Q1 2025 UL Solutions Inc Earnings Call
Speaker Change: Good day and welcome to the UL Solutions First Quarter 2025 Earnings Conference Call.
Speaker Change: All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
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Please note this event is being recorded.
Speaker Change: I would now like to turn the call over to your host, Mr. Mitchell Ji, Senior Vice President of Corporate Finance at UL Solutions. Thank you. You may now begin.
Speaker Change: Thank you and welcome everyone to our first quarter 2025 earnings call. Joining me today are Jenny Scanlon, our Chief Executive Officer, and Ryan Robinson, our Chief Financial Officer.
Speaker Change: During our discussion today, we will be referring to our earnings presentation, which is available on the investor relations section of our website at ewell.com. Our earnings release is also available on the website.
Speaker Change: I would like to remind everyone that on today's call we may discuss forward looking statements within the meaning of the state's harbor provisions of the private security's litigation reform act of 1995.
These forward-looking statements may include, among other things,
Speaker Change: Statements about UL Solutions results of operations in estimates and prospects that involve substantial risks, uncertainties, and other factors that could cause actual results to differ in a material way from those expressed or implied in the forward looking statements.
Speaker Change: Please see the disclosure statement on slide two of the earnings presentation as well as the display and earnings release concerning forward looking statements and the risk factors that are described in our annual report on Form 10K for the year ended December 31st, 2024.
Speaker Change: We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law.
Speaker Change: Today's presentation also includes references to non-GAAP financial measures. A reconciliation to the most comparable GAAP financial measure can be found in the appendix to the earnings presentation.
Jenny Scanlon: With that, I would now like to turn the call over to Jenny.
Good morning everyone and thanks for joining us.
Jenny Scanlon: Last month we celebrated the one-year anniversary of our successful initial public offering, which launched the next chapter of our story that is already more than 130 years in the making.
Jenny Scanlon: In fact, this very week in 1893, our founder, William Henry Merrill Jr. first visited the Chicago World's Fair to inspect exhibits for electrical fire risks. This experience led him to launch the Underwriters Electrical Bureau.
Jenny Scanlon: Over the course of that 130-plus years, we've grown to be a global safety science leader with established customer relationships, recurring revenue, global scale, a healthy balance sheet, and a track record of strategic capital allocation aligned with major growth trends.
Our company has endured and prospered [inaudible]
Jenny Scanlon: I'm pleased to say that our strong performance in 2024 extended into the first quarter of 2025 with balanced strength across all segments, service offerings and geographic regions.
Jenny Scanlon: The Megatrans were focused on global energy transition, the electrification of everything, and digitalization continue to drive robust demand for our industry leading services.
Jenny Scanlon: I'll cover three areas before turning the call over to Ryan. Our first quarter performance highlights.
Jenny Scanlon: Notable achievements and activities since we last reported, and finally some perspective on tariffs.
Jenny Scanlon: Our strong first quarter performance stems from healthy market demand and focused execution across our global organization. I'm deeply grateful to our employees whose dedication is fundamental to our success.
Jenny Scanlon: They're unwavering commitment to our mission of safety, scientific excellence, and customer centric service defines our culture and propels our business.
Speaker Change: Ryan will dive into the numbers in a minute, so let me hit the high notes of our first quarter, 2025 results.
Speaker Change: We delivered consolidated revenues that were up 5.2% versus the first quarter last year which is up 7.6% on an organic basis.
Speaker Change: Our industrial segment continued to lead the way up 8.1% organically, followed closely by consumer at 7.7% and software and advisory at 5.6%
Our results reflected growth across all geographic regions.
Speaker Change: These balanced results highlight the diversity and strength of our business model, a differentiator particularly in uncertain times.
Speaker Change: Profitability improved year over year with adjusted EBITDA growing 22.9% and adjusted EBITDA margin expanding by 320 basis points, reflecting higher revenue, realized operating leverage and disciplined expense management.
Speaker Change: We generated over $100 million of free cash flow and our balance sheet remained strong.
Speaker Change: Next, let me highlight planned notable capacity expansion to address growth opportunities and mega trends in our key and market.
Speaker Change: In January , we announced that we're expanding our HVAC testing facilities in Plano, Texas and Carr Gatae, Italy to address the surging demand for more sustainable HVAC systems such as heat pumps and environmentally friendly refrigerants.
Speaker Change: The Plano Facility Expansion will include commercial HBAC performance testing and will fortify our capacity for safety evaluations of low global warming potential refrigerant capabilities.
Speaker Change: The car you got today's facility will provide comprehensive performance testing for European residential and light commercial heat pump manufacturers.
Speaker Change: Collectively, these expansions will enable us to offer more integrated solutions for manufacturers navigating evolving global regulations and thereby streamlining testing processes and reducing time to market.
Speaker Change: We announced in February that we're developing a new Global Fire Science Center of Excellence at our 110-acre Northbrook Illinois campus.
Speaker Change: This Center of Excellence will enhance our market leading position in the fire safety, security, and building and construction markets.
Speaker Change: We'll be constructing new capabilities while also modernizing existing fire science laboratories, providing enhanced research and testing services for commercial and residential fire safety systems, and this includes sprinklers, types, firefighting equipment, and exterior walls.
Speaker Change: The Center will also feature a dedicated R&D hub for applied research and science-based guidance, which is designed to help customers minimize risks associated with new product development and accelerate their innovation timelines.
Speaker Change: In March, we announced plans to develop new advanced automotive electromagnetic compatibility laboratory in Toyota City, Japan.
Speaker Change: The 25,000 square foot facility will be one of the few EMC laboratories in Japan equipped to conduct high voltage, high current and high torque testing.
Speaker Change: This strategic investment addresses the growing EMC automotive testing market which is projected to reach $2.7 billion by 2030.
Speaker Change: It also strengthens our support for Japan's automotive industry while complementing our existing global network of automotive EMC testing laboratories.
Speaker Change: Finally, let me provide some perspective on the potential impacts of tariffs on our business.
Speaker Change: We are a global leader of critical product safety science offerings and this means we go where our customers go to the locations around the world where products are researched and developed and where they are manufactured.
Speaker Change: In each case, we are well positioned to support our customers needs with our existing global footprint and capacity.
Speaker Change: Now, you will recall that we provide initial testing for a product or a component as part of the new product development process. And then we are frequently engaged in ongoing certification for as long as that product or component is in the market.
Speaker Change: This isn't the first time our customers have faced tariffs and from time to time our customers make both R&D and manufacturing decisions to address country-specific risks and other considerations.
Speaker Change: tariffs or the threat of them may cause customers to redesign their products and or move product manufacturing to more favorable locations.
Speaker Change: Should a product design or manufacturing location change, there's often a need for the product to be recertified, which can result in incremental new business for us.
Speaker Change: Of course, global macroeconomic concerns could change the overall pace of new product demand, innovation and introduction.
Speaker Change: Thus far, the pace of new product development has generally proven to be resilient.
Speaker Change: Additionally, products are becoming more technologically advanced, which adds complexity and can increase testing requirements.
Speaker Change: We believe we continue to be well positioned to support customers and navigating times of uncertainty like we are seeing today. Our Global and Strategic Accounts team is staying in close contact with our customers to understand potential impact and plans.
Speaker Change: Our customers trust us and history has shown our global business to be resilient throughout dynamic economic periods.
Speaker Change: The increasingly uncertain and complex near-term macroeconomic and geopolitical environment presents both potential risks and opportunities for UL Solutions.
Speaker Change: Like many other global businesses, we are carefully monitoring our key performance indicators and the potential impacts.
Speaker Change: based on what we know today, including our strong performance in the first quarter, we are reaffirming our full year 2025 outlook.
Ryan Robinson: Now I'll turn the call over to Ryan for a detailed review of our first quarter results.
Ryan Robinson: Thank you Jenny and hello everyone. I want to thank all of our team members for delivering another strong quarter representing a solid start to 2025.
Ryan Robinson: We're proud to report in our first quarter on a consolidated basis a continuation of strong growth, margin expansion, and solid cash generation. As Jenny mentioned, it's encouraging to see that revenue growth once again occurred across all of our segments and all of our geographies.
Now let me dive in to the details of the quarter. [inaudible]
Ryan Robinson: Consolidated revenue of $705 million was up 5.2% over the prior year quarter.
Ryan Robinson: including organic revenue growth of 7.6%. The increase was well balanced across our three segments, partially offset by FX headwinds and acquisition of the vestiture impact.
Ryan Robinson: Cost of revenue for the quarter increased by 3.7% as compared to the prior year period due to increased appreciation and amortization and services and materials as well as employee compensation.
Ryan Robinson: S-GNA expenses as a percentage of revenue decreased 110 basis points.
Ryan Robinson: From 34% in a year ago quarter to 32.9% in Q1 of 2025. This was primarily driven by lower services and materials and prudent headcount management.
Ryan Robinson: I would point out that both our cost of revenue and our SGNA benefited from changes in effects roughly offsetting the negative impact on revenues.
Adjusted the Badaf of the Quarter was $161 million dollars.
Ryan Robinson: and Improvement of 22.9% year over year. Adjusted EBITDA margin was 22.8% up 320 basis points from the same period a year ago on strength across all three of our segments.
Ryan Robinson: Adjusted net income for the first quarter was $80 million, up 31.1% from $61 million in the first quarter of 2024.
Adjusted Deluted Earnings per Share
Speaker Change: was 37 cents, up from 28 cents per share in the first quarter of 2024. Now let me turn to our performance by segment starting with industrial.
Speaker Change: Revenues an industrial rose 4.4% to $308 million or 8.1% on a organic basis as compared to the first quarter of 2024.
Speaker Change: Those impressive gains were driven by growth in ongoing certification services and certification testing led by energy and automation and materials.
Speaker Change: Increased lab capacity, including our new North American advanced battery lab in Auburn Hills, Michigan also contributed to the growth. Revenue was also impacted by FX and the divestiture of our payments testing business.
Speaker Change: Adjusted EBITDA for the industrial segment increased 16.3% to $100 million in the quarter, while adjusted EBITDA margin improved 330 basis points to 32.5%.
Speaker Change: The industrial segment showed good operating leverage and the majority of incremental revenue flowed to incremental operating income.
Speaker Change: Now turning to the consumer segment, revenues and consumer with $304 million, up 6.3% from the first quarter of 2024, or 7.7% on an organic basis.
Speaker Change: The improvement was driven by demand across all of our service offers.
Speaker Change: We saw particularly strong demand across consumer technology and retail products.
Speaker Change: It is possible that consumer organic revenue growth benefited from increased customer activity and anticipation of tariffs. We expect some moderation of consumer organic revenue growth in Q2.
Speaker Change: Adjusted EBITDA for the quarter in consumer was $48 million, an increase of 37.1% versus the first quarter of last year.
Speaker Change: Adjusted EBITDA margin for the quarter was 15.8%, an increase of 360 basis points year over year. Solid organic growth and improved operational efficiency were the main drivers of the year over year improvement.
Speaker Change: Our third segment is software and advisory. Revenues for that segment were $93 million, an increase of 4.5% year over year on a total basis and 5.6% on an organic basis.
Speaker Change: Our software service line within software and advisory grew 9.3% on an organic basis. The improvement was driven by strong demand for our ultra software portfolio, including retail product compliance and sustainability software solutions.
Speaker Change: Adjusted EBITDA for the quarter in soft growing advisory was $13 million, a 30% increase as compared to the first quarter of last year.
Adjusted EBITDA margin for the quarter was 14%
Speaker Change: Up 280 basis points from the first quarter of 2024 driven by higher revenues and improved operating leverage.
Speaker Change: Turning to our cash generation for the first quarter of 2025, we generated $154 million of cash from operating activities up from $141 million in the prior year period.
Speaker Change: Capital expenditures for the quarter were $51 million compared to $57 million in the prior year period.
to pay down a net of $90 million of debt.
Speaker Change: At March 31st, we had $267 million of cash and cash equivalents. The strength of our balance sheet is reflected in our investment-grade credit ratings.
Jenny Scanlon: As Jenny said, we are investing in key capacity additions intended to better align the business with the Megatrend's driving demand for our services.
Now turning to our 2025 full-year outlook.
Jenny Scanlon: The increasingly uncertain near-term macroeconomic and geopolitical environment presents both potential risks and opportunities for UL Solutions.
Jenny Scanlon: As Jenny mentioned, we are carefully monitoring the potential impacts weighing these factors along with our first quarter results and visibility into our end markets.
We are affirming our 2025 Outlook.
Jenny Scanlon: As a reminder, organic growth is constant currency and excludes acquisitions and the vestitures. We continue to expect 2025 consolidated organic revenue growth to be in the mid-single digit range as compared to our full year 2024 results.
Jenny Scanlon: We're off to a strong start with our Q1 results, but also acknowledge the increased level of uncertainty in the world and for our customers. In addition, recall that we face increasingly challenging comparisons in the second half of 2025 versus the second half of 2024.
Jenny Scanlon: We continue to expect further adjusted EBITDA margin organic improvement to approximately 24% for the full year 2025.
Jenny Scanlon: We have multiple avenues to drive margin expansion, leveraging operational scale from top line growth, benefiting from industrial segment growth, outpacing other segments, and continuously enhancing productivity.
Jenny Scanlon: We also intend to continue to pursue strategic M&A opportunities in key markets that offer paths.
to margin in earnings improvement while regularly reassessing portfolio optimization.
Jenny Scanlon: Our outlook for capital expenditures in 2025 remains the range of approximately 7 to 8% of revenue, with investments in new labs and software continuing as we seek to match strong customer demand in all three segments.
Jenny Scanlon: Our expectation for our effective tax rate in 2025 remains approximately 26%. This compares to an effective rate of 16.9% in 2024 with the anticipated change due primarily to additional implementation of the OECD's Pillar 2, which affects how multinational corporations are taxed.
Jenny Scanlon: As a reminder, in the second quarter of 2024, we recorded a $25 million pre-tax gain on the sale of our payments testing business.
Jenny Scanlon: which was recorded as non-operating income and is excluded from adjusted EBITDA.
Jenny Scanlon: Our first quarter results display a continuation of our strong momentum while improving profitability and cash generation.
Jenny Scanlon: The first quarter is always busy, and recently, as I have for several years, I traveled to Asia to mark a number of special events in Japan, Korea, and China, and met with customers and other stakeholders.
Jenny Scanlon: I was proud to be at groundbreaking ceremonies that are upcoming facilities in Toyota City, Japan, and Pyeong-Tek Korea, which are expected to be opened in the second half of 2026 and the second half of 2025, respectively.
Jenny Scanlon: Following meetings with our joint venture colleagues, which are always meaningful. My trip concluded at the China Development Forum, which was well-attended by Global CEO .
Jenny Scanlon: I was fortunate along with other American CEOs to meet with Chinese primarily and convey our company's value proposition in the region as we continue to advance safety science for new product innovation, quality manufacturing, and market access.
Jenny Scanlon: In conclusion, we've begun 2025 with strong momentum building on our successful IPO just over a year ago. The mega trends we have identified from global energy transition to sustainability align well with our capabilities in our market position.
Jenny Scanlon: The hallmarks of our business, including healthy cash flow, recurring revenue streams, exceptional customer retention rates, and a strong balance sheet, continue to provide a durable foundation for delivering shareholder value.
With that, let's open the lines for questions.
Jenny Scanlon: We will now begin the question and answer session. Trust your question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Jenny Scanlon: If at any time your question has been addressed and you would like to withdraw your question, this press start in two.
Speaker Change: The first question comes from the line of Stephanie Moore, Jeffries. Please go ahead.
Stephanie Moore: Hi, good morning. Thank you. Maybe just continuing on the conversation around tariffs. You called out areas where you certainly would be impacted. It sounds like certainly more so on the positive front in terms of retesting. Have you seen any of your customers look to redesign products or move manufacturing locations that have resulted in incremental recertification testing or maybe any other impact from tariffs that you can call out in the quarter or even in the last, you know,
Month or so. Thank you.
Stephanie Moore: Thanks, Stephanie. And I think it's important to recall that our customers have been making decisions about tariffs.
for the last six or eight years.
Stephanie Moore: And we've seen our industrial customers over the last number of years already shifting a lot of their manufacturing locations and capital decisions. So this isn't new for them. They make smart decisions about costs across their supply chain.
Stephanie Moore: In the consumer space, you know, be to see customers tend to be quicker to react to short-term, you know, macroeconomic trends of one of our customers calls at the retail metabolism. And I think
You know, we'll continue to see them.
Stephanie Moore: Make decisions both about their overall product design as well as their manufacturing locations as there's more clarity in their minds about where tariffs are ultimately going to land.
Stephanie Moore: So our goal is to be next to our customers wherever they are and you know Ryan can comment a little more about anything specific but we're not seeing a material impact today.
Speaker Change: Great. Okay, thank you for your time. And then maybe just switching the follow-up from the, in terms of your M&A strategy, given the maybe the more uncertain macro backdrop of globally, or certainly in the US, have you seen that change maybe the appetite for sellers or anything else that could change your M&A strategy, either accelerate or, you know, more than negative side. Thank you.
Speaker Change: We continue to be active in conversations all over the world across all of our segments about various opportunities of various scale.
Speaker Change: You know, look forward to continuing to grow our business through acquisitions.
Really appreciate the time. Thank you.
Speaker Change: Next question comes from the line of George Tong, Goldman Sachs. Please go ahead.
Speaker Change: Hi, thanks. Good evening. You've noted that you're not seeing any material impact today from tariffs. In your guide, can you talk about whether you're incorporating any anticipated impact either to the positive or negative?
Unknown Speaker 05.
Speaker Change: Thank you for the question. We affirmed our guidance, and when we established our guidance for the beginning of the year, we appreciated there was a level, an increased level of uncertainty.
Speaker Change: But strengthen our core business, visibility to our revenue and our order book.
Speaker Change: and when we were deciding what to communicate this quarter, we maintained that confidence. So, based upon what we see in our business now, we were comfortable affirming that outlook.
Speaker Change: Got it, that's helpful. And then during periods of macro uncertainty, companies will sometimes slow their pace of product innovation, which could impact demand for testing, inspection and certifications.
Speaker Change: Innovation for our customers continues to be an important part of their vitality, and our global strategic accounts tends to have the long-term view with our customers about their new product development plans.
Speaker Change: So, we're staying close with that. We have not seen any meaningful impact as of today but certainly as our customers make decisions.
Speaker Change: We will be by their side making the appropriate decisions to support them. We believe in the long-term importance of innovation and we also believe that you can't have innovation without safety.
Maria Polk, thank you.
Speaker Change: Next question comes from the line of Josh Chan, UBS. Please go ahead.
Josh Chen: Hi, good morning, Jenny and Ryan to Wittmann's strong quarter.
Josh Chen: The industrial side, seeing the 100% drop through. Obviously that's not very typical so I was just hoping to get some color on what drove that level of margin improvement. Thank you.
Speaker Change: We're pleased with the operational execution of each of the three segments and you're right, we had strong flow through particularly in industrial.
Speaker Change: And maybe just focusing at an operating income level, the business experiences operating leverage with growth, particularly in the first quarter.
Speaker Change: which across UL is a slightly lower revenue quarter. So when we do have revenue growth, we see disproportional operating leverage.
Speaker Change: putting those aside in just core operating income, the majority of our incremental revenue flow through to incremental operating income and industrial in the second court.
Okay, the first quarter.
Speaker Change: Yeah, that makes sense. Thanks for the call there. And then I guess you mentioned the increasingly uncertain environment yet you
Speaker Change: to reiterate their guide. So I guess, you know, how would you anticipate any impacts possibly flowing into your business? Because I would think that it would be fairly resilient, but I'm just trying to gauge where the cautiousness is coming from.
at this point. Thank you.
Speaker Change: I think there's puts and takes across our services lines and new testing for new products or as I like to say, all new and improved products, products that are being value-engineered by customers.
Ryan Robinson: We continue to have visibility, and as Ryan mentioned, we could see some moderation in consumer in the second quarter there.
Ryan Robinson: But the long-term trends as we've seen in the past, in other macroeconomic
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Ryan Robinson: Concerning situations, it tend to be very resilient and even as customers move manufacturing locations, it's fairly easy for us to move our ongoing certification services. These are people on the ground.
Ryan Robinson: going to factories to inspect and certify. So, as these trends play out in the long-term...
We were very resilient.
That's great color and congrats on a bit quarter.
Speaker Change: The next question comes from the line of Junixi, Wells Fargo. Please go ahead.
Speaker Change: Hi, this is Jenny on Curgation Class at Wells Fargo. I was curious, you guys talked about how ongoing certification services growth benefited from increased activity last quarter through the digital pull forward from tariffs. It can continue to see that dynamic in this quarter.
Speaker Change: which was expected and an impact in particularly our industrial segment growth.
Speaker Change: As a reminder, across you well, in Q4, we saw $27 million or 12% year-over-year ongoing certification
Speaker Change: and we said we believe this benefited from increased activity from manufacturers ahead of anticipated tariffs. In Q1, the growth of ongoing certification was $12 million or 5%, so it does appear that that did occur in Q4, 2024.
Speaker Change: Thank you, and then could I also just double click on the software piece, so it's continuing to accelerate there. What's driving that demand?
Speaker Change: Some of the biggest things that are propelling that demand is the sales transformation that has really been reinvigorating our expansion of software sales.
Speaker Change: And, you know, we saw strong bookings in the fourth quarter and that drove Q1 revenue.
Speaker Change: and looking at renewals and extending our ARR and software has been important.
Speaker Change: and we're seeing particular strengths in customers really wanting the types of services that we offer in our supply chain transparency, our retail.
Product Compliance
Speaker Change: where we've got some new supplier analytics, we've got a new PFAS module, we've got an Omni Channel Market AI tool, those are all resonating with customers and extending our relationships and extending our footprint with them.
Speaker Change: and then we're seeing in the ESG space as well, continued strength and growth.
Thank you.
Speaker Change: Thanks for the question. Next question comes from the line of Andrew Nicholas, William Blair, please go ahead.
Andrew Nicholas: Hi, good morning. Thanks for taking my questions. You mentioned pretty significant growth momentum across the business. I think you said across all segments, which we've seen, and also geographies. Could you spend a little bit more time talking about growth by geography, or are there any areas?
Andrew Nicholas: or Regents in particular that are showing outside growth in any kind of drivers there that are worth calling out.
Andrew Nicholas: You know, I think it's when you look at both industrial and consumer.
Andrew Nicholas: North America, and in particular industrial in the United States, continues to be strong, you know, the increasing demand for new energy sources for data centers.
Andrew Nicholas: That trend here in the United States is extremely important and we're seeing that strength through our industrial business both in our industrial automation and in our
Andrew Nicholas: Engineering Materials, Business, particularly as those shift to, you know, higher voltage and greater cable needs.
Andrew Nicholas: On the consumer side, we're also seeing particular strength in North America, you know, and across all of Asia, including greater China. So, you know, each region is holding its own and contributing to our growth across all segments.
Speaker Change: Understood. Thank you. And then for my follow-up, wanted to touch on software and advisory again. You mentioned good growth in software specifically. I think it was 9% organic. I'm the advisory side. Is that a business that is going to be a little bit more lumpy and I'm just curious if in this environment with a lot of puts and takes and [inaudible]
Speaker Change: and complexity. It's that's a business that would also potentially benefit from your services.
Speaker Change: Yeah, advisory, it is lumpy, and it's lumpy. It doesn't benefit as much from the sales transformation. A lot of times in advisory they're buying the people that are going to be serving. So, you know, it's a different sales process.
Speaker Change: But we're also seeing, you know, some headwinds around some of the sustainability regulations shifts in the US. Our business focuses in our renewables focuses on financing renewables projects.
Speaker Change: So, as we, as the Dr. Manships, our needs for advisory can shift in that.
Speaker Change: and then we also have a nice footprint in healthy buildings which is really dependent on the commercial real estate market and of course in the United States we're seeing some headwinds in that market as well.
Speaker Change: So advisory is lumpier. We believe in its importance to contributing to our tick customers, overall perspectives and requirements for how their products come to market. But we'll continue to focus on it.
Thank you.
Speaker Change: The next question comes from the line of Arthur Truslove from City. Please go ahead.
Good luck, good luck, good morning, your son, good afternoon, my time to attend.
Congratulations on the results. Three for me if I can.
Speaker Change: Could you give us an idea of how much you think might have been to that in the first quarter? Second question.
Speaker Change: How has UM's just come in on the impacts of pricing within your overall organic growth, so roughly what proportion of it was pricing?
Speaker Change: And then obviously you've been very focused on what you've been expanding in China that have built some new labs recently. Can you just give us an idea of how your Chinese labs are performing? Is it all sort of in line with expectation?
Speaker Change: And are you staying any impact there from what's going on in Washington? Thank you.
Speaker Change: Thank you, Arthur. I'll take the first couple of questions in regard to pull forward of demand and in general we haven't seen substantial changes in the timing of revenue. We mentioned in the fourth quarter, we saw an increase in ongoing certification services.
Speaker Change: Through the first three quarters of last year that that service line grew about 8% in the fourth quarter it grew about 12% and there are some services within that that the
Speaker Change: The market's value so much that each individual product has a...
Speaker Change: A certification or a labeling to reduce risk. So we did see that increase in the fourth quarter as we anticipated in the first quarter that normalized that service line was about 5% growth.
Speaker Change: The another area that we mentioned that likely has some moderate impact.
Speaker Change: We had a very strong first quarter in consumer, 7.7% organic growth.
Speaker Change: that's higher than the last several quarters. And we can see regionally some of that was particularly in...
Speaker Change: Soft lines and hard lines. Some of it was in markets that would be affected by tariffs.
Speaker Change: 5.8% organic growth in the first quarter of last year, 6% growth in the second quarter, 9% growth in the third quarter.
Speaker Change: It's moderately above our trend and we can see geographically that it's logical to say that there was some effect but these are relatively small for concern.
Speaker Change: And then next about pricing, you know, we're pleased with that organic revenue growth that there was.
Speaker Change: Fairly even contribution from both price and volume. We continue to make progress on our pricing initiatives. That came through within the quarter and assisted the revenue growth, but it was relatively similar contributions from both price and volume.
Speaker Change: and then the final question was about China Lab performance. And just one more thing I'm pricing, we continue to have...
Straun,
Speaker Change: Net Promoter Score Results. We evaluate that every quarter and so we want to ensure that our customers are getting the value for our services and we watch that very closely and are pleased with what a great job our team does all over the world on behalf of our customers.
Speaker Change: On China, we have announced new labs, China had outstanding performance and...
Speaker Change: continues, of course, to be in a very important region for us.
Speaker Change: And, you know, it's a beautiful lab in what's considered in China, you know, a tier two city of 10 million people, but we see, you know, excellent performance in all of our labs across China.
Thank you very much.
Thanks, Arthur.
Speaker Change: As a reminder to ask a question, please press star n1.
Speaker Change: Hi, thank you. Maybe just a big picture on tariffs as your customers potentially shift their supply chains.
Speaker Change: How does that potentially impact utilization across your labs and Ryan, how does that then potentially impact incremental margins and the strong operating leverage that you have shown historically?
Yeah.
Jenny Scanlon: So, a couple of things, as Jenny said, breaking it out by our different service lines. So, first about a third of our revenue is ongoing certification services, and not much of that is laboratory base. That is a...
Jenny Scanlon: and employee-based human service. And as trade shifts, we can adjust our workforce to meet that demand. So that's about a third of our revenue.
Jenny Scanlon: and over a long period of time, we've been adjusting our lab capacity based on global trade patterns and the needs of our customers.
Jenny Scanlon: So we've expanded capacity in Vietnam, we've expanded capacity in Mexico.
Jenny Scanlon: in a number of different regions. And we have visibility to what the plans of our customers are.
Jenny Scanlon: in building their new manufacturing capabilities, their new research and development, so we have time to react.
Jenny Scanlon: So we're fortunate that our laboratories, our physical assets are being well utilized and that's leading to high
Jenny Scanlon: Operating Leverage and Economic Flow Through, like in the first quarter, but it's something that will continually monitor to serve our customers and we've made adjustments.
Speaker Change: That's really helpful. And then for my second one, just on the free cash flow performance in the quarter, it was really strong, nearly 15% of revenue.
Speaker Change: Just any comments, Ryan, how you would expect that number to move going forward for the full year. Thank you.
Speaker Change: We're pleased with the performance of cashflow and it's coming from a number of different factors. So core profitability and growth in that income.
Speaker Change: Improve Work and Capital Management, and Day Sales Outstanding. Better global cash management of our balances around the world allowed us to pay down debt.
Speaker Change: and some of this is a shift to being a public company, a transition from cash-based long-term incentives to more stock-based compensation in all of those contribute. We continue to invest in growth.
Speaker Change: for the business and had over $50 million in catbacks. We anticipate a similar percentage on a full-year basis.
Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Dennis Scanlon, Chief Executive Officer for any closing remarks.
Speaker Change: Conference has now concluded. Thank you for attending to this presentation. You may not disconnect.