UL Solutions Stock

Hello, and welcome to the UL Solutions Third Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Yijing Brentano, Vice President of Investor Relations at UL Solutions. Thank you. You may begin, Ms. Brentano.

Thank you, and welcome, everyone, to our third quarter 2026 earnings call. Joining me today are Jenny Scalene, 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 to turn the call over to Jenny.

Good morning, everyone, and thanks for joining us. We had another strong quarter, reflecting broad-based growth and continued operating momentum across the business. Organic revenue growth accelerated to 7%, the highest level in 6 quarters. continuing our growth trajectory since our IPO. Adjusted EBITDA margin expanded 90 basis points to a quarterly record of 28.6%, driven by ongoing productivity improvements, pricing initiatives and business optimization. Since becoming a public company, we've expanded adjusted EBITDA margin by roughly 500 basis points, and we expect our performance to further improve. It's a great story, a growth story.

Our resilience and ability to convert revenue growth into higher profitability and cash flow in the face of changing macroeconomic environments globally has been well demonstrated as AI and data centers advance and consume investment by hyperscalers, co-locators and every type of industry, our long-term customers are turning to us as safety science experts to ensure the products and ecosystems being developed are trusted. That is the case both for the end consumer served by our customers and in large industrial applications. Today, our safety science matters for AI and accelerating product development, market access and adoption, just as it proved essential in other technology revolutions of the last century.

We work with more than 60% of the Fortune 500. The drivers of our strong third quarter performance include double-digit growth in certification testing, strength in materials, energy and automation and consumer technology, along with measurable productivity improvements. As products like appliances and medical devices and assets like large power and automation systems become more interconnected, our services and technical expertise provide customers with a solid foundation for ongoing innovation, reliability and trust backed by over 130 years of experience. Our sustained robust cash flow and investment-grade balance sheet put us in a great position to selectively and strategically invest in new capabilities across our industrial, consumer and risk and compliance software segments.

As manufacturers face the need for greater trust sought by their end users and products, ecosystems and supply chains, our disciplined portfolio management supports the pursuit of attractive growth opportunities. Today, I will focus on 3 themes: the enduring strength of our underlying business, the continued improvement in our operating performance and the strategic investments supporting our long-term value creation. Starting with our TIC business. Both the industrial and consumer segments reported strong organic growth and record quarterly adjusted EBITDA margins. Industrial remains our primary growth and margin engine as organic revenue increased 8.4%, and adjusted EBITDA margin expanded 150 basis points to a quarterly record of 36.1%.

Consumer continued to perform well, achieving 5.9% organic revenue growth despite an approximately 150 basis point headwind from planned business exits. Consumer adjusted EBITDA margin expanded 170 basis points to a quarterly record of 21.4% reflecting a more focused operating model. In Risk and compliance software, our focus remains on supporting our manufacturing customers and their supply chains and their growing need for essential regulatory data and compliance insights. At the same time, we are aligning the cost structure with the reshaped focused portfolio.

Importantly, our consolidated growth continues to be boosted by demand for our certification services required to bring new innovation safely to global markets. Certification testing revenue increased nearly 11%, while ongoing certification services grew over 7%. Together, these services are the fuel for our strong base of recurring revenue in our TIC business. Beyond our current performance, we continue to invest in organic opportunities that extend our value proposition, expand our participation in attractive markets and leverage our existing infrastructure to generate profitable growth.

As I mentioned earlier, the AI data center ecosystem is a particularly attractive area. During the quarter, we launched 3 certification programs supporting the next generation of the AI data center ecosystem addressing power distribution, power conversion and liquid cooling. We also expanded our HVAC Center of Excellence in Plano, Texas to support testing for advanced cooling technologies. These types of investments are intended to extend our capabilities in emerging technologies and support customers as new markets and technologies develop, which have led to our double-digit certification testing growth.

During the quarter, we also expanded our retail sector testing capabilities in Europe and the United States, broadening our service offerings and leveraging existing facilities to support incremental growth in non-certification testing. These investments address increasing customer demand for comprehensive testing services while also improving our productivity. Across these initiatives, our strategy remains consistent, investing capabilities where we have differentiated expertise, expand our participation in attractive markets and leverage our existing infrastructure to generate profitable growth. I'm proud that in 2026, we also actively reshaped our portfolio to solidify our position as a leader in product tech services and focused our capabilities in risk and compliance software on customers' expanding needs for supply chain insights and compliance.

In TIC, we exited businesses as part of an overall restructuring plan and acquired Eurofins Electrical and Electronics business, adding substantial capacity and expertise to our core business. In Risk and Compliance software, we sold our employee health and safety software business in April as it had diminishing strategic value. In July, we bolstered our capabilities by acquiring Avenia Consulting Firm, Inc., a thought leader and extended producer responsibility, known as EPR, management and environmental compliance services. EPR is a policy approach in which customers are made responsible for the entire lifespan of their products, especially what happens after consumers throw them away. These portfolio moves aligned with our strategy of building Ultrus as an AI-first product and supply chain compliance and intelligence platform.

On October 1, we completed the acquisition of Eurofins E&E business, a highly complementary asset that expands our consumer segment by creating opportunities to leverage our combined capabilities, accreditations and laboratory networks. We intend to broaden customer relationships, increase laboratory utilization and cross-sell our fulsome set of services to new customers and new markets. Over the last few weeks, I visited some of our new E&E colleagues in Europe, the U.S. and in Asia. Universally, I heard excitement about them joining a global leader in product tick and the opportunities ahead to expand their reach and effectiveness. We are excited to continue with the integration process and expect back-office integration to be substantially complete in 2027 with go-to-market and lab utilization synergies largely realized by the end of 2028.

And just last week, we completed the sale of our stake in DQS for approximately $117 million. Together, these activities advance our strategy of pursuing acquisitions and portfolio refinements that enhance our ability to serve product manufacturers as they expand investments into their next generation of product innovations. As CEO, 1 of the most important decisions I make is how we best deploy capital to meet our customers' needs and to generate high return on invested capital for our shareholders. As such, our approach to capital allocation remains disciplined. We will continue to evaluate opportunities to expand our capabilities and geographic reach while applying rigorous strategic and financial criteria to our investments.

Now turning to the demand environment. We believe demand remains healthy across our businesses based on what we've seen so far in the fourth quarter. We expect to continue to benefit from increasing product complexity, evolving safety requirements and the need for independent testing and certifications as customers introduce new innovations. The breadth of our customer base, the recurring nature of ongoing certification services and our exposure to long-term growth trends support the resilience of our business. Looking ahead, we are confident in our ability to build on our momentum through strategic investments and continued improvements in operating discipline. Now I'll turn the call over to Ryan for a detailed review of our third quarter results and our updated full year 2026 outlook.

Thank you, Jenny, and hello, everyone. I also want to thank our team members around the world for another excellent quarter of execution. Let me walk through the quarter in detail. Consolidated revenue of $823 million was up 5.1% over the prior year quarter, including organic revenue growth of 7% and -- adjusted EBITDA was a quarterly record of $235 million, an improvement of 8.3% year-over-year, with adjusted EBITDA margin expanding 90 basis points to a quarterly record of 28.6%. Net income was $117 million, up 10.4% year-over-year with net income margin of 14.2%, up 70 basis points. Diluted earnings per share were $0.53, up from $0.49 in the third quarter of 2025. Adjusted net income was $135 million, up 13.4% from the third quarter of 2025 with adjusted net income margin of 16.4% and up 120 basis points. Adjusted diluted earnings per share was $0.62, up 10.7% from the prior year period.

For the 9 months ended September 30, 2026, organic revenue growth was 6.4% and with total revenue growth of 5.9% and adjusted EBITDA margin expanded 180 basis points to 27.2%. Importantly, this margin expansion includes the impact of acquisition and divestiture transaction costs, which were approximately $11 million higher than the prior year period. representing an impact of roughly 40 basis points to both operating income and adjusted EBITDA margin. we have provided some additional detail on Page 23 of the presentation posted to our Investor Relations website. Now let me turn to our performance by segment, starting with Industrial. Revenues in industrial rose 8.2% to $410 million or 8.4% organically. Excluding advisory services, Industrial organic revenue grew approximately 9% and Growth was led by strength in energy and automation and in materials with continued momentum in ongoing certification services and certification testing.

Adjusted EBITDA in Industrial increased 13% to a quarterly record of $148 million, with adjusted EBITDA margin expanding 150 basis points to a record 36.1%. Operating margin improved 50 basis points to 29.3%, reflecting operating leverage and higher employee productivity. Turning to the Consumer segment. Revenues were $360 million, up 5.9%, both in total and on an organic basis, driven by strength in non-certification testing and services and certification testing. -- with higher demand in consumer technology and in retail. This organic growth was despite an approximately 150 basis point reduction from the previously announced business exits under our restructuring plan. Adjusted EBITDA for Consumer was $77 million, an increase of 14.9% versus the third quarter of last year. with adjusted EBITDA margin expanding 170 basis points to a record 21.4%. Operating margin improved 70 basis points to 12.5%. The improvement reflects operating leverage, higher employee productivity, favorable mix and the continued benefit of our restructuring actions.

In our Risk and Compliance Software segment, revenues were $53 million, a decrease of 17.2% year-over-year, reflecting the divestiture of our EHS software business, which closed on April 1, excluding that impact, the segment grew 4.7% organically, driven by increased demand for supply chain insights in the retail industry. Adjusted EBITDA for risk and compliance software was $10 million compared to $19 million in the third quarter of 2025, which was a strong quarter of revenue growth and profitability.

Adjusted EBITDA includes a $10 million reduction from the EHS divestiture, negative operating leverage from a smaller revenue base and some transaction costs. Adjusted EBITDA margin was 18.9% compared to 29.7% in the prior year quarter. Now turning to cash flow and the balance sheet. For the trailing 12 months ended September 30, 2026, we generated $738 million of cash from operating activities up 25.9% and $481 million of free cash flow, up 23.7% year-over-year. We ended the quarter with total debt of $766 million, and we continue to maintain a strong investment-grade balance sheet, which provided the flexibility to fund the E&E acquisition alongside our other capital priorities.

Subsequent to quarter end, we also sold our stake in DTS for approximately $117 million and we expect to record a pretax gain of approximately $93 million in the fourth quarter within other income outside of operating income, and it will be excluded from our adjusted measures. As of October 30, 2026, after the close of the E&E transaction and the sale of the DQS stake, our total debt was $689 million. We paid a quarterly dividend of $0.145 per share or $29 million during the third quarter, consistent with the increased dividend we announced at the start of the quarter. Our strong cash generation and disciplined balance sheet have positioned us to invest with confidence.

We invested approximately $891 million in 2026 and to grow and to become more efficient, including $692 million of strategic acquisitions, which include the E&E acquisition and $199 million of capital investments while returning $88 million to shareholders through dividends. We also unlocked approximately $318 million in value from nonstrategic assets. Importantly, we have maintained the financial flexibility to pursue additional growth opportunities, both organically and through strategic acquisitions.

Now turning to our full year 2026 outlook. The macro environment remains dynamic, but demand has remained resilient and our execution has been strong. Based on our strong performance through the first 9 months, we're strengthening our full year 2026 constant currency organic revenue growth to approximately 6.5% inclusive of approximately 70 basis points of revenue reduction from business exits associated with our restructuring plan. When we announced the restructuring plan, we had estimated the revenue impact would be approximately 1%. However, we've been able to retain customers and relocate work to other locations.

For full year adjusted EBITDA margin, we expect improvement to approximately 27.0% driven by approximately 200 basis points of underlying margin expansion partially offset by approximately 90 basis points of incremental transaction costs versus 2025. Included in our outlook is E&E's expected approximately $50 million of fourth quarter revenue and margin performance in line with our expectations. As Jenny mentioned, we have begun our integration activities and expect to complete back office integration by the end of 2027. As detailed on the last page of our earnings presentation, transaction and integration costs are expected to total approximately $37 million to $40 million for the full year of 2026, representing approximately 120 basis points for the full year. That compares with approximately 30 basis points impact in 2025. We expect our full year effective tax rate to be approximately 26% and full year capital expenditures of approximately 8.5% of revenue. Primarily geared towards high-return growth investments. We remain focused on continuing to pursue acquisitions and portfolio refinements consistent with our capital allocation strategy.

Overall, our year-to-date results demonstrate consistent profitable growth, continued margin expansion and disciplined capital deployment. We're pleased with the completion of the E&E acquisition and the DQS sale, and we believe our strong cash generation and investment-grade balance sheet provide the flexibility to invest in future capabilities while pursuing attractive growth opportunities. We remain well positioned to achieve our full year objectives and create durable long-term value. Now let me turn the call back to Jenny for her closing remarks.

Thanks, Ryan. Over the past few weeks, members of our leadership team and I hosted more than 300 industry leaders in Chicago and Asia. At events in Chicago, Taipei and Nanjing, China, we brought together customers and external experts to discuss market trends, evolving technology and the trust challenges shaping the future. A highlight of these events was the opportunity to commemorate some of our longest-standing customer relationships. We recognized Honeywell technologies, Eaton and Schneider Electric for their 100-plus year collaboration with us and celebrated 35 additional customers for 50-plus years of engagement. This is truly remarkable.

We are so grateful for these enduring relationships and the opportunity to foster exchange of the deep expertise needed to pave the way for safer trusted innovation around the world. In closing, our third quarter performance reinforces the durability of our growth, the strength of our operating model and the value of our disciplined investment strategy. We entered the final quarter of 2026 with strong momentum and remain focused on delivering sustainable value for our customers, employees and shareholders. Thank you to our teams around the world for your dedication to our mission of working for a safer world. With that, we'll open the line for questions.

[Operator Instructions] The first question is from Andrew Nicholas from William Blair.

I appreciate you taking my questions. First wanted to talk about third quarter results and hoping you could speak to the split between price and volume across your major revenue categories?

Absolutely. And I'll turn it over to Ryan to go into the details on that, but we are pleased that we saw growth across all of our businesses and all over the world.

We're pleased with our revenue growth and we had contributions from both price and volume. In the third quarter, we had slightly higher contribution from volume and then within certification testing, in particular that you saw had strong double-digit growth, more of that contribution was from volume.

Very helpful. And then for my second question, I wanted to ask, I think -- the FCC recently voted to prohibit Chinese labs from testing electronic devices for U.S. market authorization. I was hoping you could kind of walk through the puts and takes there, how it would potentially impact UL, whether it's positive or negative?

Yes. Absolutely, Andrew. And we do not expect a material impact from this announcement. We do perform a broad range of services in China. And as you know, last year was -- China was 25% of our revenue. And this piece, this announcement would affect a small percentage of that largely in our consumer segment. But the great news about our business and the way that we run it is that we have a global network of accredited labs that lets us work with our customers to adjust where we test their products. And of course, we will test in accordance with the rules. So we'll be working with our customers. We'll minimize the disruption to them. and we'll rely upon our global lab network as we continue to see these rules evolve.

The next question is from George Tong from Goldman Sachs. George Tong? The next question is from Andrew Steinerman from JPMorgan.

I would like to ask you about the momentum in UL's business as it relates to the data center industry build-out. As you go through the current quarter, the fourth quarter into next year, does that end market have the same type of pull for safety testing as it did this year?

Absolutely. It's a great question, Andrew. And those customer events that we had that I cited in my opening comments, data centers and AI factories as they're frequently called is certainly the hot topic right now. I think the best place to look as to the effect of data centers on our demand and our growth is in the certification testing. And as we said, our certification testing revenue was up almost 11% year-on-year, which I think really reflects the innovations that our customers are pursuing to keep up with the ever-evolving ecosystem and demand for these new architectures. We continue to see this momentum. It's why we've announced new certifications and continue to work with our customers on outlines of investigation. And we will continue to support this very dynamic innovation environment that we're seeing.

The next question is from Josh Chan from UBS.

Jenny Ryan Yiding. I wanted to ask about the recent lab capacity increases that you've announced. How should we think about those capacity as it aligns to your base business and how that capacity increases shaped towards 2027?

Yes. Our lab investments, when we look at those organic investments, and we've had a number of announcements this year in recent openings in both industrial and consumer. And we use our organic investments to fuel growth in the areas where our customers are demonstrating that there will be durable demand and that it's an extension of either our geographic footprint or deepening our capabilities and certainly taking advantage of our recent infrastructure. I think the recent announcement of the Plano HVAC Center of Excellence is a great example of that. We have long time been a leader in cooling technologies. This footprint expands our capabilities into even larger commercial grade cooling than we had previously had in the past draws upon a location that we already had and extends the capabilities of the experts that we have. So that's how we think about CapEx and continuing to grow by our organic investments.

Great. And then on the E&E assumption for Q4, I know, Ryan, you said $50 million of revenue, which makes sense. What level of profitability are you building in for E&E initially? And then can you talk about the sort of the path to realizing any synergies that you might be planning for the business?

Thank you very much. So first to point out, we said our outlook was driven by 2 components: approximately 200 basis points of underlying margin expansion and the E&E contribution is part of that $200 million. So our -- the performance so far and our expectations are in line with what we had thought initially. We're excited about the opportunity. We have a clear path to integration. I think we've modified our comments to say we expect to complete back-end integration in 2027. Also, our path to go-to-market and lab efficiency, we expect to be largely complete by the end of 2028. We do expect to incur some integration costs in 2027, but that will be factored into our overall performance and outlook that we report at the end of the year.

The next question is from Stephanie Moore from Jefferies.

Great. Good morning. Thank you, guys. So you're on track to deliver, I guess, roughly 200 basis points of underlying margin expansion in 2026, another record year for the company. As you look into 2027 and I guess the years after, what are the biggest drivers of the next leg of margin improvement? How should we think about, I guess, continued employee productivity? You've talked about AI and automation. -- lot of strategic investments you've made in 2026, including some divestitures? Where are the biggest opportunities for the next leg of margin improvement?

Yes, absolutely. Because our quest for margin expansion never ends, and our jobs are never finished here. The ongoing productivity improvements, we -- I would say that is job 1 for us. And that is both using extension of our lab capabilities, better applying AI to our processes and AI that's both available through commercial off-the-shelf technologies that we use like Salesforce and Oracle as well as internal systems that we use. So that type of continuous improvement is ongoing. We've also talked about pricing initiatives and continuation of pricing. As Ryan indicated, we saw some real strength in volume growth and applying the right pricing initiatives as we continue to see that volume growth also provides some great opportunities for expansion.

And then as we've always said, we will continue to refine and optimize our businesses. The exits in consumer this year, which were planned, were lower margin and lower growth and even as we look at risk and compliance software, the EHS that we divested earlier this year was lower growth and would have required significant future investment with probably less upside to it. So we're making those refinements to also help continue to expand our margins on an ongoing basis.

Very clear. And then to follow up, and this is a follow-up to a prior question on just the EE deal that's closed. As you think about just the opportunity to apply the ULS operating model across the lab and the company, should we -- where should we think about the biggest opportunities? Is this more of a cost and margin improvement story or more of a revenue opportunity story in your mind?

Yes. I think it's both. But the -- the exciting opportunity about this business is, one, it does expand our geographic footprint into areas where we didn't have as many lab or engineering capabilities. So you look at the additions in Europe and even the additions in Asia, particularly in Korea, it's really helpful. E&E is aligned with many of the megatrends that have been propelling our growth and particularly as you look at our consumer technology and Connected Technologies business, and so having the opportunity to cross-sell a more fulsome set of services to those existing E&E customers is a great growth opportunity for us. But of course, we're going to run this smartly. We're going to apply the things that they do well, speed to market, a really great customer focus on a new group of customers. And the things that we do well on the ways in which we run our labs globally and expect margin expansion as well.

Appreciate it. The next question is from Seth Weber from BNP Pariba.

I guess, first, just a clarification. The transaction costs for the fourth quarter that you've called out the $18 million to $21 million. Is that consistent with what was in the prior 27% EBITDA margin guide? Or is that higher relative to where you thought it was I would as of last quarter.

Yes. Thank you for the question, Seth. As we progressed in the year, I think our expectations about transaction and integration costs and our pace have increased a bit. So -- we think we have a good handle on the work that needs to be done and the time line to do it. But we just closed the transaction less than -- roughly a month ago. And so we're in early innings. -- but overall, we're progressing well.

Okay. I'm just trying to understand if -- so margins would have been a little bit higher. Your guide would have been a little bit stronger on the margin side but you had some extra costs that you feel like you're seeing here through the fourth quarter. Is that the right way to think about it?

Yes. I think it's fair to say that our Q4 integration costs are a bit higher than what we would have thought earlier in the year before the transaction closed.

Yes. And Seth, we tried to make this easy to understand the puts and takes on it. And so there is Slide 23 in the earnings presentation. And 1 of the things that you'll see on that slide in Q4 is that we even still have a range of what we're predicting on those transaction and integration costs.

Right. Okay. And then just on the software business, what's the right margin to think about for that business? I mean sales were kind of flat here sequentially, but margins ticked down. Just trying to understand how we should be thinking about that business kind of holistically.

Yes. Indeed, it was a disappointing margin quarter, and it's reflective of a lot of puts and takes from the effect of the EHS divestiture earlier this year. The remaining portfolio is stronger than is reflected in this quarter results. This quarter, we reported 4.7% organic revenue growth and the underlying real strength in some of the software that we have there is better than that. So that said, we expect some margin improvement in the fourth quarter, and we expect a reversion toward a more normal growth and EBITDA range as we were seeing prior to the EHS divestiture as we look beyond the fourth quarter.

The next question is from Arthur Truslove from Citi.

Good afternoon convention strong quarter. couple of questions for me. I was just wondering, would it be possible to sort of drill down a little bit as to what's driven the acceleration of organic growth in the Industrial division. I appreciate it has accelerated. And you've mentioned kind of what's been strong. But are you able to just explain kind of why it's accelerated. Second question, are you able to talk a little bit about the visibility for revenue of the business as you look out over time. So maybe can you give an idea roughly of how much revenue can you see 3 months, 6 months, 12 months, maybe even 24 months out?

And then final question, relative to when you IPO-ed, how well developed do you think your pricing system is? And how far do you think you are through your efficiency sort of program? And how much do you think you've kind of got to go of those processes, if that makes sense?

Thanks, Arthur. And we'll try to take those 1 at a time, and I'll start with the acceleration of organic growth in industrial which, indeed, as I've said, industrial is our primary growth and margin driver and the 8.4% organic revenue growth which includes the inclusion of advisory that we moved in earlier this year, and advisory was relatively flat. So again, that underlying core industrial growth is even stronger. And it is being driven by all of the mega trends. This is the core of our core of our business. We talked about the certification testing growth. Now certification testing occurs in both industrial and consumer. But in industrial, we're seeing it in power and automation, wire and cable, and fire safety.

And we're seeing that in the United States and in Greater China. So -- and then leading into your second question, kind of visibility in revenue. One of the interesting distinctions between certification testing and non-certification testing is certification testing tends to have longer duration and so as we see those orders, we do have greater visibility into how that revenue hits over time, where non-certification testing can frequently -- in the retail space, it can be in and out in 3 days. So as we look at orders and we look at orders and things like our key businesses that are driven by the energy transition, and the electrification of everything and also shifts in materials. We're seeing those orders growing faster than revenue. And so that supports our continued demand visibility. Brian, do you want to talk about just the final question on relative to the IPO, how we're doing on pricing and how we're doing on margin expansion.

Sure. And then I would just add to your answer. But 1/3 of our revenue is ongoing certification services, which is a contractually recurring revenue stream, it provides a lot of visibility and the comments that Jenny made about testing were spot on. In regard to pricing, we continue to develop our capabilities. We've developed the infrastructure and the technical capabilities and processes for customer relationship management for our configure price quote and we have made improvements in centralized processes and governance around pricing. I would say there is still some progress to go in some of our businesses to advance value-based pricing, but we made good progress in the journey thus far, and it's contributed to the revenue growth and the margins.

And then in regard to the efficiency program that we announced in the third quarter of last year, we've made good progress. We are on track for the benefits that we had described at that time. We have achieved the majority of the headcount changes that we described, we had said that we expect that to be complete by the end of the first quarter of 2027. We feel we're on point for that. But already, we've achieved the majority of the benefits that we've anticipated.

The next question is from Shlomo Rosenbaum from Stifel.

I want to go back to a question I was touching on earlier in terms about how broad-based Industrial's organic growth is, I know there's overlap when you talk about data center demand, there's a lot of things that go into that. The wiring goes into that. energy goes into that different other construction materials. Are you able to kind of segment out how much of the growth is really being ultimately driven by the data center demand versus demand elsewhere in the economy? Or -- is there some way to view that for us to see what is actually the key growth drivers that are kind of shining through with this strong growth?

Yes. It's an important question, and it's important to remember that as our customers, those very large industrial manufacturers that we've worked with for decades, as they're responding to the demand, and I'm going to just again start with the megatrends of the energy transition and electrification of everything. That is showing up in data centers, but it's also showing up in their other markets because large-scale industrial manufacturers are focused on an energy crunch and are looking for equipment to run in their manufacturing plants that would be more energy efficient. And so a lot of the innovation that's out there, as you see in a lot of technology trends, maybe initially driven by the ideas that are being pushed by the leaders in the data center architecture, infrastructure ecosystem but then those ideas, those concepts, those innovations end up being applied for product use in other environments.

And so that's why for us, it's more important to focus on what is the effect of these megatrends on our customers' innovation cycles and we just continue to see tremendous propellants, great tailwinds from the electrification, the energy transition the need for more sustainability and the effect of digitalization across all of those new product development life cycles.

Okay. And then maybe this is for Ryan. Just trying to understand the margin improvement in industrial and consumer. Is there a way to segment at least roughly operating leverage versus productivity versus portfolio changes for industrial and consumer. Is there a way to think about it, like 2/3 coming from 1 versus the other in order for us to understand how much is just driving the top line versus how much is actively managing the costs and where the costs are coming from.

Yes. And we're pleased with the margin expansion in both of those segments. I would say broadly, we talk about productivity improvements and better utilization of our team members in our locations. So when we grow revenue faster than like our employee compensation costs, that is a measure of employee productivity. Operating leverage can be better utilizing our other costs, our locations, our rent, our or other costs. And we break out both of those employee compensation as well as services, materials and depreciation and amortization in our sector -- in our reporting. So we're pleased with the progress in underlying 200 basis points of margin expansion year-over-year, and we hope the incremental information we provided is helpful to all of our investors.

The next question is from George Tong from Goldman Sachs.

And apologies for the technical difficulties earlier. Industrial organic growth was around 9% excluding advisory compared to 8.4%, including advisory. Can you talk a little bit more about performance within advisory and whether the slower growth reflected project timing, softer demand or -- any other factors? And how you're thinking about advisory growth heading into 2027?

Yes. Advisory is important because it helps us provide a fulsome set of solutions for many of our customers, in particular, in the renewable energy space and in the built environment and the commercial real estate. There have been headwinds in both of those industries and advisory has had challenges, in particular in the United States in both of those industries. Outside of that, in particular, when you look at like Germany or Europe, advisory is stronger and seeing some interesting projects and opportunities for growth. So it's a small business. It's got a lot of puts and takes. -- timings of projects can affect growth rates that are reported. But indeed, right now, there continues to be some headwinds both from renewable energy here in the United States and the commercial real estate effect here in the United States.

Got it. That's helpful. And then you mentioned certification testing is the best indicator of data center activity. As you look across our distribution, our conversion, liquid cooling, what determines whether the current demand becomes a multiyear testing and certification opportunity versus a concentrated initial certification cycle?

Yes. I think the way to think about it is I always say our certification testing business, to some degree, is a function of the amount of innovation and R&D that our customers are investing. And so again, it's the megatrends that they're really focused on -- so -- and in the data center space, what's really interesting is, I would say, equipment and a data center tends to last a few years, let's call it, 3 years and then they're hot swapping different pieces out, and that can require changes to the cooling system, changes to the underlying servers and chipsets, the thermal dynamics that are around it and the amount of power that's needed I think our customers are looking at data centers in particular, but all of these megatrends.

In so far as it's an evolution, you've got version 1 of a product, and then you know that somebody is going to leapfrog you in that, and so you're going to have version 2 and version 3. The beauty of it being requiring certification testing is then that becomes the fuel for continued ongoing certification services and growth in that recurring revenue stream for us as well.

There are no further questions at this time. I would like to turn the floor back over to Jenny Scanlon for closing comments.

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

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Well, good morning, everybody. Welcome to Jefferies 2026 Industrials Conference. My name is Stephanie Moore, I'm Jefferies Business Services and Transportation analyst. We are very pleased to have the team from UL Solutions. We have CEO, Jenny Scanlon; and CFO, Ryan Robinson, with us this morning. They're going to start with a couple of minutes of prepared remarks, kind of walk through a presentation, and then we will kick off the fireside chat aspect of this. So thank you both for being here.

Thanks, Stephanie. It's always nice to be here. And I recognize some of you and some of you I don't. So we thought it would be useful to give a very brief history of you all and then jump to the fireside chat. So let's just start with grounding and who we are. We're newly public. We went public in April of 2024, but we are not newly profitable, and we're not a new company. We have been a global leader in product testing, inspection and certification for 132 years. And there's 5 messages that underpin our outstanding performance.

The first is we are grounded in our mission. Our mission is working for a safer world, and we are grounded in that mission by focusing on product, testing, inspection and certification, which is a very fragmented industry that is a growth industry. Our claim to fame, our focus is our dedication to safety and science. And that dedication is reflected in our leadership. We like to say customers call us first when they have a new product innovation that has a thorny safety issue because we employ the technical leaders, the scientists and the engineers who understand safety science and apply that to every new innovation.

The third is that our customer relationships are long and deep. Prior to me joining UL in 2019, I led a building products manufacturer CEO. We had been a customer of UL since 1913 and continue -- that company continues to be today. We support our customers, our long-term customers with a very disciplined approach to account management. We have a global and strategic accounts team. And the reason why we're so valuable, why those long-term relationships exist is the iconic UL mark, the UL in a circle, and we'll flash that on the next slide. But it's very important for customers to have that mark to get their products into global markets. And that's why we have global scale that also gives us operating leverage. And then that trickles down to a very healthy balance sheet with robust cash flow and a disciplined capital allocation strategy.

The next slide, we're just going to flash the mark. Once you see it, you'll see it everywhere. When we launched our IPO, one of the analysts had their kids do a scavenger hunt in the house, and I think they found 68 UL marks in their house in one afternoon. It is a premium mark. When you go to the next slide, what you see is that mark and our safety science leadership and our dedication to our mission leads us to outstanding financials. We were last year, $3.1 billion in revenue globally. That was 6.2% organic growth. And we do this through 2 businesses, 3 segments.

Our 2 businesses are the actual product testing, inspection and certification. And those 2 segments are industrial, where our customers tend to be B2B and consumer, where our customers tend to be B2C. And then in the Risk & Compliance Software segment, which is our second business, this is where we take the power of our data, the data that we have about the billions of products that we've tested across the 80,000 customers that we have and use that data to help our customers respond to all of the risk and regulatory compliance requirements that they have all over the world. And this includes the types of sustainability requirements that continue to proliferate around the world.

If you jump then to our megatrend slide, this is why we believe fervently in our growth trajectory. There are thorny safety issues that are presented by these incredible megatrends that are affecting every one of our customers' decisions around product innovation, research and development and growth. The energy transition underpinned by this new energy landscape, how are we going to have enough energy to power all of the innovations that are happening, in particular, around data centers. But even prior to ChatGPT launching onto the horizon in 2023, the predictions were the amount of energy that we needed for the electrification of everything was either going to double or triple by 2050, depending on which source you believed. And now you can extend that to this new energy landscape and the energy transition required through -- because of digitalization and AI, which is a very important megatrend on this page.

New mobility, the ways in which vehicles, both cars but larger scale as well as you get into robotics and other movement is a very important megatrend. Sustainability, as I mentioned, is something that we're focused on for our Risk & Compliance software, helping our customers identify what's in their products, Scope 2, Scope 3. But it's also an important driver when you think about the types of chemicals that are in products that are being regulated the reuse and recycling, second life regulations, so disposal of products, extended producer responsibility, a lot of pieces in there that we're focused on.

All of that also is underpinned by shifts in supply chain. And when you swap out a raw material in a product, swap out a component, change a location for where you're manufacturing, that frequently requires retesting. So these supply chain risks can also be a tailwind for us as we help our customers maneuver through constantly changing regulations. And quite frankly, those have been shifting since 2017, 2018, and they continue to shift. So it's become a new normal for our customers, but it is a daily requirement. And then that leads to the regulatory compliance.

I think I want to wrap up just really quickly with Slide 15, which is, as I said, we went public in 2024, but our progression started long before that. We've had an almost 7% CAGR, 6.9%. We've had steady progression in margin expansion, and we are excited and bullish about where this trajectory will continue.

So with that, I'm going to open it up for Stephanie.

Thank you, Jenny. I appreciate it. Maybe sticking with the Slide 15 and just the consistent revenue growth that you have seen. You called out a handful of mega trends that are continuing to demand or drive demand for your services. Could you maybe talk about maybe which trends have been the most robust as of late?

Yes, absolutely. I mean, AI and digitalization is extremely important. And by the way, I didn't talk about the 4 ways that we generate revenue. There's certification testing, which is getting the UL mark onto a product. There's ongoing certification services, which is recurring revenue where we inspect any factory that's producing the product 4 times a year typically and charge our customers to do that. There's non-certification testing, which is still product testing, but doesn't lead to that mark and that ongoing certification services, and then there's the software. The reason why I raised this is back on the megatrends. A lot of that innovation that we're seeing that's being driven by AI and data centers and then also the new energy landscape requires certification. So you can really -- the evidence, if you were to open up our 10-Q is to look at the growth in certification testing, which then leads to ongoing certification services. And we're 10.9% year-to-date growth in that certification testing.

The areas where we're seeing it the most, though, it's been double-digit growth in our power and automation testing and in our wire and cable. You think about the amount of wire and cable that goes into a data center, but also goes into all sorts of industrial equipment or an autonomous vehicle. That has been significant growth. That's in our industrial business. In the consumer business, where we're seeing it show up is in our consumer technology and in our appliances, HVAC and lighting sectors, in particular, in that cooling and chillers. But we're also seeing really strong growth within our risk and compliance software in that supply chain transparency and in the supply chain insights modules that we offer in our ULTRUS software platform.

That's really helpful. And then one aspect of this, I think, would be maybe helpful for the audience, Jenny, is talk a little bit about I guess, maybe the relationships you have with your customers and how you start early on with maybe their innovation and R&D cycle and how that leads into that initial test and really how all of this kind of comes together that really fortifies your position with those customers?

Yes. Our focus on global and strategic accounts is extremely important to us staying cutting edge on what types of innovations are going to be coming to market and what type of safety challenges could exist. So we have 80,000 customers. The top, let's call them, 350 have a global or strategic accounts manager assigned to them. Those leaders are responsible to understand what the product road map is of that customer, and we frequently will meet, let's say, on an annual basis where our lead engineers or our scientists are in the room with our customers and listen to what their plans are and ensure that we essentially bring up what's the worst-case scenario that could happen, safety, quality, sustainability, security-wise with that product. And in many cases, those new products, and we're seeing a lot of this right now, are a confluence of technologies that used to reside in independent products.

So robotics has been around forever. I did advanced manufacturing in my last job. We started that in, I don't know, 2010 or something. But now you start embedding software into that. And now that software has AI embedded into it. It creates different safety challenges. And that's where our teams work very closely with our customers. And then we'll come back in many cases, like on AI, I think it was 2 or 3 years ago, I was in Korea visiting some significant C-Tech customers, consumer technology. And they said, okay, how are we going to think about the safety of AI that's embedded in products? And we worked with a set of customers and developed what we call an outline of investigation that turns into a standard around when AI is embedded into a product, how do you judge the veracity of the data that was used, the transparency of the algorithm, the lack of bias in the algorithm, the cybersecurity of the data that it's collecting and just the overall fairness. And then that became something that those customers started using as a way to demonstrate to their customers that they were being responsible with this new technology.

So maybe as you think about all your megatrends kind of together as one, would you describe the environment as maybe more robust than historical periods, steady? I mean, I think as a whole, there's probably always some trend that's going to drive the demand for increased safety. So maybe just talk about the sustainability of these megatrends, how robust the growth is now and what that ultimately could mean from an organic growth standpoint for the next several years?

Yes. And I'm seeing -- I can't remember, do we have either the data center picture or I lose track. Let's look at the laptop ecosystem. Sorry, I can't read it. Slide 31. What we're really seeing is the complexity of products is dramatically increasing. So if you look at the laptop or on the next one, actually, probably even better the ultrasound machine, 20 years ago, when we tested a piece of equipment like this, there were standard sets of requirements around the safety certification, performance and quality and the way that it was connecting to the -- wirelessly. That's what EMC compatibility focuses on.

Now when you start adding these other pieces, functional safety becomes a big risk. And functional safety is essentially does the product perform as intended. I use the example all the time, my daughter drives a Jeep. She loves her Jeep. When she turns the radio on, it works, music connects. If she presses the heating or cooling button, the radio turns off. That is not functioning as intended. And you can have real safety issues when you have software that's been embedded in products that then gets a glitch in and it doesn't perform as expected. So that adds complexity. And then you start getting into all of the regulations around the world. European Union, if you want that product going over there, they have different cybersecurity rules than the U.S. has or human factors, which would be, again, does a human accidentally do something with that piece of equipment that can cause a functional safety issue.

So the complexity of what we're seeing as more and more both technologies get embedded in products and regulations are being put in place around the world to keep up with that complexity really changes the scope of what a test would be that it was a simple set of 10, 15, 20 years ago, it's a much more interconnected, bigger project, complex set of tests today.

Maybe getting into the segment performance a little bit. Look, I think your Industrial segment, it is your largest segment from a revenue and earnings standpoint. It's been a major contributor to your organic growth. We touched a lot about the megatrends impacting the Industrial segment as of already. But I think you've made some changes in that segment, Ryan. So maybe do you want to talk a little bit about changes to that segment, how they're impacting margin because I do think there's been some questions on that as it relates to the second quarter results.

Sure. So over time, we review the synergy of the parts of our business and concluded that some of our businesses, we call advisory businesses that support renewable energy generation and the built environment had a better strategic fit within our Industrial segment. Last year, that was previously in what we called our Software & Advisory segment. The business, as you can see, continues to grow organically 7.7% through the first half of the year. The advisory business comprises about 9% of the aggregate business. We did say that our core testing inspection certification business is growing strongly faster than that consolidated total, that the business is generating in some core businesses are growing double digits, including our Industrial Automation business and our Performance Materials business and that we continue to have excitement about the growth attributes of the Industrial business going forward.

And then maybe similarly, I know that you made the decision, I believe, last year to also evaluate some services you provide. I think a lot of those were in the Consumer segment. So maybe just touch a little bit about what is your general appetite for maybe future evaluation of services that you provide? And how do you, at a high level, continue to monitor your portfolio and what makes sense going forward from a return standpoint?

It's definitely an extremely important part of our process. We have an annual long-range planning process that we put our leaders through where they look at every kind of subbusiness to understand, are we leaders? And if not, what's our path to leadership? And if not, what's our profitability and how will we get there? And we do this on a regular basis. Last year, when we did it, there were enough areas of consumer -- largely consumer that we felt like didn't meet that criteria and that we should just exit those businesses. And they were an individual lab here focused on a certain type of testing that we weren't doing anywhere else and realize that trying to bundle those together and sell those didn't make sense. And so just slowly winding those down, which is what we did really in the first half of this year in consumer. So consumer first half growth has a headwind. We had described the headwind as being 1% of revenue across the business, but the bulk of that is in consumer.

So when you look at consumers' first half growth, it has been -- that is net of these business exits. And part of those business exits why we left them was low performance. So you can see some of that margin expansion, which will be permanent and durable. We'll continue to monitor. We also announced earlier this year a divestiture of one of our modules from our Risk & Compliance software, our EHS module. It tended to be slower growth. It was on the higher side of EBITDA for that business. So it was really a question of should we keep it or should we divest it? It's in better hands with an owner that will invest in it in the future in a way that we didn't see, given all of our competition for capital, we didn't see that being a priority for investment, and it was better to divest. We'll keep doing that, but it's kind of like sharpening a pencil versus big wholesale changes.

Yes. I would just add that it's part of a broader portfolio management approach driven by our long-range plans. It included the choice to wind down some businesses that were approximately 1% of revenue, but also to divest that EHS software business, excited about an acquisition of the Eurofins Electrical and Electronics business and then also some nonstrategic minority holdings for an entity called DQS.

Maybe switching gears to the margin performance. So since going public, you've delivered a very strong margin expansion, I think, several hundred basis points, and I believe exceeded your initial kind of post-IPO target faster than you originally expected. So maybe looking backwards, can you talk a little bit about what drove the margin expansion over those last several years?

Do you want to start, Jenny?

I'll let you start.

Okay. Okay. Well, from the time we became a public company, we said we had a number of initiatives that would grow our margin, and we've been successful in doing that. In the year before we became a public company, 2023, we had 21.0% adjusted EBITDA margin. And now for 2026, we've affirmed our guidance for '27. So substantial increases, 300 basis points last year, 220 basis points year-to-date. And it's through a number of different ways. Initiatives within each of the 3 businesses to improve their core operations and efficiency, higher utilization of the people within those segments, higher utilization of the assets, the laboratories, the capabilities within those businesses, a number of horizontal initiatives across the company, working on our global footprint of locations, working on our enterprise IT architecture, supporting technologies for our employees to increase the efficiency and the productivity of the work that they do.

We've also made strides in things like our pricing capabilities and which previously were decentralized and less developed, having consistent tools and practices and pricing that have contributed to margins. Also, Industrial is our largest and most profitable business, and it has been growing faster. So we get some mix benefit as industrial grows. And then our business has a relatively high degree of operating leverage. So if we continue to grow revenue, we disproportionately flow that through to profitability. And I would say those are some of the key drivers of the growth in our profitability.

Maybe just taking maybe a near-term lens. I think on this most recent quarter, the Industrial segment, which admittedly has had very strong margin expansion over the last several years. So I don't want to discount that, but maybe the margin performance in the second quarter within Industrial wasn't as strong as we're used to seeing. Could you maybe talk through a little bit about those dynamics? And then if you can outline the path to further margin expansion really across both segments, I think, would be helpful, for 3 segments.

We are excited about our profit growth in the Industrial segment over an extended period of time, including our year-to-date activities. With that revenue growth comes some expenses to grow the business that can arise within a quarter that may not be indicative of the longer-term earnings potential of the business. With that strong revenue growth, we did have an increase in compensation-related expenses on a short-term basis. But within that, our core expense profile, including our salary expenses, actually were very well managed and were down. So I would say the changes in expense were more driven by the quarter than the long-term profitability and margin potential.

The big picture for Industrial, as Ryan said, it continues very strong growth, high single digits, some of our areas, low double digits, and that continues to have that operating leverage opportunity. So the direct cost management is outstanding and much of the employee compensation expense was the incentive comp. We have a pay-for-performance culture. Industrial is performing extremely well, and we had some catch-up in the second quarter. So that is short term, but we will continue our pay-for-performance culture.

Excellent. And then -- but maybe switching gears, the Consumer segment had real outsized margin performance in the quarter as well. So you touched on some of that. Some of those were your strategic actions, evaluating that. But maybe talk through some of the other margin drivers within consumer. And then I think more importantly, is there an opportunity to close that gap between the margin performance we see in consumer and what you report in industrial? And maybe help us walk through some of the differences between the 2.

Yes, absolutely. So first of all, I think one of -- in addition to the moves that we made on the restructuring, one of the underappreciated pieces of the megatrend around AI and digitalization is it affects both our consumer business and our industrial business. So industrial power and automation, wire and cable, even the fire suppression systems that need to go into data centers in our built environment. So all sort -- it hits every bit of our industrial business. But it also hits 2 important pieces of our Consumer segment, which is the Consumer Technology segment and the appliances, HVAC and lighting operating unit.

And again, much of these new products that are going out there are products that need certification and that leads to ongoing certification services, that recurring revenue. So that is something that has bolstered consumer. I think the other piece when you look at consumer longer term really is the sense that they are now competing head on in many cases with industrial products and that added complexity is continuing that growth and that margin expansion.

Understood. I guess before -- I do want to touch on some of your investments you're making, both organic and inorganic. But before we get into that, I think if we kind of summarize all that we've heard thus far, I mean, I think it's really clear you're a trusted partner, you're providing a service that really is at the core of safety. You're the largest player in the product testing market. What does that mean when it comes to translating into your pricing opportunity?

For us, we're very focused on value-based pricing. And this is important because again, our investments in being the leader in safety science and having our reputation really grounded in that leadership for new standards and new ways of thinking about what those product risks are is important. So we expect to be paid for that. And our customers tend to call us first, as we like to say, when they have these new complex product risks, and that translates back into the value proposition. We implemented Salesforce, a single global instance just shy of 2 years ago. We're continuing to help our sales teams, both with the data that we now have available in Salesforce as well as additional AI insights that it can provide. Salesforce does a nice job of also staying current with offering tools and techniques for sales teams to use, and we're taking advantage of that.

So our expectations are we will continue our value-based pricing journey because the investments that we make, both in that technical leadership and in the leadership around having the lab capacity available is really important.

Okay. Starting with some investments on the organic front. You talk a lot and certainly we see it if you look at press releases and the likes about lab investments in lab capacity expansion. So maybe just help us understand if we see an announcement for a new lab that's been opened in a certain geography, what should we read into that announcement?

Yes. When you see an announcement on a new lab, what you should read into is probably 2 things. One, that we've seen an opportunity and a customer has come to us requesting capacity for that opportunity. When we invest in a lab, it's because there are actual products and actual regulations that need to be tested, and we've got a good line of sight as to how quickly our customers are going to need that testing, how much capacity they need and what we can build out.

The second thing you should read into is that our philosophy in many cases is grounding a lab so that we can expand it in the future. So that first investment, that first announcement is the starting point. But then what often happens is the ability to add capacity in that lab without that significant overhead of a new building or a new facility or having to get new permits or new accreditations. And so we use those. When you look at -- we announced here in New York a few years ago, we closed a pretty old lab out in Melville, turned that into a sales and engineering facility and moved all of that capacity and equipment to Northbrook to Research Triangle Park and a new lab that we had opened in Mexico. That helped with margin, but it also helped with speed for our customers that we didn't have different tests that needed to be occurring in different locations. So it's 1 of 2, usually both.

So for us, should we kind of view this as maybe heightened confidence in just the growth trajectory of that end market?

Yes. I really believe that our willingness to invest in labs and to keep our footprint broad is a reflection of our market leadership. It is how we maintain that market leadership in a rapidly growing market.

And then another area that I know we've touched on has been maybe some of the innovation or automation or productivity that you're looking to drive within existing labs. So can you talk a little bit about how that's changed over time and how we should be thinking about future productivity within the 4 walls of the labs themselves?

So there are several aspects about productivity. One is our employee productivity and the outputs and how we support our employees to do their work better and more easily and also our physical utilization of our laboratories and our capacities. Over time, we have made large investments in process automation, including at the laboratory level, repetitive tasks are increasingly robotic. Data is generated electronically and embedded into testing reports, whereas previously, those were more human-intensive activities. I mentioned our cross-company enterprise IT architecture plans. They have supported more consistent processes across the company. Historically, a lot of these processes were more decentralized and differentiated in different businesses. And by building the capabilities, it's led to margin improvement and productivity.

Understood. Maybe switching to M&A. So you're in the process of closing, I think, your first deal since going public, your first deal of size going public, which is obviously the Eurofins acquisition. But can you tell us how this acquisition aligns with your strategy long term? What about this business excited you? And maybe just help us understand the rationale there.

I'd like to say, if it has the words product TIC in it, we are going to evaluate it. And there have been a number of announcements or potential announcements in the marketplace about competitors maybe carving out parts of their business or shifts in their focus. So we've had our eye on the Eurofins acquisition for a number of years. This is a business that's a great fit for us because it does exactly what we do in consumer testing around electrical and electronics. They have tended to target a different market, smaller customers that, quite frankly, I don't know that we believed that we could serve profitably, and this acquisition proves to us you can serve them profitably.

We're excited then about that opening up our offerings to a broader set of what I would say are smaller customers that would be our traditional target markets. We're also excited by the European footprint. It dramatically expands our presence in Europe, which is an area that hasn't been as strong as we would like it to be. And then they also gives us deeper capabilities in medical device testing. They have some accreditations that we don't have, and this will allow us to grow our medical device testing business faster than we otherwise could have.

And then maybe from a broader capital allocation strategy, as you think about returning cash to shareholders as well as future M&A, how do you evaluate both sides of those?

Yes. So we're fortunate to generate a large amount of cash flow from operations. And foremost, we want to redeploy that back into the business to continue to generate high returns. Across our portfolio, we have close to a 30% return on invested capital. That includes both organic investments as well as the investments that we've made in M&A. So in 2026, we will have a record level of both acquisition-related investments and organic investments.

So we're redeploying that capital better to serve our customers to continue to advance our mission and grow and evolve the business. We're doing that, fortunately, with a very strong balance sheet. So with that investment, we're not increasing our leverage through the period. We will evaluate other uses of cash over time, balance sheet. We pay a cash dividend, returning some to shareholders over time. But foremost, we're focused on continuing to grow the business and reinvest in the business.

Great. Well, I'll leave it at that. Thank you both for your time.

Hello, and welcome to the UL Solutions Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Ms. Yijing Brentano, Vice President of Investor Relations at UL Solutions. Thank you. You may begin, Ms. Brentano.

Thank you, and welcome, everyone, to our second 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' future financial results and estimates, our full year 2026 outlook, the previously announced restructuring plan, and our pending acquisitions and divestitures, including the pending acquisition of Eurofins' Electrical & Electronics business, and pending sale of our shares of DQS Holding GmbH that involves 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 filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2025, and our quarterly report on Form 10-Q for the quarter ended June 30, 2026. 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, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted diluted earnings per share, free cash flow and free cash flow margin. 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 now like to turn the call over to Jenny.

Good morning, everyone, and thanks for joining us. We achieved another outstanding quarter with record revenue and continued growth in adjusted EBITDA. Our team executed exceptionally well across all segments, driving profitable growth, expanding margins and advancing key strategic priorities.

These results were delivered in a dynamic operating environment and reflect the discipline, resilience and focus that define our organization. Most importantly, this performance is a testament to the dedication and expertise of our approximately 15,000 team members around the world whose contributions drive our success every day.

Our results also reflect the continuing importance of several long-term trends we have discussed, including the energy transition, the electrification of everything and increasing automation in industrial markets.

On the Consumer side, we see ongoing product innovation and increasingly interconnected devices. These durable trends create ongoing demand for safety science expertise, testing capabilities and certification services that help customers bring increasingly complex products and systems to market.

Before Ryan walks through the detailed financial results, I'll cover 4 areas. First, highlights of our second quarter performance; second, notable announcements we made in the last few months; third, a brief update on previously announced portfolio actions; and lastly, some perspective on the geopolitical environment and how our business continues to perform well within it.

Let me start with the quarter. Consolidated revenue grew 5.2% to $816 million, including organic revenue growth of 6.6%, led by our Industrial and Consumer segments. Adjusted EBITDA grew 11.2% to a quarterly record of $219 million, with adjusted EBITDA margin expanding 140 basis points to 26.8%. Adjusted diluted earnings per share increased 13.5% to $0.59.

These results reflect the combination of operating leverage from organic growth, higher employee productivity and the continued benefit of the restructuring plan we've been executing since late last year. Notably, we achieved 6.6% organic growth even as we absorbed the planned revenue reductions from the business exits under our restructuring plan.

I want to emphasize that our productivity work is not a short-term effort. It is part of how we are building a more focused, scalable and efficient company. We are continuing to simplify how we operate, focus resources on our strongest growth opportunities, maintain disciplined investment in the capabilities that matter most to our customers. It was a strong first half and one we are proud of.

Now let me turn to the notable announcements we made during the second quarter. We launched an AI-powered capability within ULTRUS UL 360 to help organizations calculate carbon footprints of the products they manufacture and the components they purchase. This improves the quality of supplier emissions data used in Scope 3 reporting. The launch comes as evolving regulations heighten the need for reliable supply, [ clean ] data, increasing demand for the solutions our software offers.

We issued our first hazardous location robotic certification for the new UL 6260 standard awarded to ExRobotics for their latest inspection robot. The certification evaluates remotely operated robots used for inspection and maintenance in hazardous locations, assessing fire, explosion, electric shock and mechanical risks. This milestone supports the industry shift toward robotic inspection in high-risk environments, helping move personnel out of harm's way while improving inspection reliability.

We were excited to open our new Automotive Technology and Innovation Center in Toyota City, Japan, further strengthening our ability to support customers in one of the world's largest and most innovative automotive markets. As vehicles become increasingly electrified, connected and software-driven, the need for advanced EMC testing has continued to increase. The facility helps automakers ensure critical systems operate reliably in the presence of electromagnetic interference, one of the few facilities in Japan equipped for high-voltage and high-speed rotational testing. This new lab expands our capacity to help customers bring safe, reliable technologies to market.

Now I'd like to highlight our progress in capital deployment and portfolio optimization. We continue to expect to close the acquisition of Eurofins' Electrical & Electronics business in the fourth quarter of 2026, and look forward to welcoming the team and their customers to UL Solutions. We are also proceeding as expected on the sale of our position in DQS, with closing still on track for the second half of 2026.

Finally, let me offer some perspective on the geopolitical environment, which continues to present important considerations to our customers. Our second quarter results show just how well our business continues to perform in this dynamic environment. We continue to benefit from several durable secular trends, more complex product ecosystems and faster innovation cycles. Customers are balancing myriad regulations, sustainability expectations and supply chain transparency requirements. We are also seeing increasing opportunities tied to AI data centers where safety, energy efficiency and reliability are essential.

The need for safety science expertise backed by independent testing and certification is paramount. That dynamic is core to the UL Solutions value proposition. Our strategy and our portfolio are closely aligned with these trends, and that focus continues to show up in our results. Given a strong performance through the first half of the year, we remain confident in our full year 2026 outlook.

Now I'll turn the call over to Ryan for a more detailed review of our second quarter results and more details on our full year 2026 outlook.

Thank you, Jenny, and hello, everyone. I also want to thank our team members around the world for another quarter of strong execution. Let me walk through the quarter in detail.

Consolidated revenue of $816 million was up 5.2% over the prior year quarter, including organic revenue growth of 6.6%. Operating income of $150 million increased 7.9% over the prior year, producing a 50 basis point improvement in operating margin. This was mainly driven by cost of revenue as a percentage of revenue improving 190 basis points year-over-year on favorable operating leverage and the continued impact of our restructuring and productivity initiatives. This was partially offset by higher costs associated with performance-based incentive compensation.

Selling, general and administrative expenses as a percentage of revenue increased 130 basis points, primarily reflecting higher employee compensation tied to performance-based incentives as well as higher professional fees.

Adjusted EBITDA for the quarter was $219 million, an improvement of 11.2% year-over-year. Adjusted EBITDA margin was 26.8%, up 140 basis points from the second quarter of 2025, with the expansion led by our Consumer segment. Adjusted net income, which excludes the divestiture gain, stock-based compensation expense for equity settled awards and certain other items was $129 million, up 17.3% from $110 million in the second quarter of 2025. Adjusted diluted earnings per share was $0.59, up 13.5% from $0.52 in the prior year period.

Now let me turn to our performance by segment, starting with Industrial. Revenue in Industrial rose 7.8% to $402 million or 7.2% organically, as compared to the second quarter of 2025. With growth across ongoing certification services and certification testing, strength in materials and energy and automation led the revenue growth.

Adjusted EBITDA in Industrial increased 7.4% to $130 million in the quarter, while adjusted EBITDA margin decreased 10 basis points to 32.3%, as the benefit of higher revenue was offset by higher employee compensation costs tied to performance-based incentives.

Turning to the Consumer segment. Revenues were $362 million, up 6.5% from the 2025 quarter or 6.2% organically, driven by strength in certification testing in consumer technology, non-certification testing and other services in retail and ongoing certification in appliances and HVAC. As a reminder, the prior-year quarter experienced tariff-related uncertainty, and that affected the timing of customers' new product launches.

Adjusted EBITDA for Consumer was $77 million, an increase of 24.2% versus the second quarter of last year. Adjusted EBITDA margin was 21.3%, up 310 basis points year-over-year, driven by operating leverage, higher employee productivity, favorable business mix as we exited lower-margin service lines, and the continued benefit of our restructuring plan.

In our Risk & Compliance segment, revenues were $52 million, a decrease of 17.5% year-over-year. The decline reflects the divestiture of our EHS software business, which closed on April 1. Excluding that impact, the segment grew 4.8% organically. Organic growth in the quarter was driven by increased demand for supply chain insights for the retail industry.

Adjusted EBITDA for Risk & Compliance Software was $12 million, down 14.3% year-over-year, primarily due to the EHS software divestiture. Adjusted EBITDA margin improved 90 basis points to 23.1%, with the benefit of a leaner cost structure on the segment's smaller revenue base.

Turning to cash flow and the balance sheet. For the trailing 12 months ended June 30, 2026, we generated $678 million of cash from operating activities and $436 million of free cash flow, up 19.8% year-over-year, with free cash flow margin improving to 13.9% from 12.3%. For the 6 months ended June 30, 2026, we generated $379 million of operating cash flow and $241 million of free cash flow, both up meaningfully from the prior year period, reflecting improved business performance.

Capital expenditures were $138 million for the first half of 2026, compared to $93 million in the prior year period, consistent with our plan to continue investing in laboratory capacity to support customer demand.

We ended the quarter with $434 million of cash and cash equivalents and total debt of $303 million, down from $494 million at the end of 2025, reflecting $191 million of net repayments on our revolving credit facility, funded in part by proceeds from the EHS software divestiture. We continue to maintain a strong investment-grade balance sheet, which provides flexibility to fund the pending Eurofins E&E acquisition, alongside our other capital priorities.

We paid a quarterly dividend of $0.145 per share or $29 million during the second quarter, consistent with the increased dividend announced at the start of the year.

Now turning to our full year 2026 outlook. We continue to expect 2026 consolidated organic revenue growth to be in the mid-single-digit range as compared to 2025, inclusive of an approximately 1% of revenue reduction from the business exits associated with our previously announced restructuring plan. FX impact on revenue in the second half of 2026 is expected to be negligible.

We continue to expect adjusted EBITDA margin improvement to approximately 27% for the full year, consistent with the guidance we raised last quarter, reflecting the combination of continued operating leverage, the benefit of our restructuring plan and the disciplined cost management, partially offset by higher performance-based compensation costs and acquisition-related expenses associated with our announced portfolio transactions.

We continue to expect our full year effective tax rate to be approximately 26%. We now expect full year capital expenditures of approximately 8.5% of revenue, including the timing of our previously discussed investment in laboratory capacity and other growth opportunities to meet customer demand.

With respect to our restructuring plan, we've incurred the significant majority of the charges associated with the plan and continue to expect the plan to be complete by the end of the first quarter of 2027, with approximately $3 million of remaining pretax charges expected over the balance of the plan.

Overall, we are pleased with our first half performance and we believe we remain well positioned to achieve our full year objectives while continuing to invest in long-term growth and executing our portfolio strategy. Now let me turn the call back to Jenny for her closing remarks.

Thanks, Ryan. I want to close with one significant highlight from the second quarter. UL Solutions won the prestigious Robert W. Campbell Award from the National Safety Council. It is one of the Council's highest honors for workplace safety leadership and it's a powerful affirmation of our mission of working for a safer world. The pride that we all feel in this achievement cannot be overstated because the award recognizes something we have long believed and acted upon: that protecting people is and must always be embedded in our culture.

You've heard me say that we do dangerous things here at UL Solutions, all in the name of safety. We break things, we blow them up, we light them on fire. From the way we operate to the solutions we deliver, advancing safety has defined us for more than 130 years. As Lorraine Martin, President and CEO of the National Safety Council, stated, at UL Solutions, safety goes beyond compliance. It is a vital component of both operations and culture. She further noted that the Campbell Award is a recognition of our accomplishment in instilling safety as a value for all employees, making safety personal rather than procedural.

We have been celebrating the Campbell Award globally since May, and I want to once again thank all of our employees who advance our mission of safety every single day.

In closing, this was an outstanding quarter that reflects the strength of our business model, the discipline of our team and continued progress sharpening our portfolio for profitable long-term growth. We remain confident in our ability to navigate a dynamic environment, and the mega trends shaping our industry give us conviction in the opportunity ahead.

We are grateful to our employees around the world for their continued dedication to our mission of working for a safer world, and we remain focused on delivering value for our customers, our people and our shareholders. With that, we'll open the line for questions.

[Operator Instructions] Our first question is from Stephanie Moore with Jefferies.

Great. Congrats on an excellent quarter here. I wanted to touch on margin cadence. So I think you have said previously that margin expansion might be slightly more second half weighted, but you saw pretty considerable margin expansion in the first half. So I know there's a lot of puts and takes, especially with the restructuring program and the like. So I just want to think about second half margin cadence and maybe just your overall level of confidence in the full year guide after what was a good first half.

Thanks, Stephanie. And we are pleased that our first half performance really allowed us to sharpen our pencil on our guidance for EBITDA in the second half and resulting in approximately 27.0%. And we will continue the progress that we've made on margin expansion. We're focused on operating leverage, continuous improvement and disciplined cost management.

Ryan, do you want to add anything?

I would say we raised the lower end of our guidance last year, and we'll continue to assess our outlook as we progress through the year. We're making progress on many near-term items in our portfolio, which include some acquisition costs, and together with other considerations in our business, led to the outlook that we provided at this time. So the cadence, I would say, would be pretty similar between third quarter and fourth quarter. And we'll continue to strive to meet the guidance we affirmed today.

That's helpful. One quick follow-up question that's more of a higher-level question. We often get asked in our seats, what ultimately drives the underlying demand for your services? I think you guys do a good job of talking about your mega trends. But one area that I don't think is maybe well understood is any potential volatility that you guys might see in your demand for your services or, quite frankly, lack thereof, volatility. So could you maybe just talk about just the visibility or steadiness in overall services that you see every given quarter? I think that would be helpful.

Yes. I think it's a great point, because we really do benefit from tremendous resiliency when you think about us being across 35 different industries and the number of services that we offer. And so one of the things I always point people to is what has been the trend of R&D investments and manufacturers, and that trend continues upward. And that's important to us because we're not volume driven. We're innovation-driven. So the more innovation, the more SKUs that happen, the better our businesses.

And different trends, things like, last fall, there was some concerns around chip shortages and other things. And immediately, what we ultimately see is our customers redesigning their products, and that needs then retesting often of those products. And so these shifts and changes actually really contribute to our business growth, and we're fairly resilient.

Our next question comes from Josh Chan with UBS.

I guess on the margin cadence, given what you've achieved in the first half, it doesn't require that much margin expansion, it seems like to get to your margin guide. So could you talk about that and whether there are some puts and takes in the margin outlook in the second half?

Yes. We're pleased with the progress, 140 basis points in the quarter, 220 basis points year-to-date. And in the second half, we're progressing. There are some portfolio management activities, including we expect to close the Eurofins E&E acquisition in the fourth quarter. That will have some integration-related expenses. We expect to have some performance-based compensation expenses based on the improvements that we have made in our profitability. And I would say those are the primary differences, taken together with all the other aspects of the business, led us to confirm the outlook.

Great. And then on the CapEx raise, I think, Ryan, you mentioned there was some timing aspects to it. But it sounded like there might also be some additional growth opportunities. Could you talk about kind of what you're seeing on the horizon to drive the higher CapEx there?

Yes. Thank you for asking. We're excited about the new capabilities and capacity that we're adding, and we're funding this with increases in profitability. Foremost, we support our customers and our markets with innovative ways to test new products. And good examples include the Toyota City, Japan high-voltage GMC lab that we just opened last month and also the construction of our large fire lab in Northbrook to support assessing fire risks from new product types.

And as you know, we have a history of generating high returns on invested capital and getting better and better utilization of our locations and our equipment. So even with these investments, our free cash flow and our free cash flow margin has grown. Free cash flow was up 20% on a last 12-month basis and 16% year-to-date. So said simply, our earnings have grown at a faster pace and more than offset the incremental investment.

Some of the products -- or some of the large projects span over year-end, and we're pleased that we have made progress and anticipate spending more against some of those projects in 2026 as we progress in those projects. So that led to the change to 8.5%.

Great. Good luck in the second half.

Our next question is from Andy Wittmann with Robert W. Baird.

I just wanted to understand the quarter a little bit better by asking a little bit about your comments on incentive compensation. And so just going through this, I just noticed a couple of things here. So your stock-based compensation was up a lot year-over-year, $23 million versus $13 million. So that's one form of stock compensation, but that's added back to your adjusted EBITDA. So Ryan, does the increase in incentive compensation move deeper into the organization as a cash cost? And if you could just help us understand the impact to the quarter, could you just quantify how much more of these types of costs that were not excluded were up this year versus last year?

Andy, it's a great question. And one of the things that we're really proud of is our pay-for-performance orientation, both in our annual employee incentive plan and in our multiyear LTIP plan. And that annual, it's an all-employee incentive plan. And so that tends to be more on the cash [ based item ]. And if you go back and look at the proxy last year, we outlined some of the details on that. But Ryan, you can highlight the puts and takes that Andy asked about.

You're right, Andy. It was really changes in expected payouts in 2 different incentive programs. One is the annual bonus plan that Jenny mentioned, the all-employee incentive plan, that reduced operating income as well as adjusted EBITDA, it's not stock-based, so it is not added back. The other are performance stock units that are based on our performance in revenue and operating income. And those increased through the year and led to the primary increase in the add-back for adjusted EBITDA that you pointed out.

So we're pleased with the performance of our employees, is forecasted to earn some additional incentives. And even after accounting for these incentives, our adjusted EBITDA is up 16% in the first half. Our operating income is up 16% in the first half. And our total compensation expense in the first half is up only 2.6%.

So to put that in context, in the quarter, our revenue is up $40 million, our compensation expense is up $11 million with these incentives, which drives higher revenue per employee, higher profit per employee.

Okay. That's helpful. Just one more kind of finer point on that one. Was there a catch-up or an accrual that had to make up for maybe under-accrual in the first quarter here, Ryan? Or is this the run rate that you expect to -- that's embedded in your full year guidance and, therefore, implied in the second half?

Yes. The impact in the second quarter was more than the first quarter, and we would anticipate the quarterly impact going forward to be moderately less than the second quarter. So it was a bigger impact in the second quarter.

Okay. That's helpful. And then you always get asked the questions on price versus volume contributing to the increased organic growth or accelerating organic growth rate. I thought maybe I'd give you a forum to maybe say what you can about that here this quarter what you realize and what you're seeing in the marketplace today, if anything.

Yes. So with the divestiture, we had total revenue growth of 5.2%. Price and volume were meaningful contributors to our revenue growth with volume a bit more impact than price. Our certification testing, we're very proud of the progress, it grew over 10% again in the quarter. And at that level of growth, that was primarily driven by volume.

Our next question comes from Jason Haas with Wells Fargo.

This is Keegan Antico on for Jason Haas. I was wondering if you could break out some of what you're seeing in consumer a little bit more. You saw some really nice sequential improvement here and year-over-year improvement. Can you just unpack that a little bit? Was there anything like onetime-ish in the quarter? And is this mid-single-digit the right run rate going into the second half? Or could it taper off, especially as compares get harder in the fourth quarter?

Thanks, Keegan. And we're really proud of our consumer team and the way in which they're reacting to some pretty healthy market demand and also what we believe are taking share in certain areas. So what we're seeing, of course, is some demand driven by data centers, particularly in areas of the power supplies for those AI racks, those AI-powered chips as well as the servers there. We're also seeing some data center just overall product certification in both of our business lines strengthen.

But additionally, our consumer team, they shed some less profitable revenue through restructuring, and they've strengthened technical capability and our lab capabilities around commercial HVAC and continuing to make investments in higher growth areas. So like I say, we're seeing underlying market growth and share gain, and that's dropping through to both their growth rate and their EBITDA.

Awesome. And just one quick follow-up. We've seen some headlines from some consumer electronic companies that are delaying new product releases from increasing memory costs stemming from AI. Have you seen this play out at all from any sort of softer volumes or anything like that? Or could it have any impact in the second half? Or are you not seeing anything from this?

It's actually just the opposite, because, again, I say this all the time as a former manufacturer, when you see factor input costs increase, one of the very first things you do is try to figure out how do you value-engineer that product and redesign it or change your formulations. And that frequently leads to retesting of that product.

So for us, we're there with our customers as they're reacting to all sorts of various supply chain shifts. And we understand what their new product road maps are. And that visibility has led us to affirm our guidance for the full year.

Our next question comes from George Tong with Goldman Sachs.

Industrial organic revenue growth remained strong at 7%, led by materials and energy and automation. Can you unpack what driving growth within those end markets today and how you're thinking about demand trends for the balance of 2026, particularly around energy infrastructure, electrification, automation and AI-related investments?

Yes. It's -- as we always say, Industrial is just such a great business fueled by the mega trends. And one of the things we're really seeing is strong growth, double-digit growth in data center related power and automation and wire and cable components and products. So there's a lot of power and controls business. It's being driven by energy needs, not just for data centers, but the fact that more energy needs to be generated, transmitted and stored. And that's really what our Industrial business focuses on.

So we continue to believe that the strength that we're seeing in materials space, in the energy space and the industrial automation space is really tied to these mega trends, and those mega trends are affecting us both across U.S. and Greater China and Asia largely.

Got it. That's helpful. And then capital spending stepped up this year as you're investing in laboratory capacity. Can you elaborate on where you're adding the capacity today, which end markets and applications are driving the greatest need for those investments?

Yes. And you'll recall, George, last year, we were on the lower end of our of our CapEx range. And this year, we just raised it to 8.5%. And some of that is timing year-on-year. But really what we're seeing is, given the strength in our business, we can accelerate opportunities around lab modernization and productivity within labs, labs that are going to provide new revenue generation and also labs that give us some operational resilience to ensure we've got coverage across geographies.

So some of the big labs, we opened our Toyota City Japan lab, which is a high-voltage EMC that was opened in June. We continue to make progress on our what we call Fire 2.0, our large-scale fire lab here in Northbrook, Illinois. And that's really a long-term asset that will support assessing fire risks from all types of larger-scale products.

We continue to make investments in EMC around the world as well as energy storage testing around the world. And we continue to see benefits from our retail centers of excellence in consumer and also our appliances and HVAC testing. So it's across the board, and we're being very opportunistic given the benefits that we're seeing from our business growth.

Our next question comes from Seth Weber with BNP Paribas.

This is Christina on for Seth. So now that this is the first quarter for Risk & Compliance Software that's under the new structure with EHS out and Advisory was fully moved into Industrial last quarter, is what we're seeing this quarter kind of the right base for growth and margin going forward? I remember last quarter, it was kind of mentioned that the divested piece was going to be -- was slower growing. So I was curious if this is showing up the way that you guys expected.

Yes. And it is. So I think the focus of having our ULTRUS platform really strategically connected to product trust, the product testing, inspection and certification needs that our customers have, eliminating a lower-growth business that really didn't have that connection to the product tech business. There weren't cross-sell opportunities. There wasn't really a lot of benefit to be on the ULTRUS platform.

So the ULTRUS team is really focused. They're focused on where we've got a networked user model. They're focused on where our customers need product stewardship and product sustainability. And they're focused on where there are regulatory requirements that are rapidly changing.

So the 4.8% organic growth that we saw and the progression on EBITDA is good, but we need them to continue to accelerate. And those are our expectations with this focus.

I would just add to that, that the EHS software business that we sold, you saw in the second quarter of last year, produced $14 million in revenue. That business had similar revenue per quarter. So you would expect approximately that amount reduced in the coming quarters from what we reported last year, and that our margin performance, even with the divestiture, we think would be fairly consistent with our full year margin performance last year.

On a margin rate, just to be clear. On an adjusted EBITDA margin rate.

Our next question comes from Andrew Nicholas with William Blair.

I wanted to circle back to the CapEx discussion, and I appreciate all the color on where you're spending a little bit more dollars this year. Can you maybe speak to it on more of a medium-term basis? Should we expect similar levels of CapEx intensity in '27 and '28 just based on all the opportunities that you see in front of you? Or is this concentrated in kind of this quarter and in the back half of '26?

Yes. As a reminder, last year, we did about 6.5% of revenue. This year, we've spoken to the outlook of about 8.5%. And some of that is timing, both things that we started last year and finished this year and the timing of things that we started this year progressing very well.

I would say it's likely that we're going to be in that range for the foreseeable future for a few years. It is really based on the needs of our customers and the emerging technologies. As an example, the lab that we just opened in Japan is designed to support new technologies of high-RPM and high-voltage electrical motors for automobiles, just a technology that didn't exist previously. So it's really dependent on the needs of the customers and the emerging technologies that need to be tested.

Yes. But Andrew, what I want to emphasize is, for us, these are things that we have control over. We can make the decisions around what those CapEx levels are. Our actual maintenance CapEx is low single digits. And so we don't expect to come off of that long-term guidance that we've given in the past of 6% to 8%. This is just an anomaly this year, and we'll look at next year and give that guidance when we report Q4 and look into 2027.

Perfect. And then for my follow-up, I wanted to ask on consumer EBITDA margin. It sounds like some of the benefit on a year-over-year basis is tied to the restructuring and favorable business mix. But I was hoping you could maybe speak a little bit more to the efficiency improvements. And just a point of clarification, is consumer also going against maybe a more elevated incentive comp number this quarter that we would expect to moderate some? Or is that kind of catch-up dynamic specific to Industrial?

Yes. On the second question, Consumer would have a similar dynamic to Industrial as far as performance-based incentive comp. They are performing well this year. And overall, as you mentioned, that business mix favorability, shutting lower-growth, lower-margin Consumer businesses and focusing our teams on these new opportunities is important. We are seeing an uptick in ongoing certification in Consumer as well. And so that will continue to drive some of their longer-term margin durability.

Our next question comes from Arthur Truslove with Citi.

The first question I have is around the SG&A expenses. So year-on-year, they're up $244 million to $267 million in the quarter. And I think if I remember correctly, about $11 million of that was staff compensation. So I was just wondering if you could explain what the rest of it was.

And second question, I guess, sort of organic growth-wise. Obviously, in Q2, accelerated in Consumer, decelerated a bit in Industrial. Are you expecting comparable trends in both of those divisions as we progress into H2? Or is there anything in the comparators that might lead us to a different conclusion for either Q3 or Q4?

Yes, I'll take the second part and then let Ryan take the first on SG&A. But Arthur, we've got nice visibility into end markets and customer demands. And so we're feeling that the second half of revenue growth will reflect the trends that we've seen in the first half.

And then in regard to SG&A., so yes, in the second quarter, our SG&A increased $23 million, which is a change from Q1 when SG&A only increased $11 million. The main drivers of the change are the performance-based compensation items we mentioned, which increased $13 million year-over-year on an organic basis from both the performance share units and the annual all-employee incentive plan.

We also disclosed, you can see that our stock-based compensation increased $10 million in the quarter. And the largest factor in this increase was just based on performance related to our consolidated revenue and our consolidated operating income through the life of the program.

In addition to that, there were some growth in services and materials and professional fees, which grew $7 million on an organic basis. This was due in part to the volume of activities and support on outside projects, including M&A.

So right. Forgive me to just clarify, but it's $10 million of it to do with stock, $13 million for incentives, is that additive from the number, the $11 million that's compensation? Are they separate?

No, that's part of it. That is a part of it. Yes. That's a subsection of it.

But the stock bit, $10 million, the compensation $11 million, are they -- is $10 million out of the $11 million compensation stock, or is it separate?

It is -- so overall, our performance-based compensation grew $13 million on an organic basis. And of that, $10 million was stock-based compensation.

And Arthur, there's some other puts and takes. Our headcount is down. And so there is an overall reduction in salary expense as you look at our employee compensation.

Yes. And when you -- if you're trying to peel apart like underlying expense run rate, we're very pleased with the progress in cost of revenue management, which increased only 1.3% in the quarter. And that is with some costs associated with this all-employee incentive plan.

Okay. So essentially, of the $23 million, $13 million was incentives in total, $11 million was compensation. And then I guess there's another $12 million as well, in addition, I just wondered what that was.

So within SG&A overall, professional fees were about $7 million on an organic basis, as an increase.

Okay. Was that related to any sort of M&A or anything like that?

M&A was a contributor, as well as some of the projects we have underway that led to increases in professional services.

Our next question comes from Andrew Steinerman with JPMorgan.

Ryan, it's Andrew. Could you just go over that timing of the 1% revenue drag from the previously announced restructured business exit? Is that about 1% drag each quarter of '26 [indiscernible]? And will that be behind the company as we enter '27?

It was a bit more in the second quarter than the first quarter. It was about $6 million in the second quarter, about $5 million in the first quarter. So absent that, our organic revenue growth would have been about 80 basis points higher in the quarter, almost all of it is Consumer. So that would have been about 170 basis points higher.

We were winding down some of those businesses in the first quarter. And they were done by the end of the first quarter. So it essentially will be completely done and not comparable by the end of calendar 2026.

But the second half will be a little more than the first half because of the way that the timing of some of those exits ran through the first quarter and bled a little bit into the beginning in the second quarter.

Our next question comes from Curtis Nagle with Bank of America.

Sure. Just a quick one for me. Just maybe the puts and takes -- sorry, the Industrial growth for 2Q decel just a little bit. So the areas of maybe strength versus if you saw a pullback in -- particularly in vertical. But just disaggregating that growth versus being a little stronger in 1Q on similar comps.

Right. With similar comps, Industrial has seen some real strength in all of the traditional TIC business, built environments, our power and controls, wire and cable, engineered materials. The Advisory business, and again, we've recast, so it's a comparable basis, but our Advisory business, which has a significant exposure to solar and wind in the United States, has seen some headwinds. And so outside of our traditional TIC businesses, that's been a bit of a drag on growth.

Presumably that should continue into the second half of the year?

Presumably, Advisory, again, as we've always said, it's more cyclical and can have a couple of projects can swing it one way or another. So we're expecting that what we're seeing will continue to lead to the guidance that we've affirmed for the full year.

[Operator Instructions] Our next question comes from Shlomo Rosenbaum with Stifel.

Can you talk a little bit more about the CapEx increase? I know you talked about some of it as just timing and some of it is acceleration. In particular, can you talk of areas where you've seen the most opportunity and you've decided that it makes sense for you to accelerate some of your investments? Like can you just give us [indiscernible] to what some of those things are and where you see that impacting your revenue? Why is it a good time right now to be accelerating those investments?

Yes. I think a great example is in our Consumer business and -- which is where we've got appliances, HVAC, lighting. And we've been very deliberate in recent years of adding a new lab in Plano, Texas a few years ago and then rounding out equipment and expansion as we're seeing customer demand. Similarly, over in Milan, Italy, we've done the same. And that's really benefited our ability, we believe, to take share in areas that are being driven by AI data centers and the equipment that's needed for the cooling and chilling there.

Similarly, on the Industrial side, we continue to see energy storage systems and the needs, not just for battery safety, but also for quality and performance testing. And that's where in the past we had invested over in Asia as well as in Europe, and we're seeing the benefits of that capacity increase also allowing us to grow at a rate that we believe is faster than the market.

So our teams, I would say there's no shortage of great ideas and great opportunities. We can be the accelerator or the governor on the speed of that, and feel like right now, given the pace of investments that are going into this new compute environment, this new AI infrastructure, as well as the other mega trends around energy transition and the needs for energy storage, we're going to continue to keep up with it in the right way.

Okay. Great. And then maybe this is one for Ryan. Just going back to the compensation incentive compensation, obviously, in a business that's really a people-driven business, it's very important to make sure your people are compensated properly with incentive comp. Wanted to just ask how that works when we roll forward into 2027, is that -- like the bar has risen by x amount? And now in order for you to have kind of a catch up again in the middle of the year or something like that, you'd need to have a further outperformance in order for that to end up with something like where you had kind of a somewhat of a decline year-over-year in Industrial? And maybe you could just talk about that philosophically, about how you guys are approaching that and balancing the need to make sure employees are getting compensated appropriately with the growth, with the need to show the margin expansion or the desire to show that in the public markets.

Yes, Shlomo, it's a great question, and I'll let Ryan go into the details. But it's something that our Board, our Human Capital and Compensation Committee, pays close attention to. So we look at what we believe the 3-year long-range plan is as we set the long-term incentive plan, which is around cumulative revenue and operating income. And then annually, they set both the targets and the shoulders on the all-employee incentive plan based on adjusted EBITDA and revenue and what we project and forecast our goals for the following year are. So that's where the puts and takes come from. Ryan can talk about how that plays out next year when we have to lap this year.

So thank you for the question. So I'll just start with the annual all-employee incentive plan. And I did mention the second quarter was a bit more than the first quarter, so probably to put it in context, for the first 6 months, even with those incremental expenses, our margins are up 220 basis points. So we do strive to seek a balance in that. So if we're recording more expense that will go through the end of the calendar year, it's paid out in the first quarter of next year. And on a comparative basis, next year, if we are on next year's plan, it likely would be lower than the amount that we recorded this year.

And then on the performance stock units, as Jenny mentioned, those are based on a 3-year performance period. They're based on revenue and operating income. So there are targets that are set for those. There's a new series that's issued each year, so they lap over 3 years. This is our third year as a public company. So one reason why the expense is a bit more is our 3 series now as opposed to 2 series previously, and the performance has been very strong. So we increased our estimated payout of that.

In all of these incentives, if the performance is not there, we will reduce the accrual in the expense. And so it acts as a buffer both ways. It also protects shareholders. If there's underperformance, there's, of course, lower incentive pay.

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

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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.