Business Overview and History
UL Solutions Inc. (ULS) is a global leader in applied safety science, transforming safety, security and sustainability challenges into opportunities for customers in more than 110 countries. The company's distinguished heritage dates back to its founding in 1894 as part of the nonprofit Underwriters Electrical Bureau, a predecessor to Underwriters Laboratories Inc. Today, UL Solutions provides independent third-party testing, inspection and certification (TIC) services and related software and advisory offerings, serving over 80,000 customers worldwide.
UL Solutions operates through three main segments: Industrial, Consumer, and Software & Advisory. The Industrial segment provides TIC services to help ensure customers' industrial products meet or exceed international standards for safety, performance and sustainability. The Consumer segment offers a variety of global product market acceptance and risk mitigation services for customers in the consumer products end market, including consumer electronics, medical devices, and retail. The Software & Advisory segment provides complementary software and advisory solutions that extend the value proposition of TIC services.
As the largest TIC services provider headquartered in North America by revenue, UL Solutions has accumulated over 650 technical accreditations and 76 commercial software solutions. The company remains active in over 1,300 standards panels and technical committees globally, leveraging its deep expertise to provide over 400 independent third-party conformity assessment services worldwide, testing and certifying against over 4,000 global standards.
In 2002, UL Solutions formed a joint venture, UL-CCIC Company Limited, with the China Certification Inspection Group Co., Ltd. (CCIC), a Chinese state-owned enterprise. This strategic move allowed the company to expand its footprint and service offerings in China, a critical market, although navigating China's complex and rapidly evolving regulatory landscape has presented ongoing challenges.
The company has also faced operational challenges, such as ensuring the safety and security of its IT systems and data in the face of increasing cyber threats. In response, UL Solutions has developed a robust cybersecurity risk management program to protect the confidentiality, integrity, and availability of its critical systems and information.
Despite these challenges, UL Solutions has maintained its position as a trusted provider of safety science services, with its iconic UL Mark appearing on billions of products around the world. The company's long history of technical expertise, global reach, and commitment to safety have been instrumental to its success over the decades.
In 2024, UL Solutions successfully completed its initial public offering, marking a pivotal moment in the company's 130-year history. The IPO strengthened UL Solutions' financial position and enabled the company to continue investing in organic growth initiatives and strategic acquisitions to better align with key megatrends driving demand for its services.
Financial Performance and Outlook
For the full year 2024, UL Solutions reported revenue of $2.87 billion, representing a 7.2% increase over the prior year, with 8.7% organic growth. The company's Industrial segment led the way, delivering 9.4% full-year growth, including 11.9% on an organic basis. The Consumer segment grew 5.6%, including 6.9% organic growth, while the Software & Advisory segment completed the year with 5% top-line growth, including 4.4% organic growth.
Adjusted EBITDA for the full year 2024 grew 16.5%, and adjusted EBITDA margin expanded by 190 basis points to 22.9%. UL Solutions generated $287 million in free cash flow for the full year, demonstrating its robust cash generation capabilities. The company's strong financial performance, investment-grade balance sheet, and disciplined capital allocation strategy position it well for continued growth and value creation.
In the fourth quarter of 2024, UL Solutions reported revenue of $739 million, representing year-over-year growth of 8.0%, including 9.5% organic growth. The increase reflected particular strength in the industrial segment, which delivered robust 13.9% organic growth. Net income for the quarter stood at $85 million.
For the full year 2024, UL Solutions reported net income of $345 million and operating cash flow of $524 million. The company's performance exceeded its previous guidance across key financial metrics, including organic growth, adjusted EBITDA margin expansion, and free cash flow generation.
Looking ahead to 2025, UL Solutions expects consolidated organic revenue growth in the mid-single digits range compared to 2024. The company also anticipates further adjusted EBITDA margin expansion to approximately 24%, in line with its longer-term targets. Capital expenditures are expected to be around 7-8% of revenue in 2025, down modestly from the 2024 rate as a percentage of revenue. The company estimates an effective tax rate of approximately 26% in 2025, up from 16.9% in 2024 due to the implementation of OECD Pillar 2 provisions. This outlook reflects the strength and diversity of UL Solutions' offerings, as well as the exceptional execution by its team, while also accounting for potential headwinds from taxes and currency fluctuations.
Liquidity
UL Solutions' strong financial performance has contributed to its robust liquidity position. The company's free cash flow generation of $287 million in 2024 demonstrates its ability to convert earnings into cash, providing flexibility for future investments and potential shareholder returns. With an investment-grade balance sheet, UL Solutions maintains financial stability and access to capital markets, further enhancing its liquidity profile.
As of December 31, 2024, UL Solutions reported cash and cash equivalents of $298 million. The company's debt-to-equity ratio stood at 0.81, with total debt of $935 million and total equity of $931 million. UL Solutions also maintains a $1.25 billion senior unsecured credit facility, with $745 million available and an accordion feature permitting an increase of up to $625 million. The company's current ratio and quick ratio both stand at 1.24, indicating a strong ability to meet short-term obligations.
Segment Performance
Industrial Segment: For the year ended December 31, 2024, the Industrial segment represented 44% of UL Solutions' consolidated revenue. This segment generated operating income of $338 million, representing a 27% operating margin. The Industrial segment provides TIC services across various end markets, including energy, industrial automation, engineered materials, plastics and wire and cable, and the built environment.
Consumer Segment: The Consumer segment accounted for 43% of UL Solutions' consolidated revenue for the year ended December 31, 2024. This segment generated operating income of $114 million, representing a 9.2% operating margin. The Consumer segment offers a range of services for customers in the consumer products end market, including consumer electronics, medical devices, and retail.
Software and Advisory Segment: This segment represented 13% of the company's consolidated revenue for the year ended December 31, 2024. The Software and Advisory segment generated operating income of $10 million, representing a 2.6% operating margin. While lower than the company's other segments, this segment provides complementary offerings that enhance UL Solutions' value proposition to its customers and represent a growth opportunity for the business.
Geographic Performance
While UL Solutions does not break out detailed performance by geographic markets in its reporting, the company disclosed that in 2024, approximately 59% of its revenue was generated from customers outside the United States. This international exposure highlights the company's global reach and diversified customer base.
Risks and Challenges
While UL Solutions has a strong track record of success, the company faces certain risks and challenges common to the TIC industry. These include potential regulatory changes that could impact demand for its services, the need to continually innovate and adapt to technological advancements, and managing global supply chain and logistical complexities.
Additionally, the company's international operations expose it to risks associated with doing business outside the United States, such as fluctuations in foreign currency exchange rates, political and economic instability, and compliance with numerous laws and regulations in multiple jurisdictions.
UL Solutions also faces competition from other providers of TIC and software/advisory services, both large global firms and smaller regional players. The company's ability to maintain its reputation, technical expertise, and customer relationships will be critical to its continued success.
Industry Trends and Outlook
UL Solutions has highlighted several key megatrends driving demand for its services, including the global energy transition, the electrification of everything, and digitalization. The company believes these trends align well with its capabilities and market position, presenting opportunities for future growth and expansion.
The TIC industry continues to evolve, with increasing emphasis on sustainability, product safety, and regulatory compliance across various sectors. UL Solutions' diverse service offerings and strong market position in both industrial and consumer segments position it well to capitalize on these trends.
Conclusion
UL Solutions is a global safety science leader with a distinguished heritage and a strong competitive position in the fragmented TIC industry. The company's focus on key megatrends, such as the global energy transition, electrification, and digitalization, has driven robust organic growth across its core segments. With a healthy balance sheet, disciplined capital allocation, and a talented team, UL Solutions appears well-positioned to capitalize on future opportunities and deliver long-term value for its shareholders.
The company's strong performance in 2024, exceeding previous guidance across key financial metrics, demonstrates its ability to execute on its strategic initiatives. As UL Solutions looks ahead to 2025, its guidance for continued organic growth and margin expansion reflects confidence in its business model and market position, even as it navigates potential challenges such as increased tax rates and currency fluctuations. With its comprehensive suite of services, global reach, and focus on innovation, UL Solutions is poised to maintain its leadership in the safety science industry and drive sustainable growth in the years to come.