Executive Summary / Key Takeaways

• UL Solutions, a global safety science leader with a 130-year history, is strategically leveraging its trusted brand and technical expertise to capitalize on major megatrends like the global energy transition, electrification, and digitalization.
• The company demonstrated strong financial performance in Q1 2025, with revenue growing 5.2% (7.6% organic) to $705 million and Adjusted EBITDA margin expanding significantly to 22.8% from 19.6% in the prior year period, driven by operating leverage and favorable segment mix.
• Targeted investments in specialized testing capacity (e.g., batteries, HVAC, EMC) and the ULTRUS software platform provide quantifiable competitive advantages, enabling faster market access and enhanced sustainability compliance for customers.
• Management guides for continued mid-single-digit organic revenue growth and further Adjusted EBITDA margin expansion to approximately 24% in 2025, supported by ongoing strategic initiatives and productivity gains.
• While facing foreign exchange headwinds and competitive pressures from global TIC players, ULS's integrated service model, brand recognition, and focused capital allocation position it for continued growth in high-demand safety and sustainability markets.

A Legacy Forged in Safety, Focused on the Future

UL Solutions Inc. stands as a venerable institution in the realm of safety science, tracing its origins back to 1894. For over a century, the company, formerly known as UL Inc., has built a reputation as a global leader in independent third-party testing, inspection, and certification (TIC) services. This deep history and the trust associated with its iconic UL Mark form the bedrock of its business model, which has evolved to include related software and advisory (SA) offerings. The company's transition to a public entity in 2024 marked a pivotal moment, bringing increased visibility and a sharpened focus on delivering shareholder value while maintaining its mission-driven approach.

The company operates through three distinct segments: Industrial, Consumer, and Software and Advisory. This structure allows ULS to address diverse market needs, from ensuring the safety and performance of industrial equipment and energy systems to certifying consumer electronics and providing software solutions for regulatory compliance and sustainability reporting. This integrated approach, combining physical testing with digital tools and expert advice, is central to its strategy.

The TIC industry is characterized by significant global players like SGS (SGSNY), Bureau Veritas (BVRDF), Intertek (ITRKF), and Eurofins Scientific (ERFSF). While these competitors offer overlapping services, ULS differentiates itself through its specialized technical expertise, particularly in safety science, its widely recognized certification marks, and its strategic investments in technology. ULS's brand and extensive global network provide a competitive moat, translating into pricing power and a significant portion of recurring revenue. Its integrated service model, combining testing with software and advisory, aims to offer customers a more streamlined and efficient path to market and compliance compared to rivals who may offer more siloed services. However, ULS faces competitive pressures related to cost structures and the need for continuous investment to keep pace with technological advancements across various industries.

Technological Edge and Strategic Investments

At the heart of UL Solutions' competitive strategy is its continuous investment in specialized testing capabilities and its proprietary software platform, ULTRUS. The company is actively expanding its laboratory footprint and upgrading equipment to meet the demands of rapidly evolving technologies driven by global megatrends.

Recent capital expenditures highlight this focus. Investments include state-of-the-art battery testing labs in strategic locations like Auburn Hills, Michigan, Korea, and Aachen, Germany. These facilities are purpose-built to evaluate batteries for electric vehicles (EVs), energy storage systems, and even industrial applications like those needed for AI data centers, addressing critical safety concerns like thermal runaway. The company is also developing advanced automotive electromagnetic compatibility (EMC) laboratories in Japan to test complex vehicle electronics and expanding HVAC testing facilities in Italy and Texas to address the surging demand for heat pumps using environmentally friendly refrigerants. Furthermore, investments in labs in China support the growing need for testing wireless and connected products and retail goods.

Beyond physical infrastructure, ULS is leveraging its ULTRUS software platform. This platform is designed to help customers manage complex regulatory requirements, enhance supply chain transparency, and operationalize sustainability initiatives. Management commentary indicates that this software is seeing strong demand, particularly for retail product compliance and ESG data management. The strategic intent behind ULTRUS is to extend the value proposition of ULS's TIC services, offering quantifiable benefits like potentially faster processing for regulatory compliance and improved supply chain visibility compared to less integrated solutions offered by some competitors. While specific, comprehensive quantitative metrics comparing ULTRUS's performance against all competitor software platforms were not detailed, the focus on areas like ESG reporting and retail compliance suggests targeting specific pain points for customers navigating increasingly complex global requirements.

These strategic investments in both physical and digital capabilities are crucial for ULS to maintain its technical leadership and capitalize on the growth opportunities presented by the energy transition, electrification, and digitalization trends. They reinforce the company's competitive position against broader TIC players by offering specialized, high-value services aligned with future market needs.

Performance Reflecting Strategic Alignment

UL Solutions' recent financial performance underscores the effectiveness of its strategy and investments. For the three months ended March 31, 2025, the company reported total revenue of $705 million, a 5.2% increase compared to $670 million in the same period of 2024. This growth was particularly strong on an organic basis, increasing by 7.6% ($51 million), demonstrating healthy underlying business momentum across all segments. Foreign exchange fluctuations presented a headwind, decreasing revenue by $9 million, while the divestiture of the payments testing business also reduced revenue by $7 million.

Profitability saw significant improvement. Operating income rose to $109 million in Q1 2025 from $91 million in Q1 2024, expanding the operating income margin to 15.5% from 13.6%. Adjusted EBITDA, a key profitability metric for the company, increased to $161 million from $131 million, resulting in an Adjusted EBITDA margin of 22.8% compared to 19.6% in the prior year period. This margin expansion was attributed to operating leverage from top-line growth, a favorable segment mix (with strong performance in the higher-margin Industrial segment), and ongoing productivity initiatives.

Segment performance highlights the drivers of this growth. The Industrial segment saw revenue increase by 4.4% (8.1% organic) to $308 million, with Adjusted EBITDA margin reaching 32.5%. Growth was propelled by ongoing certification services and certification testing, benefiting from price increases and demand in areas like electrical products and energy. The Consumer segment grew revenue by 6.3% (7.7% organic) to $304 million, with Adjusted EBITDA margin improving to 15.8%. This segment saw strong demand in non-certification testing for consumer technology and retail. The Software and Advisory segment's revenue increased by 4.5% (5.6% organic) to $93 million, with Adjusted EBITDA margin at 14.0%, driven by software demand, particularly in retail product compliance and sustainability solutions.

Cash flow generation remained robust. Net cash provided by operating activities was $154 million for the first three months of 2025, an increase from $141 million in the prior year period, driven by higher net income and employee stock purchase plan contributions. Free Cash Flow, defined as operating cash flow less capital expenditures, was $103 million, up from $84 million. This strong cash generation supports the company's capital allocation strategy, which includes reinvesting in the business, pursuing accretive acquisitions, and returning capital to shareholders through dividends. The company increased its regular quarterly dividend to $0.13 per share in Q1 2025.

Outlook and Future Trajectory

Looking ahead, UL Solutions' management anticipates continued momentum. The initial full-year 2025 outlook projects consolidated organic revenue growth in the mid-single digits. This forecast reflects confidence in the durability of demand driven by the aforementioned megatrends and the company's ability to capture market share. While this represents a moderation from the high organic growth rates seen in 2024, it is positioned as a strong performance following a period of accelerated growth.

Management expects to achieve further Adjusted EBITDA margin expansion, targeting approximately 24% for the full year 2025. This is in line with the longer-term targets communicated at the time of the IPO and is expected to be driven by continued operating leverage from revenue growth, a favorable segment mix as Industrial continues to perform strongly, and ongoing productivity improvements.

Capital expenditures are projected to be approximately 7% to 8% of revenue in 2025. This level, while slightly lower as a percentage of revenue than in 2024, remains above the company's historical average and signals a continued commitment to investing in capacity and capabilities to support future growth. The effective tax rate is expected to increase to approximately 26% in 2025, primarily due to the implementation of OECD Pillar Two rules and the non-recurrence of a tax reserve release that benefited the 2024 rate.

The company acknowledges that comparisons will become more challenging in the second half of 2025. Seasonality also plays a role, with the first quarter typically being the weakest in terms of revenue and profitability due to factors like the Lunar New Year holiday.

Risks and Considerations

While the outlook is positive, investors should consider potential risks. Foreign currency fluctuations, particularly the weakness of currencies like the euro, Korean won, Japanese yen, and Chinese renminbi, can impact reported results. The company is also exposed to interest rate risk on its variable-rate debt, although this is currently not considered material to liquidity.

Competition in the TIC industry is intense, and while ULS benefits from its brand and specialized services, it must continuously innovate and manage costs to maintain its competitive edge against global players and potentially disruptive technologies like AI-driven testing solutions. Regulatory changes could also impact demand for certain services. Operational risks include the ability to attract and retain skilled personnel and manage a complex global network of laboratories. The company is also subject to legal proceedings, such as the lawsuit against Fly-E Group (FLYE) for alleged counterfeiting of the UL Mark, highlighting the importance of protecting its brand integrity.

Geopolitical factors, particularly related to operations in China and the relationship between the U.S. and China, also pose potential risks. However, management has noted that historically, tariffs have not had a material negative impact, sometimes even driving demand for retesting as supply chains shift.

Conclusion

UL Solutions is a company undergoing a strategic evolution, leveraging its deep historical roots and trusted brand to capitalize on the transformative megatrends shaping the global economy. Its recent financial performance, marked by strong organic growth and significant margin expansion, demonstrates the successful execution of its strategy to align its TIC and SA offerings with high-demand areas like the energy transition and digitalization.

The company's commitment to investing in specialized testing capacity and its ULTRUS software platform provides tangible competitive advantages, enabling it to serve customers navigating increasingly complex safety, performance, and sustainability requirements. While facing macroeconomic headwinds like foreign exchange volatility and navigating a competitive landscape, ULS's disciplined capital allocation, robust cash flow generation, and clear strategic focus position it for continued growth and profitability improvement, making it a compelling consideration for investors seeking exposure to the critical and expanding field of safety science.