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

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Q2 and H1 2025 and 2024, including Statements of Operations, Balance Sheets, and Cash Flows, with accompanying notes Condensed Consolidated Statements of Operations Q2 2025 revenue grew to $776 million with operating income at $139 million, though net income decreased to $91 million; H1 2025 revenue reached $1,481 million with stable net income Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $776 | $730 | $1,481 | $1,400 | | Operating Income | $139 | $126 | $248 | $217 | | Net Income Attributable to Stockholders | $91 | $101 | $158 | $157 | | Diluted EPS | $0.45 | $0.50 | $0.78 | $0.78 | Condensed Consolidated Balance Sheets As of June 30, 2025, total assets increased to $2,922 million, total liabilities decreased to $1,809 million, and stockholders' equity grew to $1,113 million Balance Sheet Summary (in millions) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,922 | $2,800 | | Cash and cash equivalents | $272 | $298 | | Goodwill | $656 | $633 | | Total Liabilities | $1,809 | $1,869 | | Long-term debt | $608 | $692 | | Total Stockholders' Equity | $1,113 | $931 | Condensed Consolidated Statements of Cash Flows H1 2025 net cash from operating activities increased to $301 million, while investing and financing activities used $107 million and $221 million respectively, resulting in a $26 million net cash decrease Cash Flow Summary - Six Months Ended June 30 (in millions) | Cash Flow Activity | 2025 | 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 and cash equivalents | $(26) | $(20) | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, revenue, M&A, segment data, and income taxes, highlighting two German acquisitions, a business divestiture, and an increased effective tax rate due to Pillar Two rules Revenue by Service Category - Six Months Ended June 30 (in millions) | Service Category | 2025 | 2024 | | :--- | :--- | :--- | | Certification Testing | $404 | $379 | | Ongoing Certification Services | $495 | $467 | | Non-certification Testing and Other Services | $444 | $419 | | Software | $138 | $135 | | Total | $1,481 | $1,400 | - In 2024, the company completed two acquisitions in Germany: TesTneT Engineering GmbH for $19 million and BatterieIngenieure GmbH for $12 million, both integrated into the Industrial segment[34][35] - In May 2024, the company sold its payments testing business for $29 million, resulting in a pre-tax gain of $24 million[37] - The effective tax rate for H1 2025 was 23.3%, up from 19.8% in H1 2024, primarily due to the impact of the Qualified Domestic Minimum Top-up Tax under Pillar Two rules[48][100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2025 revenue growth of 6.3% driven by 5.5% organic growth, detailing segment performance, cost changes, non-GAAP measures like Adjusted EBITDA, liquidity, and M&A activities Results of Operations Q2 2025 revenue grew 6.3% to $776 million with 5.5% organic growth, while H1 2025 revenue increased 5.8% to $1,481 million, with operating income rising but Q2 net income impacted by a prior-year divestiture gain Q2 2025 Revenue Change Analysis (in millions) | Component | Amount | % of Prior Period Revenue | | :--- | :--- | :--- | | Organic Growth | $40 | 5.5% | | Acquisition / Divestiture | $(1) | (0.1)% | | FX Impact | $7 | 1.0% | | Total Change | $46 | 6.3% | H1 2025 Revenue Change Analysis (in millions) | Component | Amount | % of Prior Period Revenue | | :--- | :--- | :--- | | Organic Growth | $91 | 6.5% | | Acquisition / Divestiture | $(8) | (0.6)% | | FX Impact | $(2) | (0.1)% | | Total Change | $81 | 5.8% | - Q2 2025 Other (expense) income, net decreased by $25 million compared to Q2 2024, due to a $25 million gain on the divestiture of the payments testing business in the prior year period[88] Segment Analysis All segments reported H1 2025 revenue growth, with Industrial up 6.1% to $646 million, Consumer up 5.9% to $644 million, and Software and Advisory up 4.4% to $191 million, though the latter's operating income declined Segment Performance - Six Months Ended June 30, 2025 (in millions) | Segment | Revenue | % Change YoY | Operating Income | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Industrial | $646 | 6.1% | $181 | 13.1% | | Consumer | $644 | 5.9% | $66 | 20.0% | | Software and Advisory | $191 | 4.4% | $1 | (50.0)% | - Industrial segment growth was driven by Ongoing Certification Services and demand for energy and automation testing[107][108] - Consumer segment growth was primarily due to increased demand for electromagnetic compatibility testing for consumer electronics[114] Non-GAAP Financial Measures H1 2025 Adjusted EBITDA increased to $358 million with a 24.2% margin, Adjusted Net Income grew to $190 million, and Adjusted Diluted EPS rose to $0.89, reflecting strong operational performance Reconciliation of Net Income to Adjusted EBITDA (in millions) | | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $97 | $106 | $168 | $166 | | Depreciation & Amortization | $46 | $41 | $91 | $82 | | Interest Expense | $10 | $13 | $22 | $28 | | Other (expense) income, net | $4 | $(21) | $7 | $(18) | | Income Tax Expense | $28 | $28 | $51 | $41 | | Stock-based compensation | $13 | $6 | $21 | $6 | | Adjusted EBITDA | $197 | $173 | $358 | $304 | | Adjusted EBITDA Margin | 25.4% | 23.7% | 24.2% | 21.7% | - Free Cash Flow for the six months ended June 30, 2025, was $208 million, a significant increase from $131 million in the same period of 2024[141] Liquidity and Capital Resources The company maintains strong liquidity with $272 million cash, $745 million credit facility availability, and increased H1 2025 operating cash flow to $301 million, also raising its quarterly dividend to 13 cents per share - As of June 30, 2025, the company had $272 million in cash and cash equivalents and $745 million of unused availability under its Credit Facility[145] - Net cash provided by operating activities increased to $301 million for H1 2025, up from $244 million in H1 2024, driven by higher net income after non-cash adjustments[147] - The company increased its regular quarterly dividend to 13 cents per share in Q1 2025, paying a total of $52 million to stockholders in H1 2025[154][155] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations on its variable-rate credit facility and foreign currency exchange rate volatility, with a 100 basis point interest rate change impacting annual expense by $3 million - The company is exposed to interest rate risk on its Credit Facility, which carries variable interest rates based on Term SOFR[168] - A hypothetical 100 basis point change in interest rates would result in an approximate $3 million change to annual interest expense based on borrowings at June 30, 2025[170] - The company has foreign currency risk related to revenues and expenses denominated in currencies other than the U.S. dollar, primarily the Japanese yen, Chinese renminbi, New Taiwan dollar, and the euro[171] Controls and Procedures As of June 30, 2025, the CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[174] - No material changes to the company's internal control over financial reporting occurred during the quarter ended June 30, 2025[175] PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal claims and litigation, with management expecting no material impact on its financial position, results, or cash flows - The company is party to certain claims and litigation in the ordinary course of business, which are not expected to have a material impact on its financial condition[57][177] Risk Factors No material changes have occurred to the company's risk factors as previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024 have occurred[177] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, CEO and CFO certifications under Sarbanes-Oxley, and iXBRL formatted financial data - Key exhibits filed include certifications from the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[180]