UL Solutions Inc.(ULS) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Financial Highlights UL Solutions reported strong Q2 2025 revenue and Adjusted EBITDA growth, with GAAP Net Income declining due to a prior-year divestiture gain Overall Performance UL Solutions achieved strong Q2 2025 revenue and Adjusted EBITDA growth, with revenue up 6.3% to $776 million and Adjusted EBITDA up 13.9% to $197 million, despite an 8.5% GAAP Net Income decrease Q2 2025 Key Financial Metrics (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $776M | $730M | +$46M | +6.3% | | Organic Revenue Growth | 5.5% | N/A | N/A | N/A | | Net Income | $97M | $106M | -$9M | -8.5% | | Net Income Margin | 12.5% | 14.5% | -200 bps | N/A | | Adjusted Net Income | $110M | $94M | +$16M | +17.0% | | Adjusted EBITDA | $197M | $173M | +$24M | +13.9% | | Adjusted EBITDA Margin | 25.4% | 23.7% | +170 bps | N/A | | Diluted EPS | $0.45 | $0.50 | -$0.05 | -10.0% | | Adjusted Diluted EPS | $0.52 | $0.44 | +$0.08 | +18.2% | - Management attributes the record second-quarter revenue to the company's resilient business model, strategic positioning in high-growth markets, and strong execution across all segments[2] - The decrease in GAAP Net Income was primarily caused by a $25 million non-operating gain on the divestiture of the payments testing business in May 2024, which was absent in Q2 2025[4] Segment Performance The Industrial segment led growth with a 7.6% revenue increase, while Consumer and Software & Advisory segments also showed solid revenue gains Industrial Segment The Industrial segment drove growth with a 7.6% revenue increase to $338 million and a 20.6% rise in Adjusted EBITDA to $117 million, expanding its margin to 34.6% Industrial Segment Q2 2025 Performance (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $338M | $314M | +7.6% | | Organic Revenue Growth | 7.0% | N/A | N/A | | Operating Income | $98M | $85M | +15.3% | | Operating Income Margin | 29.0% | 27.1% | +190 bps | | Adjusted EBITDA | $117M | $97M | +20.6% | | Adjusted EBITDA Margin | 34.6% | 30.9% | +370 bps | - Growth drivers included price increases, sustained demand for energy and automation testing, and expanded laboratory capacity[7][9] Consumer Segment The Consumer segment achieved a 5.6% revenue increase to $340 million and 6.6% Adjusted EBITDA growth to $65 million, with a slight margin improvement to 19.1% Consumer Segment Q2 2025 Performance (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $340M | $322M | +5.6% | | Organic Revenue Growth | 4.7% | N/A | N/A | | Operating Income | $40M | $38M | +5.3% | | Operating Income Margin | 11.8% | 11.8% | 0 bps | | Adjusted EBITDA | $65M | $61M | +6.6% | | Adjusted EBITDA Margin | 19.1% | 18.9% | +20 bps | - Revenue growth was primarily driven by the consumer technology and retail sectors[10] Software and Advisory Segment The Software and Advisory segment saw 4.3% revenue growth to $98 million, but Adjusted EBITDA remained flat at $15 million, with margin contracting to 15.3% due to higher compensation expenses Software and Advisory Segment Q2 2025 Performance (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $98M | $94M | +4.3% | | Organic Revenue Growth | 3.2% | N/A | N/A | | Operating Income | $1M | $3M | -66.7% | | Operating Income Margin | 1.0% | 3.2% | -220 bps | | Adjusted EBITDA | $15M | $15M | 0.0% | | Adjusted EBITDA Margin | 15.3% | 16.0% | -70 bps | - Adjusted EBITDA was flat and margins decreased due to higher employee compensation expense relative to revenue growth[11] Financial Position and Cash Flow The company demonstrated strong liquidity with increased operating cash flow and free cash flow, while reducing total debt and maintaining a healthy cash balance Liquidity and Capital Resources The company achieved strong H1 2025 liquidity, with net cash from operations increasing to $301 million and Free Cash Flow rising to $208 million, alongside debt reduction and dividend payments Cash Flow for Six Months Ended June 30 (in millions) | Metric | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $301 | $244 | +$57 | | Capital Expenditures | ($93) | ($113) | +$20 | | Free Cash Flow | $208 | $131 | +$77 | - The company paid a dividend of $0.13 per share, totaling $26 million, during the second quarter[14] - Total debt decreased to $612 million as of June 30, 2025, following $135 million of net repayments on its term loan and revolving credit facility[14] - The company ended the quarter with $272 million in cash and cash equivalents[15] Business Outlook UL Solutions affirmed its full-year 2025 guidance, projecting mid-single-digit organic revenue growth and an Adjusted EBITDA margin of approximately 24% Full-Year 2025 Outlook UL Solutions affirmed its full-year 2025 guidance, projecting mid-single-digit organic revenue growth and an Adjusted EBITDA margin of approximately 24%, alongside planned capital expenditures and continued acquisitions - The company affirmed its full-year 2025 outlook, including: - Mid single digit constant currency organic revenue growth - Adjusted EBITDA margin organic improvement to approximately 24% - Capital expenditures expected to be 7% to 8% of revenue - Effective tax rate estimated to be approximately 26% - Continuing to pursue acquisitions and portfolio refinements[16][17] - The company does not provide guidance for net income margin, the most comparable GAAP measure to Adjusted EBITDA margin, due to the unavailability of reliable estimates for certain reconciling items[18] Financial Statements and Reconciliations This section presents detailed financial statements, including condensed consolidated statements of operations, balance sheets, cash flows, and supplemental reconciliations of GAAP to non-GAAP measures Condensed Consolidated Statements of Operations The income statement for Q2 2025 shows a 6.3% revenue increase, but net income decreased from $106 million to $97 million year-over-year, impacted by 'Other (expense) income, net' Q2 Statement of Operations Highlights (in millions) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenue | $776 | $730 | | Operating Income | $139 | $126 | | Other (expense) income, net | ($4) | $21 | | Net Income | $97 | $106 | Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2025, shows total assets of $2.92 billion and total liabilities of $1.81 billion, with a decrease in long-term debt from year-end 2024 Balance Sheet Highlights (in millions) | Line Item | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $272 | $298 | | Total Assets | $2,922 | $2,800 | | Long-term debt | $608 | $692 | | Total Liabilities | $1,809 | $1,869 | | Total Stockholders' Equity | $1,113 | $931 | Condensed Consolidated Statements of Cash Flows For H1 2025, net cash from operating activities increased to $301 million, while cash used in financing activities rose due to higher net debt repayments Six-Month Cash Flow Highlights (in millions) | Line Item | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $301 | $244 | | Net cash used in investing activities | ($107) | ($93) | | Net cash used in financing activities | ($221) | ($159) | | Net decrease in cash | ($26) | ($20) | Supplemental Financial Information and Reconciliations This section details Q2 2025 revenue by service category, with Ongoing Certification Services as the largest, and provides reconciliations of GAAP to non-GAAP measures like Adjusted EBITDA and Adjusted Net Income Q2 2025 Revenue by Major Service Category (in millions) | Service Category | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Certification Testing | $215 | $203 | | Ongoing Certification Services | $250 | $234 | | Non-certification Testing and Other Services | $241 | $225 | | Software | $70 | $68 | | Total | $776 | $730 | Q2 2025 Reconciliation of Net Income to Adjusted EBITDA (in millions) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net income | $97 | $106 | | Depreciation and amortization | $46 | $41 | | Interest expense | $10 | $13 | | Other expense (income), net | $4 | ($21) | | Income tax expense | $28 | $28 | | Stock-based compensation | $13 | $6 | | Adjusted EBITDA | $197 | $173 | H1 2025 Reconciliation of Operating Cash Flow to Free Cash Flow (in millions) | Line Item | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $301 | $244 | | Capital expenditures | ($93) | ($113) | | Free Cash Flow | $208 | $131 |