Good morning, everybody. Welcome to Jefferies' 2026 Industrials Conference. My name is Stephanie Moore. I'm Jefferies' Business Services and Transportation analyst. We are very pleased to have the team from UL Solutions. We have CEO, Jenny Scanlon, and CFO, Ryan Robinson, with us this morning. They're going to start with a couple minutes of prepared remarks, walk through a presentation, and then we will kick off the fireside chat aspect of this. Thank you both for being here.
Thanks, Stephanie. It's always nice to be here. I recognize some of you, and some of you I don't, so we thought it would be useful to give a very brief history of UL Solutions and then jump to the fireside chat. Let's just start with grounding in who we are. We're newly public. We went public in April of 2024, but we are not newly profitable, and we're not a new company. We've been a global leader in product testing, inspection, and certification for 132 years. There's five messages that underpin our outstanding performance. The first is we are grounded in our mission. Our mission is working for a safer world, and we are grounded in that mission by focusing on product testing, inspection, and certification, which is a very fragmented industry that is a growth industry.
Our claim to fame, our focus is our dedication to safety and science, and that dedication is reflected in our leadership. We like to say customers call us first when they have a new product innovation that has a thorny safety issue because we employ the technical leaders, the scientists, and the engineers who understand safety science and apply that to every new innovation. The third is that our customer relationships are long and deep. Prior to me joining UL in 2019, I led a building products manufacturer as CEO. We had been a customer of UL since 1913, and that company continues to be today. We support our long-term customers with a very disciplined approach to account management.
We have a global and strategic accounts team, and the reason why we're so valuable, why those long-term relationships exist, is the iconic UL mark, the UL in a circle, and we'll flash that on the next slide. But it's very important for customers to have that mark to get their products into global markets. That also gives us operating leverage, and then that trickles down to a very healthy balance sheet with robust cash flow and a disciplined capital allocation strategy. The next slide, we're just going to flash the mark. Once you see it, you'll see it everywhere. When we launched our IPO, one of the analysts had their kids do a scavenger hunt in the house, and I think they found 68 UL marks in their house in one afternoon. It is a premium mark.
When you go to the next slide, what you see is that mark, and our safety science leadership and our dedication to our mission leads us to outstanding financials. We were, last year, $3.1 billion in revenue globally. That was 6.2% organic growth, and we do this through two businesses, three segments. Our two businesses are the actual product testing, inspection, and certification, and those two segments are industrial, where our customers tend to be B2B, and consumer, where our customers tend to be B2C.
In the risk and compliance software segment, which is our second business, this is where we take the power of our data, the data that we have about the billions of products that we've tested across the 80,000 customers that we have, and use that data to help our customers respond to all of the risk and regulatory compliance requirements that they have all over the world. This includes the types of sustainability requirements that continue to proliferate around the world. If you jump then to our megatrend slide, this is why we believe fervently in our growth trajectory. There are thorny safety issues that are presented by these incredible megatrends that are affecting every one of our customers' decisions around product innovation, research and development, and growth.
The energy transition underpinned by this new energy landscape, how are we going to have enough energy to power all of the innovations that are happening, in particular around data centers? But even prior to ChatGPT launching onto the horizon in 2023, the predictions were the amount of energy that we needed for the electrification of everything was either going to double or triple by 2050, depending on which source you believed. Now you can extend that to this new energy landscape and the energy transition required because of digitalization and AI, which is a very important megatrend on this page. New mobility, the ways in which vehicles, both cars, but larger scale, as well as you get into robotics and other movement, is a very important megatrend.
Sustainability, as I mentioned, is something that we're focused on for our risk and compliance software, helping our customers identify what's in their products, scope 2, scope 3. But it's also an important driver when you think about the types of chemicals that are in products that are being regulated, the reuse and recycling, second life regulations, so disposal of products, extended producer responsibility, a lot of pieces in there that we're focused on. All of that also is underpinned by shifts in supply chain, and when you swap out a raw material in a product, swap out a component, change a location for where you're manufacturing, that frequently requires retesting. So these supply chain risks can also be a tailwind for us as we help our customers maneuver through constantly changing regulations. Quite frankly, those have been shifting since 2017, 2018, and they continue to shift.
It's become a new normal for our customers, but it is a daily requirement, and then that leads to the regulatory compliance. I want to wrap up just really quickly with slide 15, which is, as I said, we went public in 2024, but our progression started long before that. We've had an almost 7% CAGR, 6.9%. We've had steady progression in margin expansion and we are excited and bullish about where this trajectory will continue. With that, I'm going to open it up for Stephanie.
Thank you, Jenny. I appreciate it. Maybe sticking with slide 15 and just the consistent revenue growth that you have seen. You called out a handful of mega trends that are continuing to drive demand for your services. Could you maybe talk about which trends have been the most robust as of late?
Yeah, absolutely. AI and digitalization is extremely important. By the way, I didn't talk about the four ways that we generate revenue. There's certification testing, which is getting the UL mark onto a product. There's ongoing certification services, which is recurring revenue, where we inspect any factory that's producing that product four times a year typically, and charge our customers to do that. There's non-certification testing, which is still product testing, but doesn't lead to that mark and that ongoing certification services. Then there's the software. The reason why I raise this is back on the mega trends, a lot of that innovation that we're seeing that's being driven by AI and data centers, and then also the new energy landscape requires certification.
The evidence, if you were to open up our 10-Q, is to look at the growth in certification testing, which then leads to ongoing certification services, and we're 10.9% year to date growth in that certification testing. The areas where we're seeing it the most though, it's been double-digit growth in our power and automation testing and in our wire and cable. You think about the amount of wire and cable that goes into a data center, but also goes into all sorts of industrial equipment or an autonomous vehicle. That has been significant growth. That's in our industrial business. In the consumer business, where we're seeing it show up is in our CTech and in our appliances, HVAC, and lighting sectors, in particular, in that cooling and chillers.
But we're also seeing really strong growth within our risk and compliance software in that supply chain transparency and in the supply chain insights modules that we offer in our ULTRUS software platform.
Thank you. That's really helpful. Then one aspect of this that I think would be maybe helpful for the audience, Jenny Scanlon, is talk a little bit about I guess maybe the relationships you have with your customers, and how you start early on with maybe their innovation and R&D cycle, and how that leads into that initial test, and really how all of this kind of comes together that really fortifies your position with those customers.
Yeah. Our focus on global and strategic accounts is extremely important to us staying cutting edge on what types of innovations are going to be coming to market and what type of safety challenges could exist. We have 80,000 customers. The top, let's call them 350, have a global or strategic accounts manager assigned to them. Those leaders are responsible to understand what the product roadmap is of that customer, and we frequently will meet, let's say, on an annual basis, where our lead engineers or our scientists are in the room with our customers and listen to what their plans are and ensure that we essentially bring up what's the worst-case scenario that could happen, safety, quality, sustainability, security-wise, with that product.
In many cases, those new products, and we're seeing a lot of this right now, are a confluence of technologies that used to reside in independent products. Robotics has been around forever. I did advanced manufacturing in my last job. We started that in, I don't know, 2010 or something. But now you start embedding software into that, and now that software has AI embedded into it. It creates different safety challenges, and that's where our teams work very closely with our customers. Then we'll come back in many cases, like on AI.
I think it was two or three years ago, I was in Korea visiting some significant CTech customers, consumer technology, and they said, "Okay, how are we going to think about the safety of AI that's embedded in products?" We worked with a set of customers and developed what we call an outline of investigation that turns into a standard around when AI is embedded into a product, how do you judge the veracity of the data that was used, the transparency of the algorithm, the lack of bias in the algorithm, the cybersecurity of the data that it's collecting, and just the overall fairness. That became something that those customers started using as a way to demonstrate to their customers that they were being responsible with this new technology.
Thank you. So maybe as you think about all your mega trends kind of together as one, would you describe the environment as maybe more robust than historical periods, steady? I think as a whole, there's probably always some trend that's going to drive the demand for increased safety. So maybe just talk about-
Yeah.
the sustainability of these mega trends, how robust the growth is now, and what that ultimately could mean from an organic growth standpoint for the next several years.
Yes, I'm seeing, I can't remember, do we have the data center picture?
Yeah.
Or I lose track. Here, let's look at the laptop ecosystem. Sorry, can't read.
Slide 31. What we're really seeing is the complexity of products is dramatically increasing. If you look at a laptop, or on the next one actually probably even better, the ultrasound machine. 20 years ago, when we tested a piece of equipment like this, there were standard sets of requirements around the safety certification, performance, and quality, and the way that it was connecting wirelessly. That's what EMC compatibility focuses on. Now, when you start adding these other pieces, functional safety becomes a big risk. Functional safety is essentially does the product perform as intended? I use the example all the time, my daughter drives a Jeep. She loves her Jeep. When she turns the radio on, it works, music connects. If she presses the heating or cooling button, the radio turns off. That is not functioning as intended.
You can have real safety issues when you have software that's been embedded in products that then gets a glitch in and it doesn't perform as expected. That adds complexity, and then you start getting into all of the regulations around the world. European Union, if you want that product going over there, they have different cybersecurity rules than the U.S. has. Or human factors, which would be, again, does a human accidentally do something with that piece of equipment that can cause a functional safety issue? The complexity of what we're seeing as more and more both technologies get embedded in products and regulations are being put in place around the world to keep up with that complexity, really changes the scope of what a test would be. That it was a simple set of tests 10, 15, 20 years ago.
It's a much more interconnected, bigger project, complex set of tests today.
Thank you. Maybe getting into the segment performance a little bit. Look, I think your industrial segment, it is your largest segment from a revenue and earnings standpoint. It has been a major contributor to your organic growth. We touched a lot about the mega trends impacting the industrial segment as of already. I think you have made some changes in that segment, Ryan, so maybe do you want to talk a little bit about changes to that segment, how they are impacting margin? I do think there has been some questions on that as it relates to the second quarter results.
Sure. Over time, we review the synergy of the parts of our business and concluded that some of our businesses, we call advisory businesses, that support renewable energy generation and the built environment, had a better strategic fit within our industrial segment. Last year, that was previously in what we called our software and advisory segment. The business, as you can see, continues to grow organically 7.7% through the first half of the year. The advisory business comprises about 9% of the aggregate business. We did say that our core testing inspection certification business is growing strongly faster than that consolidated total, that the business is generating, and some core businesses are growing double digits, including our industrial automation business and our performance materials business, and that we continue to have excitement about the growth attributes of the industrial business going forward.
Thank you. Then maybe similarly, I know that you made the decision, I believe, last year to also evaluate some services you provide. I think a lot of those were in the consumer segment. Maybe just touch a little bit about what is your general appetite for maybe future evaluation of services that you provide, and how do you, as a high level, continue to monitor your portfolio and what makes sense going forward from a return standpoint?
It is definitely an extremely important part of our process. We have an annual long-range planning process that we put our leaders through, where they look at every kind of sub-business to understand, are we leaders, and if not, what is our path to leadership? If not, what is our profitability and how will we get there? We do this on a regular basis. Last year when we did it, there were enough areas of consumer, largely consumer, that we felt like did not meet that criteria, and that we should just exit those businesses. They were an individual lab here focused on a certain type of testing that we were not doing anywhere else.
And realized that trying to bundle those together and sell those didn't make sense, so just slowly winding those down, which is what we did really in the first half of this year in consumer. Consumer's first half growth has a headwind. We had described the headwind as being 1% of revenue across the business, but the bulk of that is in Consumer. So when you look at Consumer's first half growth, that is net of these business exits. And part of those business exits, why we left them, was low performance. So you can see some of that margin expansion, which will be permanent and durable. We'll continue to monitor. We also announced earlier this year a divestiture of one of our modules from our risk and compliance software, our EHS module. It tended to be slower growth.
It was on the higher side of EBITDA for that business, so it was really a question of should we keep it or should we divest it? It's in better hands with an owner that will invest in it in the future in a way that we didn't see, given all of our competition for capital, we didn't see that being a priority for investment, and it was better to divest. We'll keep doing that, but it's kind of like sharpening a pencil versus big wholesale changes.
Yeah. I would just add that it's part of a broader portfolio management approach driven by our long-range plans. It included the choice to wind down some businesses that were approximately 1% of revenue, but also to divest that EHS software business, excited about an acquisition of the Eurofins electrical and electronics business, and then also some non-strategic minority holdings for an entity called DQS.
Thank you. Maybe switching gears to the margin performance. Since going public, you've delivered a very strong margin expansion, I think several hundred basis points, and I believe exceeded your initial post-IPO target faster than you originally expected. So maybe looking backwards, can you talk a little bit about what drove the margin expansion over those last several years?
Yeah. Do you want to start, Jenny, and I'll.
I'll let you start.
Okay. Well, from the time we became a public company, we said we had a number of initiatives that would grow our margin, and we've been successful in doing that. In the year before we became a public company, 2023, we had 21.0% adjusted EBITDA margin, and now for 2026, we've affirmed our guidance for 27%. So substantial increases, 300 basis points last year, 220 basis points year to date. And it's through a number of different ways. Initiatives within each of the three businesses to improve their core operations and efficiency, higher utilization of the people within those segments, higher utilization of the assets, the laboratories, the capabilities within those businesses.
A number of horizontal initiatives across the company, working on our global footprint of locations, working on our enterprise IT architecture, supporting technologies for our employees to increase the efficiency and the productivity of the work that they do. We've also made strides in things like our pricing capabilities, which previously were decentralized and less developed, having consistent tools and practices in pricing that have contributed to margins. Also, Industrial is our largest and most profitable business, and it has been growing faster. So we get some mix benefit as Industrial grows. And then our business has a relatively high degree of operating leverage, so if we continue to grow revenue, we disproportionately flow that through to profitability. And I would say those are some of the key drivers of the growth in our profitability.
Maybe just taking a near-term lens, I think on this most recent quarter, the Industrial segment, which admittedly has had very strong margin expansion over the last several years, so don't want to discount that, but maybe the margin performance in the second quarter within Industrial wasn't as strong as we're used to seeing. Could you maybe talk through a little bit about those dynamics, and then if you can outline the path to further margin expansion, really across both segments, I think would be helpful.
Yes.
Or three segments.
We are excited about our profit growth in the Industrial segment over an extended period of time, including our year-to-date activities. With that revenue growth comes some expenses to grow the business that can arise within a quarter that may not be indicative of the longer-term earnings potential of the business. With that strong revenue growth, we did have an increase in compensation-related expenses on a short-term basis, but within that, our core expense profile, including our salary expenses, actually were very well managed and were down. I would say the changes in expense were more driven by the quarter than the long-term profitability and margin potential.
The big picture for Industrial, as Ryan said, it continues very strong growth, high single digits, some of our areas low double digits, and that continues to have that operating leverage opportunity. The direct cost management is outstanding and much of the employee compensation expense was the incentive comp. We have a pay-for-performance culture. Industrial is performing extremely well, and we had some catch-up in the second quarter. That is short-term, but we will continue our pay-for-performance culture.
Excellent. But maybe switching gears, the consumer segment had real outsized margin performance in the quarter as well. So you touched on some of that. Some of those were your strategic actions, evaluating that, but maybe talk through some of the other margin drivers within consumer. Then I think more importantly, is there an opportunity to close that gap between the margin performance we see in consumer and what you report in industrial, and maybe help us walk through some of the differences between the two.
Yeah, absolutely. So first of all, I think in addition to the moves that we made on the restructuring, one of the underappreciated pieces of the mega trend around AI and digitalization is it affects both our consumer business and our industrial business. So industrial power and automation, wire and cable, even the fire suppression systems that need to go into data centers in our built environment. So it hits every bit of our industrial business. But it also hits two important pieces of our consumer segment, which is the CTech segment and the appliances, HVAC, and lighting operating unit. Again, much of these new products that are going out there are products that need certification, and that leads to ongoing certification services, that recurring revenue. So, that is something that has bolstered consumer.
I think the other piece, when you look at consumer longer term, really is the sense that they are now competing head-on, in many cases, with industrial products. That added complexity is continuing that growth and that margin expansion.
Understood. Thank you. I do want to touch on some of your investments you're making, both organic and inorganic, but before we get into that, I think if we kind of summarize all that we've heard thus far, I think it's really clear you're a trusted partner. You're providing a service that really is at the core of safety. You're the largest player in the product testing market. What does that mean in terms to translating into your pricing opportunity?
For us, we're very focused on value-based pricing. This is important, because, again, our investments in being the leader in safety science and having our reputation really grounded in that leadership for new standards and new ways of thinking about what those product risks are, is important. We expect to be paid for that. Our customers tend to call us first, as we like to say, when they have these new complex product risks, and that translates back into the value proposition. We implemented Salesforce, a single global instance, just shy of two years ago. We're continuing to help our sales teams, both with the data that we now have available in Salesforce, as well as additional AI insights that it can provide.
Salesforce does a nice job of also staying current with offering tools and techniques for sales teams to use, and we're taking advantage of that. Our expectations are we will continue our value-based pricing journey, because the investments that we make, both in that technical leadership and in the leadership around having the lab capacity available, is really important.
Thank you. Okay, starting with some investments on the organic front. You talk a lot, and you certainly we see it if you look at press releases and the likes about lab investments and lab capacity expansion. Maybe just help us understand, if we see an announcement for a new lab that's being opened in a certain geography, what should we read into that announcement?
When you see an announcement on a new lab, what you should read into is probably two things. One, that we've seen an opportunity and a customer has come to us requesting capacity for that opportunity. When we invest in a lab, it's because there are actual products and actual regulations that need to be tested, and we've got a good line of sight as to how quickly our customers are going to need that testing, how much capacity they need, and what we can build out. The second thing you should read into is that our philosophy, in many cases, is grounding a lab so that we can expand it in the future. That first investment, that first announcement, is the starting point.
But then what often happens is the ability to add capacity in that lab without that significant overhead of a new building or a new facility or having to get new permits or new accreditations. We use those. We announced here in New York a few years ago, we closed a pretty old lab out in Melville, turned that into a sales and engineering facility, and moved all of that capacity and equipment to Northbrook, to Research Triangle Park, and a new lab that we had opened in Mexico. That helped with margin, but it also helped with speed for our customers, that we didn't have different tests that needed to be occurring in different locations. It's one of two, usually both.
So for us, should we view this as maybe heightened confidence in just the growth trajectory of that end market?
Yeah, I really believe that our willingness to invest in labs and to keep our footprint broad is a reflection of our market leadership. It is how we maintain that market leadership in a rapidly growing market.
And then another area that I know we've touched on has been maybe some of the innovation or automation or productivity that you're looking to drive within existing labs. Can you talk a little bit about how that's changed over time, and how we should be thinking about future productivity within the four walls of the labs themselves?
Yeah. So there are several aspects about productivity. One is our employee productivity and the outputs and how we support our employees to do their work better and more easily, and also our physical utilization of our laboratories and our capacities. Over time, we have made large investments in process automation, including at the laboratory level, repetitive tasks are increasingly robotic. Data is generated electronically and embedded into testing reports, whereas previously, those were more human-intensive activities. I mentioned our cross-company enterprise IT architecture plans. They have supported more consistent processes across the company. Historically, a lot of these processes were more decentralized and differentiated in different businesses, and by building the capabilities, it has led to margin improvement and productivity.
Understood. Maybe switching to M&A, though you are in the process of closing, I think your first deal since going public, or first deal of size since-
Of size.
Of size, of going public, which is obviously the Eurofins acquisition. Can you tell us how this acquisition aligns with your strategy long term? What about this business excited you? Maybe just help us understand the rationale there.
I like to say, if it has the words product tech in it, we are going to evaluate it. There have been a number of announcements or potential announcements in the marketplace about competitors, maybe carving out parts of their business or shifts in their focus. We've had our eye on the Eurofins acquisition for a number of years. This is a business that's a great fit for us because it does exactly what we do in consumer testing around electrical and electronics. They have tended to target a different market, smaller customers, that quite frankly, I don't know that we believed that we could serve profitably, and this acquisition proves to us you can serve them profitably. We're excited then about that opening up our offerings to a broader set of what I would say are smaller customers than would be our traditional target markets.
We're also excited by the European footprint. It dramatically expands our presence in Europe, which is an area that hasn't been as strong as we would like it to be. It also gives us deeper capabilities in medical device testing. They have some accreditations that we don't have, and this will allow us to grow our medical device testing business faster than we otherwise could have.
Then maybe from a broader capital allocation strategy, as you think about returning cash to shareholders, as well as future M&A, how do you evaluate both sides of those?
Yeah. We're fortunate to generate a large amount of cash flow from operations. Foremost, we want to redeploy that back into the business to continue to generate high returns. Across our portfolio, we have close to a 30% return on invested capital. That includes both organic investments as well as the investments that we've made in M&A. In 2026, we will have a record level of both acquisition-related investments and organic investments. We're redeploying that capital better to serve our customers, to continue to advance our mission, and grow and evolve the business. We're doing that, fortunately, with a very strong balance sheet. With that investment, we're not increasing our leverage through the period. We will evaluate other uses of cash over time, balance sheet. We pay a cash dividend, returning some to shareholders over time.
But foremost, we're focused on continuing to grow the business and reinvest in the business.
Great. Well, I'll leave it at that. Thank you both for your time.
Thank you very much.
Thanks, Stephanie. Great to see you. Thank you.