UL Solutions Aktie

Good morning, ladies and gentlemen, and welcome to the UL Solutions First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.

It is now my pleasure to introduce to you, Yijing Brentano. Please go ahead.

Thank you, and welcome, everyone, to our first quarter 2026 earnings call. Joining me today are Jenny Scanlon, our Chief Executive Officer; and Ryan Robinson, our Chief Financial Officer.

During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at ul.com. Our earnings release is also available on the website.

I would like to remind everyone that on today's call, we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things, statements about UL Solutions' results of operations and estimates and prospects that involve substantial risks, uncertainties and other factors that could cause actual results to differ in a material way from those expressed or implied in the forward-looking statements.

Please see the disclosure statement on Slide 2 of the earnings presentation as well as the disclaimers in our earnings release concerning forward-looking statements and the risk factors that are described in our annual report on Form 10-K for the year ended December 31, 2025, and subsequent SEC filings. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law.

Today's presentation also includes references to non-GAAP financial measures, a reconciliation to the most comparable GAAP financial measures can be found in the appendix to the earnings presentation, which is posted on the Investor Relations section of our website at ul.com.

With that, I would like now to turn the call over to Jenny.

Thank you. Good morning, everyone, and thanks for joining us. Let me start off by saying that we had an excellent quarter. We entered 2026 with strong momentum, and the first quarter results confirm the trajectory we saw building throughout last year. We are executing with greater precision, expanding our margin profile and positioning ourselves to grow with structural megatrends that are propelling our industry's long-term growth. Our resilient business model continues to serve us well as we innovate with our customers while they embrace rapid technological change.

Of course, I also want to recognize the incredible team behind these results. Executing consistently at this level across geographies and service lines with the backdrop of ever-changing conditions takes real skill and commitment. Our nearly 15,000 employees have both, and I don't take that for granted. The decisions we have made to refine our portfolio, optimize our cost structure and allocate capital to growth areas are paying off.

Before Ryan walks through the detailed financial results, I'll cover three areas: first, highlights of our first quarter performance; second, notable achievements and strategic developments since we last reported, including the anticipated acquisition of Eurofins' Electrical & Electronics or E&E business; and third, some perspective around the macro and geopolitical factors impacting our end markets. Let me start with the quarter.

Our results were excellent. We delivered consolidated revenue growth of 7.5% as compared to the prior-year period with organic revenue growth of 5.7%. Adjusted EBITDA grew over 22% and adjusted EBITDA margin expanded 320 basis points. Adjusted diluted EPS increased 31.5% year-over-year. These results exceeded our expectations.

Importantly, this performance was not the result of a single factor or a onetime tailwind. It reflects operating efficiency that is increasingly embedded in our business model, the benefits of disciplined expense management, higher utilization across our engineering and lab teams and the accelerating impact of our previously announced restructuring program. We are moving quickly on durably improving our costs, and it is showing up in our results. Each of our three segments: Industrial, Consumer and Risk & Compliance Software delivered strong organic growth and several hundred basis points of adjusted EBITDA margin expansion in the quarter.

Now let me turn to our milestones achieved and strategic actions from the first quarter and in recent weeks. First, in our core business, we granted our first-ever global safety certification for a robot operating in a public environment, certifying Simbe's Tally, an autonomous shelf-scanning robot deployed in retail stores. Tally earned certification to the UL 3300 standard for service robots operating in dynamic spaces where they encounter unpredictable human behavior. As robots expand in the grocery stores, airports, hotels and even homes at scale, we expect the need for rigorous independent certification will continue to grow, and we are a trusted leader in that space.

We also issued the world's first certifications for AI-enabled products under the UL 3115 AI safety certification program awarded to Qcells for its data center Energy Management System and to Omniconn for its smart building platform. Both systems were independently evaluated for robustness, reliability, transparency and degree of human oversight as their operations become increasingly autonomous. As AI moves into critical infrastructure at scale, independent certification is essential to public trust, and we are positioned as a leader.

Next, in keeping with our renewed focus on M&A, last month, we announced a definitive agreement to acquire the Eurofins Electrical & Electronics business, including the MET Labs certification mark. This carve-out is a compelling strategic transaction that we expect to extend our capabilities in key geographies, including EMEA and Asia Pacific, and it will help drive continued growth in the Consumer segment by bringing together a global infrastructure of complementary electrical testing and certification services to meet customer needs. We expect it to close in the fourth quarter of 2026, subject to applicable regulatory approvals and customary closing conditions. The stand-alone business is expected to generate approximately $200 million in revenue for the full year 2026.

The transaction is anticipated to be accretive to adjusted diluted EPS in the first full calendar year after closing, excluding intangible amortization and integration costs. We look forward to welcoming the E&E team when the time comes. These are highly skilled colleagues who share our mission of working for a safer world. And we are excited about what this combination means for our customers, and for the long-term growth of UL Solutions.

Now let me offer some perspective on the macro environment and what we are seeing across our end markets. The global backdrop is more complex than it was a year ago, but our business is navigating it well. The leading demand drivers of our business remain durable, electrification of products, data center build-outs, advanced product development, fire safety and building construction, supply chain compliance software and the ongoing certification services that support the products carrying the UL mark. We do not view these as cyclical tailwinds. These are structural and they align directly with our capabilities.

The characteristics that make us resilient remain strong, recurring revenue, global diversification, long-term customer relationships and a mission-critical role in the product development life cycle. Based on the strength of our first quarter and our visibility into end markets, we are raising our full year 2026 adjusted EBITDA margin outlook.

Now I'll turn the call over to Ryan for a detailed review of our first quarter results.

Thank you, Jenny, and hello, everyone. I also want to thank all of our team members for delivering a strong start to 2026. The first quarter results reflect the work that has been done to improve our efficiency and earnings quality, and that work is increasingly visible in our numbers.

I also want to highlight that Q1 2026 marks the first quarter in which we are reporting under our updated segment structure. As we noted previously, the primary change is the reallocation of certain activities formerly reported in Software and Advisory into Industrial. The remaining Software business is now reported as a segment called Risk & Compliance Software. Recast historical financial data is included in our earnings material and should provide a helpful view of the underlying performance and trajectory of each segment.

Now let me walk through the quarter in detail. Consolidated revenue of $758 million was up 7.5% over the prior-year quarter, including organic revenue growth of 5.7%. The organic revenue growth was led by our Industrial segment, supported by solid contributions from Consumer and Risk & Compliance Software.

Adjusted EBITDA for the quarter was $197 million, an improvement of 22.4% year-over-year, outperforming our expectations. Adjusted EBITDA margin was 26.0%, up 320 basis points from Q1 2025. Adjusted net income increased 33.8% year-over-year, resulting in a 35.1% increase in adjusted diluted earnings per share.

Expenses were well controlled in the quarter. The combination of higher revenues, improved productivity and higher utilization, prudent head count management and restructuring savings contributed meaningfully to our operating leverage.

In Q1, revenue benefited by $13 million or 1.8% from FX, and this was offset by higher expenses from FX as local expenses were translated to USD. These changes reduced adjusted EBITDA margin by roughly 40 basis points.

Now let me turn to our performance by segment, beginning with Industrial. Revenues in Industrial were $375 million, up 10.3% in total and 8.2% on an organic basis from the first quarter of 2025. Growth was led by ongoing certification services and certification testing, with particular strength in energy and automation and materials. Adjusted EBITDA for Industrial increased 20.6% to $123 million in the quarter. Adjusted EBITDA margin improved 280 basis points to 32.8%, driven by operating leverage from revenue growth and disciplined expense management.

Turning to Consumer. Revenues were $318 million, up 4.6% in total and 3.0% on an organic basis from the first quarter of 2025. Growth in the first quarter was driven by certification testing and ongoing certification services with particular strength in consumer technology, appliances and HVAC.

We noted when we first provided full year 2026 guidance, we expected Q1 to be the most challenging year-over-year comparison period for Consumer, given the elevated demand in Q1 2025. In addition, as part of the restructuring program that we announced in November, we exited nonstrategic lines of business with lower profitability. These exits reduced Consumer organic revenue growth by about 1%. And considering these dynamics, the underlying Consumer growth trajectory remains solid.

Consumer adjusted EBITDA increased 25.0% to $55 million. Adjusted EBITDA margin improved 280 basis points to 17.3%, driven by operating leverage, higher employee productivity and expense management, including the head count reductions from the restructuring plan.

Moving to our Risk & Compliance Software segment. Revenues were $65 million, an increase of 6.6% in total and 4.9% organically from the prior-year period. This was led by increased demand for supply chain insights for the retail industry. Adjusted EBITDA for Risk & Compliance Software was $19 million in the quarter, up 26.7% year-over-year with adjusted EBITDA margin expanding 460 basis points to 29.2%. This improvement was primarily driven by operating leverage and higher employee productivity.

I want to note that our Risk & Compliance Software segment will look different beginning in Q2 as we completed the divestiture of our EHS software business on April 1. EHS software contributed revenue and profitability to Q1 results, and its absence will affect year-over-year comparisons and margin profiles of this segment going forward. We will provide further context when we discuss our outlook.

Turning to cash generation and the balance sheet. For the trailing 12 months ended March 31, 2026, we generated $665 million of cash from operating activities and $450 million of free cash flow. During the first quarter, capital expenditures were higher year-over-year, consistent with the commentary we provided on our Q4 2025 earnings call regarding the timing of certain investments from the back end of last year.

Our balance sheet remains strong, supported by our investment-grade credit ratings, including Moody's recent upgrade of our rating to Baa2. This provides efficient access to capital to fund both organic investment and strategic M&A. This includes the financing of the E&E acquisition, which we expect to fund through a combination of portfolio management activities, cash on hand and available capacity under our credit facility. Approximately 45% of the purchase price is anticipated to be funded through our portfolio management activities. This includes the sale of the EHS software business.

In addition, just last week, we signed a definitive agreement to sell our shares in DQS Holdings GmbH for approximately EUR 105 million in cash. We expect the sale to close in the second half of 2026, subject to the receipt of applicable regulatory approvals and satisfaction of closing conditions. The sequencing of our portfolio management actions reflects our deliberate strategy to sharpen our focus on TIC and Risk & Compliance Software while redeploying capital into businesses that extend our core capabilities and global reach.

Now turning to our 2026 full year outlook. While the macro environment is more complex today than when we set our original guidance, we have remained focused on our customers. Our execution has been strong, and our performance has been largely unaffected to date. These reasons, among others, have strengthened and allowed us to strengthen our adjusted EBITDA margin guidance.

We continue to expect 2026 consolidated organic revenue growth to be in the mid-single-digit range versus full year 2025, anticipating contributions from all three segments. As a reminder, the EHS software business accounted for approximately $56 million of 2025 revenue and had margins roughly similar to our consolidated margins. The revenue impact of the EHS software divestiture, which was pretty similar each quarter last year, will be reflected in the acquisition and divestiture portion of our revenue change starting in Q2, and we do not expect it to affect our organic revenue growth rate. At this time, the forward FX forecast imply an approximately 1% tailwind on revenue growth for the year, and we would anticipate that to be offset with an expense increase from FX.

Based on our strong performance in Q1 and the above considerations, we are strengthening our expectation for 2026 adjusted EBITDA margin to be approximately 27.0%, assuming current forward FX rates that I just mentioned. This margin outlook reflects progress on our continued improvement in productivity and restructuring efforts. Q1 was outstanding, and we expect to continue to improve margin.

Our capital expenditure outlook for 2026 remains a range of approximately 7% to 8% of revenue. Our current tax rate expectation for the year is approximately 26%. We now expect our remaining expenses related to the previously announced restructuring program to be approximately $3 million as compared to the $5 million to $10 million previously communicated. We anticipate achieving the expense reduction targets we previously communicated.

Overall, we are pleased with the start to the year, and we believe that we are well positioned to deliver on our objectives while continuing to invest in long-term growth.

Now let me turn the call back to Jenny for the closing remarks.

Thanks, Ryan. For this quarter's highlights, some interesting things going on here at UL Solutions, I want to talk about some great events that have been taking place.

UL Solutions continues to host Data Center Infrastructure Summits, a series of in-person and virtual events that bring together key stakeholders to align on critical issues surrounding these globally proliferating facilities. Our events began last September at our Northbrook campus and have been a huge hit with our customers and other interested parties around the world. In the first quarter, we hosted our third event in Silicon Valley. This one alone drew more than 150 attendees from 41 different companies. These well-received events really underscore the importance of data center infrastructure and how our customers are looking to us for leadership and help in navigating the complex data center landscape.

To close, we are proud of our Q1 results, and we remain dedicated to carrying out our focused strategy on behalf of our customers, our employees and our shareholders.

With that, let's open the line for questions.

[Operator Instructions] Our first question comes from Andrew Nicholas of William Blair.

This is Daniel on for Andrew this morning. Just curious if you're seeing any notable changes in customer behavior yet that's attributable to the conflict [ with Tehran? ] And then should we think about that as similar to how the tariff narrative has played out? Or is it more of a blanket pressure that can't be resolved by changing factory locations?

Thanks, Daniel. And we appreciate the question. And certainly, it's an area of the world that everybody is paying attention to. But for us, our demand drivers in the Middle East are a very small portion of our EMEA. And what we're seeing on customer behaviors continues to be what I would term a normal reaction to the uncertainty that they're facing, but no material effect on our business at this point. Of course, we're paying very close attention to the safety of our employees in the region.

The next question comes from Andrew Wittmann...

Hold on, I think there was a second part to that question, Daniel. I just want to make sure we got it all.

Yes. It was just how that compares to the tariff impact and whether it would be sort of a similar reaction process from customers or whether it's something that's a little less avoidable by reshoring operations?

Yes. I think in this situation, again, with regard to comparing it to tariffs, as I always say, our customers just continue to make ongoing decisions that are the smart right answers for their business around where they want to conduct their research and development and where they want to manufacture and how their supply chains all fit together. So we're not, again, seeing anything unusual. We're seeing just normal logical decision-making out of customers, and we're positioned to follow them wherever they go. But again, the Middle East for us is a very, very small portion of our customer base and our revenue.

The next question comes from Andrew Wittmann of Baird.

Yes. Great. So I guess the question that I wanted to ask about was about the AI adoption, the UL 3300 standard. I'm glad you brought it up, Jenny, because I think this should be an opportunity for the company. And I just -- just given that this is a new standard and kind of rolled out there and its importance, I just was hoping you could give us a little bit more context about where the standard sits relative to the innovation curve of the industry against competitive standards that might be being made other places?

I want to get a sense of how well bought into the industries that are making robotics are into this standard versus other things? What maybe industry organizations have signed up to use this one as a standard? Just kind of the competitive positioning overall for this? And anything you can give us about your outlook in terms of what this means financially over the next couple of years would obviously be helpful as well.

Yes. Thanks, Andrew. It's a fun topic, and it's certainly an interesting topic. And actually, what it highlights, and I'm going to geek out for a second here, is the confluence of the UL 3300, which is robotics and safety of robotics in areas where there's a lot of human interaction. And UL 3115, which is really the transparency and the bias and the use of AI when it gets embedded in products. And it's just a perfect example of the confluence of technologies and the complexity that our customers are looking to us to help them address and solve.

So certainly, specifically on robotics, what we're seeing is service robotics, that sector has had steady growth. And it is becoming more complicated, raising the bar for that safety and that reliability. So we are -- and in particular, our Consumer sector, working very closely with a series of customers. This will continue to play out in that space. And it also brings together other service elements that we at UL provide such as our EMC, wireless safety or cybersecurity safety and, of course, just embedded software and functional safety of these products.

So it's always hard to point to one trend to say this is how that affects growth and opportunity. But certainly, it's the perfect example of the type of digitalization and megatrends that we've been pointing to.

The next question comes from Ryan Rivera of Bank of America.

I was just wondering on the Software business, post the EHS divestiture and the move of Advisory into Industrial. How should we think about the underlying run rate growth of the remaining compliance and risk business?

Yes, I would say, overall, we're excited about Risk & Compliance Software. We think the focus in being more transparent about the underlying economics of the Software business will be helpful for people.

The portion that we divested is slightly slower growing than the remainder of the portfolio. So all things considered, it should mix up a bit more. We don't give specific segment-level revenue guidance, but we would anticipate continued growth in that segment, both based on underlying factors, but our continued efforts to improve our go-to-market and sales processes.

The next question comes from Seth Weber of BNP Paribas.

Ryan, I wanted to ask about the strength in the free cash flow in the quarter, unusually strong here. Anything that you'd call out, attribute the strength to? And just maybe bigger picture, your view towards larger M&A, your appetite to do a bigger deal and kind of thoughts around leverage.

So first of all, we're pleased with our continued growth in cash flow from operations and free cash flow, I think it's more appropriate to look at it on a longer-term basis, and we quote some trailing 12-month figures. In the first quarter, we did have particularly strong cash flow from operations that was driven by our increases in net income margin, but also we had some working capital items like accounts payable growth that can occur in a short period of time like 1 quarter. So we're pleased with the continued growth in free cash flow, and particularly over a longer time period.

So we're pleased to be able to fund the Eurofins E&E acquisition relatively easily from portfolio management activities, cash on hand and modest draw on our existing credit facility. We do continue to be very well capitalized and have capacity to do more. It is important for us to maintain a robust capital structure, and we're targeting continuing of metrics that are consistent with investment-grade credit ratings, but that leaves us a lot of flexibility and capacity to do other things.

Our next question comes from Seth Haas (sic) [ Jason Haas ] of Wells Fargo.

This is Jun-Yi on for Jason Haas. You guys have previously talked about seeing more EBITDA margin improvement to occur in the second half of '26. Is that still the expectation? Or have you seen some of the restructuring initiative improvements been pulled forward into 1Q given the outperformance?

Yes. We increase margin comparisons as we progress into the year. And I would expect it to be relatively smooth for the remainder of the year. We continue to make progress on some of the restructuring initiatives that we discussed. We're not through with those. So we expect those to continue to provide some additional benefits.

Sorry. Is there a follow-up?

Sorry. I wasn't sure if I lost you there. The line had faded away. The next question comes from George Tong of Goldman Sachs.

This is Anna on for George. My question is, we're actually hearing a lot about manufacturing capacity move back to the U.S. and government budget increases for U.S. manufacturing. Along the trend, are you seeing any higher utilization rate of Industrial TIC services driven by U.S.-specific regulatory [Audio Gap] that your Consumer segment demand?

Yes, the second half of your question cut out, but I think we got it. But can you just repeat after you said, are we seeing anything affecting Industrial? And then...

Yes. So just would the onshoring trends also impact your Consumer segment demand as well from the end market perspective?

Thank you. I think what we're seeing is continues to be consistent. We're not seeing a dramatic shift on reshoring to the United States, but certainly, there's movement. There's movement all over the world. The places where we're seeing the most movement is across Asia. And again, this is just -- we're able to track where our ongoing certification services are performed. So the areas that we're seeing the greatest increase, but remember, off of a low base are areas like Southeast Asia, Vietnam, India, Malaysia, Indonesia, as well as some mild slope increase off of a large base in the United States, and a mild slope increase off of a large base in China.

So as far as affecting our two businesses, we test wherever our customers need us to test, and we will perform ongoing certification services wherever they need it.

The next question comes from Stephanie Moore of Jefferies.

I wanted to touch on the margin performance in the quarter and just to make sure I'm understanding this correctly. So obviously, very strong performance to start the year. And note, this is with 40 basis points of FX headwinds. I just want to confirm that the actual underlying performance was actually better. So as you think about just the margin expectations for -- as we progress through the year, maybe just talk about your level of confidence just given the momentum in the first quarter and really the decision to still raise your guidance and maybe opportunity for additional upside as the year progresses?

Thank you very much for the question, Stephanie. And I'll start with FX just mechanically and then go more deeply into the fundamentals. So yes, you're correct. The first quarter revenue increased by about 1.8% due to translation of non-U.S. revenue into U.S. dollars, but also expenses that are non-U.S. dollar denominated translated and grew. So it had an offsetting effect in our earnings, but because revenue went up, it reduced our reported adjusted EBITDA margin by about 40 basis points. The comment we made in outlook is FX can be volatile, but the current rates would estimate a similar effect, but -- about 1% and have that 1% offset. So some margin headwind as a result of FX going forward.

In regard to the underlying, we're pleased with the performance in the quarter, and it's 1 quarter. So that allowed us to raise the range from 26.5% to 27.0%, and we're pleased with the progress, and we'll continue to monitor it through the year. We did have some changes. We're divesting that EHS software business, that started April 1. We're having a more fulsome impact of some revenue that we're exiting. As a reminder, with our restructuring initiatives, we're stepping out of some service lines that collectively have about 1% revenue impact and we'll continue to monitor the business as we go forward. But we're pleased with the progress so far, and that collectively, one quarter in gave us confidence to at least raise the bottom end of the range.

And let me just add, I want to give a shout out to our 15,000 employees around the world. I'm really pleased with the ways in which they are embracing opportunities to improve productivity through the right use of tools and process improvements. And I'm also really pleased with the way that we've approached our cost discipline. So it put us in a position to move guidance upward.

The next question comes from Josh Chan of UBS.

Jenny and Ryan, congrats on the quarter. I was wondering about the growth rate in Q1. I guess, you were lapping some tougher compares in, at least, Consumer. So Q1 was supposed to be the lowest growth quarter of the year. Do you think that will still be the case? So how are you thinking about sort of the performance and growth after the strong Q1?

Yes. There's a lot of nice things that we saw in growth in Q1. And as we look forward, we continue to believe that the trends that we've seen will be consistent. If you look at our Industrial growth, as Ryan mentioned, our power and automation opportunities continue and that hits both ongoing certification and certification testing. In Consumer, we were certainly pressured by exits of certain typically non-certification testing growth. But again, these were areas that were nonstrategic and lower margin for us. So that will continue to suppress Consumer growth year-on-year as we exit those businesses.

And then in Risk & Compliance Software, as Ryan indicated, the exit of EHS, while it was a nice margin contributor, was on the lower growth side of Risk & Compliance Software. So we're not seeing really any -- as we look at our outlook, it's grounded in fundamentals, and we're very confident in our mid-single-digit guidance here.

The next question comes from Arthur Truslove of Citi.

The first question I had was just around the margin development. So essentially, you managed to grow revenue organically by $40 million, organic expenses up by just -- or sorry, down by [ $3 million. ] I was just wondering if you could sort of explain how you've had so little cost pressure in there. So I guess, with that in mind, it'd be interesting to know what proportion of the organic revenue growth was pricing versus volume? And ultimately, how you managed to grow revenue so much with so little incremental cost pressure?

Yes, I'll start, and then I'll let Ryan comment on pricing and volume. But really, when you look at the approach and the messages that we've been delivering, we do see operating leverage off of a stable cost base and continue to have opportunities to better use capacity and have our teams focus on productivity based on the tools and processes that they continue to use and to improve.

We did see the restructuring begin to flow through. So that has certainly been beneficial. And then we've been very focused on the value that we provide our customers and increasing the billable utilization, both of our lab teams as well as our engineers. And what's exciting about that is that's the technical leadership that our customers want. And so making sure that we're getting the value from that technical leadership is really important. So I would say those are the -- kind of the headlines on where we're focused on this margin expansion, and then Ryan can talk about price and volume.

Yes. Thank you for the question, Arthur. So as we said, we report four revenue categories, the two that are most amenable to looking at price and volume are certification testing and non-certification testing and other services. So together, those grew 7.1%. And in the first quarter, more of that growth was actually from volume than price. And we're encouraged by that. We believe volume growth reflects real underlying demand for new products. We're expanding in new geographies and there's healthy new activity regarding product introduction.

Pricing remains constructive, and the cost of our services is just a small fraction of the total product development costs for manufacturers. We also had growth of 8.2% in ongoing certification services. And in that case, there were meaningful contributions from both price and volume.

Ladies and gentlemen, with no further questions in the question queue, we have reached the end of the question-and-answer session. I will now hand back to Jenny Scanlon for closing remarks.

Thank you, everyone, for joining us today. We, as always, appreciate your support, and we look forward to updating you on our progress next quarter.

Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.

Good afternoon, everyone. I'm Curt Nagle, Senior Business and Information Services analyst here at BofA. This session is UL Solutions. Really, really pleased to have Jenny Scanlon, President and CEO; and Ryan Robinson, the Chief Financial Officer, with us.

We're going to start out with a few prepared remarks and a quick presentation from UL, and then we'll go into some fireside questions and then time permitting anything from the audience.

Perfect. Thanks, Curtis. We're going to do a rapid fire round of what's available out on our investor site. But just to ground people in who we are and what our industry is because we really don't have peers here in the United States.

Let's go, safe harbor. There's 5 key messages that we'd like to deliver to prospective shareholders about our company. The most important one to start with is we are mission-driven. Our mission started in 1894 as a not-for-profit focused on addressing the safety science of the new technology of the day, which was electricity. That continues today.

We are a global industry. It is fragmented. It is large and it is consolidating, and our mission distinguishes us in that industry. That mission results in us remaining dedicated to applied safety science as well as sustainability. And our customers tend to call us first when they have a safety science issue of some type of technology that is new and different and innovative or old technologies that can continue to present safety challenges.

Our customer relationships run deep and last a very long time. My former company, USG Corporation, has been a UL customer since 1913, and we have many customers who have celebrated 50-plus years of working with us. And that matters because that delivers our recurring revenue streams as well as brings in reoccurring revenue when they build new product innovations and need those tested for safety, security or sustainability.

We're global. We've got great scale and operating leverage. We are close to the world's manufacturers, and we've got a great balance sheet. It is healthy, investment grade with strong cash flow and a very disciplined capital allocation strategy. You've seen the Mark. You've seen it everywhere. Go home and have your kids count if you need to distract them, they will find dozens and dozens. This Mark represents that those products are safer than they would otherwise be and that those products have passed important safety certifications.

Last year, we did $3.1 billion in revenue around the world with just shy of 15,000 employees, 14,500. We are the leader in product safety testing. We do this in 3 segments: industrial products, consumer products and then software services, software and advisory services that focus on the needs of those product tick manufacturers.

And we measure our revenue by customer geography. This is not where we do the testing work. This is where our customers are headquartered. So 41% of that headquartered here in the United States, 25% last year headquartered across Greater China, which includes Hong Kong and Taiwan; and then Middle -- Europe, Middle East, Africa, largely Europe on that 17% and then Asia Pac and the rest of the world. We have 4 major service categories, and Ryan is going to take us through those.

Great. We group our services into 4 primary categories. First is certification testing. That's largely driven by regulatory requirements, and it occurs before a product goes to market. So often, there's a requirement to be lawfully sold or imported.

Some authority that has jurisdiction requires an independent accredited laboratory to test and certify products to make sure they meet applicable standards. That's 28% of our revenue, but it doesn't stop there. 33% of our revenue, 1/3 of our revenue is a recurring revenue stream called ongoing certification services. And there needs to be a process to make sure that products continue to be manufactured in a manner that's reasonably consistent with the original samples we tested.

So we send field engineers to every location where a product is manufactured, typically at least 4 times a year on an unannounced basis to observe the manufacturing process, look in the stock room for the components, pull supporting documentation regarding the manufacturing processes to help ensure the original product quality, safety, integrity and compliance is maintained.

Part of that process is we license the UL Mark to the customer to put on their products so they can communicate quality, safety and compliance to their customers and to those authorities that have jurisdiction, so their products can be sold in those markets. So construction projects can be completed, so certificates of occupancy can be granted in the construction process.

Another 30% of our revenue, we call non-certification testing and other services. So this can include performance or quality testing that may not be regulatory driven. So it includes softlines and hardlines testing, things like toys or apparel, private label products for the world's largest retailers. Also, this revenue category includes wireless product testing. And there are a lot of wireless devices connected to the Internet where governmental authorities, including in the U.S., the FCC or other authorities in other countries require wireless products to be tested to make sure they don't inadvertently interfere with other wireless products.

And then finally, about 9% of our revenue is enterprise software, focusing in helping our customers reduce risk and enhance compliance in important areas including their supply chain insights and their sustainability objectives. A bit about the global testing inspection certification industry. It is a large and diverse industry. It's a broad term. So in total, over $240 billion. A portion of that is done within the manufacturers' product design processes themselves and is in-house. $99 billion on an estimated basis is outsourced. And then of that, about $38 billion is specifically product and component testing inspection and certification. And this is where we focus, and we are the world's leader in product and component testing inspection and certification.

We feel we have approximately 7% global market share, and we continue to focus in this area. There is increasing globalization of where products are sold. There is a regulatory environment that often is requiring products and components to be tested and inspected. And increasingly, customers have sustainability objectives that require more and more information about the products that they develop.

So very quickly, how does this all fit together? Standards are developed by standards, development organizations all over the world. We test to 4,000 standards, 1,500 of those were written by our affiliated parent company, UL Standards and Engagement. But we sit on technical panels and advise many, many standards development organizations.

When a standard has been written, you need an accreditation. That accreditation comes from, again, a myriad of accreditors globally, including OSHA or FDA or ANSI. When you're accredited to test to a standard, you then have a service. And so this is the moat that we've built, the 4,000 standards, the 650 technical accreditations and the over 350 independent services that can be combined into various testing protocols and packages to fulfill the needs of a specific innovation.

And then finally, to wrap up, we have mega trends that are propelling our growth. The energy transition, the electrification of everything, the move to new sources of energy and the ways in which generation, transmission, storage and usage of energy is all shifting is driving a tremendous amount of innovation all over the world, and that is propelling -- propelled by a lot of the needs of AI data centers, but that is not the only demand driver for that energy transition.

There are shifts in mobility, electric vehicles, but not just cars, agricultural products, buses, micro mobility, scooters, bikes. A lot of that is also being driven by sustainability requirements. The reality that there needs to be different uses of product, different sources of raw materials and different considerations about products at end of life.

Digitalization and AI are changing the ways in which everything is used. AI embedded in products is an important consideration for us and what is the safety of that. We've seen with tariff shifts through the years, not just the last couple of years, but the risks of supply chain and seizures of that supply chain and how our customers need to adapt and change their supply chains. And frequently, that results in retesting of products.

And then, of course, the myriad of regulations all over the world at federal and local levels where products need to comply with the regulations that an authority having jurisdiction has put forth. So this is the exciting power of our business. We're happy to be here, and we look forward to taking questions.

Great. Thanks very much, Jenny and Ryan. Maybe the first one, I want to focus on a point you made at the beginning of your presentation on consolidation. Large market, I think share is about 7%. So I guess, one, just fragmentation of the market. Number two, how does you all fit into that consolidation theme? Is it accelerating maybe with standards becoming more complex and innovation increasing? And is there an angle in terms of maybe outsourcing, right, some of that market where you're seeing internal testing?

Yes. It is a consolidating industry, and there are tens of thousands of testing inspection or certification labs all over the world. And we are disciplined in our approach to that consolidation. Our #1 criteria is focusing on product tick and ensuring that any tuck-in or bolt-on acquisition that we would do continues to expand our set of offerings for our product tick customers or deepen our operational footprint for services that we already have.

That said, there are also just new areas that customers have needs. And we're always interested in understanding what kind of software is out there, data sources that are being evaluated that our customers need and how do we build that into our risk and compliance software business.

Okay. Very good. Megatrends, I think pretty important here. I guess how are you -- whether we're talking about energy transition, digitization, driving, I think, double-digit growth at the moment. How are you aligning with that internally in terms of building capacity, levers you're pulling to basically stay ahead of demand and capitalize on what is a powerful and multiyear opportunity.

Yes. The great news is that those long-term customer relationships give us a lot of insight into their product road maps, the opportunities that they're chasing and the challenges that they may face. So even like in the energy transition, we started down our global battery -- large-scale battery testing strategy by first opening a lab in Changzhou, China. I believe that was 2020, followed by Korea, Japan, into Auburn Hills in the United States that opened 2 -- 18 months ago and then into an acquisition that we made in Europe in Germany, Battery Engineer.

And in all of these cases, the customers were looking at both the effect of what could happen with EVs and vehicle batteries as well as how were batteries and energy storage systems going to be evolving with the energy needs in the industrial environment. So it's just -- it's a great example of us choosing capital and M&A. We did both, staying ahead of the trends that our customers have, making sure that we have the capacity that they need.

And even in some cases, like in Korea, a customer called us up and said, we have faster plans. We need more battery capacity, how can you help us? And we always tell our customers, we're happy to step up if there's a good ROI.

Okay. Very good. Somewhat of thematic supply chain Supply chains are becoming broader and maybe more complex. In terms of maybe regional realignments you've seen or realignments that could come, how does that impact your footprint? Does that create a multiplier effect at all in terms of your own volumes?

Yes. So going back to an overview of UL, I would say our geographic distribution now is an outcome of decades and decades of global trade where products are developed, where they're manufactured and the trading partners between countries. So over time, we have evolved. We will continue to evolve to support our customers.

Fortunately, it's much easier for us to evolve the location of where our field engineers visit factories or do we expand laboratory capacity. It's easy for us than it is for our manufacturing customers to build new factories or to materially evolve their supply chain.

So for many years, we have seen changes in trade patterns. Some companies have adopted China Plus One strategies where they supplement perhaps a dependent manufacturing supply chain strategy with an additional location. So we've expanded capacity in countries like Vietnam, both in Ho Chi Minh City and Hanoi, in Southeast Asia, in India, in Singapore, in Mexico as well as additional capacity in the United States. Our -- all of our regions grew last year in a period of a lot of trade uncertainty. And I think that speaks to the resilience of our business model and how we support multidirectional trade.

Okay. Very good. Industrial segment, really, really strong 4Q, I think led by automation and energy. Looking ahead, let's define it, I don't know, the next maybe 1 to 3 years, are there particular end markets where you think at least your positioning or maybe your opportunity set are in early innings?

And then maybe just kind of a shorter-term question in terms of potential pullback in industrial activity given, let's just call it, a more volatile geopolitical environment, how would that affect you?

Yes. The good news, I'll take the second part first. The good news is our business isn't driven by GDP growth or driven by number, volume of products that are out in the marketplace. Our business is driven by innovation and number of SKUs in the marketplace because if you are manufacturing a single widget or 10,000 widgets at a plant, we will visit that plant 4 times a year and charge you for that inspection. So that's -- we've been resilient. When you look at our CAGR for the -- I think we published it since 2012. It is steady and growing 6.8% there.

With regard to industrial, those megatrends, I keep saying they're real. And the electrification of everything, energy and automation, different sources of energy, different uses of energy. I use the AI data center example all the time, a shift to 800 DC, 800-volt DC, direct current. It is a lot more power and it is a lot less safe. And you have to change out just about every connector, every control panel, every wire, different size of wire and cable goes into that data center because of it.

And then the thermal dynamics of a data center, those chips are stacked closer. They're turned on their side, they burn -- they just run hotter and they need a different type of cooling. So all of that type of innovation that we're seeing from our industrial customers around how do we do a better job around energy usage and data demands and data centers also carries into broader industrial, commercial, residential needs. And so it's one of the powers of innovation. You invent something and create something for one use, it does get moved into others over time. So we love this industrial business. We love all our businesses, but industrial is those megatrends are really propelling strong new product growth.

Yes. No, it's an interesting point, just at a point in time now and then in terms of, I guess, you get second quarter deployment, hopefully, I would imagine that would be an opportunity, too. Okay. That makes a lot of sense.

So a big focus for the past few years, a lot of investment in specialized facilities and labs. Auto testing, I think, is one, and you built new capacity there. In terms of those target investments, I guess, how does that change perhaps the strategic conversations you're having with your larger OEM clients today? strengthening them, deepen them? I guess, what's the opportunity there?

Yes. The good news is, I mean, we're exposed to 35 different industries. And we focus really on our largest -- we have 80,000 customers, but our global and strategic accounts are really driving the supply chains down to those other 80,000 customers. So in the auto industry, the areas where we focus have been in the EV battery space, and in the embedded software around functional safety. You don't want to have software powering your car. And when you turn on the radio, your brake slam on or something that could be very dangerous.

So that business has ebbed and flowed, particularly in Europe right now. But the good news is as a battery manufacturer is seeing maybe a slowdown in their volume of EV batteries, they've got a plant ready to go. So now they're ramping up the industrial scale battery production in there that may be going into the industrial supply chain, manufacturing plants or even into AI data centers.

Okay. Kind of somewhat of a broad AI question, and you could extrapolate this all sorts of different ways. But in terms of thinking about how does that, and again, very broadly change testing needs. I mean, on one hand, I guess, you could think about things like digital twins, digital avatars and maybe digitizing testing. But just broadly, how is AI impacting your business?

Yes. I'm going to let Ryan talk about productivity and AI, and I'll wrap it up.

Yes. So it will affect both the needs of our customers and our internal processes. And you may have seen we've recently announced the introduction of a standard that helps define the development of products and processes that have embedded AI, and we've also announced the initial certifications awarded to parties in -- Jenny, do you want to speak to that service a little bit?

I'm happy to do that. So in fact, we had an announcement today of 2 customers embedding -- using our standard for embedding AI into their products. So Hanwha Qcells has a product around controlling energy systems in data centers that is AI-powered, and it's passed the UL certification.

And then Omnicon also a provider of the broader built environment and energy management systems has announced the use of our UL 3115 into their products. So we see this -- we're in really early days on this offering. But what I like about it is it demonstrates that when there is a complex technical need with the safety challenge, our customers call us first. And our scientists and our engineers are there to rely on the science, do the research and come up with good answers.

You're there to meet that need.

Yes. And then on the internal process side, we've made substantial progress with enabling technology to support our employees, increase their productivity and increase the usage of our physical assets. So we actually grew organic revenue 6.2% last year and finished the year with slightly fewer headcount than the beginning of the year. In addition to that, we announced some expense reduction initiatives that will be completed through the first quarter of next year to further create some efficiencies.

Okay. No, that's a good -- definitely a good segue. So I know both of you, your background is very much on efficiency, right? And there's just basic just efficiency. So productivity has been a bigger focus. It feels like at least you're talking about it more, right? And that's the restructuring. You're starting to see it in the margin expansion. So in terms of just the kind of onto the ground focus on operational efficiencies versus deploying AI within the organization, how do we think about, I guess, the margin expansion potential from there, I suppose?

Yes, I'll let you.

Yes. So maybe just to ground in 2025 and how that theme came through in our numbers and then how it carries forward. And you can see we grew our adjusted EBITDA last year about 21%, $179 million of incremental organic revenue, and we're able to fulfill that, which is $37 million of incremental organic expenses. So we're very focused on efficiency initiatives, supporting our employees with enabling technology and producing better outcomes for our shareholders. So that led to about 300 basis points of margin expansion in 2025.

We've guided in our outlook for 2026 for additional margin expansion of between 60 basis points and 110 basis points with largely similar themes, focusing on operational execution, continuing to grow our relationships with our customers, achieving operating leverage, continuing our trends of pricing our services for the value that we provide and continuing to drive profitability improvement.

Okay. Very good. So global company, the majority -- slight majority in terms of U.S. versus international split. But thinking about the UL Mark, I mean, the brand recognition, I'm not sure could be stronger, right? 110-year lineage thereabouts.

32.

I'm sorry. Particularly in North America. So again, understanding a wide-ranging global company. But thinking about that premium brand and what that -- I guess, exporting that to the rest of the world and using that as a lever for growth, where be well known. I guess what is the importance of the all brand on expanding it more globally, I suppose?

Yes. There's 2 points on this. One, our brand is unequivocally recognized as the premier safety brand here in North America. And we do have opportunities to continue to expand that recognition outside of North America. A key piece of that is our relationship with UL Standards of Engagement, not-for-profit and UL Research Institutes, not-for-profit.

We started as a singular organization. There are now 3 distinct organizations with the same mission, working for a safer world. And having UL Research Institutes, which now has a significant endowment to basically create a safety science university is focused on some of the most pressing safety challenges of the day, fire safety, electrochemical safety, mapping the chemicals in the human body, so chemical insights, safety, AI safety and new material sciences and safety of new materials.

So the more work that they do and the more standards that you all standards of engagement right and the more global that they become and they are now funded in a way that they can become global, that also helps reinforce our brand. And our work reinforces the importance of what they do. So it's a great ecosystem that we have going between the 3 sides.

Okay. Very good. Switching to software. So last year, divested or I think it was last year, the EHS software business. focusing purely on the ULTRUS platform. I guess how does this sharpen your go-to-market strategy in terms of risk and compliance software in the near seg?

It helps in a couple of different ways. One, in addition to selling off the EHS, we're moving the piece of software and advisory that was focused on advisory back to our TIC businesses. And that's because our hypothesis when we put these together was that there would be cross-selling between software and advisory, and it turns out that there's more interaction between the advisory and the TIC services.

So that frees up our software team to become laser-focused on their product road maps and potential M&A for in the world of governance risk and compliance software, we're focused on the risk and the compliance side. So the risks around is a product compliant and remaining compliant in markets that have ever-changing regulations.

A couple of years ago, Minnesota announced you can't have nickel or cadmium in your products anymore. Well, we've got the ability to help our customers know where they would be out of tolerance on that and what they might need to reengineer and retest.

Supply chain risk management is traceability into the chemical supply chain that largely is for products going into the retail environment. There are strict regulations around transport, storage, sale and disposal of chemicals in a retail environment, but really in any industrial environment. And so we help our customers trace through that and maintain compliance and have other derivative uses of the data that we have about the chemicals and their supply chain.

And then a natural output of that is all of the reporting that's going to be required for sustainability, Scope 1, Scope 2, Scope 3 and you trace those all together, we've got the information about what's in those products and can help our customers do that.

Okay. Very good. And maybe just a last one, Ryan, just basic question in terms of capital allocation, rock-solid balance sheet, low leverage, priorities in terms of where bolt-on M&A might focus and then capital return. How do we think about that?

We're fortunate to be a highly cash flow generative business, high cash flow from operations. And our largest priority is to reinvest back in the business for the growth and the evolution. So that's organic capital investment. Last year, we deployed just under $200 million or about 6.5% of revenue back into the business.

Over our history, we complement that growth with acquisitions, typically in more technologically differentiated areas with teams and sometimes in geographic markets that accelerate our market entry. In addition to that, we maintain a strong balance sheet. We're investment grade. We intend to continue that rating.

And given the strength and stability of our cash flows, we pay a cash dividend. We've recently increased that cash dividend. And we're a newly public company less than 2 years. But over time, we'll evaluate share repurchases as a potential capital allocation. But our business generates high returns on invested capital. So we continually look for opportunities on the left side of this page to reinvest back into the business.

Strength of this makes total sense.

Thanks.

And then maybe one last for me, and then I'll see if there are any questions from the audience, just a quick word association, lightning round UL Mark.

Strong, solid growth.

Okay . Electrification?

Everything.

Everything.

Everything. All right. I like that. Margins?

Expanding.

M&A?

Renewed focus.

Renewed focus, Interesting. Okay. And then just high level one, AI?

Opportunity.

Opportunity.

Opportunity. Love it.

Exciting.

All right. Before we conclude any questions from the audience that we can take? All right. With that, Jenny, Ryan. Thank you very much.

Appreciate it.

Great to be here.

Thank you very much.

Good day. and welcome to the UL Solutions Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this even is being recorded. I would now like to turn the conference over to Yijing Brentano. Please go ahead.

Thank you. Welcome, everyone, to our fourth quarter and full year 2025 earnings call. Joining me today are Jennifer Scanlon, our Chief Executive Officer; and Ryan Robinson, our Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at ul.com. Our earnings release is also available on the website. I would like to remind everyone that on today's call, we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements may include, among other things, statements about UL Solutions results of operations and estimates and prospects that involve substantial risks, uncertainties and and other factors that could cause actual results to differ in a material way from those expressed or implied in the forward-looking statements. Please see the disclosure statement on Slide 2 of the earnings presentation, as well as the disclaimers in our earnings release concerning forward-looking statements and the risk factors that are described in our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2025. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law.

Today's presentation also includes references to non-GAAP financial measures. A reconciliation to the most comparable GAAP financial measures can be found in the appendix to the earnings presentation. With that, I would now like to turn the call over to Jenny.

Thank you, and good morning, everyone, and thanks for joining us. I'm delighted to report that UL Solutions concluded a record year with outstanding performance that exceeded our guidance. What makes our results particularly impressive is that we achieved them while navigating trade policy shifts and geopolitical uncertainties throughout 2025. Our resilience is evident.

We've once again delivered robust organic growth, enhanced profitability and strong cash flow generation while maintaining our investment-grade balance sheet. Our performance is a testament to the durability of our business model, the essential nature of our services and the strength of our team. I'm particularly pleased that our global product TIC strategy continues to deliver balanced performance across segments, service offerings and regions. Our strategic alignment with major industry megatrends is resonating with customers. This demonstrates the critical role we play in their success, helping them innovate with confidence while accelerating their path to global market entry. The sustained demand for our services underscores the fundamental value proposition we deliver to our customers worldwide.

On the call today, I will cover 3 areas: first, highlights of our strong full year performance; second, some notable achievements and activities throughout 2025; and third, our financial position and capital allocation strategy for 2026. With respect to our full year performance, our delivery of superior results reflects our team's consistent ability to execute. I want to express my deep appreciation to our employees whose dedication to our mission of working for a safer world scientific excellence and customer centricity defines our culture and is fundamental to our long-term success. Brian will dive into the fourth quarter numbers, but first, let me hit the high notes of our full year 2025 results.

We continue to fuel the momentum that began when we became a public company almost 2 years ago, delivering revenues of nearly $3.1 billion, up 6.4% versus 2024 and up 6.2% on an organic basis. Our Industrial segment led the way with 6.9% full year growth, including 7.1% on an organic basis. While our Consumer segment grew 6.5% including 6.1% on an organic basis. Our Software & Advisory segment completed the year with 4% top line growth, including 3.7% on an organic basis. Our full year results once again reflected growth across all major geographic regions.

Adjusted EBITDA for the full year grew 20.7% and adjusted EBITDA margin expanded by 300 basis points to 25.9%. We significantly exceeded our original long-term goal of 24% in our second year as a public company, and we expect this progression to continue.

Next, let me highlight significant investments in our global testing infrastructure that we completed or announced in 2025. We opened new advanced facilities in [ Aken ], Germany for battery testing; [indiscernible] Italy for HVAC and heat pump testing; [indiscernible] Japan for electric motor efficiency testing; and we expanded laboratories in [ Dongguan and Ningbo ], China for IoT, wireless and retail product testing. Additionally, we broke ground on our global Fire Science Center of Excellence in Northbrook, Illinois, one of our largest laboratory investments to date.

We also broke ground on 2 advanced automotive EMC testing facilities, one in Toyota City, Japan, expected to open during the second half of 2026, and and another one in New Eisenberg, Germany projected to be operational by mid-2027.

In addition to our organic investments, we invest in the evolution of safety standards. That role enables us to proactively build the certification services necessary to advance emerging technologies. For example, in Q4, we announced the launch of new certification services for battery-powered vehicles and industrial equipment, supporting the UL-2850 and UL-2701 standards for battery management, thermal runaway risks and functional safety. This work helps manufacturers navigate the complexities of the global energy transition.

We are excited to extend our [ EcoLogo ] certification program to industrial products, helping manufacturers demonstrate sustainability commitments and meet growing market and regulatory demands. We issued Schneider Electric, the first [ EcoLogo ] certification for an industrial product, certifying their power packed circuit breakers portfolio. Our new [ EcoLogo ] certification for energy and industrial automation equipment sets a new benchmark for sustainable product design, advancing transparency and sustainability.

On the software side, we expanded our ULTRUS software platform with new AI-powered releases that support compliance and sustainability goals. These releases help customers manage regulatory requirements and operationalize sustainable practices while complementing our testing, inspection and certification services. Our ongoing strategic investments significantly expand our capabilities across critical growth sectors, including data centers, energy storage, connected devices, fire safety and digital services. Our new offerings address demand in markets projected to experience substantial growth for years to come.

Finally, let me comment on our disciplined approach to capital allocation activities during the year. Our strong revenue growth and rigorous expense management allowed us to generate robust cash flow. Key actions in 2025 included investing $197 million in capital expenditures to drive growth, paying down $253 million in borrowing and paying $104 million in dividends. We are excited to enter 2026 building on this momentum.

First, we are introducing our 2026 growth outlook, reflecting continued strength in our underlying business model. Second, we are increasing our regular quarterly dividend by 11.5%. And third, we have made some enhancements to the composition of our segments.

At the beginning of this year to better position the company for growth,and enhance customer value and innovation, we realigned our Software & Advisory segment as a means to focus and grow our software business. This change creates a focused software segment, which we have renamed risk and compliance software. The segment will be positioned to deliver great value with ULTRUS, our digital platform that helps customers simplify product compliance, gain supply chain visibility and access data to enable smarter decision-making.

As part of that focus on high-quality growth and strengthening our value proposition, today, we are announcing the divestiture of our employee health and safety software business. This divestiture is expected to close in the second quarter. We consider these EHS software offerings to be noncore, and we believe this divestiture will allow us to concentrate resources on the core software offerings most relevant to our [ TIK ] customer audience and redeploy capital toward attractive opportunities. Over 55% of our global and strategic accounts customers currently purchased at least one of our ULTRUS risk and compliance software offerings. Those offerings will remain a core part of our value proposition.

To further focus our risk and compliance software segment, effective in Q1 this year, we moved advisory services, which accounted for approximately 5% of our consolidated 2025 revenue into the Industrial segment from the Software & Advisory segment. We believe this move is a better strategic and operational fit with our core testing, inspection and certification work. We expect this change will strengthen customer value by more tightly pairing technical advisory with standards-driven TIC services and will better align advisory with the industrial demand drivers where we see attractive growth opportunities such as broadening services into the wider energy ecosystem, expanding our focus on the built environment and better tailoring our offerings to the medical device industry. We believe we are well positioned in 2026 for continued high-quality growth and remain focused on maintaining our investment-grade balance sheet to help execute our strategic priorities.

Now let me turn the call over to Ryan for a detailed review of our fourth quarter results and our initial 2026 outlook.

Thank you, Jenny, and hello, everyone. I also want to thank all of our team members for delivering another strong quarter and full year 2025. Jenny did an excellent job summarizing our outstanding financial results for the year I will focus my comments on our fourth quarter and segment results before closing with some comments on our initial 2026 full year outlook.

We are proud to report a continuation of strong growth, adjusted EBITDA margin expansion and solid cash generation in the fourth quarter. Now let me dive into the details of the quarter. Consolidated revenue of $789 million was up 6.8% year-over-year -- year over prior year quarter, including organic growth of 5.7%. The increase was particularly impressive given the difficult comps we had from the prior year period and reflected strength in both the Consumer segment, which delivered 7.1% organic growth; and the Industrial segment, which delivered 6.1% organic growth.

Cost of revenue as a percentage of revenue improved 260 basis points primarily by holding organic cost of revenue unchanged from last year's level, while delivering strong revenue growth. SG&A as a percentage of revenue improved by 150 basis points compared to the prior year period. We recorded pretax restructuring charges of $37 million associated with the previously announced restructuring plan.

Adjusted EBITDA for the quarter was $217 million, an improvement of 28.4% year-over-year. Adjusted EBITDA margin was 27.5%, up 460 basis points from the same period a year ago on particular strength in the consumer and industrial segments. The primary drivers of the margin expansion include operating leverage from revenue growth and supporting our team members with better technology and work environments. This allowed higher employee productivity and laboratory utilization. And as a result, we reduced our employee compensation expenses as a percentage of revenue. Our service and materials costs also improved as we decreased our use of third parties to fulfill portions of our work.

Approximately 120 basis points of the adjusted EBITDA margin improvement was due to certain nonrestructuring severance expenses recorded in the fourth quarter of 2024 that were absent in the fourth quarter of 2025 due to the implementation of the restructuring plan.

Adjusted net income for the fourth quarter was $114 million, up 11.8% from $102 million in the fourth quarter of 2024. Adjusted diluted earnings per share was $0.53, up from $0.49 in the fourth quarter of 2024. Adjusted net income and adjusted diluted EPS improved alongside stronger core profitability, partially offset by a higher effective tax rate. For the full year, our effective tax rate was 26.6% in 2025. This compares to 16.9% in 2024. Our effective tax rate in 2025 was impacted by the additional implementation of the OECD's Pillar 2 provisions for multinational corporations. We also experienced a benefit in 2024 from a significant release of tax reserves that did not recur in 2025.

Now let me turn to our performance by segment, starting with Industrial. Revenues in industrial rose 7.3% to $352 million or 6.1% on an organic basis as compared to the fourth quarter of 2024, with growth in all service lines. This was achieved despite outsized ongoing certification services growth in the year ago period, which we believe were a result of increased activity ahead of potential tariffs. Certification testing growth was led by energy and automation as well as fire safety testing.

Adjusted EBITDA in the Industrial segment increased 21.9% and to $128 million in the quarter, while adjusted EBITDA margin improved 440 basis points to 36.4%. As I mentioned earlier, we delivered revenue growth with expense efficiency across the business.

Now turning to the Consumer segment. Revenues in Consumer were $335 million, up 8.4% from the 2024 quarter or 7.1% on an organic basis. The improvement was driven by demand across all service categories, led by non-certification testing and other services. In terms of end markets, we saw a surge in demand across consumer technology, including EMC testing as well as HVAC.

Adjusted EBITDA for the quarter in Consumer was $66 million, an increase of 46.7% versus the fourth quarter of last year. Adjusted EBITDA margin for the quarter was 19.7% and an increase of 510 basis points year-over-year. Margin growth was driven by higher revenue, along with disciplined operational execution and employee utilization.

In our Software & Advisory segment, revenues were $102 million in the quarter, essentially flat year-over-year in both total and on an organic basis. The results reflect strong demand in software, including the retail product compliance, offset by lower advisory-related activities. Adjusted EBITDA for the quarter in Software & Advisory was $23 million. a 21.1% increase as compared to the fourth quarter of last year. Adjusted EBITDA margin for the quarter was 22.5%, an increase of 390 basis points, primarily due to lower services and materials costs.

Turning to cash flow. For the full year 2025, we generated $600 million from operating activities, an increase from $524 million in the prior year. Capital expenditures for the year amounted to $197 million or 6.5% of revenue reflecting our continued commitment to investing strategically, both for future growth opportunities and for current infrastructure needs. CapEx as a percentage of revenue moderated in 2025 and as we finished a couple of key lab additions in 2024 in early 2025 and are ramping up the Global Fire Science Center of Excellence in Northbrook and the EMC labs that Jenny mentioned earlier.

Free cash flow totaled $403 million in 2025, up strongly as compared to $287 million in 2024 and grew as a percentage of revenue from 10% to 13.2%. We finished the year with $295 million of cash and cash equivalents. The strength of our balance sheet is reflected in our investment grade ratings. Our robust balance sheet and strong cash flow generation give us great flexibility to invest in organic initiatives, accretive acquisitions and to pursue a number of value-enhancing activities as we strive to produce best-in-class shareholder returns. In addition, we repaid $253 million of borrowings and returned $104 million to our shareholders through quarterly dividends.

Now let me expand a bit on the divestiture of our Employee Health and Safety Software business we announced today. This business accounted for approximately $56 million of 2025 revenue and the transaction is expected to close in Q2. The sale price is approximately $210 million and is subject to customary post-closing adjustments. This strategic exit allows us to focus resources on higher-growth software offerings that are more closely aligned with our core testing, inspection and certification services. The cash proceeds provide flexibility for value-accretive investments and capital allocation priorities.

Now turning to our initial 2026 full year outlook. As a reminder, organic growth is constant currency and excludes acquisitions and divestitures. We expect 2026 consolidated organic revenue growth to be in the mid-single-digit range as compared to our full year 2025 results. We expect Industrial to grow at a faster pace than consumer. At this time, the forward FX forecasts imply an additional approximately 50 basis points tailwind on revenue growth year-over-year and market forecasts have a large majority of that FX benefit in the first half of the year. We expect to improve adjusted EBITDA margin to a range of 26.5% to 27% in 2026, assuming current forward FX rates that I just mentioned.

As a reminder, as part of our restructuring actions announced in the fourth quarter of last year, we expected to exit nonstrategic service lines totaling approximately 1% of 2025 revenue, which will reduce organic revenue growth, and it is factored into the organic revenue guidance. The revenue impact of the expected EHS divestiture which is pretty similar each quarter will be reflected in the acquisition and divestiture portion of the revenue change and will not affect our organic revenue growth rate.

We will be sharing recast historical results for our new segment orientation when we report Q1 2026 results, which will include the movement of $139 million of advisory revenue in 2025 from the Software and Advisory segment to the Industrial segment. We continue to expect the restructuring plan to be substantially completed by the end of the first quarter of 2027 with remaining changes expected to largely be incurred in the first half of 2026 in the consumer segment. Once completed, we expect to improve annual operating income by between $25 million and $30 million compared to the trailing 12 months ended Q3 2025 as a result of both the revenue and expense impacts of these actions.

Our adjusted EBITDA margin guidance for 2026 contemplates the expected EHS divestiture, some benefit from the restructuring program and our current estimates of the FX impact. We expect capital expenditures to be approximately 7% to 8% of revenue in 2026, with investments in new labs continuing as we seek to match continued strong customer demand. We estimate our effective tax rate in 2026 to be approximately 26%.

While our guidance is for the full year of 2026, let me provide you with some color with regard to seasonality. As a reminder, Q1 is typically our lowest revenue quarter in terms of dollars, given the Lunar New Year holiday impact on customer operations in Asia and fewer workdays as compared to other quarters. This results in slightly less operating leverage and therefore, profitability in Q1 compared to the other quarters.

Our Consumer segment benefited from a surge in customer demand in Q4 and is facing particularly strong comparable results versus the first quarter of prior year. Therefore, we expect more modest growth in Q1. Also, we expect more of our adjusted EBITDA margin improvement to occur in the second half of 2026. We are incredibly proud and thankful for the achievement of our global team and we believe they have positioned us well for 2026. We entered the year with strong momentum and expect to continue to steadily grow while improving profitability and delivering robust cash flow. We are working hard to deliver sustainable long-term value for our stakeholders.

Now let me turn the call back to Jenny for her closing remarks.

Thanks, Ryan. I mentioned earlier all of the various openings of facilities and investments we made throughout 2025. I would like to add that as part of the trips I often make to celebrate these achievements, I regularly meet with customers, employees and local government leaders. The genuine enthusiasm I always encounter never ceases to energize me. It's inspiring to work for an organization like ours. Our mission of working for a safer world serves essential basic needs of humanity for safer, more secure and more sustainable products.

2025 was another validating year. We exceeded guidance for both Q4 and the full year, demonstrating the strength of our business model and the value we deliver to customers worldwide. As we enter our third year as a public company, our trajectory is clear. From our initial IPO targets through our 2025 results to our 2026 outlook, we expect to continue delivering consistent top line growth and improving profitability.

Looking ahead, we see tremendous opportunity. There are some fundamental shifts reshaping global commerce, and many are very positive for us. such as the energy transition, the push for sustainability and the evolution of connected technologies, all of which are creating unprecedented demand for the safety science expertise that we believe differentiates us. We continue to strategically invest to meet this moment, strengthening our capabilities and expanding our presence in high-growth markets. With our strong financial foundation, global reach and unwavering commitment to our mission of working for a safer world, we believe UL Solutions is exceptionally well positioned to deliver sustained value for our customers, our people and our shareholders in the years ahead.

With that, we'll open the line for questions.

[Operator Instructions]

The first question comes from Curtis Nagle with Bank of America.

Great. 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. And then I don't think I saw it, but any updates in terms of a long-term margin framework. Previously '24, you guys are well above that? Or maybe asked another way, sort of past '26, what's the kind of a reasonable cadence of margin performance if you're still hitting that -- or on mid-single or growth? And then I have a follow-up.

Thanks, Curtis, and welcome. And really, what I want to start by saying is our '26 margin guide is a continuation of our continuous improvement philosophy. And so if you look at what led to our restructuring plan that we announced last year, it really was a confluence of a number of ongoing activities that we packaged into one event. We will continue to pursue continuous improvement activities on an ongoing basis, and that's really what underpins our guidance. But I'll let Ryan go into more of the details.

Thank you for the question, Curtis. And we're pleased with the 300 basis points adjusted EBITDA margin improvement in 2025 on top of the 190 basis points we delivered in 2024. And as Jenny said, we're focused on continuous improvement and increasing that. The themes of improvement in '26 are -- we anticipate to be similar to the year we just completed, driving operational leverage through both price and volume. We intend to continue to increase the utilization of our lab capacity and our staff. The restructuring initiative will help on the cost side, but we also do have revenue reductions that we noted as well as a divested business. And so our expense and efficiency initiatives need to overcome those revenue changes. And as I mentioned on the call, approximately 120 basis points of the adjusted EBITDA margin shift in the fourth quarter was related to that restructuring initiative.

All those things and FX go together to giving us comfort to guide to 26.5% to 27% for adjusted EBITDA margin in 2026.

Okay. Appreciate it. And then maybe just a quick one on cash. Just try to think about the pacing of debt pay down and potential use of proceeds, I think you said $200 million from the asset sale?

Yes. The initial use of proceeds general corporate purposes initially will repay debt. Our priority is to continue to reinvest back into the business, organic CapEx to grow and drive additional shareholder returns. It is a large distributed and consolidated industry. So we continue to evaluate acquisition opportunities. So in the short term, we'll pay down debt, but we will evaluate investment opportunities over time.

Your next question comes from the line of Stephane Moore with Jefferies.

I guess 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 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? I guess just trying to think about the substantial operating leverage that we're seeing. And if this is just a function of quite frankly, your initiatives around productivity and your investments? Or are you seeing any kind of maybe mix or end market benefit that would be different from just a steady course? And I have a follow-up.

Thanks, Stephanie. I appreciate the question. And I would say it's all of the above. First of all, our focus on the mega trends is so important. As we're out there looking at things like the energy transition, or digitalization that is really pushing AI data centers and even the needs in the sustainability space. Those are 3 of our biggest mega trends. All of those are yielding as we look at it double-digit growth. And while we transcend 35 industries and have a number of different services that push for megatrends, it's important to our largest customers and then it becomes important to their supply chains. So we do believe that the mega trends lead to that high-quality growth.

At the same time, a number of initiatives that you've mentioned are giving us operating leverage between pricing as well as utilization of our teams as well as introduction of new technologies and new tools to our business. All of those pieces fit together. And then finally, on mix, Ryan mentioned that we expect that Industrial will continue to have higher growth than consumer.

That's very clear. And then I wanted to circle back on maybe the first question on capital allocation, but ask it in potentially a different way. If I'm looking at this correctly, a net cash position is probably on the table here sooner than later. So as you continue to obviously generate significant cash, I fully understand your commitment to continuing to invest back in the business. But as we think about the runway for the stepped-up CapEx, obviously, 2025, you announced a lot of major investment projects. So how should we think about the magnitude of investments from a capacity or physical standpoint in 2026 compared to 2025? What's the runway on that magnitude of investment? And then given the debt position here coming to 12 months, what is the overall appetite for buybacks?

Yes. Let me start. On the CapEx, we always -- in addition to many of the large labs that we've publicly announced, we have ongoing critical facility upgrades that give more capacity, lease renewals to extend our positions in markets as well as just individual services for many of our COUs. So our commitment to CapEx to deliver market-leading growth is an essential part of our strategy and an essential use of our capital allocation.

Given high-quality growth as a strategy, of course, we're also focused on M&A. We continue to see plenty of opportunities out there in the market, but we are very disciplined in our approach to that. We are renewing our focus for the year on finding the right opportunities and successfully achieving that discipline in those results. So it's a balance. And then I'll let Ryan talk about other distributions of capital.

Yes. And in addition to that, we have mentioned that over time, we would consider share repurchases, particularly to offset dilution. We feel that we have been prudent stewards of our shareholders' capital, reinvesting back in the business and creating value. Our focus is organic growth and complementing that with accretive acquisitions. But we appreciate over time we need to evaluate all pieces.

Your next question comes from Andy Wittmann with Baird.

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 -- in 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?

Yes. Thanks for the question. We typically focus on our certification testing business and non-certification testing business, which have clear deliverables and it's easier to measure the impact on price and volume. And I would say, in the fourth quarter and the full year, there were similar contributions in the revenue growth of both. We were pleased with the overall growth, particularly as certification testing in the fourth quarter. And our our plan for 2026 would be to generally continue to grow with that mix.

Okay. That's helpful. And then, Jenny, I just thought I would ask for kind of an update on what you're seeing from new product releases from your customers? Anything around the data center ecosystem. If you could maybe talk about some of the specific categories of testing or product types that you're seeing from that kind of area. Obviously, it feels like it should be a driver. I just feel like a little bit more on the specifics of what you're actually seeing kind of where you think you are in these product rollouts and the testing that you can do to help with this? I think it would just be helpful for us to all understand as it contributes to your revenue growth. And if it is a material contributor to revenue growth, any quantification for how much it's adding to your revenue growth? I think it would also be helpful for people to understand as well.

Yes. I think our last point, I just want to highlight again, we've got 35 industries and a number of different segments that we target. So data center is extremely important, and we are seeing that digitalization trend really lead to double-digit growth rates in those types of services. And here's why we're seeing that. Today, we test 70 standards. But what we're hearing from our customers is that the existing set of standards for the new complexities in data centers, it's just not enough. And so they're coming to us for leadership and expertise in how they handle just the new realities of the changing of the thermal dynamics, of a shift to DC current 800 volts on the ways in which cooling -- [ rack ] cooling, immersion cooling, all sorts of cooling needs are happening.

So the data center work that we're doing, it's across all of our industrial product categories. So power and automation, renewables has a play as these data centers are trying to get enough power to power them. Wire and cable, the shifts to that DC is a different type of wire and cable, the built environment around the fire suppression. And then on the consumer side, again, those chillers, those HVAC systems as well as then just the underlying consumer technology, server technology, everything else that's going into those actual racks and pieces of equipment.

So it is across the board. And it's an exciting area. Our customers, I mentioned in the fall, we were having a data center power summit. It was so important and so well received. We're having a second one coming soon. And it's -- the attendees of that, it's the hyperscalers, it's the equipment and component and wire and cable manufacturers, and there's also the focus on the owners of the colos. So it's complex, it's growing, and we feel like we're right in the center of it all.

All right. That's super helpful. And just one kind of, I guess, technical question here. The restructuring plan that you guys announced last quarter, I think at the time, you were saying it was going to be a cost of [ 42 to 47 ]. I just want to make sure that there was no change there because I guess you're [ 37 ] versus kind of that target range that I set out. It seems like most of the actions have really been taken here. Is that right, Ryan? Or is there -- have there been any changes in planned scope reduction increases, whatever?

Yes. The range has not changed. We recorded the majority of that in the fourth quarter. We anticipate completing the rest of that substantially in the first half of this year. but the total range of both the cost to achieve as well as the benefits and timing have not changed materially since we communicated it last quarter.

The next question comes from Arthur Truslove with Citi.

Congratulations on excellent results. The first question from me just within the divisional growth. So if you look at the Consumer business, you talked about consumer technology, including electromagnetic compatibility testing. Just wondered what end market that relates to. And similarly, in terms of the energy and automation within industrial? And then second question, just to confirm, you obviously talked about mid-single-digit organic growth on a full year basis, obviously, net of the 1% from the businesses that you've abandoned. Just to be clear, does mid single digit mean sort of anywhere between 4% and say, 7%? Or do you have a different definition. And I suppose within that, where the software fits in? I don't think you mentioned that when you talked about Industrial and Consumer?

All right. Well, I'll start with some of the diversified growth. So EMC testing, is electromagnetic compatibility and what this is the FCC in the U.S. and similar regulatory agencies all over the world set tolerance levels for essentially how much RF radio frequency devices admit. So anything with the transmitter or receiver has to go through EMC. So for example, one of our capital announcements is EMC lab in Toyota City Japan, targeting the auto industry because automobiles, as I like to say, have become driving data centers and driving nodes on the grid. So that's why we -- as the world continues to connect, we continue to see demand for EMC growing.

You also asked about energy and industrial automation end markets. That's really everything around power and controls, electrical distribution, circuit protection, wiring devices, anything that really powers large industrial equipment. And again, a lot of that then becomes the types of products that get replicated into innovation into consumer products.

And then on the revenue guidance, Arthur, I would describe it in 4 parts, some of which are organic and some clarify the total growth. So first, in each of the past 2 years, we focused on high-quality growth, and we delivered on the mid-single-digit organic revenue guidance that we set at the beginning of the year.

Second, if we start with the growth rate that we delivered in 2025 and back out what we announced in 2023, the exit of some businesses that accounted for approximately 1% of 2025 revenue, that puts us squarely in the middle of a mid-single-digit guidance for organic revenue growth year-over-year.

And then third, in addition to the organic change, we announced the planned divestiture of the EHS Software business, which accounted for $56 million of Software and Advisory revenue in 2025, and that was 1.8% of 2025 consolidated revenue. So we believe the sale will close in Q2. And therefore, the total reduction will be for a portion of the year.

And then finally, the fourth consideration is FX and this is based on market forecast. But based on the current market forward rates, that would indicate about a 0.5% tailwind to revenue. So if you account for 100 basis points headwind from the divestiture of the EHS business on a total basis and 50 basis points excess tailwind, we have a net 50 basis points headwind for year-over-year total growth rate, so that's squarely in the mid-single-digit range. This is a year of a lot of small puts and takes. So I appreciate the question, and I hope that's helpful, Arthur.

And then, Arthur, let me add you -- I don't want to forget your question about software. And if you look at our revenue by major service categories in Q4, you'll see that software revenue in the fourth quarter grew at a faster rate than it did for the full year. And I would say that bodes well for what we're looking at in 2026. Additionally, the announced divestiture will allow us to focus on the higher growth categories of our ULTRUS platform, categories like our Supply Chain Insights or our benchmarks, which all really fulfill risk and compliance needs that our core TIC customers have.

Your next question comes from Jason Haas with Wells Fargo.

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 caused that dynamic?

Yes. The biggest cause of that dynamic is consumer, our customers really move quickly. And when they have innovation opportunities that they're trying to get to market quickly, we need to respond and our emphasis on customer centricity as well as just our ability to have the right capacity allows us to do that. So we saw some particular strength in some of the most innovative customers in the world in both the consumer technology space as well as some of the really great small appliances that are going to market globally.

Got it. That makes sense. Very helpful. And then I wanted to follow up on -- I know it's been a trend for a while, but the advisory business has been softer and weighed on your overall growth rates. Can you just talk about what's driving that? And then recognize it's shifting segments, but how integrated and synergistic is it to have that advisory business?

It's a great question, and it's something that we spent a lot of time evaluating in 2025. And what we realized was that our original hypothesis was that those advisory businesses were contributing to our software businesses. But as we really decomposed it, what we realized is that those advisory businesses are much more tightly tied to our TIC business.

And so areas like the energy ecosystem, we saw some good strength in renewables advisory last year, a little softening in the fourth quarter in that. But with the shift, particularly with data centers and needing new sources of energy, we see a greater tie to our industrial businesses. Similarly, the softness in commercial real estate has affected our Healthy Buildings advisory. And again, we believe that opportunities to couple that with some of our built environment services will help contribute to strengthening that. And then certainly areas where we do advisory services into getting medical devices to market, and we also see that tying more closely to the TIC services that we offer.

And so that was really the fundamental premise of changing our focus so that we're letting our newly named Risk and Compliance Software segment focused solely on software purchasers of that software and those product road maps and tying our advisory teams more closely to the TIC services that are really compatible with those advisory offerings.

Your next question comes from Andrew Steinerman with JPMorgan.

I'd like to focus a little bit more on lab utilization. How much of your '26 margin expansion is coming from higher lab utilization. And then also, you mentioned technology investments expanded productivity with that additional productivity, how do I think of the calculation of lab capacity and lab utilization and how much higher could lab utilization go from here?

Yes. Thanks, Andrew. And it's a great question, something we spend a lot of time evaluating because -- what I want to emphasize is it's not just lab utilization, it's expert utilization. So we've got our engineering or team or technicians who also are part of the overall process. You've got the physical labs. And then within those labs, you've got specific pieces of equipment. So anything that we can do to help improve the capacity of any of those 3 functions. Our people, our equipment and then our overall facilities is where we're focused.

And so certainly, the technology initiatives that we're rolling out is expanding the capacity of our people. Better use of AI in our processes frees up our people to have more capacity. At the actual equipment level, better -- really monitoring what's the right lab for specific services to be delivered and ensuring that we're directing those customer projects to the labs with the greatest capacity. It's one of the reasons why we believe in running global P&Ls is essential.

And then as I mentioned, as part of our capital planning, we're always looking at what are ways that we should be extending the actual capacity of an overall facility, and we'll continue to do that on an ongoing basis. So that productivity comes from all 3 areas.

And are you able to -- my first question was, could you tell us how much of the 26% margin expansion is coming from higher utilization of labs?

Yes. I would say we have -- Andrew, we have such a diversity of labs and we met even measure utilization in different ways for different types of services. It's hard to directly correlate those. We do see the improvement in trend and it is driving our results, but it's difficult to precisely correlate it.

The next question comes from George Tong with Goldman Sachs.

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?

Industrial, we want to just remind everybody that we believe that there was pull forward in Q4 of 2024 due to anticipation of tariffs. So I would say that normalized level is more along the lines of our annual levels, which is on the higher end of single digits.

But that said, as we look forward, the demand that we're seeing for industrial, both in certification testing and non-certification testing it's strong. These areas of the built environment, the energy and industrial automation, wire and cable, power and controls, these are all pieces that are being fueled by the mega trends and we're seeing particular strength -- the U.S. is strong across the board, by the way, both industrial and consumer, and particular strength also coming out of China and more broadly across Asia for that energy and industrial automation within Industrial.

Got it. That's helpful. You noted that the Industrial business should grow faster than Consumer this year. Can you talk about how much of a spread you expect in growth between these 2 segments?

We've not provided specific guidance for the growth for each of the segments. We added that comment because of the particularly strong performance of consumer -- and we just wanted to clarify that, that was in part due to a surge of activity in Q4 and not a fundamental change in the relative growth rates of the quarter.

The next question comes from Shlomo Rosenbaum with Stifel.

This is Adam, on for Shlomo. Can you talk about the shift of manufacturing activity from China and other parts of the world and how that trend looks in 2025 as it relates to UL -- in 4Q '25?

Yes. We're not seeing a significant shift out of China. We are seeing significant, I would call it, China Plus One continuation. So our China sites and our China -- the China sites of our customers that we inspect in our ongoing certification services continue to grow, albeit at a pretty low slope. But those sites that we visit, India is growing significantly, Malaysia, Thailand. So absolutely, we continue to see, I would say, dispersion and derisking of supply chains and our customers adding locations. Our China business continues to be strong, and we continue to be very pleased with our customer relationships. I'm going over there next month, looking forward to being there.

Okay. And the demand -- what is the demand like for the artificial intelligence safety certification services that the company announced the last quarter?

Yes. It's still in early days, but it's an important topic. What we're hearing is just how important trust is in AI, and we're working with different customers to understand how we adapt to that standard for them to provide evidence that their customers can trust their use of AI. So it's still early days.

Your next question comes from Andrew Nicholas with William Balir.

First one I wanted to ask was just on kind of the advisory restructuring and the employee health and safety software sale. I mean, can you give us a little bit more color on the growth rates of those businesses over the last couple of years? I know you've called out advisory softness a couple of times over the past several quarters. Just trying to figure out what kind of the restructuring there will do to the reported growth rates? And then any color on the margin profiles of those businesses would be helpful, too.

Yes. It's a great question. And let me just start. Advisory in general is -- tends to be somewhat cyclical and can be directly affected by in very specific market conditions, such as slowdown in commercial real estate affecting our healthy buildings portfolio. I always say it's like a sine wave on an upward trajectory, but any given quarter, it can be lumpy.

And -- so our rationale as we were assessing that for moving it under industrial with TIC is that there are just better opportunities for synergies, both in the opportunity identification with our TIC services as well as just the way in which we utilize our teams for some of those services. So we expect that to continue to be on an upward trajectory. But they will continue to be like a sine wave.

The EHS piece of software, our rationale for divesting that is when we look at our tick customers and the ultimate end personas of the users of our ULTRUS platform. EHS, it's an important service for many manufacturers, but that target audience isn't consistent with our target audience for our other ULTRUS offerings. So we felt it would be better off in stronger hands and we're excited that it found a good home. It was lower growth in our software portfolio. So for us, we expect our software growth rate to improve as a result of that divestiture.

Great. And anything you could say on the margin profile there just to take that off the list?

Yes. I would say, Andrew, with the first quarter, we will provide pretty fulsome information on the realignment of the segments, including the newly named Risk and Compliance Software segment. And so you'll be able to infer how that affects the change in revenue, how that affects the change in profitability. We were -- we wanted to be clear that our consolidated adjusted EBITDA guidance for the year includes that divestiture. So more detail to come, but the guidance includes the change.

Yes. And last thing on that, our Software and Advisory team has worked really hard to improve their EBITDA. And we expect that improvement to be durable these changes, and we'll report more in Q1 when we break them all out.

And then if I could just ask a follow-up question on 2025 results. Obviously, adjusted EBITDA margin was, I think, almost 200 basis points better than what you had originally guided. I'm curious, taking a step back, where you felt like you kind of got the most surprise relative to your initial expectations? How much of it was just taking a conservative approach a year ago versus demand or pricing or some other factor beating your expectations?

I'm just going to give a general philosophy and continuous improvement that when you express to a team specific metrics or specific areas of process that you're focusing on, you typically get results. And so within our processes, there were certain areas that we asked our team to focus on that really would lead to greater customer satisfaction and centricity. And those were areas that also dropped right down to our bottom line. So things like turnaround time or billable utilization or time to quote or use of the new pricing tool, those are all examples of when you put -- when you shine a light on them and apply metrics, people respond really favorably. And we've got a great team who did a great job in all of these areas.

Your next question comes from Josh Chan with UBS.

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

Yes. We have been able to keep lab head count flat. So our revenue per employee and our metrics of productivity per employee have been increasing. It's from a number of different initiatives. As Jenny mentioned, we're focused on continuous improvement. It's also an outcome of our laboratory footprint optimization, increasingly using centers of excellence that have higher capabilities, higher throughput, higher opportunities for our employees that work in those areas. So that has been a key contributor.

As we file the 10-K, you'll get some additional information on our employee compensation as a percentage of revenue by segment and consolidated. And I think you'll be able to see that even more precisely.

Great. And then just a quick question on the margin guidance. So how much of the restructuring benefit is included in the '26 guide? And also why does the margin expansion become stronger in the second half than the first half?

Some of the the improvements in the restructuring initiative are wind downs of existing services that are not instantaneous. They take a couple of quarters to achieve. Also some of it is a transition of activities to different locations that take a while to consummate. So for 2025, there is a portion of the benefits, but from the time that we announced it, we thought it prudent to focus on by the end of the first quarter of 2027, we will have all of these steps behind us.

Thank you, everyone, for joining us today. We appreciate your support, and we look forward to updating you on our progress again next quarter.

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

I'm Andrew Steinerman. Welcome to the Ultimate Services Investor Conference. This is the UL Solutions discussion. To my right is Jenny Scanlon, CEO; and to her right is Ryan Robinson, CFO.

They're in the TIC industry. That's Testing, Inspection and Certification. And I've really enjoyed learning about your industry over the last couple of years. It really has, I would think, for U.S. investors or U.S. analysts come to be appreciated as one of your best business services subsectors that I cover. And I just want to say thank you.

So here's a funny question, Jenny. Out of the T and the I and the C, which of those businesses do you like the best? And why?

I love them all.

I'm sure you do.

So -- and as you know, we've got 2 businesses and 3 segments. So 2 of our segments are in the Testing, Inspection and Certification. And of that, 33% of our revenue is recurring, and that really comes from that inspection side, the ongoing certification services. And so that's a really great ongoing engine for the 1/3 of our business that comes from that. So I probably like that best from a revenue stream.

But the most fun thing you can do is watch products being tested. I always say we light things up, we blow them up, we drown them.

Keep us safe.

I say we have to do inherently unsafe things to keep people safe. And so it's really satisfying to visit our labs and watch those testing processes.

So talk a little bit about industrial tech versus consumer tech and where you've kind of favored the company. Certainly, industrial tech has experienced higher organic revenue growth than was previously talked about back at the IPO.

Yes. Industrial -- the difference between industrial and consumer for those of you who don't know us, first of all, we're a mission-driven growth company. Both of those segments grow. And both of those segments fulfill our mission of working for a safer world. The real distinction is in industrial products, which we've segregated our customers into those who are largely in the B2B space are industrial. Those are big risky products. And if something goes wrong, it's not just reputationally destroying. It's not just a big insurance claim. People can die. And as a result, the value of testing to standards and complying with those standards, the value of that to protect our customers is pretty high.

Consumer also can be pretty risky. Lithium-ion batteries in hover boards or e-mobility devices or your laptops, those blowing up have thermal runaway and can cause real damage very quickly. But there's also a lot of performance and quality testing that goes on in the Consumer side that's still trying to keep our customers' brand reputation safe and their customers safe from unfortunate things happening. But often the risk in the Consumer side is less. And as a result, there's a different value proposition on pricing. And they're also smaller products, and they actually require more human intervention to test.

Okay. So would you say that Industrial product TIC is really your top focus?

They are connected, but industrial is the core of our core. If you look back 130 years, we were founded around electrical safety on the heels of the World's Fair in Chicago in 1894 when Tesla and Edison were fighting over AC and DC Current and GE and Westinghouse. But the trick was our founder was brought to make sure that electricity being embedded in products was safe, and the way that it was installed was safe. And that went to electrical shock as well as fire. That is still the core of our core. And that is Industrial. The largest part of Industrial is in the core of our core.

That makes sense. Okay. So Industrial, TIC, for you guys have been growing high single digits. I know that is somewhat of an outperformance. And could you just give us a sense, particularly kind of looking back on this year, what's driven that outperformance within Industrial? And then you could imagine my follow-up question is, okay, is high single digits sustainable for the Industrial side of your business?

I'm going to give Ryan a chance to weigh that.

Sure. Well, thank you for the question, Andrew. Our growth in Industrial has been driven by several megatrends that have moved the business forward for several years. So 2023 was double-digit revenue growth. 2024 was double-digit revenue growth, and we're high single-digit revenue growth in Industrial this year.

So those megatrends include energy transition. So the sources of electrical energy generation, now the quantity of electrical energy generation, the growth and proliferation of devices that connect to the electrical grid, driven by new and innovative uses of electrical energy, including data centers. And that leads to more and more products that need testing, innovation and new types of energy storage, energy transmission devices. And I don't think we're through that product cycle. I think that will continue for some time.

Right. So did you say is high single-digit growth in the Industrial side sustainable?

We have not given guidance beyond 2025, nor have we signaled any material change in the trend of the business.

Okay. Something that you could tell me if I'm off here, Ryan, but the question I get the most is what percentage of UL's revenues are tied to data center or renewable energy that's tied back to data center. And I don't think I've ever seen a revenue mix chart that kind of neatly answers that question.

Yes. So foremost, it's helpful to ground that UL is a broad and diverse business, and we touch many different industries, at least 35 general industrial codes. And data centers are a driver of growth. There are more and more products that are being redesigned for specialty uses like data centers, energy transmission systems, energy storage systems, cooling systems. And we have not broken out what portion, but it is affecting many parts of our business, and it depends on the scope.

Things like wind energy generation, we test wind turbines, photovoltaic panel arrays for energy generation, energy storage systems, all are being affected by the quantity of electrical energy, even if they're not specifically used within the 4 walls of a data center.

So would it be hard to break down a pie chart like that? Like I remember your IPO pie chart did not break out data center. Like is this a hard thing to do?

Let me add to that. It's -- what makes it difficult is that, put yourself in the manufacturer's shoes, they may not be making products specifically for data centers. So you take a big chiller manufacturer. You've got your beautiful new building across the street. They probably put half a dozen chillers on top of that.

No. They're on the floor.

They're on the floors. There you go. And every data center needs well over 100 right now if it's an AI-powered data center. Well, that manufacturer may not necessarily, at least in the onset, be distinguishing that, that innovation is going to go into a data center versus not? Maybe they are. But when we test, we don't always know what that end use case is because we're testing that it's safe.

And so that makes it a little more difficult for us to break it out. But that said, what I want to emphasize is whether your data center or in the Industrial environment, the need to optimize energy usage to reduce the cost of energy is essential. And so all of our customers in that energy ecosystem are really focused on the innovation around how do they create products that are using less energy that are doing a better job of storing energy, that are thinking about being a backup source for energy. And I've not seen it, but I have this hypothesis that similar to Moore's Law and computing power, we're going to see some type of law in energy usage and rapid proliferation of product innovation, which we're seeing today across our Industrial customers.

Okay. So Ryan, this one is also for you. So the margin expansion, the EBITDA margin expansion with Industrials has been really impressive. Is this just operating leverage tied back to the strong growth? Or are there things within the company where your mix shifting to higher-margin testing types? I'm not really sure. I'm just asking, is it all operating leverage?

Yes. So there are a number of initiatives that are improving margins and operational efficiency across the business.

In Industrial.

In Industrial, so footprint optimization, consolidating where we do the work, broadening our service offerings, including large.

A footprint, you mean more labs. Is that what you mean?

Yes, location and the role of the laboratories.

Moving them to lower electrical cost locations as well that can change.

Yes. We made some progress in our pricing initiatives that contribute to margins and revenue growth. We've continued to grow internationally. We've grown in a number of new markets outside the United States, and all those contribute to operating leverage.

Okay. And how is utilization in your labs now? That's not just an Industrial question, that's the overall TIC question. Like is there still a lot of room left that you could fill in and have high utilization that will drive margins?

Yes. I would say there is. We measure our laboratory utilization across a number of different service lines. And we have some laboratories that are fairly capital intensive, and we seek to run them 24/7 to maximize the use of those facilities. And we have others that are not utilized to that capability to that capacity. So over the network, there is more capacity.

Yes. And I do want to point out, there's a number of different ways to extend utilization and productivity in labs that's different than a typical manufacturing environment. We don't have to add a full line to add capacity. Let's say there's a new test type. You may just need to buy a new piece of equipment, and you've already got a technician or an engineer trained on that standard, but there's a different, more productive way of doing it.

Okay. Consumer, I remember going back to second quarter, had a blip. I remember it was tariff-induced or tariff uncertainty. Do we feel like that's all behind us? Like when you look at the Consumer Product division, is pipeline growing through the summer now? In other words, have clients totally adjusted to the current tariff situation?

I think our customers have adapted to the new normal. I don't think they necessarily know what all of the answers are, but they continue to realize that they have to make decisions that will benefit their long-term profitability and those decisions may be moving their plant locations. It may be swapping out those raw materials, changing features and functions or just increasing prices to consumers. They're doing it all.

Right. And when your clients kind of switch their supply chain or diversify their supply chain, does UL Solutions make more money?

We -- typically, if a product is changing its design, swapping out raw materials, getting a new supplier, we will need to retest some or all of that product. If you're moving a factory location, we will frequently certify that factory location if it's back in the United States to building codes and other ways to help get that plant started up.

If you're doing, let's say, a China Plus One strategy, now we'll do those ongoing certification services. Those inspections maybe will continue in China because you're still producing there. And we've added another location in Vietnam or Indonesia or somewhere. So there's lots of ways that you get a small bump as a result of all of the shifting supply chain.

Right. The Consumer margins aren't as high as the Industrial margins. And my guess is it's -- of course, Industrial is your core of your core. How sustainable are the margins in Consumer? And should they go towards Industrial margins over time?

Yes. They will never be as high as Industrial margins. But that said, they've crossed over 20%. And I think that it's sustainable for them to continuously improve. The reason why they will never be as high as Industrial margins is there is just inherently a lot more human labor involved in testing Consumer products.

So you think about just even the number of samples to bring a sample and I'm going to go back to chillers. A truck shows up at one of our labs, there might be 2 samples on it. You've got a couple of engineers and a couple of technicians who take a little bit of time to make sure that product meets all the features and functions and then they start launching the test. And that test series, it could be 3 months, it could be 6 months to get through it all.

On the Consumer side, you may have 1,000 samples coming in a day to a lab. You've got to have human beings unwrap those samples, log those samples, get all the metadata about those samples and then run through those in 3 days and turn around and get that certification back out the door. It is just much more labor-intensive in our Consumer business.

Okay. If we could -- let's go back to data center and the growth around renewable energy. I know there's data center build out around the world, but more so in the United States and out of the global TIC companies, you're the one that's based in the U.S. Do you feel like you're getting a disproportionate share of those opportunities in the U.S. related to data center and renewable energy because you're based here and culturally aligned?

Yes. And I also think -- there are 70 UL standards right now that we've identified that we're testing to for data centers. And it's always helpful for our customers to know that we at UL, even on the solutions side, on the commercial side of our enterprise, have been involved in the crafting of those standards and the science behind those in the advocating for what our customers believe that they need to see in that standards process. And I think that relationship with our teams sitting on standards, technical panels all over the world, not just UL standards, but ISO, IEC, other standards, our investment in that thought leadership gives us a leg up with new innovation in very complex safety risky products.

Right. And do you think that's enough to say that you'll grow faster than the overall TIC industry because you're U.S.-centric, the data center build-out is U.S.-centric. You have these reputations for trust around standards. Is that such a needle mover to say that alone will drive above-industry growth?

I think historically, if you look at it, we have grown at above-industry rates. And as Ryan said, we don't see any reason to have changed our feeling about that. So I think we'll continue to be leaders in this space.

Right. You could use the word you want, but I would say you've grown a little faster than the industry. Given the data center build-out, shouldn't this be kind of a more uplifted outperformance relative to the industry?

Yes. I would say it's a different business mix. And some of the other more broadly defined testing inspection certification industry participants, they participate in other industries that have their own cycles. And so there just could be differences in the business.

Yes.

That's true. That's true. Okay. Why don't we open it up for questions?

Are you considering opening up new labs? Obviously, when you think about where the business should be done and you mentioned the cost of electricity, like it just makes me feel like maybe that you have to refootprint your labs.

We have been. So for example, even here on Long Island, we announced a shift from Melville and closing down that lab that had originally been opened 40 years ago plus focused on products being exported to Europe. We've been shifting that footprint, moving out of that space and shifting that down to Mexico up to Northbrook out to Research Triangle Park. We continue to do that around the world across the board. So we'll constantly look for ways in which we can run our labs in a more integrated fashion and have a smarter footprint in what we've been doing.

And so to meet kind of U.S. standards for safety, you don't necessarily have to be in a lab in the U.S.

No. In fact, our customers prefer that, that testing occurs close to where their R&D is occurring.

Makes sense.

And that way, there are some tests that are witness testing. There are sometimes that they want to adapt the product while they're there in the lab. So we tend to go where our customers go, but we do have a very strong North American U.S.-based footprint.

So I know I've been asking a lot of data center questions. Why don't you just tell me other areas that you're excited about heading into '26, where you feel like your specialty will really bode well for growth?

Yes. One of the areas back to labs, we announced our new fire research Center of Excellence in Northbrook that we had a groundbreaking in August. It won't come online until 2027, but it will continue to extend our research in fire safety, our leadership in fire safety. So we're excited about that investment because that's an investment that's -- I mean, that's an asset for decades. It's not an asset for a few years.

And then I also think just when you look at our software and advisory space, extending -- doubling down in some key areas in software such as our supply chain traceability and that connection into ESG reporting is an area that we expect to see continued uplift.

Ryan, before when I asked you about -- it was really about Industrial operating leverage and margin expansion. You mentioned higher price realization. My question is, in the past -- and maybe we'll talk more generally, not just Industrial. In the past, when I asked you how much of your organic revenue growth comes from price, how much comes from volume, you said there are similar contributors. And now that we're getting more price, is it fair to say that it's a larger contributor to organic revenue growth? And is it sustainable?

Yes. In the last quarter, we had about 7% revenue growth, and we said that there was similar contribution from price and volume in our testing activities, our certification testing, our non-certification testing, and we're pleased with that mix. We're always striving to add more value to our customers to deserve to be appropriately compensated for the value that we're providing, and we're looking for ways to do that. So we think that there's still opportunity to serve our customers better and better. And hopefully, we'll be compensated for that. Right.

And in terms of pricing -- rational pricing from competitors, like has this been a market where you felt like your competitors that also provide TIC services have also been increasing price?

What we focus on is win rates of projects. And we continue to believe that our value proposition that we're offering is very competitive and that our win rates and our Net Promoter Scores continue to go up.

Have you disclosed your Net Promoter Score?

We have not publicly disclosed it, but it is something we track very closely, and we're pleased with the continued progression there.

Do you consider disclosing that?

We might. We might.

I'll have you know this some companies put it in their annual report. Is it a third-party measured Net Promoter Score?

Yes. Okay.

Yes, I would think about sharing that. Okay. Great. Look again for questions. If not, I'm going to jump into Software and Advisory business. Go ahead.

[indiscernible]

Yes. Rather than compare to any particular company, we can talk about the attributes of that business model. And most importantly, that team, the Industrial segment team serves the manufacturers of higher risk, often mission-critical devices. The failure of those could lead to material safety risks or productivity or uptime consequences. So often, they're more complicated products. They could have a number of mechanical and electrical subsystems that need to be tested.

Importantly, many of those manufacturers highly value the UL mark to communicate the quality and regulatory compliance of their products. So that's a valuable attribute. And then the mix of services is different than some other businesses. So we're pleased that -- pleased with the profitability of that business and then it's been growing pretty materially over the last several years.

Okay. Another question.

[indiscernible] everybody just [indiscernible]

What we saw in particular in Consumer in the second quarter, and it was really in the month of May was a number of customers delaying making decisions, delaying getting samples to us. Maybe they said, "Hey, you've won this quote, you're going to test this product, but then the samples didn't show up. The prototypes weren't there." And some of that was because they were regrouping on their product design decisions, how they were going to take cost out, value engineering those products, maybe thinking about moving the assembly locations. It's easier to move assembly in Consumer than it is to pick up and move an Industrial plant.

We're feeling like it's back to a more typical cycle for us, what we're hearing from our customers. So hard to say. We're keeping an eye on it, but it feels like they worked through that first set of emotion and now we're just trying to make rational decisions given the availability of whatever information they have on any given day about where tariffs are going to land for them.

I'm going to go back to one of my earlier questions where I was asking about what percentage of particularly your Industrial business is tied to data center and renewables. And I remember you said, hey, we're really tied to like 35 different industries.

Does that mean that when you look at both the direct and indirect? And then Jenny, I hear you that you're like, hey, for cooling manufacturers is our customer, we don't know who they're selling to. But do you think -- like we use a word like a lot of our Industrial business is tied directly or indirectly a medium -- like just use some word. I know you're not going to give a percentage, but is it the majority tied to data center and renewable energy within Industrial? Or just some qualitative word that helps us dimension it, direct and indirect together or you could say pass.

Yes. Well, and I'm going to say pass only because it would be difficult for us to really parse through that granularity of data.

I thought your answer was [indiscernible].

Yes. But if you look at back to the key markets within our Industrial business. So power and automation. Power and automation is being affected by this massive energy transition that's underway, and data centers are propelling that energy transition. So the indirect could be the data center that's being built in Indiana is going to suck up the capacity of a medium-sized town there, electricity-wise. So now you've got to find other ways to save energy and generate new energy to compensate for the fact that, that data center went in.

Agree.

So power and automation directly, indirectly, it's all around this need for energy, the growth for energy, the energy transition. built environment, the thermal dynamics, the fire suppression systems needed for data centers. Interesting and substantial, but there's a lot of interesting and substantial needs for the built environment around fire safety. So data centers don't feel disproportionate there.

Wire and cable shift from AC to DC, different size, high voltage, medium voltage. Again, data centers are using that, but so is the Industrial environment.

Okay. Last question. Where are you in your own internal investment cycle? When we think about like '26, is this going to be a bigger internal investment year? We talked a little bit about opening up labs. But do you think of '26 as an investment year? Or do you feel like, oh, we've been investing all along, not notably different.

Yes. Over the past several years, we've increased the pace of capital investment back in the business relative to the period before that. That eased somewhat in 2025, but we said a lot of that is timing. We see a lot of opportunities to continue to invest in growth of the business. And I think it will be in different forms.

We have made a lot of progress in the enabling technology infrastructure of the business. And we've announced some exciting capacity expansions. A couple of examples. In Japan, we announced a new laboratory of high-voltage electromagnetic compatibility testing to help make sure high RPM, high-voltage electric motors are safe and don't inadvertently interfere with other parts of the automobile ecosystem.

We announced a new fire laboratory that Jenny mentioned in Northbrook. The majority of that spending is in both those started.

Right. But just say again, is '26 more of a capital-intensive year than '25?

Yes, we haven't given that outlook, but we have said some of the reduction in '25 is timing so that would mean that it would be in 2026.

That's what I meant. Okay. Great. Time for one last question if someone has it.

Maybe just on software [indiscernible].

Yes, I wanted to get to that. Yes. Sorry, go ahead.

It's been a little while since you introduced sort of the ULTRUS [indiscernible] around it. How much of the opportunity there? Is cross-selling to existing customers, other software solutions [indiscernible]?

Yes. I think it's definitely both. So the cross-selling opportunity, both -- we've said a significant portion of our global and strategic accounts buy from both TIC and Software and Advisory. And continuing to extend our reach into those customers with new features and functions and new opportunities within the ULTRUS platform, it's really been benefited by the search engine optimization and other abilities to serve up marketing pieces, try now, buy now types of opportunities once they're within ULTRUS. But we're also just continuing to see new avenues, new customers who better understand the fact that we win different awards for leadership in the governance, risk compliance, various slices and dices of the software space and are really recognized as a leader in many areas, and we're getting new logos there.

All right. Jenny, let's end there. Thank you, Ryan. Thank you, Jenny.

Thank you very much.

Thank you.

Good day, and welcome to the US Solutions Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Yijing Brentano. Please go ahead.

Thank you. Welcome, everyone, to our third quarter 2025 earnings call. Joining me today are Jenny Scanlon, our Chief Executive Officer; and Ryan Robinson, our Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at ul.com.

Our earnings release is also available on the website. I would like to remind everyone that on today's call, we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things, statements about UL Solutions results of operations and estimates and prospects that involve substantial risks, uncertainties and other factors that could cause actual results to differ in a material way from those expressed or implied in the forward-looking statements.

Please see the disclosure statement on Slide 2 of the earnings presentation as well as the disclaimers in our earnings release concerning forward-looking statements and the risk factors that are described in our annual report on Form 10-K for the year ended December 31, 2024. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law.

Today's presentation also includes references to non-GAAP financial measures. A reconciliation to the most comparable GAAP financial measures can be found in the appendix to the earnings presentation. With that, I would now like to turn the call over to Jenny.

Good morning, everyone, and thanks for joining us. I'm excited to report another strong quarter of consistent growth across our business. All segments, major service categories and geographic markets delivered solid results. I want to start by acknowledging our outstanding team, whose deep expertise and unwavering commitment are the driving forces behind these results.

Their dedication to our safety science mission and exceptional customer service continues to be our greatest competitive differentiator and the cornerstone of our industry-leading success. This broad-based performance demonstrates sustained customer demand and the resilience of our business model. It also highlights both our global reach and the strategic value of our focus on transformative industry trends.

Our ongoing investments in energy transition, the electrification of everything and digital transformation are expected to continue to drive sustainable growth and position us well for the future. Given our strong year-to-date performance, particularly in the third quarter and our current visibility into our customers' ongoing product development pipelines, we are strengthening our full year 2025 guidance. I'll cover 4 key areas before turning the call over to Ryan.

First, I'll talk about our third quarter performance highlights. Second, I'll cover notable achievements and activities since we last reported. Third, I'll talk about a restructuring initiative we are announcing today to streamline our operating model, reduce expenses and keep our focus on growth areas. And finally, I'll offer some perspectives on how our business continues to thrive.

Ryan will dive into the numbers. But first, let me hit the high notes of our third quarter 2025 results. I'm particularly proud that we delivered strong quarterly consolidated revenues that were up 7.1% as compared to the third quarter last year and up 6.3% on an organic basis.

Organically, we had balanced contributions from all 3 of our segments, with Industrial up 7.3%, consumer up 5.3% and Software & Advisory up 6.5%. We achieved these results against a dynamic geopolitical and regulatory environment that continues to impact our customers' behavior. Profitability improved year-over-year with adjusted EBITDA growing 18.6% to $217 million and adjusted EBITDA margin expanding by 270 basis points to the highest level since we became public in April of last year.

Higher revenue and realized operating leverage were key drivers We generated $317 million of free cash flow through the first 9 months of 2025, and our balance sheet remains robust. Now let me highlight notable new offerings and key developments during the quarter. First, we continue driving growth through our Ultra software platform with significant releases addressing customers' key compliance and sustainability challenges.

New capabilities include enhanced PFOS identification, expanded ESG disclosure management for international standards and AI-powered features. These strategic enhancements strengthen our competitive position and are expected to grow our software annual recurring revenue. In addition, we expanded our marketing claim verification services into the high-growth industrial software sector.

Positioning us as the trusted authority for our customers' next-generation manufacturing technologies and the emerging industrial metaverse. Siemens became our first customer to receive UL verified marks for these services. We expect this strategic expansion into industrial software verification to strengthen our role in enabling digital transformation across manufacturing environments while opening new revenue opportunities in this rapidly growing market segment.

As the American leader in fire safety science, we broke ground at our global Fire Science Center of Excellence in Northbrook, Illinois, representing 1 of our largest laboratory investments to date and reinforcing our leadership in fire safety science. This state-of-the-art facility on our 110-acre headquarters campus will integrate advanced testing capabilities with a dedicated R&D hub.

The multi-building complex will test emerging products, including PFAS-free foam systems and energy efficient designs and will serve North American and global manufacturers. We are focused on what we believe to be the most attractive megatrends in the product tick industry to drive above-market growth while delivering superior margins that ultimately result in healthy cash generation.

As part of our journey to fulfill those aims, we regularly evaluate our suite of offerings as well as our cost structure. We may be over 130 years old, but we remain agile and will continue to adapt as markets evolve. To that end, today, we are announcing a restructuring initiative that will reduce expenses through streamlining our operating model and focusing resources on our core growth areas while exiting certain nonstrategic service lines.

Ryan will address the details, but this initiative is expected to generate meaningful annual run rate savings and margin expansion once fully implemented. Finally, let me remind you of the resilience of our business. First, we believe our market position is fundamentally strong. As a global leader in critical safety science, we partner with customers throughout their entire product journey.

From additional initial R&D to manufacturing across every major market worldwide. Second, our revenue model helps create stability and predictability. We provide essential testing during new product development and deliver ongoing certification services throughout each product's market life cycle. Third and most importantly, demand has proven remarkably resilient.

During this recent period of uncertainty, our services have remained in strong demand. This validates both the mission-critical nature of our services and our customers' commitment to bringing new products to market.

Now I'll turn the call over to Ryan for a detailed review of our third quarter results.

Thank you, Jenny, and hello, everyone. I also want to thank all of our team members for delivering another strong quarter and continuing our growth margin expansion and cash generation momentum. I'm pleased to share that both revenues and adjusted EBITDA for the quarter were all-time records for the company and it's encouraging to see the balanced revenue and profit growth across all of our segments.

Now let me dive into the details of the quarter. Consolidated revenue of $783 million was up 7.1% over the prior year quarter. On an organic basis, revenue grew 6.3%. Revenue also benefited from favorable FX movements, particularly the euro. Cost of revenue as a percentage of revenue for the quarter decreased 130 basis points to 49.7% and primarily due to improved employee cost efficiency.

SG&A expense as a percentage of revenue decreased 80 basis points to 30.4%. And SG&A expenses increased 4.4% compared to the prior year period. On an organic basis, employee compensation increased $6 million related to base salary increases and higher costs associated with performance-based incentives, including the company's long-term incentive awards.

In addition, technology costs increased $4 million on an organic basis, primarily associated with cloud computing service arrangements. Adjusted EBITDA for the quarter was $217 million an improvement of 18.6% year-over-year. Adjusted EBITDA margin was 27.7% up 270 basis points from last year, with margin expansion across all 3 segments.

Adjusted net income for the third quarter was $119 million, up 14.4% from last year. Adjusted diluted earnings per share was $0.56, up from $0.49 per share in the third quarter of 2024. Now let me turn to our performance by segment, starting with Industrial. Revenues in industrial rose 8.2% to $343 million or 7.3% on an organic basis, primarily driven by growth in certification testing and ongoing certification services across most industries.

We saw particular strength in demand for energy and automation. Ongoing certification services revenue increased due in part to price increases. Revenue also benefited by $3 million versus the prior year from favorable changes in foreign exchange. Adjusted EBITDA for the Industrial segment increased 16.0% to $123 million, while adjusted EBITDA margin improved 250 basis points to 35.9% as we continue to benefit from higher revenue and increased operating leverage.

Now turning to the Consumer segment. Revenues in Consumer were $340 million, up 5.9% on a total basis and 5.3% on an organic basis. We saw balanced growth across all industries. We saw particular strength in non-certification testing and other services in consumer technology, primarily driven by increased demand for electromagnetic compatibility testing for consumer electronics and in retail. Adjusted EBITDA for the quarter in Consumer was $70 million, an increase of 12.9%.

Adjusted EBITDA margin for the quarter was 20.6%, an increase of 130 basis points. Operating leverage as a result of organic growth was the main driver in the year-over-year improvement. In our Software & Advisory segment, revenues were $100 million, an increase of 7.5% on a total basis and 6.5% on an organic basis. Advisory had a particularly strong quarter as a result of a high level of customer project completion with organic revenue growth of 8.8% in addition to 5.8% organic growth in software.

Adjusted EBITDA for the quarter in software and advisory was $24 million, which was up 60% compared to the third quarter of last year adjusted EBITDA margin for the quarter was 24%, an increase of 790 basis points due to higher revenues and greater staff utilization. Continuing our great cash generation trend we delivered $456 million of cash from operating activities for the first 9 months.

Capital expenditures for the first 9 months were $139 million and I'm very proud of our global team for generating $317 million in free cash flow year-to-date which is up 47% from the first 9 months of last year, primarily as a result of improved profitability in our core businesses. We paid $26 million in the third quarter and $78 million year-to-date in dividends.

And as of September 30, we held $255 million in cash and cash equivalents. Additionally, just last week, we replaced our credit agreement with a new credit facility. This updated facility provides us with enhanced financial flexibility, more favorable terms and supports our ongoing investment and growth initiatives. Our results have been strong as a public company. We're continuing to tailor our business to today's rapidly changing landscape. One of the pillars of our margin expansion strategy has been continuing to focus on internal cost improvement opportunities, and we are regularly evaluating our capabilities to ensure they align with our core markets.

As Jenny mentioned, today, we are undertaking a restructuring initiative to streamline our operating model and to reduce expenses, including downsizing our current workforce by approximately 3.5%. The planned actions will include role eliminations and the exit of some nonstrategic service lines, representing approximately 1% of our total revenue in 2025.

While exiting these services will create a modest headwind to our 2026 organic revenue growth, we believe this initiative positions us for stronger profitability and allows us to focus more acutely on our strategic priorities. We expect to record $42 million to $47 million in pretax restructuring charges primarily in Q4 2025. This initiative is expected to be substantially complete by the first quarter of 2027.

And once complete, we expect to improve annual operating income by between $25 million and $30 million as a result of both the revenue and expense impacts from these actions. Now turning to our 2025 outlook. Given our solid performance through the first 9 months of 2025, current visibility into our end markets and confidence in our execution, we are pleased to strengthen our 2025 full year outlook.

We now expect 2025 consolidated organic revenue growth to be in the range of 5.5% to 6.0% as compared to our full year 2024 results. Organic growth is based on constant currency, and it excludes acquisitions and divestitures. In the fourth quarter, we expect organic revenue growth to be modestly lower than our full year 2025 expectations as it represents the most challenging comparison to 2024.

And as a reminder, the strength in the fourth quarter of 2024, we believe was due in part to some pull forward of revenue, particularly in the Industrial segment's ongoing certification work in advance of expected tariffs. We now expect our adjusted EBITDA margin organic improvement to approximately 25% for the full year 2025. And up from our prior guidance of approximately 24%.

Our outlook for capital expenditures in 2025 is now expected to be in the range of 6.5% to 7.0% of revenue down from 7.0% to 8% previously. This change is mostly due to timing with ongoing strong customer demand in all 3 segment, we continue to invest in capacity and capabilities to address their needs. Our expectation for our effective tax rate in 2025 is now in the range of 25% to 26% compared to our prior guidance of approximately 26%.

Our Q3 and year-to-date performance demonstrates sustained business momentum with enhanced profitability and robust cash flow generation, which enables strategic capital allocation opportunities. we expect to continue delivering exceptional returns to our shareholders. And now let me turn the call back to Jenny for her closing remarks.

Thanks, Ryan. I'd like to take a moment to talk about an exciting development. As we announced yesterday, UL Solutions is proud to be launching Landmark Artificial Intelligence safety certification testing. A major step forward in building public trust and enabling the responsible adoption of beneficial AI technologies.

As AI rapidly transforms our daily lives, powering everything from smart devices to industrial systems, it also raises serious concerns about safety, ethics and misuse. The new certification testing we will offer is guided by UL-3115 and the newly published outline of investigation or OOI, we call it, for artificial intelligence safety of AI-based products. As an OOI, UL-3115 serves as a set of safety criteria developed by UL solutions to assess emerging technologies that lack an established UL standard.

Products that meet the requirements of an OOI through UL solutions testing and assessments may earn the UL mark indicating compliance with safety requirements. We have also been granted a patent for machine learning-based AI scoring. So let me close. Our third quarter results reinforce the fundamental resilience and growth potential of our business model.

We delivered consistent growth across our business, all segments, major service categories and geographic markets and produce superior returns to shareholders. With that, we'll open the line for questions.

[Operator Instructions] The first question comes from Andy Wittmann from Baird.

Great. I have 2 this morning, if I might. I guess, obviously, good results here, very good results. I was kind of curious as to -- given the focus that some of your customers have in China and Greater China, the macro and the headlines are so volatile and the policy seems to switch every week. I was just wondering, Jenny, if you could just talk about the posture of your customers there.

What is meaning for your business and what's your experience of all this has been? And what it might just mean here as we start looking into 2026.

Yes, Andy, thanks for the question. And it is certainly even as recently as this last week that tariffs remain a topic that is front of mind for most manufacturers and most of our customers. What we see was earlier this year, we saw uncertainty and I would say, some slowdowns, and we saw that in particular with some new product launches in Q2. I think what we're seeing now is almost a sense of a new normal that customers are just expecting greater certainty in wherever things are landing and it's becoming a more typical response to tariffs with the supply chain diversification discussions and timing around onshoring and reshoring.

And I think just continued emphasis that you've got to get back to business as usual in whatever the new normal is.

Got it. Okay. And then maybe, Ryan, one for you. The software and advisory business isn't historically a place that -- as you know, a lot of outperformance. It's obviously a small part of your business, but this quarter, it did. And so I thought I would ask here a little bit. And specifically, obviously, while both the top and the bottom line were good.

You had a comment in your remarks talking about how there was a number of projects that were completed during the quarter. And I was wondering what the significance of that comment was. I was wondering if it had to do with projects that might have been done on a fixed price basis and therefore, done under percentage of completion accounting. Did that have like a kind of a benefit to the margin this quarter that was worth noting? Or was it purely just kind of every day, better utilization of your advisory staff and mix from having software growth?

Thank you very much for the question, Andy. And we are very thankful to the software and advisory team for a strong quarter. As you know, that business has recurring software revenue that we recognize over a period of time, but also the advisory business is professional services that can have lumpy project-based work.

And what we saw in the third quarter was the completion of a lot of advisory-related projects and the recognition of a lot of revenue that led to high utilization of that staff. We used the words liberally particularly high level because in the -- we have not yet built a trend of multiple quarters, and it's quite possible in the fourth quarter and first -- in additional quarters, it could be lower than what we experienced in the third quarter.

But we're very pleased with the performance in the third quarter.

The next question comes from Andrew Nicholas from William Blair.

First one was just to kind of follow up on the first question, just in terms of tariffs and the impact of tariffs to date. I think last quarter, you described a little bit more muted volumes in April and May and then somewhat of a snap back in June. Just kind of curious if third quarter results and maybe even what you've seen so far in October is consistent with those June levels or if there has been continued choppiness intra-quarter consistent with the second quarter.

Thanks, Andrew. And you know we're not going to comment on October, but Q3 we saw -- it was a strong quarter, and we saw a much more typical cadence. So it was relatively steady across all 3 months of the quarter. And we continue to -- as I said earlier, I think are reverting to a more normal response to tariffs and with customers just having greater certainty in the decisions that they're making around their R&D pipelines, their supply chain diversification and any moves they make around reshoring, onshoring, moving to other countries.

We continue and we've said this in other quarters to see shifts in where our ongoing certification services are field sites. And there is pretty significant off a low base but significant growth in Vietnam, Thailand and India. And you see some of the more traditional countries have negative growth rates on a number of manufacturing sites that we visit countries such as Germany, Japan and Taiwan have a slight contraction.

So that's how we're seeing this play out. Ryan, do you want to add anything to that?

Just that our business model is global. And as you know, we grow capabilities where our customers need our services. So we're adapting. We've added capacity in some of the [indiscernible] that Jenny mentioned, in total, we're producing pretty good results.

Great. Super helpful. And then -- for my second question, I wanted to ask a little bit more on the restructuring plan that you announced this morning and specifically on the exiting of nonstrategic business lines. Could you just kind of flush that out a little bit what you are deprioritizing?

And to the extent that, that frees up capital, I know there's some margin improvement expected. But to the extent that, that frees up capital for incremental investment elsewhere, I would love to hear where you expect that to be diverted.

Yes. Thanks, Andrew. And philosophically, we on a continuous basis are always assessing where are we leading in our businesses. And part of our leading performance is we like to say the privilege of focus -- and we do have a philosophy of wanting to lead in any business that we're in. And so we have an annual long-range planning process, and we're constantly looking at how do all of the individual pieces fit in.

And so this is no different than what we do on an ongoing basis. It's just packaging it a lot together here. But where we're focused is on the highest quality growth that we can get and we're focused on minimizing distractions from underperforming businesses that we don't see a path to leadership in. So that's how we would characterize this.

And to that degree, it frees up time, attention and resources to focus on the areas that we believe have the greatest value creating capabilities for our business.

We now have a question from the line of George Tong from Goldman Sachs.

This is Anna Wu on for George Tong. I have 2 this morning. So first one for industrial businesses, have you observed different growth dynamics across the regions for the U.S., Europe or Asia? And are there any geographies growing meaningfully faster than others? And how does that trend compare to what you were seeing in the consumer segment?

Thanks, Anna. I'll start and then let Ryan weigh in a little bit. We've had growth in every region in Industrial. And certainly, the United States Greater China and more broadly across ASEAN and even Korea have exhibited some real strength, especially in areas that I would say are fueling the data center growth.

So industrial, energy storage systems, high-voltage wire and cable and all -- and then the built environment, the fire suppression systems and other pieces that are needed to, again, protect those data centers. So it is strength across our operating units globally.

Yes. The only thing I would add is that we had moderately more contribution from the U.S. in the last quarter than last year at this time. But growth across the board and not a material difference, just like moderately more in the U.S. Got it. That's super helpful.

Additionally, you launched a battery testing laboratory in Germany earlier last quarter. and also the Michigan battery testing lab opened the second half last year. So can you please talk more about the utilization rate of those battery testing labs? And how -- and how are you thinking about the growth momentum in the battery testing services. Specifically, are there any implications from the recent expirations of the federal EV tax credit?

Yes. Energy storage system batteries continue to be an important and evolving market. When we invested both in Auburn Hills, Michigan and in battery and [ Genoa, ] the company in Germany that we acquired last year and then added capital to this year. We always felt that there would be a balance between EVs and industrial energy storage systems.

And I think our initial hypothesis is that might be more heavily weighted to EVs and over time, the energy storage systems for the industrial environment would increase. I think we're seeing that shift occur faster than we expected really on the heels of both changes in the approach to EVs as well as the rapid ascent of the need for energy and power and data centers.

So we don't publish utilization of individual labs, but we are pleased with both of those investments.

The next question comes from the line of Shlomo Rosenbaum from Stifel.

Jenny and Ryan, I just want to dig in a little bit more into the restructuring program. Is there something that's going to be happening structurally like from a process perspective, that's going to give you more margin leverage in the future?

I understand there's like a risk that taking out specific areas. But is there anything that's going to be implemented that just structurally means that the margins are going to improve beyond that amount that you're taking out as the revenue grows. And then just as part of that question, there was a comment in there that the savings of $20 to $30 sounded like a combination of both cost savings and then also some revenue.

I know usually hear revenue as a component of restructuring program. So I was wondering if you can kind of parse that out for us a little bit more? And then I have a follow-up.

Thank you very much for the question, Shlomo. We wanted to clarify that we're focusing in strategic service lines for our customers. And so as a consequence, we'll be exiting some revenue lines that are roughly 1% of our current revenue. So to get to a forecasted range of operating income improvement, we lose that revenue, and we need to take out more than that amount of expenses.

Those service lines are less profitable than the total and our restructuring initiative extends to other areas of the company, other support areas unrelated to those service lines. So it's both a choice to focus on an exit from some service lines, but also a broader expense reduction initiative.

The large majority of the expenses are people-related costs and that will occur through Q1 of 2027. The impact in 2026 will be moderate as the revenue comes down, and it's offset by expenses coming down and 2027 is when we'll see the lion's share of that $25 million to $30 million improvement range that I mentioned at an operating income level.

Okay. And then is it -- I guess, just -- just a follow-up on there. So there is there like process improvements that are going on? I understand it sounded like there was some of that, but I just wanted to confirm that. And then just also, the capital intensity guidance is going down a little bit for the year. And it sounds like your view of the outlook of investments are the same.

I think you mentioned something about timing going on, but I wanted to know if you can just give us a little level of detail of what's going on over there, like in terms of thinking about the capital intensity going forward, is everything the same and it's just timing?

Or is there anything like you're focusing on that is less capital intensive in terms of driving the growth?

Yes. Shlomo, let me follow up on your process improvement question, and then I'll let Ryan talk about capital intensity. I'm a huge believer in ongoing business process improvement. And we have invested in various technologies and intend to continue to do so to help our employees have better tools and techniques to improve their ability to service customers.

So indeed, that type of process improvement on the backs of technology investment is helpful.

And in regard to CapEx, we continue to be excited about the portfolio of growth investments. In recent months, we've announced several exciting investments, including our global fire science center of excellence here in Northbrook as well as an advanced automotive electromagnetic compatibility laboratory in Japan.

There was some investment that we had planned for 2025 that will just shift into 2026. We'll provide more overall guidance with our year-end reporting but the portfolio of growth initiatives remain strong.

We now have a question from the line of Stephanie Moore from Jefferies.

I wanted to touch on the pricing contribution for the third quarter. You called out some pricing contribution. So I was hoping maybe, Ryan, you could elaborate on the contribution from pricing versus maybe just volume growth in general? And how we should think about just pricing in general, just given maybe the competitive environment or anything else you'd like to call out for this year as well as you think about your normal pricing practices going forward?

Yes. So first off, certification testing had strong growth, 8.7% and non-certification testing was up 6.8%. So strong growth from both of those. Those are the service lines that comprise 59% of our revenue that are most measurable by price and volume there, the delivery of discrete projects for our customers and the -- we can count the unit volume of the completed projects.

So overall, those grew 7.7%, and there was relatively similar contribution from both price and margin and the price and volume, both very similar. We did comment that ongoing certification services particularly benefited from pricing. So that would be in addition to the testing-related activities that I spoke.

Got it. And I guess on that last part, is this just -- I'm just in the normal course of pricing given where we are in the year? Or was this a more maybe active approach to take some incremental pricing?

Yes. For the testing-related services, we're continuously pricing hundreds of thousands of projects. So it is an ongoing value-based pricing evaluation ongoing certification services are more done on an annual basis, and we benefit from that throughout the year.

Got it. And then just wanted to follow up on the restructuring program. A couple of questions here. As you think about the revenue impact for 2026, I think you called out the percent from discontinuing from businesses you're effectively walking away from. Do you believe that despite that headwind that you should still continue to grow in line with the algorithm that you have laid out in terms of your kind of long-term or medium-term top line growth algorithm?

Yes. I would say the things that drive our growth are unchanged. This will be an organic headwind for one year as we compare against businesses that we previously were in we're still going to be at 99-plus percent of the same businesses. So the growth rate of those -- our overall growth rate is not materially changing, but it does allow us to focus businesses that are underperforming pick up a disproportion amount of management time. So it allows focus to serve our customers in our core businesses.

The next question comes from the line of Andrew Steinerman from JPMorgan.

Ryan, I was really asking just to make sure that I understood the implied fourth quarter organic revenue growth right in your full year guide. I get a little bit under 4% organic revenue growth. I definitely heard you note the tough year-over-year comp and the explanation for the strength in fourth quarter of '24. I was just wondering if there's any other call outs affecting fourth quarter or 25 that didn't affect third quarter 25%.

And for example, are the exiting of the service lines through the restructuring affecting fourth quarter revenues?

Thank you for the question. So after strong Q3 performance, we have a similar outlook about Q4 is when we reported last quarter, and we're very pleased that put us in a position to raise our full year guidance. Q3 and Q4 have historically had similar revenue quarters in a given year, and our guidance assumes that, that trend will continue.

When you look at the varying growth rates across quarters, the biggest factor is a tough comp in Q4, reminding that we had 9.5% total organic growth in Q4 last year, which included 1.9% organic growth in Industrial. Also, when you talk about sequentially, I just mentioned in software advisory.

Advisory had a particularly strong revenue growth quarter that may moderate in Q4, and that would affect the overall growth rate somewhat. But overall, we're pleased with the momentum we built through the third quarter and our ability to raise guidance.

And then -- the last part about exiting the service lines, does that affect the fourth quarter?

I would say just the timing of that, that's more likely to be impactful in 2026 and not expected to have a material effect in Q4. The biggest single effect in Q4, as you pointed out, is comps to last year, particularly in ongoing certification services that grew substantially, we believe, ahead of tariff anticipation.

We now take questions from the line of Josh Chan from UBS.

Jenny, you mentioned data center a while back, I guess. Could you triangulate for us areas in your business that touch data centers? And maybe how big in total an exposure of that might be for you?

Yes. We haven't quantified the total exposure, but let me just give you an example of the types of effect that this has on our business. Some of our largest global and strategic account customers came to us and they asked us to host a data center power Summit, which we hosted at our headquarters in September.

And the safety challenges around this is that there's this rapid evolution of the energy that's needed in data centers, and then there's the power infrastructure that has to support that. And that energy is needed because of the AI just amount of compute that's going on as well as the density of GPUs and the thermal environment that, that creates.

And so there's things around shifting to direct current DC as a systems architecture. There's changes in cooling that's required. And typically, you think about air cooled or water cooled back in my former days, now you've got in RAC cooling and on-chip cooling and immersion cooling. And that's just one example of the complexities and types of innovation that our customers are pursuing in the data center environment in this rapidly changing world. So we're right there with them. We're continuing to focus on this growth area and opportunity.

And I think there's just a lot of innovation to be had around the this completely different world of different types of data centers that are required.

Yes, that's really helpful. And then on the broader expense reduction initiative, it certainly seems like this is a more concentrated way to kind of reduce cost. So I'm just wondering what's the historical source of those kind of excess costs, if you will? And is there anything changing that's enabling you to now take out those costs, whereas historically they were needed?

Josh, thank you for the question. We'll provide more detail about the program that we're announcing that we'll undertake in Q4 with the completion of the quarter on an ongoing basis. We do anticipate the majority of the restructuring expenses and therefore, the cost reductions will be in our testing inspection certification businesses, both consumer and in industrial but we'll provide some more detail on what we're doing and how we're achieving that as we progress through the program.

The next question comes from the line of Arthur Truslove from Citi.

Starting with Bryan first. 3 questions, if I may. The first question is on the sort of underlying software business. You've obviously talked about how the complete project businesses have gone pretty well in Q3. At full year, you have a view that the software business might strengthen. Are you able to just talk to that? Second question, are you able to just give us the reassurance on the growth outlook.

So I guess if one was to sort of negative, if you like, Clearly, mathematically, the Q4 guide would appear to be 3% to 5%. Your CapEx guide is down and obviously, you're doing a restructuring. So can you just provide reassurance that your expectations for the underlying growth of the business have not changed.

And then I guess, finally, just in terms of the cost savings, you've honestly -- what my sense is, and please correct if I'm wrong, that you are essentially abandoning a couple of business lines. And what you're saying is that your organic growth will be lower next year because you're not doing those businesses anymore and the organic growth in the rest of the business will be pretty much as it was this year.

Is that the right way to think about what you're saying? Or have I misunderstood something?

Yes. Arthur, let me start with the software. Our Software & Advisory business was up 6.4% organically, and software was up nicely. And the great thing about software being up is that there's operating leverage that you get from that, and it certainly both the throughput in advisory and the growth in software expanded the software and advisory margins by 70 basis points.

And I think if you look at our software growth rate in the third quarter, you'll see that it continues to grow at an expanding rate versus year-to-date. So we're pleased and there's more to do. We're excited that our [ Ultrus ] releases have been welcomed by the marketplace. We new releases around sustainability and PFOS and some purchased goods and services and some focus on what will be needed in sustainability reporting as demand around fulfilling CSR-D needs bounces back.

And then we were really pleased that [ Verdantix ] an independent research and advisory firm labeled us as a leader in their inaugural green quadrant for product compliance software. So overall, I think the underlying momentum in our software business continues. I'm going to ask Ryan to provide some reassurance on the growth outlook, but I do want to highlight that those 3 pieces, the Q4 guide the CapEx timing and the restructuring are not related.

They are 3 independent variables that happen to all come together on this call.

Yes. I agree. I think that's well described. And then the impact of the expense reduction, I think that's -- you described it appropriately. We are just discontinuing some service lines and we will focus on the remainder of the business. It's roughly 1%. So it does not materially change our overall growth rates for other things.

Basically, Ryan, what you're saying is that you thought you are [ making this ] up, but if you thought you were going to grow 6% organically next year, it would now be 5% because you're basically abandoning 1% in the business? Is that kind of right?

That's directionally correct. Thank you.

We now have a question from the line of Jason Haas from Wells Fargo.

This is Jun Yi on for Jason Haas. Just wanted to jump back on the Software & Advisory segment. Advisory has been a drag on that segment for a couple of quarters and it kind of flipped this quarter, you saw a lot of good momentum there. I know you guys noted that the advisory part of that is very lumpy. But do you have any sense why you saw such a big upswing, what was fundamentally driving that?

Yes. Interestingly, the upswing in this was in our renewables advisory business. And I'll remind you, that business focuses on supporting financial decisions for banks and other financial services in financing renewables projects. So there was an uptick in that, and our team has been working really hard to fulfill that demand.

We do continue to see some headwinds in advisory, in particular, the commercial real estate effect on our Healthy Buildings advisory continues to be a headwind and that's an area that we expect as commercial real estate continues to evolve to continue to hopefully bounce back in the future.

Got it. That's really good color. And then you guys have talked a lot on this call about your organic investments, but I'm more curious on the opportunity on the inorganic side. with the exit of some of these nonstrategic service lines, is there more appetite to conduct more M&A related to your more core growth areas? And also, I noticed there was no M&A done in the quarter. Is there any reason why has the market not been very appealing?

We'd like to say that we're disciplined and we're active in M&A, and a lot of it has to do with timing and quality of opportunities. So we will continue. If there is a conversation to be had about an acquisition in the product tick space, an opportunity out there. We like to be involved in those conversations.

And timing is somewhat capricious sometimes, and we will continue to pursue appropriate opportunities for inorganic growth.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Jenny Scanlon for any closing remarks.

Thank you, everyone, for joining us today. We appreciate your questions and your support, and we look forward to updating you on our progress next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to UL Solutions' Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Yijing Brentano, Vice President, Investor Relations. Please go ahead.

Thank you. Welcome, everyone, to our second quarter 2025 earnings call. Joining me today are Jenny Scanlon, our Chief Executive Officer; and Ryan Robinson, our Chief Financial Officer.

During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at ul.com. Our earnings release is also available on the website. I would like to remind everyone that on today's call, we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things, statements about UL Solutions results of operations and estimates and prospects that involve substantial risks, uncertainties and other factors that could cause actual results to differ in a material way from those expressed or implied in the forward-looking statements.

Please see the disclosure statement on Slide 2 of the earnings presentation as well as the disclaimers in our earnings release concerning forward-looking statements and the risk factors that are described in our annual report on the Form 10-K for the year ended December 31, 2024. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law. Today's presentation also includes references to non-GAAP financial measures. A reconciliation of the most comparable GAAP financial measures can be found in the appendix to the earnings presentation.

With that, I would now like to turn the call over to Jenny.

Good morning, everyone, and thanks for joining us. I'm pleased to say that the momentum we built over our first year as a public company continued in the second quarter of 2025 with growth across all segments and service offerings despite uncertainties for our customers globally. That's an important statement and frankly, a theme we've delivered in the last several quarters, positive contributions across segments, service lines and geographies. That balance reflects the durability of our business model and global scale of our offerings as well as the benefit of focusing the business on higher growth mega trends, including the global energy transition, the electrification of everything and digitalization. I'll cover 3 areas, and then I'll turn the call over to Ryan. First, our second quarter performance highlights; second, notable achievements and activities since we last reported; and finally, some perspectives on market conditions and our resiliency in the current macro environment.

Our strong second quarter performance stems from enduring customer demand in our business across a wide range of market conditions. Based on our first half results and our current visibility into customers' ongoing new product development needs, we are affirming our full year 2025 outlook. I want to recognize our exceptional team members whose expertise and commitment to drive our continued success. Their dedication to our mission of advancing safety science and delivering outstanding customer service remains the foundation of our strong performance and represents a true competitive advantage.

Ryan will dive into the numbers in a minute, so let me hit the high notes of our second quarter 2025 results. I'm particularly proud that we delivered record quarterly consolidated revenues that were up 6.3% as compared to the second quarter last year and up 5.5% on an organic basis. On an organic basis, our Industrial segment once again led the way, up 7%, followed by Consumer, up 4.7% and Software & Advisory up 3.2%. These results were achieved against a dynamic geopolitical and regulatory environment that impacted our customers' behavior.

Profitability improved year-over-year with adjusted EBITDA growing 13.9% and adjusted EBITDA margin expanding by 170 basis points to the highest level since we became public in April of last year. Higher revenue and realized operating leverage were the key drivers. We generated $208 million of free cash flow through the first half of 2025 and our balance sheet remains robust.

Next, let me highlight notable planned, ongoing and recently completed capacity expansions that address growth opportunities and mega trends in our key end markets. During the quarter, we successfully launched our European advanced battery testing laboratory in Aachen, Germany, representing an important expansion of our battery technology testing capabilities and European footprint. This purpose-built facility replaced a smaller facility from the 2024 BatterieIngenieure acquisition. It positions us strategically close to key European automotive customers and provides access to the region's deep engineering talent pool. This investment demonstrates our commitment to helping the automotive and power sectors safely innovate in a world increasingly reliant on battery storage while strengthening our global network of specialized testing facilities that spans North America, Europe and Asia Pacific.

We also announced a significant expansion of our HVAC testing facility in Carugate, Italy to address rapidly growing European demand for comprehensive heat pump testing driven by the adoption of environmentally friendly refrigerants and evolving regulations. The expansion adds critical capabilities and positions us as a comprehensive service provider for manufacturers navigating the EU's climate initiatives, all while helping customers reduce testing lead times and accelerate market access.

By offering both performance and safety testing at 1 Central European laboratory, we expect to enable faster time to market for products subject to safety and efficiency requirements in the high-growth sustainable technology sector. We launched a new testing and certification service for immersion cooling fluids used in data centers, addressing the critical safety and efficiency needs of data center facilities housing AI and other high-performance computing equipment.

According to third-party research, power consumption by data centers is expected to increase from 4.4% of total U.S. electricity demand in 2023 to 12% by 2028. Operators urgently need safe and energy-efficient cooling solutions to maximize performance and reliability. Our new engineering evaluation and certification for immersion cooling fluids complements our existing programs for immersion tanks and systems. It's important to note that TIC services for data centers represents an important large and growing market for us as technologies continue to advance in computing and AI. The Grand View Research Group expects the data center construction market to grow at a 12% CAGR over the next 5 years.

We believe that we are very well positioned to capitalize on the rapid growth of data centers by helping address the safety, sustainability and security concerns inherent in these complex environments. In fact, many of our operating units have service offerings in this space. The list is large as there are approximately 70 applicable standards to which we test, certify and inspect. Our go-to-market strategy highlights the broad and deep expertise we have in the full life cycle of data center infrastructure and system needs.

Finally, let me provide an updated perspective on the resilience of our business model and how we are positioned to win even in periods of uncertainty. As a global leader of critical product safety science offerings, we support our customers wherever they research, develop and manufacture products worldwide. Our existing global footprint and testing capacity position us well to meet customer needs effectively across all locations. Our business model provides initial testing during new product development, followed by ongoing certification throughout a product's life cycle in the market, creating sustained revenue streams and deep customer relationships.

Our customers are still bringing new products to market. We experienced an initial slowdown in customer projects when tariff levels were first announced early in the second quarter, as companies pause to assess the potential impact of the tariffs as well as other geopolitical issues. This pause was followed by accelerated ordering in June, demonstrating both the essential nature of our services and our customers' commitment to maintaining product development time lines. As a reminder, these dynamics may create incremental opportunities for us as tariffs drive customers to redesign products or relocate manufacturing, both of which often require recertification.

Now let me turn the call over to Ryan for a detailed review of our second quarter results.

Thank you, Jenny, and hello, everyone. I also want to thank all of our team members for delivering another strong quarter and continuing the momentum we have maintained since coming to the public markets in April of last year. We are proud to report in our second quarter on a consolidated basis, a continuation of healthy growth, margin expansion and solid cash generation. As Jenny mentioned, revenues for the quarter were an all-time record, and it's encouraging to see that, that revenue growth once again occurred across all of our segments.

Now let me dive into the details of the quarter. Consolidated revenue of $776 million was up 6.3% over the prior year quarter. The increase included favorable FX movements, particularly the euro and the Japanese yen, On an organic basis, revenue grew 5.5%. Cost of revenue as a percentage of revenue for the quarter increased 70 basis points to 50.6% due to higher depreciation and negative FX impacts. SG&A expenses as a percentage of revenue decreased 150 basis points to 31.4%, this was primarily driven by operating leverage as a result of revenue growth, partially offset by higher costs associated with internal projects.

As a reminder, we recognized $9 million of performance-based incentive costs in the second quarter of 2024 related to cash-settled depreciation rights as we converted them to equity-settled compensation upon the date of our IPO. I would also like to point out that our cost of revenue and our SG&A were negatively impacted by changes in FX roughly offsetting the benefit on revenues. Adjusted EBITDA for the quarter was $197 million, an improvement of 13.9% year-over-year. Adjusted EBITDA margin was 25.4%, up 170 basis points from last year, primarily on strength in the Industrial segment. As Jenny mentioned earlier, this margin is the highest since we became a public company. Adjusted net income for the second quarter was $110 million, up 17% from last year. Adjusted diluted earnings per share was $0.52, up from $0.44 per share in the second quarter of 2024.

Now let me turn to our performance by segment, starting with Industrial. Revenues in industrial rose 7.6% to $338 million or 7% on an organic basis, primarily driven by growth in ongoing certification services and certification testing. We saw particular strength in energy and automation. Increased lab capacity, including our new North American advanced battery lab in Auburn Hills, Michigan, contributed to the growth. Revenue also benefited by $3 million versus the prior year from favorable changes in foreign exchange. Adjusted EBITDA for the Industrial segment increased 20.6% to $117 million while adjusted EBITDA margin improved 370 basis points to 34.6%. The Industrial segment demonstrated strong operating leverage in the quarter, as the majority of incremental revenue flowed to incremental operating income.

Now turning to the Consumer segment. Revenues in Consumer were $340 million, up 5.6% on a total basis and 4.7% on an organic basis. The increase was primarily driven by demand improvement in non-certification testing and other services. We saw particular strength across consumer technology, driven by increased demand for electromagnetic compatibility testing for consumer electronics and in retail. As discussed in our last call, we saw some moderation in consumer organic growth in the second quarter after a strong first quarter that likely benefited from, among other things, increased customer activity in the first quarter in anticipation of tariffs. Adjusted EBITDA for the quarter in Consumer was $65 million, an increase of 6.6%. Adjusted EBITDA margin for the quarter was 19.1%, an increase of 20 basis points. Organic growth and improved operational efficiency were the main drivers of the year-over-year improvement.

In our Software & Advisory segment, revenues were $98 million, an increase of 4.3% on a total basis and 3.2% on an organic basis, our software service line within the Software & Advisory segment grew 6.0% on an organic basis. The improvement was driven by demand for our Ultra software portfolio including retail product compliance. Adjusted EBITDA for the quarter in Software & Advisory was $15 million, unchanged as compared to the second quarter of last year. Adjusted EBITDA margin for the quarter was 15.3%, a decline of 70 basis points due to unfavorable mix and higher employee compensation expense relative to revenue growth.

Turning to our cash generation in the first 6 months. We delivered $301 million of cash from operating activities, up from $244 million in the year-ago period. Capital expenditures in the first half were $93 million compared to $113 million in the same period last year. I'm very proud of our global team for generating $208 million in free cash flow in the first half, primarily as a result of improved profitability in our core business. This compares to $131 million in the year-ago period, representing a 58.8% increase. In addition, we paid $26 million in dividends in the second quarter and $52 million year-to-date. We also paid down a net of $45 million of debt in the quarter, bringing our year-to-date debt pay down to $135 million.

As of June 30, we held $272 million of cash and cash equivalents. Our investment-grade credit ratings underscore the strength of our balance sheet. Our robust balance sheet and cash flow generation give us great flexibility to invest in organic initiatives and accretive acquisitions that are intended to help produce best-in-class shareholder returns. Our investments in key capacity additions are intended to continue to align the business with the mega trends driving demand for our services.

Now turning to our 2025 full year outlook. While we continue to navigate a dynamic geopolitical and macroeconomic environment, our diversified business model and strong market positioning enabled us to capitalize on emerging opportunities while managing potential risks effectively. We actively monitor these dynamics and their inputs on our customers to ensure we remain well positioned for continued success. Given our first half performance, solid visibility into our end markets and confidence in our strategic execution capabilities, we are pleased to affirm our 2025 full year outlook, and we remain optimistic about our ability to deliver sustained growth and value creation.

As a reminder, we face increasingly challenging comparisons in the second half of 2025 versus the second half of 2024. We continue to expect 2025 consolidated organic revenue growth to be in the mid-single-digit range as compared to our full year 2024 results. Organic growth is based on constant currency and excludes acquisitions and divestitures. We continue to expect our adjusted EBITDA margin to be approximately 24% for the full year 2025. Our margin expansion strategy is supported by several key drivers: capturing operational leverage as we scale our top line growth, capitalizing on our Industrial segment's higher growth trajectory relative to the other business units and maintaining our focus on continuous productivity improvements.

Additionally, we remain committed to identifying and executing strategic acquisitions in high-value markets that enhance our profitability profile and our earnings potential, while consistently evaluating opportunities to optimize our overall portfolio mix. Our outlook for capital expenditures in 2025 remains in the range of approximately 7% to 8% of revenue, with investments in new labs and software continuing as we seek to match strong customer demand in all 3 segments. Our expectations for our effective tax rate in 2025 remains approximately 26%. This compares to an effective tax rate of 16.9% in 2024 with the anticipated change due primarily to additional implementation of the OECD's Pillar 2 requirements, which affects how multinational corporations are taxed.

Our Q2 and year-to-date performance demonstrates sustained business momentum with enhanced profitability and robust cash flow generation. The strength of our investment-grade balance sheet enables strategic capital allocation opportunities as we continue executing on our commitment to deliver exceptional returns for our shareholders.

Now let me turn the call back to Jenny for her closing remarks.

Thanks, Ryan. As I'd like to highlight, we always have some very interesting things going on at UL Solutions. Two weeks ago, I had the honor of moderating a panel here in Chicago at the Global Quantum Forum. This was a 2-day sold-out event, which brought together some of the leading minds from all over the world in this emerging field. Chicago is becoming an epicenter for development of this innovative computing method with the establishment of the Illinois Quantum and Microelectronics Park on the City South side. As so many of the panelists described, the potential for quantum computing to solve previously intractable problems is real and gaining momentum.

Our role at UL Solutions in this technology revolution is to work with our customers to solve the safety, security and sustainability problems that always accompany any leading-edge technology, something we have been doing for more than 130 years.

To sum up, our second quarter results demonstrate the continued strength of our business model. The strategic investments we have made and continue to make in key growth areas position us at the forefront of the mega trends driving demand for our services. The quarter also highlighted the essential nature of our safety science offerings as we successfully navigated dynamic market conditions. Our global footprint, our diversified revenue streams and our deep customer relationships, continue to serve us well in an evolving environment.

With strong cash flow generation and our investment-grade balance sheet, we remain well positioned to capitalize on strategic growth opportunities, while delivering long-term value to shareholders.

With that, we'll open the line for questions.

[Operator Instructions] The first question comes from the line of Andrew Nicholas, William Blair.

This is Dan Maxwell on for Andrew today. Maybe to kick things off, get the tariff questions out of the way. Just curious if you guys are seeing any changes on client behavior or other trends worth calling out, including anything specifically related to clients managing their exposure to China.

Thanks, Dan. And it is an important question. And we started seeing this really in the fourth quarter and through the first quarter. Uncertainty in 2025 has caused some behavior shifts. There's been some -- we believe to pull forward in the fourth quarter in our Industrial business and pull forward in the first quarter in our Consumer business and there has been perhaps some slowdown in new product launches. But as greater certainty is entering the market, which is really what we believe we started to see in June. We believe that the typical response that our business has to tariffs will continue, helping our customers shift their supply chains and make decisions around where they want to conduct R&D and manufacturing of their products.

Great. And then for my follow-up. I appreciated your comments on the lab expansions in Europe. Maybe if you can just give us kind of a broader full business update on where you sit as far as overall lab capacity and then what you think maybe the next sort of large areas of investment on that front or otherwise in the business.

Absolutely. And we do really enjoy investing in organic growth. We've got good return on our invested capital from our history of this. And when we look at our lab capacity today, we don't report specific utilization rates, but it's safe to say that recent lab additions as well as continuous improvement in our existing labs are contributing to our improved results. And as you know, our Auburn Hills lab came online in the second half of last year, and Ryan highlighted that continued progress.

We continue to focus on some key announcements of lab expansion. We have a Global Fire Science Center of Excellence that we announced I think, in the first quarter, and we've been expanding our lab capacity in Mexico and putting improvements here in Northbrook. We've also, last quarter, announced some lab expansions in both Korea and Japan. So we continue to apply capital to where our customers are bringing demand to our attention, and we'll continue to do so with discipline but also growth mindset.

Next question comes from the line of Andrew Steinerman with JPMorgan.

It's Andrew. Ryan, I heard the way you framed the full year guide mid-single-digit organic constant currency revenue growth with sustained momentum and somewhat tougher comps in the second half. Like when I look at the tougher comps in the second half, I see them on an organic constant currency basis, it's about 1 point tougher than the second quarter you just reported. What I'm curious about is sort of numerically, in the first half of the year, you were at the very high end of mid-single-digit organic revenue growth. And to make mid-single digit for the full year, are you saying the second half of the year may be somewhat below mid-single-digit organic constant currency revenue growth to make mid-single digits for the full year?

Andrew, thank you very much for the question. And yes, we're pleased with our performance year-to-date. And you're right to point out the steepening comparisons in the second half as a reminder, in the third quarter of last year or our organic revenue growth was 9.3% and in the fourth quarter it was 9.5%. So those just create higher comparisons, but we're confident in how the business is progressing. Our focus has been on our outlook on a full year basis. As Jenny mentioned, I think we're seeing a bit more market clarity and reductions and uncertainty, but it's not without uncertainty, and there continue to be announcements about changes that could affect the product development behaviors of our customers. So we remain confident but cautious.

Next question comes from the line of George Tong with Goldman Sachs.

You mentioned you saw a bit of pull-forward activity in both the Industrial and Consumer businesses ahead of tariffs. Is it possible to quantify the amount of pull forward in both of those segments and how you expect that to impact growth in the coming quarters?

Yes. And let's isolate the 2 distinctions and then Ryan will dig into the numbers. Where we saw a pull forward in Industrial appeared in the fourth quarter last year, and we talked about our ongoing certification services and, in particular, labels, where we believe some of our industrial customers may have been stocking up in advance of tariffs and then we've seen that now normalize. In Consumer, what we saw was perhaps a surge in getting shipments out before tariffs were going to hit, and we believe we saw that in the first quarter.

So specifically quantifying, I'll look to Ryan.

Yes. So as a reminder, in the first quarter, our organic revenue growth for Consumer was 7.7% and what we just reported was 4.7%. And our underlying customer relationships, our ability to win business hasn't changed materially. There's just been some effect in the marketplace. But we view those as relatively short term. The fundamental drivers of new product innovation, of new technological development, of assortment provided by manufacturers, we don't see fundamental longer-term changes in those but changes in macroeconomic and government policy matters can affect short-term decisions.

Got it. That's helpful. And then with respect to margins, you saw very significant year-over-year margin expansion in the Industrial segment. How much additional runway do you see for margin expansion here and also in your other segments, Consumer and Software and Advisory?

The way that we phrased that is we see margin opportunity expansion in all 3 of our segments and then, of course, on a consolidated basis. We don't give segment specific guidance. But we've made strong progress in the quarter and through the first half of the year, there were a couple of things in Industrial that were relatively minor. We mentioned in the second quarter of last year. We had both some IPO-related incentive recognition expense and in the second quarter of last year in Industrial, we had 3 M&A transactions, 2 acquisitions and 1 divestiture in a quarter. So there were some transaction-related expenses in the second quarter of last year that we're comparing against, but even isolating from those we had good margin expansion.

Next question comes from the line of Stephanie Moore with Jefferies.

Maybe a bigger picture question for you, Jenny. As you think about the growth in data centers and the computing required for these LLM models and the like. Can you maybe talk about how you view this mega trend as compared to other mega trends, for example, electrification of everything, digitalization and the like? So if you could just kind of frame what this opportunity could be for your business that would be helpful.

And I love talking about this because my very first job was helping build data centers when I was at IBM 35 years ago. So Here's the thing about data centers and that mega trend is it actually reflects the confluence of a few key trends. So the electrification of everything is extremely important. NEMA put out a study back in April that talked about 300% projected growth in data center energy consumption over the next 10 years. And so the sources of where that energy is going to come from, is across all elements. It's traditional fossil fuels as well as renewables, wind, solar, geothermal, hydro, anything that anybody can get their hands on. Nuclear to generate energy to support data centers is extremely important.

So that trickles through all of our industrial customers as they're thinking about how do they help build equipment that supports different types of energy generation, how are they supporting the ways in which energy is transmitted. And there's -- we've seen in our wire and cable business, an increase in high-voltage cable testing. The way that it's stored, the importance of energy storage systems, particularly in the Industrial space is growing, and then the way that it's used. And this is where continued inventions in the actual computing space of how do you reduce the amount of energy that these data centers are going to need.

In fact, at the Quantum Forum last week, they talked about how can quantum be used to help solve the problem of the amount of electricity that AI data centers need. So it's -- I really view this whole digitalization trend as pulling together pieces of our mega trends of electrification of everything, sustainability and digitalization. And it's really exciting to just sit back and think about all the ways in which it's going to change our world.

And then maybe just as a follow-up to that question. As you think about this emerging over time, does it suggest that you could see some incremental lab capacity investments or that needed to see that in order to capitalize on some of these trends? And then same question, but if it's not incremental lab capacity investments, are there areas from a capital allocation standpoint that you could maybe move into M&A-wise, that could further expand on this trend?

We're absolutely looking at both of those things. I think when you look at the standards that are being applied, but let's just take cooling technology. There's a number of different UL and IEC cooling standards that are out there. And we'll continue to think about what are the most cutting-edge ways to test to those standards. And if it makes sense that we need to add lab capacity, we will. We have labs today that can handle this. But as new standards come out, new test methods may be needed and will stay ahead of those investments.

At the same time, we're also really excited that so many of our global and strategic accounts where we have long-term global relationships. Our key -- they're really key participants, they're key stakeholders in this whole data center ecosystem. So that's giving us visibility and opportunities into thinking about partnerships and other potential investments in the future. And we just -- we're just excited to be in the center of all this.

Ms. Moore are you done with the questions?

Oh, yes, I am. Thank you. Appreciate it. Thank you.

Thank you, Thanks, Stephanie. Always nice to hear from you.

Next question comes from the line of Josh Chan with UBS.

I was wondering if Jenny, you could elaborate on your June comments about the tariffs. What kind of improvement did you see in the market? And then just as a broader question, do you feel that customers are already having made decisions on post tariffs? Or I'm kind of surprised by that because the environment is obviously still very fluid.

Yes. Great question on both fronts. So first, let me just talk about the arc of the quarter, and then I can talk about what we believe our customers may be deciding. The arc of the quarter, as we said, both in Industrial and Consumer and Software & Advisory that there was just softer than expected growth, softer-than-expected order volume in April and May. And then we did see a shift to pick up in June. And we -- in Industrial, throughout the quarter, we saw some real strength in power and automation in those industrial storage systems and in some of the high-voltage wire and cable.

And in other areas, we saw things come back in June. In Consumer, typically, historically, the second quarter is our strongest revenue quarter and orders were soft in April and May. But our large retailers, the strength in that space is -- it continues to be real, and we saw that across the U.S. and in broader Asia. And in Consumer Technology, we saw really the pickup come back in June across U.S., U.K., Asia, Greater China. So that's been the arc of the quarter.

Given that as we evaluate what our customers believe. What we're seeing is as various decisions are being made across both tariffs and regulations. Customers are building confidence in what decisions they need to make. And while there's still, as Ryan said, a lot of uncertainty, a lot of things can change. There just seems to be a greater sense that there will be more clarity to what they can rely on in the future. And it's that reliance on the future that will allow them to continue to make their capital allocation decisions around new product development and R&D.

And then just to build on that through a dynamic period we're pleased that all of our team members around the world have delivered through the first half, 6.5% organic growth in a relatively uncertain time. So the team is performing well.

That's really helpful. And then I guess my follow-up is on that growth. So based on Ryan, your comment about the tougher comps in the second half, one could think that growth would decelerate from Q2 into the second half. But based on this improvement in June, do you think that could kind of offset the tougher comp narrative that was mentioned previously?

Yes. It's really difficult to isolate whether the shape of the quarter was just redistribution of activity that would otherwise happen in the quarter or it's a stepping off point for the second half. And it continues to be a less certain environment than last year, but we're pleased with the progress. So at this point, we felt affirming guidance was something we were comfortable doing.

Next question comes from the line of Arthur Truslove with Citi.

So just a couple for me, if I may. The first 1 was around the pull forward in Q1. I guess -- and indeed, the sort of stop the pause in customer activity following Liberation Day. I was just wondering kind of how you kind of became aware of that because I was a bit surprised to hear that today there some-- I don't recall hearing at Q1. So I just wondered what new information has come out there. And then second question on pricing. So how much -- are you able to give us any idea of how much of the pricing in Q2 to how much of the organic growth in Q2 was pricing? And with that in mind, kind of how developed you are in terms of your pricing and how much more sort of commercialization you've got to do there?

Thank you very much for the questions, Arthur. And then just first on the shaping. In the first quarter call, we did mention that we felt that the consumer business had some pull forward. In particular, we saw some increased activity in some areas of the world that were more tariff-affected, and we saw an increase in relative activity on a sequential basis. So we did mention that last quarter. And then in regard to pricing, we had similar contributions from price and volume in our testing-related businesses, slightly more contribution from price, but pretty similar.

And let me just add one more thing on pricing because we've mentioned it before. We've been in the process of implementing our configure price quote. And it's not just a system, it's an entire set of processes. And so our teams have been very much moving through the implementation, not just of embedded analytics for their pricing decisions, but also changing our processes and the monitoring that we have on that as well as creating a pricing center of excellence. So we're continuing to focus on how we deliver value-based pricing for our customers.

Wonderful. Thank you very much indeed, and thanks for the clarification on the first as well.

[Operator Instructions] Next question comes from the line of Jason Haas with Wells Fargo.

This is Jun-Yi on for Jason Haas. There was a pretty sizable acquisition done by one of your competitors in the space earlier last month in the U.S. It sounds like they had some overlap with you guys. Just wondering if you took a look at that transaction and why you didn't pursue it? And if you foresee any competitive pressures? And then more broadly on just how the M&A pipeline looks today for you guys?

Thanks, Jun-Yi. We remain disciplined and active in the M&A environment. And our goal with any M&A is to fortify our focus on the product TIC business and the strategy that we have there and to make sure that anything that we add both services and capabilities is something that our customers globally will feel is something that deepens our value and our relationship with them. So indeed, we have eyes on many, many, many deals that come into the marketplace. And in any deal, there are parts that we can find interesting, and there are parts that may or may not fit with our business strategy. And we continue to be disciplined and active in thinking about M&A.

Great. And as my follow-up, it looks like Software & Advisory moderated a bit on an organic basis. So just curious if there's anything to call out there and overall trends you're seeing in that segment?

Yes. The challenge this quarter in software and advisory was really advisory. And I believe we said that last quarter as well. There's just been a weakness in advisory in the United States. And in particular, as [ WINS ] policies are changing, there's some renewables advisory slowness in that piece. And as commercial real estate continues to be under some pressure, there's some pressure in our healthy buildings offerings there. But as Ryan mentioned, the organic growth for our software business was 6% and the changing regulations around CSRD in Europe slowed down some of our ESG software, but we expect that we'll see a pickup on that throughout the rest of the year.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Jenny Scanlon, CEO, for closing remarks.

Thank you, everyone, for joining us today. As always, we appreciate your support, and we look forward to updating you on our progress next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

All right. Good afternoon, everybody. Thank you for being here. My name is Andrew Nicholas, and I'm the business services analyst here at William Blair. I'm required to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com.

With that out of the way, I'm very pleased to welcome UL Solutions here today, CEO, Jennifer Scanlon; and CFO, Ryan Robinson. Welcome to the 45th Annual Growth Stock Conference. Really excited to have you here. I'm going to turn it over to each of them to give you an overview of the business. And if there's some extra time at the end, we can discuss a few questions before moving to the breakout. Thank you.

Great. Thanks, Andrew. It's great to be here. Our second year here, just a year and a few months past our IPO last April of 2024. For those of you who don't know our story, although I guess I have to turn it over to Ryan to do some safe harbor here.

Just general comments about the safe harbor disclosure. We will not go into this in great detail, and I'll turn it back to Jenny to lead the discussion.

Excellent. All right. For those of you who don't know our story, you're going to hear 5 key themes from us today. The first theme is that we are a mission-driven growth company. Our mission of working for a safer world. It is important to our customers, and it's important to their customers. The great thing about our mission is that it operates in a large, fragmented and growing industry, the testing, inspection and certification industry.

Second message you're going to hear from us is that we support that mission with a dedication to safety science. That safety science also matters to our customers. And they know that we're going to help them apply science to the challenges of bringing their new innovations to the world safely, security and sustainability. The third message is that our customer relationships are long lived. We were founded 130 years ago. Many of our customers have been with us well over 100 years. We have over 80,000 customers across over 35 industries. We support these customers with disciplined account management, and it's reinforced by our global business model and the power of the UL Mark that we'll talk about in a few minutes.

Fourth message, global matters. Global scale gives us operating leverage, and it helps us drive opportunities to extend our margin since -- and we have used the scale to grow both organically and inorganically. Since 2010, we've invested over $1.3 billion in acquisitions to grow our business, and we have invested an equal amount in capital to extend our footprint. Finally, we are fiscally strong. We have a healthy balance sheet. We have disciplined capital allocation methodology. And this gives us a lot of flexibility in the ways in which we deploy our capital to fuel our growth and target best-in-class shareholder returns.

All right. The UL in a circle mark, recognizable billions of products around the world. We believe it's one of the most recognized symbols in safety and certainly in commerce, and we don't believe that it has an equal. The design of this mark can differ depending on its use, and it evolves as those customer needs and those market demands change. But certainly, that mark, it lets a regulator know or a consumer know that, that product is safer and conforms to certain certification and regulatory standards.

So now with that background, let's talk a little bit about UL. As I said, we are a leading global business services company. We test, inspect and certify products around the world. Last year, we generated $2.9 billion in revenue. And the point of customer of that revenue is in the far right corner. 41% of our revenue comes from the U.S. 1/4 of our revenue comes from customers headquartered across Greater China, which includes Hong Kong and Taiwan. And the rest of the revenue is split pretty equally between Europe, Middle East and the rest of Asia.

We operate 2 businesses in 3 segments. Our first business is the testing, inspection and certification business. One of those segments is testing inspection certification known as TIC for industrial. The other is TIC for consumer. And then our third segment, which is our second business is Software and Advisory Services, where we unleash the power of the data that we have for those billions of products that we have tested and certified on behalf of our customers, helping them with regulatory, supply chain transparency and sustainability reporting requirements using Software as a service.

On the next slide, you'll see we deliver that $2.9 billion in revenue across an integrated service portfolio. The first category is testing for products that need to be certified. When a product needs to meet an industry standard or regulation that results in a certification, it then needs that second category, ongoing certification services for the life of that product being in the marketplace. As long as a single SKU of that product is manufactured, a single item, we will conduct ongoing certification services. That's done by visiting factories 4 times a year to monitor that, that product has been -- is being manufactured in accordance with the standards that we have certified.

Our third category is another type of testing. It is non-certification testing. This is testing that still may be in support of regulations such as EMC wireless regulations, the amount of radio frequency interference, is regulated by the FCC, but that does not require ongoing certification. So that's why we separate those 2 types of testing. The first group leads to that 33% of recurring revenue. The second group of testing has a large amount of reoccurrence and long-term customer relationships, but does not lead to certification testing.

And then our final category is Software. This is where, again, we have Software as a Service, about 10% of our revenue that continues to focus on our 80,000 customers and servicing their needs around regulatory for their product compliance, supply chain traceability of those products, in particular, the chemical supply chain and then the sustainability needs for how they need to report on the product sustainability.

With that, I'm going to turn it over to Ryan, who's going to take us through some more details and some numbers.

Thank you very much, Jenny. I'll provide some additional information on the markets we serve, how we organize the company and our segments as well as some of the megatrends that are driving our growth. So first, we're the world's leader in a large, growing and fragmented industry of product and component testing, inspection and certification. It's over a $240 billion market. A large portion is within manufacturers and their product development capabilities, in-sourced, but roughly $99 billion is outsourced. And of that, that's divided between product testing, inspection and certification, about a $38 billion total addressable market and $61 billion, which is nonproduct. We focus in product testing, inspection and certification, and we're the world leader.

We typically work with large manufacturers, over 80,000 manufacturers in our customer base, helping make sure that their products meet regulatory requirements, product quality, safety and sustainability standards. Our over 15,000 employees offer that portfolio of services that Jenny mentioned to help them bring their products to market safely and then provide services to make sure they continue to meet quality and safety standards in the applicable markets where they sell their products.

We organize into 3 primary segments. The largest portion of our business is testing, inspection and certification. That includes our Industrial segment that serves typically manufacturers in business-to-business markets, including the components that go into products. We also operate a consumer segment, which is currently -- which is typically products sold through consumer channels that end up in consumers' homes. And then we provide complementary Software and Advisory services to help our global customers achieve their regulatory requirements, their sustainability requirements and their product compliance needs.

Our business across all 3 segments and all 4 of those product lines is driven by several megatrends that have led to high organic growth, not only over the last decade, but especially an accelerated pace in recent years. That includes the pace of energy transition, how electrical energy is generated, transmitted, stored and consumed. There's a greater diversity of products that connect the electrical grid and the aggregate amount of electrical energy and types of devices is growing rapidly. We're the world's leader in electrical product safety, and that's helping drive both our industrial and our consumer segment.

Second, new mobility, whether it's pure electrical vehicles, hybrid vehicles, changes in the electrical grid, complementary energy storage capabilities for renewable energy generation, energy transformation around mobility is creating new types of testing needs. Third is Sustainability. There's an increasing global focus and 59% of our revenue is from customers outside the United States, global focus and reducing the total carbon footprint across a manufacturer's total product life cycle.

New technologies and digitalization, that includes the evolution of the product needs within data centers, within computing needs and new product innovation in a number of different ways. Supply chain risks -- as manufacturing continues to change locations and supply chain components and suppliers change, manufacturers are increasingly looking for data and alternative supply to fulfill their product manufacturing requirements.

And then finally, regulatory compliance. On a global basis, the majority of our revenue is driven by authorities that have jurisdiction that require products to have certain safety and compliance characteristics in order to be lawfully imported and sold in their markets. So these trends have been driving our growth for over 130 years, particularly on an accelerated basis in the past few years. So with that, we thought we would open it up for Andrew for some additional questions and discussion.

Happy to. Thanks, Jenny. Thanks, Ryan. So maybe we start by diving in a little bit more thoroughly into the energy transition opportunity. It's -- the electrification of everything is something that you've talked about since you went public last year. Can you give a little bit more detail on kind of the underlying drivers there? And how -- maybe more importantly, how it ultimately results in increased demand for your services?

Yes. I love this topic, and it crosses both our industrial and our consumer segments, but let's start with how important it is in the industrial environment. Depending on what survey you believe, we need to somewhere between double and triple the amount of electrical generation in this country and really around the world in the next 20 years or so. How do you do that? You have to change the way that electricity and power is generated, extending into renewables, considering cleaner ways to handle fossil fuels, extending into hydrogen, lots of different ways to nuclear, lots of different ways to generate. Each of those different means require different products, different components in those power plants.

And then certainly, then the way that it's transmitted is changing, AC current, alternating current has a lot of leakage, whereas DC, you get greater throughput, but it's less safe. So again, as products are being adapted to handle DC current, they need to -- they have new product development, different testing. You then think about the way that energy is being stored, particularly if you're in renewables, you've got to store what's being powered by solar to produce electricity at night. Energy storage systems batteries, large-scale industrial batteries are becoming extremely important in addition to batteries that are powering electric vehicles and not just cars.

Well, they could also be hybrid autos, but you consider agriculture or large-scale construction or even lawnmowers or jet skis. There's lots of electrical batteries that are powering mobility. And then finally, just the ways in which the -- on the consumer side of the business, the capabilities in consumer technology, the way that it's driving demand for this energy is increasing. So AI embedded servers, AI embedded into products, AI embedded into everything in our lives is increasing the need for electricity and the electrification of everything, the built environment around those data centers. There's a lot of heat, a lot of thermal dynamic issues. So you've got to think about fire safety in addition to that electrical safety. So this megatrend touches every part of our business. It's real, and we're in the middle of it all.

That's great. Maybe something a little bit more topical would be the tariff discussion as someone who's kind of intimately involved with product development, product innovation cycles, a lot of potential change going on in the global landscape right now. Can you talk a little bit about what you've seen to this point from recent tariff enactment and maybe taking a step back, how you would expect something like that to impact your business broadly. It's been a really resilient company for some time, but all those topics would be helpful to cover.

I'll start with the second, take a step back, and then I'm going to turn it over to Ryan for the more recent puts and takes. For us, tariffs are -- we've never viewed them as a challenge to our business. They can have a short-term effect, either as a former manufacturer, when you see your costs going up, you typically swap out components, change your raw materials, maybe move your factory location. In all 3 of those situations, it is highly likely that product will need to be retested, recertified.

So for us, as we're by our customer side as they're making the very smart decisions that they're all making. And quite frankly, they have been making since 2017 when the first round of the Trump administration tariffs came into effect, we've been seeing this movement in value engineering products and changing locations of manufacturing. So for us, we'll continue to be by our customer side as they make these decisions and help them through whatever transitions that they're making. We did see some short-term effects. Ryan, do you want to talk about third and fourth quarter?

Yes. On a short-term basis, we support our customers and what we saw in the fourth quarter was, we believe, in anticipation of tariffs, we had an increase in some services as manufacturers accelerated the pace of product manufacturing and shipment potentially to be ahead of tariffs. So we have a service line, ongoing certification services that Jenny mentioned that through the first 3 quarters of last year grew at about 8%. In the fourth quarter, it grew 12%. In the first quarter, it grew 5%. So it appears that just some of that demand was pulled forward.

In general, our services are not based on the volume of manufacturing or the volume of consumption. They're based on the pace of new product innovation and products coming to market. But there is a small portion of our revenue that is volume-based that picked up in the fourth quarter. In the first quarter, we mentioned an even more modest effect in our consumer business where we could see in some countries that are more potentially tariff affected and a modest increase in revenue that we believe had a similar effect. So as Jenny said, in the long term, our revenue is based on the pace of new product innovation, technological advancement, investment in redesign of new products. In the short-term, there can be some disruption related to uncertainties of our customers.

Sure. But we've seen over the past decade plus very, very resilient growth across a bunch of different environments. So obviously, product innovation consistently a part of the story.

Yes. So just to build on that, and thank you for saying that. And I'll give you a $5 bill at the end of the discussion. Yes, we have had resilient growth for a long period of time, averaging almost 7% on a compound annual basis. You can see through the first Trump administration when some tariffs were administered, we still had mid-single-digit revenue growth. And then even in some relatively extreme shock periods like COVID, we had basically flat revenue growth in 2020, which is a testament to the resilience of the business model.

I see in the bottom right-hand corner here of the slide, you also show the expansion on the adjusted EBITDA margin line. Can you speak a little bit to the trajectory of that line item, but maybe broadly the sophistication of the business over the past decade plus. It was previously owned under a not-for-profit umbrella, really made huge strides under your leadership, Jenny. So if you could just kind of speak to where you're at now? What the opportunities are and the levers have been in the past and in the future to drive that forward?

Yes, absolutely. And prior to UL Solutions, I was in low-cost manufacturing. Prior to UL Solutions, Ryan was in retail. We both have just in our complete DNA ways of operating, a focus on continuous improvement and margin expansion in every business. So when I joined in 2019 into 2020, early days of COVID, Ryan and I looked at each other and said, how do we make sure that we, in an uncertain growth environment that we really focused on profitability and margin.

And we managed, as Ryan said, held -- revenue was relatively flat, but we had an outstanding year with EBITDA and net income. And a lot of that just continued the trajectory of where do you consolidate? Where do you centralize? How do you think about single instance of technology? How do you run a data-driven business? And additionally, how do we continue to focus on the value of the services that we deliver to customers and execute that through appropriate pricing moves, particularly in that new testing those 2 service lines. So I'll let Ryan comment. We've made commitments this year on our EBITDA progress and where we're headed.

Yes. We're pleased with our pace of profitability improvements through the end of 2023, just before we were becoming a public company, we had finished the year with about 21% adjusted EBITDA margin. We had set a target as we were becoming a public company of at least 24%. Last year, we did 22.9%, so 190 basis points of expansion, and we felt comfortable giving an outlook this year for approximately 24% so to meet that 300 basis point target in our second year as a public company. We think there's margin expansion opportunity in all 3 of our segments. We're not going to be done there at the end of this year, but we're pleased with the pace of profitability improvements across all 3 segments.

I think one of the things that also helps with margin expansion is when your fastest-growing segment has an operating margin rather an EBITDA margin in the low 30s. I often get asked for those that are newer to the story, why it is that industrial is so profitable maybe relative to some of the peers and also even some of your other segments. So maybe just for education purposes, it would be great to hear kind of what's driving that and what makes it such a fantastic business?

Yes. One of the primary things is we help our customers reduce risk and help them get their products to market on a timely basis, meeting regulatory requirements. That's a very valuable value proposition. And in industrial, typically, the products are more complex, more highly engineered. They have many different components. They are in service longer once they're installed. They are often more regulated -- and in many industrial markets, the UL Mark is an important part of how those manufacturers bring their product to market and communicate their quality and compliance to their trading partners. So that assists in the profitability of the business through adding value to our customers and their risk reduction.

Great. I think we have some time for a couple more questions. I wanted to touch on capital allocation. And within that M&A ambitions, generate a lot of cash. You prioritized organic investment historically. But just kind of walk us through the priorities there and maybe spend some additional time specifically on the organic opportunity. You've built what seems like countless very large investments in labs over the past several years as I've been following you that have been very successful. So if you could just kind of give people some framework for those investments as well.

Yes. So we're fortunate to have a very cash flow generative business. So our cash flow from operations last year was about 18% of revenue. We reinvest a large portion of that back into the business, on the left side of this page, in organic capital expenditures. Last year, that was close to 8% of revenue. We've given a range for 2025 of 7% to 8% of revenue. That has led to additional investments in capacity for testing services for our customers, customer-facing software, enhanced technological enablement to serve our customers better and has led to high returns on invested capital.

We complement that with acquisitions, accretive acquisitions to grow capabilities and capacity. Also in the last couple of years, we have used excess cash flow to reduce some debt. We pay a cash dividend to all shareholders on a ratable basis. Currently, that is at a pace of about $104 million a year. And we're a newly public company, but over time, we would evaluate share repurchases. But the primary allocation of that 18% of revenue and cash flow from operations is back into the business to grow organically and generate shareholders high returns.

And can you walk us through the M&A ambitions, size, areas of focus? What's on the checklist for you as you look to deploy capital that way?

Yes. I think strategy, it's important of what you say no to is what you say yes to. Our strategy is to focus on product testing, inspection, certification. If you go back to the overall addressable market that Ryan put up earlier, we're not interested in areas that do not further our footprint in product testing, inspection and certification. That said, there are a lot of companies out there with a wide range of size, small, medium, large. We are fortunate to be in a position to have conversations with all sizes of prospects.

And in those prospects, we look for a combination of really starting with what's the distinct technical skill, expertise that they have to offer that we couldn't otherwise build on our own. What are either the existing set of services that they offer to their existing set of customers that we could extend more broadly into our 80,000 customers? What are some of the other kind of future needs that are being propelled by these megatrends? And across the board, we continue to be active appropriately providing that we get good expected return on invested capital on those prospects. We've had a very good run of it.

Great. And maybe with the last minute or 2 here, we haven't spent as much time talking about the Software and Advisory business. Can you give people in the audience a little bit more of an understanding of what it is that you do in that segment and why you're optimistic about accelerating growth there?

Yes, absolutely. If you look at our Software and Advisory business, it's really -- it came from a collection of about 20 of those acquisitions since 2010. And what's been the unifying factor is software that supports our customers in product compliance, software that supports our customers in transparency, traceability of their supply chain and in particular, chemicals in the retail supply chain and the way in which they're distributed, stored, sold and disposed of. And then that ties into the future needs of Scope 1, Scope 2 reporting because you've got to trace back through what's in your supply chain and follow regulations.

We've created a single platform called ULTRUS that all of our customers now log into. It gives us a great opportunity to extend our wallet share and our footprint with our customers in Software and Advisory. And we're excited about the continued improvements in the growth rates of our software business.

Fantastic. I think we'll -- we only have like a minute left. So we'll wrap it up there. For those of you that are interested, we're moving to a breakout session in [ Maher ] which is on the north side on the second floor. Look forward to seeing many of you there. Thank you.