher end of single digits, demand for industrial in certification and non-certification testing is strong, fueled by megatrends, with U.S. strong and particular strength in China and Asia for energy and industrial automation within industrial.

Q: Can you talk about the shift of manufacturing activity from China and other parts of the world and how that trend looked in 2025 as it relates to you 4Q '25.

A: Jennifer Scanlon said not seeing significant shift out of China, but seeing China Plus One continuation with India, Malaysia, Thailand growing, China business strong.

Q: One question on laboratory productivity as it relates to people. I guess, have you been able to keep your lab headcount relatively flat in this -- despite growing the top line? And if so, kind of do you expect that to continue into the future?

A: Ryan Robinson said have been able to keep lab headcount flat, due to initiatives like laboratory optimization, using centers of excellence, and continuous improvement, with more information on employee compensation as a percentage of revenue to be seen in 10-K.