UL Solutions Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Full Year 2024: Delivered $2.9 billion in revenues, up 7.2% vs 2023 and 8.7% organic. Adjusted EBITDA grew 16.5%, margin expanded 190 basis points. Generated $287 million free cash flow.
• Acquisitions and Labs: Completed IPO in April, follow-on offering in September. Acquired BatterieIngenieure and hydrogen TesTneT. Opened battery testing lab in Auburn Hills, expanded Mexico lab, and announced Korea automotive/battery testing center.
• Capital Allocation: Reinvested $237 million in CapEx, paid down $166 million of borrowings, and paid $100 million in dividends.

Segment Performance

• Industrial: Revenues rose 11.6% to $328 million, with 13.9% organic growth. Adjusted EBITDA increased 32.9% to $105 million, and margin improved to 32.0%.
• Consumer: Revenues were $309 million, up 5.5% or 6.5% on an organic basis. Adjusted EBITDA was $49 million, up 25.0%, with a margin of 14.6%.
• Software & Advisory: Revenues were $102 million, up 5.2% on an organic basis. Adjusted EBITDA was $19 million, up 5.6%, with a margin of 18.6%.

Guidance

• 2025 consolidated organic revenue growth expected in mid-single digits.
• Adjusted EBITDA margin targeted at approximately 24%.
• CapEx expected to be 7%-8% of revenue.
• Effective tax rate estimated at ~26% in 2025, down from 16.9% in 2024 due to OECD Pillar 2 provisions.

Risks

• FX headwinds: Current forward rates imply ~1% headwind on reported revenue in 2025.
• Potential pull forward of ongoing certification services: May impact growth in 2025.
• Challenging comps in the second half of 2025.

Q: Comment on 2025 outlook by each segment A: Ryan Robinson said they see opportunity in each segment, with Industrial continuing on strong trends, Consumer making progress, and Software & Advisory showing progress on the software side.

Q: Comment on comparison versus 2024 in Industrial, especially ongoing certification services A: Jenny Scanlon noted Industrial has seven consecutive quarters of double-digit growth driven by megatrends. Ryan Robinson mentioned ongoing certification services saw a pickup in Q4 2024, possibly due to tariff anticipation, but expects normalization in 2025 Q: Impact of higher tariffs on the business A: Jenny Scanlon said tariffs historically haven't had material impact, but customers shifting supply chains, raw materials, etc., often require retesting, driving revenue Q: Margin guide for 2025 and beyond A: Ryan Robinson said they aim for ~24% margin in 2025, moving towards longer-term targets of greater than 24%, with opportunities in all segments to grow from there Q: FX headwind impact on margins A: Ryan Robinson said current forward rates imply ~1% headwind, but mostly offset by translated expense reductions. Consumer segment more susceptible to FX changes Q: Demand for battery labs and CapEx plans A: Jenny Scanlon said battery testing business is doing well due to global energy transition, electrification of everything, and AI data center growth. CapEx is 7%-8% of revenue as they invest where returns are attractive