UL Solutions Q3 Earnings Call Highlights

Key Points

• UL Solutions delivered strong Q3 results: Revenue rose 5.1% to $823 million, while adjusted EBITDA increased 8.3% to a record $235 million and margin expanded to a record 28.6%.
• Industrial and Consumer both posted record adjusted EBITDA margins, supported by growth in testing and certification. The company launched three certification programs for AI data centers, covering power distribution, power conversion and liquid cooling.
• The company raised its 2026 organic revenue growth outlook to approximately 6.5% and expects an adjusted EBITDA margin of about 27.0% for the year.

UL Solutions NYSE: ULS reported third-quarter results marked by accelerating organic revenue growth, record adjusted EBITDA margin and continued investment in testing and certification capabilities tied to artificial intelligence, data centers and other technology-driven markets.

Revenue for the quarter totaled $823 million, up 5.1% from a year earlier. Organic revenue grew 7%, the company’s highest level in six quarters, according to Chief Executive Officer Jenny Scanlon. Adjusted EBITDA increased 8.3% to a quarterly record of $235 million, while adjusted EBITDA margin expanded 90 basis points to a record 28.6%.

Net income rose 10.4% year over year to $117 million, or $0.53 per diluted share, compared with $0.49 per share in the prior-year quarter. Adjusted diluted earnings per share increased 10.7% to $0.62.

“We had another strong quarter, reflecting broad-based growth and continued operating momentum across the business,” Scanlon said. She attributed margin expansion to productivity improvements, pricing initiatives and business optimization.

Industrial and Consumer Segments Set Margin Records

The Industrial segment remained the company’s principal growth and margin contributor. Revenue in the segment rose 8.2% to $410 million, representing 8.4% organic growth. Excluding advisory services, Industrial organic growth was approximately 9%, Chief Financial Officer Ryan Robinson said.

Industrial adjusted EBITDA increased 13% to $148 million, and its adjusted EBITDA margin rose 150 basis points to a quarterly record of 36.1%. Growth was led by energy and automation, materials, certification testing and ongoing certification services.

The Consumer segment generated $360 million of revenue, up 5.9% both on a reported and organic basis. The growth occurred despite an approximately 150-basis-point headwind from planned business exits under the company’s restructuring plan. Consumer growth was driven by non-certification testing and services, certification testing, consumer technology and retail demand.

Consumer adjusted EBITDA climbed 14.9% to $77 million, with margin expanding 170 basis points to a record 21.4%. Robinson cited operating leverage, employee productivity, favorable mix and restructuring benefits.

Certification testing revenue increased nearly 11% companywide, while ongoing certification services grew more than 7%. Scanlon said certification testing is being supported by customer innovation, including efforts related to AI data centers, power systems, cooling and connected technologies.

During the quarter, the company launched three certification programs for the AI data-center ecosystem, addressing power distribution, power conversion and liquid cooling. It also expanded its HVAC Center of Excellence in Plano, Texas, for advanced cooling technology testing, and expanded retail testing capabilities in Europe and the U.S.

Software Revenue Declines Following Divestiture

Revenue in the Risk and Compliance Software segment declined 17.2% year over year to $53 million, primarily reflecting the April sale of the employee health and safety software business. Excluding that divestiture, the remaining business posted 4.7% organic growth, driven by demand for supply-chain insights in retail.

Adjusted EBITDA in the segment fell to $10 million from $19 million a year earlier, and adjusted EBITDA margin declined to 18.9% from 29.7%. Robinson said results included a $10 million reduction from the EHS divestiture, negative operating leverage associated with the smaller revenue base and transaction costs.

Scanlon described the quarterly software margin result as disappointing but said the remaining portfolio was stronger than the reported quarterly figures suggested. Management expects some margin improvement in the fourth quarter and a return toward more normal growth and EBITDA levels beyond the fourth quarter.

Acquisitions, Divestitures and Capital Deployment

On Oct. 1, UL Solutions completed its acquisition of Eurofins’ electrical and electronics business. The acquired business is expected to contribute about $50 million of fourth-quarter revenue, with margin performance in line with the company’s expectations.

Management said the transaction expands the Consumer segment’s laboratory capacity, accreditations and geographic footprint, particularly in Europe, Asia and Korea. The company expects to complete back-office integration by the end of 2027, while go-to-market and laboratory-utilization synergies are expected to be largely realized by the end of 2028.

UL Solutions also acquired Evnia Consulting Firm Inc. in July to bolster its extended producer responsibility and environmental compliance capabilities. The company previously sold its EHS software business, which Scanlon said had diminishing strategic value, as part of an effort to focus its ULTRUS platform on product and supply-chain compliance and intelligence.

Subsequent to quarter-end, the company sold its stake in DQS for approximately $117 million. Robinson said UL Solutions expects to record an approximately $93 million pre-tax gain in the fourth quarter within other income, outside operating income. The gain will be excluded from adjusted measures.

For the trailing 12 months ended Sept. 30, cash from operating activities increased 25.9% to $738 million and free cash flow rose 23.7% to $481 million. The company ended the quarter with $766 million of total debt; after the Eurofins transaction and DQS sale, total debt stood at $689 million as of Oct. 30.

Outlook Raised for Organic Growth

Based on results through the first nine months, UL Solutions raised its full-year 2026 constant-currency organic revenue growth outlook to approximately 6.5%. The forecast includes an estimated 70-basis-point revenue reduction from restructuring-related business exits, lower than the 1% impact initially expected because the company retained customers and moved work to other locations.

The company expects full-year adjusted EBITDA margin of approximately 27.0%, supported by about 200 basis points of underlying margin expansion. That improvement will be partly offset by roughly 90 basis points of incremental transaction costs versus 2025.

Transaction and integration costs are expected to total $37 million to $40 million for 2026, representing approximately 120 basis points for the full year. Management expects the effective tax rate to be about 26% and capital expenditures to equal approximately 8.5% of revenue.

Scanlon said demand has remained healthy entering the fourth quarter, supported by increasing product complexity, evolving safety requirements and the need for independent testing and certification. The company said its global laboratory network should help minimize disruption from recently announced U.S. restrictions involving Chinese laboratories testing electronic devices for U.S. market authorization; Scanlon said the expected impact on UL Solutions is not material.

About UL Solutions (NYSE:ULS)

UL Solutions Inc NYSE: ULS is a global applied safety science company that provides testing, inspection, certification, and advisory services. The company helps manufacturers, retailers, regulators, and other organizations evaluate the safety, security, performance, quality, and sustainability of products, facilities, and systems.

Its services cover a broad range of industries, including consumer products, industrial equipment, energy, mobility, information technology, and the built environment.

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