Q3 2025 UL Solutions Inc Earnings Call

Good day and welcome to the US Solutions. Third quarter 2025 earnings conference call.

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I would now like to turn the conference over to Yin brentano. Please go ahead.

Thank you. Welcome everyone to our third quarter 2025 earnings call

Joining me today are Jennings gallon, our chief executive officer and Ryan Robinson our Chief Financial Officer.

During our discussion today, we will be referring to our earnings presentation.

Which is available on the investor relations section of our website at ul.com.

Our earnings release is also available on the website.

I would like to remind everyone that on today's call. We may discuss forward-looking statements within the meaning of the Safe Harbor, provisions of the private Securities. Litigation Reform, Act of 1995,

These 4 were looking statements, may include among other things statements about UL Solutions, results of operations as an estimate and Prospects that involve substantial risks and uncertainties. And other factors that could cause actual results to differ, in the material, way from those expressed or implied in the forward-looking statements,

Please see the disclosure statement on slide 2 of the earnings presentation as well as the disclaimers in our earnings release concerning forward-looking statements and the risk factors that are described in our annual report on form. 10 K for the year ended December 31st 2024.

We assume no obligation to update, any forward-looking statements, to reflect events, or circumstances after the date, period, except as required, by law.

today's presentation also includes references to non-gaap financial measures,

A reconciliation to the most comparable GAAP financial measures can be found in the appendix to the earnings presentation.

With that, I would now like to turn the call over to Jenny.

Good morning everyone and thanks for joining us.

I'm excited to report another strong quarter of consistent growth across our business. All segments, major service categories and Geographic markets delivered, solid results.

I want to start by acknowledging our outstanding team whose deep expertise and unwavering commitment are the driving forces Behind These results.

Their dedication to our safety science Mission and exceptional customer service continues to be our greatest competitive differentiator and the Cornerstone of our industry-leading success.

This broad-based performance demonstrates sustained, customer demand and the resilience of our business model.

It also highlights both our Global reach and the Strategic value of our focus on transformative industry trends.

Our ongoing investments in energy transition, the electrification of everything and digital transformation are expected to continue to drive sustainable growth and position us well for the future.

Given our strong year-two day performance, particularly in the third quarter and our current visibility into our customers ongoing product development pipelines. We are strengthening our full year 2025 guidance.

Number 4 key areas before. Turning the call over to Ryan.

first, I'll talk about our third quarter performance, highlights

Second, I'll cover notable achievements and activities since we last reported.

Third, I'll talk about a restructuring initiative. We are announcing today to streamline our operating model reduce expenses and keep our focus on growth areas.

And finally, I'll offer some perspectives on how our business continues to thrive.

Ryan will dive into the numbers. But first, let me hit the high notes of our third quarter 2025 results.

I'm particularly proud that we delivered strong quarterly Consolidated revenues that were up 7.1% as compared to the third quarter last year and up 6.3% on an organic basis.

Organically. We had balanced contributions from all 3 of our segments with industrial up, 7.3% consumer up, 5.3%, and software, and advisory of 6.5%.

We achieved these results against dynamic, geopolitical, and regulatory environments that continue to impact our customers' behavior.

Profitability improved year-over-year with adjusted ebit dog growing 18.6% to 217 million and adjusted ibaa margin expanding by 270 basis points to the highest level since we became public in April of last year.

Higher revenue and realized operating leverage were key drivers.

We generated 317 million dollars of free cash flow through the first 9 months of 2025, and our balance sheet remains robust.

Now, let me highlight notable new offerings and key developments during the quarter.

First, we continue driving growth through our Ultra software platform with significant releases addressing customers, key compliance and sustainability challenges.

New capabilities, include enhanced, POS identification, expanded ESG disclosure management for international standards and AI powered features.

these strategic enhancements strengthen our competitive position and are expected to grow our software annual, recurring Revenue,

In addition, we expanded our marketing claim verification Services into the high growth, industrial software sector. Positioning us as The Trusted Authority for our customers. Next Generation, Manufacturing Technologies and the emerging Industrial metaverse

Seamans became our first customer to receive UL verified marks for these services.

We expect the Strategic expansion into industrial software verification to strengthen our role in enabling digital transformation of manufacturing environments. While opening new Revenue opportunities in this rapidly growing Market segment.

As the American leader in Fire Safety Science. We broke ground at our Global fire science center of excellence in Northbrook. Illinois representing 1 of our largest laboratory Investments to date and reinforcing our leadership, in Fire, Safety Science,

This state-of-the-art facility. On our 110 acre headquarters campus will integrate Advanced testing capabilities with a dedicated R&D hub.

The multi-building complex will test emerging products including pfos free foam systems and energy, efficient designs. And will serve North American and Global manufacturers.

We are focused on what we believe to be the most attractive Mega Trends in the product tick industry to drive above market growth, while delivering Superior margins, that ultimately result in healthy cash generation.

As part of our journey to fulfill those aims, we regularly evaluate our suite of offerings as well as our cost structure.

We may be over 130 years old, but we remain agile and will continue to adapt as markets evolve.

To that end. Today we are announcing a restructuring initiative that will reduce expenses through streamlining our operating model and focusing resources on our core growth areas while exiting certain non-strategic service lines.

Ryan will address the details. But this initiative is expected to generate meaningful, annual run rate savings and margin expansion once fully implemented.

Finally, let me remind you of the resilience of our business.

as a global leader in critical Safety Science, we partner with customers throughout their entire product, Journey from additional initial R&D to manufacturing across every Major Market worldwide,

Second, our Revenue model helps create stability, and predictability.

third, and most importantly, demand has proven remarkably resilient

During this recent period of uncertainty, our services have remained in strong demand.

This validates, both the mission critical nature of our services and our customers commitment to Bringing new products to Market.

Now, I'll turn the call over to Ryan for a detailed review of our third quarter results.

Thank you, Jenny, and hello everyone. I also want to thank all of our team members for delivering another strong quarter, and continuing, our growth margin expansion, and cash generation momentum. I'm pleased to share that both revenues and adjusted. EBA for the quarter, where all-time records for the company, and it's encouraging to see the balanced revenue and profit growth across all of our segments. Now, let me dive into the details of the quarter Consolidated. Revenue of 783 million was up 7.1% over the prior year quarter on an organic basis Revenue, grew 6.3%.

% Revenue also benefited from favorable FX movements particularly the euro

cost of Revenue as a percentage of revenue for the quarter, decreased 130 basis points to 49.7%, primarily due to improved employee cost efficiency

Sgna expense is a percentage of Revenue, decreased 80 basis points to 30.4% sgna expenses, increased 4.4%, compared to the prior year period on an organic basis. Employee compensation increase 6 million related to base salary increases and higher costs associated with performance-based incentives, including the company's long-term incentive Awards in addition. To technology costs, increased 4 million on an organic basis. Primarily associated with cloud, computing service Arrangements.

Adjusted. EBA for the quarter was 217 million and Improvement of 18.6% year-over-year. Adjusted evaa margin was 27.7% up. 270 basis points from last year with margin expansion across all 3 segments,

Adjusted net income for the third quarter was 119 million up 14.4% from last year, adjusted diluted earnings per. Share was 56 cents up from 49 cents per share in the third quarter of 2024.

Now, let me turn to our performance by segments. Starting with Industrial

revenues and Industrial Rose, 8.2% to 343 million or 7.3% on an organic basis, primarily driven by growth and Certification testing and ongoing certification Services across most Industries. We saw particular strengths and demand for energy and automation ongoing certification Services Revenue increased due in part to price increases Revenue. Also benefited by million dollars versus the prior Year from favorable changes in foreign exchange.

Adjusted EBA for the industrial segment increased 16.0% to 123 million. While adjusted Eva margin improved 250 basis points to 35.9%. As we continue to benefit from higher revenue and increased operating Leverage

Now, turning to the consumer segment, revenues and consumer were 340 million up, 5.9% on a total basis and 5.3% on an organic basis. We saw balanced growth across all Industries. We saw particular, strengths, and non-certified in consumer, technology. Primarily driven by increased demand for electromagnetic compatibility, testing for consumer electronics. And in retail

adjusted IBA dot for the quarter and consumer was 70 million and increase of 12.9% adjusted IBA margin for the quarter was 20.6% and increase of 130 basis points. Operating leverage, as a result of organic growth was the main driver in the year-over-year Improvement.

On a total basis and 6.5% on an organic basis. Advisory had a particularly strong quarter, as a result of a high level of customer project completion, with Organic Revenue, growth of 8.8%, in addition, to 5.8% organic growth in software,

Adjusted, EBA for the quarter and software and advisory was 24 million, which was up 60% compared to the third quarter of last year and adjusted IBA margin for the quarter was 24% and increase of 790 basis points due to higher revenues and greater staff utilization.

Continuing our great cash generation Trend. We delivered 4566 million of cash from operating activities for the first 9 months Capital expenditures for the first 9 months were 139 million. And I'm very proud of our Global team for generating 317 million and free cash flow year to date, which is up 47% from the first 9 months of last year. Primarily, as a result of improved profitability in our core businesses.

we paid 26 million in the third quarter and 78 million uh year to date in dividends and as of September 30th, we held 255 million in cash and cash equivalents

Additionally, just last week we replaced our credit agreement with a new credit facility. This updated facility provides us with enhanced Financial flexibility more favorable terms and supports our ongoing investment and growth initiatives.

Our results have been strong as a public company. We're continuing to tailor our business to adapt to today's rapidly changing landscape. One of the pillars of our margin expansion strategy has been to focus on internal cost improvement opportunities. We are regularly evaluating our capabilities to ensure they align with our core markets. As Jenny mentioned, today we're undertaking a restructuring initiative to streamline our operating model and to reduce expenses, including downsizing our current workforce by approximately 3.5%.

The plan to actions will include role eliminations and the exit of some non-strategic service lines representing approximately. 1% of our total revenue in 2025. While exiting these services will create a modest headwind to our 2026 organic Revenue growth. We believe this initiative positions us for stronger profitability.

And allows us to focus more acutely, on our strategic priorities.

We expect to record 42 to 47 million in pre-tax. Restructuring charges primarily in Q4 2025, this initiative is expected to be substantially complete by the first quarter of 2027. And once complete, we expect to improve annual operating income by between 25 and 30 million. As a result of both the revenue and expense impacts from these actions.

now, turning to our 2025 Outlook,

Given our solid performance through the first 9 months of 2025 current visibility into our end markets and confidence. In our execution, we are pleased to strengthen our 2025 full year outlook. We now expect 2025 Consolidated, organic Revenue growth to be in the range of 5.5 to 6.0% as compared to our full year 2024 results. Organic growth is based on constant currency and it excludes Acquisitions and domestic.

In the fourth quarter, we expect organic Revenue growth to be modestly lower than our full year 2025 expectations.

As it represents the most challenging comparison to 2024. And as a reminder, the strength in the fourth quarter of 2024, we be, we believed was due in part to some pull forward of Revenue, particularly in the industrial segments, ongoing certification work, in advance of expected tariffs.

We now expect our adjusted ebita margin organic Improvement.

To approximately 25% for the full year, 2025 up from our prior guidance of approximately 24%.

Our outlook for Capital expenditures in 2025 is now expected to be in the range of 6.5 to 7.0% of Revenue down from 7.0 to 8%. Previously, this change is mostly due to timing with ongoing. Strong customer demand in all 3, segments.

To address their needs.

Our expectation for our effective tax rate in 2025, is now in the range of 25 to 26% compared to our prior guidance of approximately 26%.

Our Q3 and year to date performance. Demonstrates sustained business momentum with enhanced profitability and robust cash flow generation, which enables strategic Capital allocation priority, uh, opportunities. We expect to continue. Delivering exceptional returns to our shareholders. And now, let me turn the call back to Jenny for her closing remarks.

I'd like to take a moment to talk about an exciting development. As we announced yesterday, UL Solutions is proud to be launching Landmark artificial intelligence safety Certification, testing a major step forward in building, public trust and enabling the responsible adoption of beneficial, AI Technologies.

As AI rapidly transforms. Our daily lives. Powering everything from Smart devices to Industrial Systems. It also raises serious concerns about safety, ethics and misuse.

The new Certification testing, we will offer is Guided by UL, 3115, the newly published outline of Investigation or oi as we call it for artificial intelligence safety of AI based products.

As an ooi UL, 3115 serves as a set of safety criteria developed by UL solutions to assess emerging technologies, that lack, an established UL standard.

Products that meet the requirements of an oi through UL Solutions, testing and assessments may earn, the UL Mark, indicating compliance with safety requirements.

We have also been granted a patent for machine learning based AI scoring.

So, let me close.

Our third quarter results, reinforce the fundamental resilience and growth potential of our business model.

We delivered consistent growth across our business, all segments, major service categories, and Geographic markets, and produced Superior returns to shareholders.

That will open the line for questions.

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if at any time your question has been addressed and you would like to withdraw your question, please press star then 2

At this time, we will pause momentarily to assemble our our roster.

The first question comes from India with men from beard, please go ahead.

Oh great. Thanks a lot for uh, taking my questions. I have, uh, 2 this morning, if I might, um, I guess. Um,

Obviously, good results here—very good results. I was kind of curious as to, uh, given the focus that some of your customers have in China, in Greater China, the macro and the headlines are so volatile, and the policy seems to switch every week. I was just wondering, uh, Jenny, if you could talk about the posture of your customers there. What is meaningful for your business, and what your experience of all this has been, and what it might just mean here as we start looking into 2026?

Yeah Andy thanks for the question. And it is um certainly you know, even as recently as this last week that uh tariffs remain, you know, a topic that is front of mind uh for most manufacturers and and most of our customers

what we see was earlier this year, we saw, you know, uncertainty and I would say some slowdowns and we saw that in particular with some new product launches in Q2

I think what we're seeing now is almost a sense of a new normal that that customers are just expecting greater certainty and wherever things are landing. And it's becoming a more typical response to tariffs with, you know, the supply chain diversification. Um, you know, discussions and timing around on Shoring and reshoring. And um, I think just, you know, continued emphasis that um, you've got to get back to business as usual in in whatever The New Normal is.

All part of your business but this quarter it, it did. And so, I thought I would ask here a little bit and specifically, uh, obviously while both the top and the bottom line were good, you had a comment in your in your remarks uh talking about how uh there was a number of projects that were completed during the quarter. And I was wondering what the significance of that comment was I was wondering if it had to do with um uh projects that might have been done on a fixed price basis. Uh and therefore done under percentage of completion accounting, did that have a like a kind of a a benefit to the margin this quarter? That was those worth noting or or was this purely? Just kind of every day better utilization of your uh, advisory staff and and and mix from from having uh, software growth

And thank you very much for the question, Andy. Uh, and uh we are uh, very thankful to the software and advisory team for for a strong quarter as you know that business has recurring software Revenue that we recognize over a period of time but also the advisory business is Professional Services that can have lumpy project-based work. And what we saw in the third quarter was the completion of a lot of

Advisory related projects and the recognition of a lot of Revenue that led to high utilization of that staff. Um, we we use the words they'll really particularly uh, high level because uh in the we have not yet built a trend of multiple quarters and it's quite possible.

In the fourth quarter and first quarter in additional quarters, it could be lower than what we experienced, uh, in the third quarter. But we're very pleased with the performance in the third quarter.

Okay, got it. Thank you very much.

The next question comes from Andrew. Nicholas from William Blair, please go ahead.

Hi, good morning, appreciate you. Taking my questions. Um, first 1 was just to kind of follow up on the first question, just in terms of of tariffs and the impact of of tariffs today. I think last quarter, you described a little bit more muted volumes in April, and May and then somewhat of a snap back in June, just kind of curious. If

Third quarter results and maybe even what you've seen so far in October is consistent with those those June levels or if there has been, you know, continued choppiness, intra quarter uh, consistent with the second quarter.

Thanks Andrew. And you know we're not going to comment on October but um, Q3, uh, we saw, uh, it was a strong quarter and we saw a much more typical Cadence.

Um, so it was relatively steady across all 3 months of the quarter. And um, you know, we we continue to, you know, as I, as I said earlier, I think are reverting to a more normal response to, uh, tariffs and with customers just having greater certainty in the decisions that they're making around their R&D pipelines, their supply chain diversification. And, um, you know, any moves they make around, um, you know, reassuring onshoring, moving to other, you know, other countries. Uh, we continue and we've said this in other quarters to see,

Shifts in where our ongoing certification services are field sites. Um, and there is, you know, pretty significant, uh, off a low base, but significant growth in Vietnam, Thailand and India.

Um, and you see some of the more traditional comp countries, um, you know, have you know, negative growth rates on a number of manufacturing sites that that you know, that we visit, you know, countries such as Germany Japan and Taiwan have a slight contraction. So that's how we're seeing this play out. Brian. Do you want to add anything to that? Yeah, no. Just that our our business model is global. And as you know, we grow capabilities where our customers need our services. So so we're

Adapting. We've added capacity and some of the markets that that Jenny mentioned uh in in pretty good results.

Yeah. Thanks Andrew. And you know philosophically

We on a continuous basis are always assessing, you know? Where are we leading in our businesses and part of our leading performance is we like to say the privilege of focus.

And we do have a philosophy of wanting to lead in any business that we're in. And so, you know, we have an annual long range planning process and and we're constantly looking at, um, how do all of the individual pieces fit in? And so this is no different than what we do on an ongoing basis. It's uh you know, just packaging it a lot together here but where we're focused is on the highest quality growth that we can get and we're focused on minimizing distractions from underperforming businesses that we don't see a path to leadership in. So that's, that's how we would characterize this, and, you know, to that degree. Um, it frees up.

Time attention and resources to focus on the areas that that we believe have the greatest value creating capabilities for our business.

Thank you.

We now have a question from the line of George Tong from a Goldman Sachs. Please go ahead.

Uh, hi, this is Anna wool on for Georgetown. Thanks for taking my question. I have 2 this morning. So first, 1 for industrial businesses, have you observed? The different growth Dynamics across regions for the US, Europe or Asia and or is there any geographies growing meaningfully faster than others in? How does that Trend compared to what you were seeing in the consumer segment? Thanks.

Thanks Shana. I'll start and then let Brian weigh in a little bit. Um, we've had growth in every region in industrial and um certainly uh the United States

greater China and, uh, more broadly across, um, asean and even Korea, um, have exhibited uh, some some

you know, real strength, especially in areas that I would say, are fueling the data center,

Uh, growth. So uh, Industrials energy storage systems.

High voltage wiring cable. And um,

You know, all and then the built environment, the fire suppression systems and and other pieces that are needed uh, to again protect those data centers. So it is, it is strength across our operating units globally.

Yeah, the only the only thing I would add is that we had moderately more contribution from the US in the last quarter than last year at this time, but growth across the board and, um, not a material difference. Just like moderately more in the US,

Super helpful. Additionally, um, do you launched a battery testing laboratory, in Germany earlier last quarter and also the uh the Michigan battery. Testing Lab opened the second half last year. So can you please talk more about the utilization rate of those battery, testing labs, and how, and how are you thinking about the growth momentum in the battery? Testing services. Uh, specifically are there any implications from the rich and the expirations of the federal EV tax credit?

Yeah, you know, energy storage system batteries uh continue to be an important and evolving Market.

When we invested both in Auburn Hills Michigan. And, uh, in battery engineer, the company in Germany that we acquired last year and then added Capital to, uh, this year,

we always felt that there would be a balance between EVs and Industrial energy storage systems. And I think our initial hypothesis is it might be more heavily weighted to EVS. Um, and over time, the energy storage systems for the industrial environment would increase.

Uh, I think we're seeing that shift occur faster, uh, than we expected really on, you know, the heels of both, uh, changes in, um, the approach to EVS, as well as the rapid Ascent of the need for energy and power in data centers. Um, so we don't publish utilization of individual Labs, but we are pleased with both of those Investments.

Thank you so much.

The next question comes from the line of, please go ahead.

Hi, thank you very much for taking the questions. Um, Jenny and Ryan. I just want to dig in a little bit more into the restructuring program. Um, is there something that's going to be happening structurally? Like from a process perspective that's going to give you more um margins, leverage in the future. I understand. There's like a riff that, you know, taking out specific areas. But is there anything that's going to be implemented? That just structurally means that the margins are going to improve beyond that amount that you're you're taking out as the revenue grows. And then just as part of that question, um, there was a comment in there that the, uh, you know, that the savings of 20 to 30 sounded like a combination of both cost savings. And then also some Revenue, I don't usually hear Revenue. Uh, as a component of restructuring programs. I was wondering if you can kind of parse that out for us a little bit more and and then I have a follow-up. Thank you.

Thank you very much for the, the questions, slowmo.

We wanted to clarify that. Uh we're focusing in in strategic service lines for our customers. And so as a consequence we'll be exiting

Some Revenue lines that are roughly 1% of our current Revenue. So to get to a forecasted range of operating income improvements, we lose that revenue. And we need to take out more than that amount of expenses.

Those service lines are less profitable than the total and our restructuring initiative extends to other other areas of the company, other support areas uh unrelated to those service lines. So it's it's

Both a, a a choice to focus in an exit from some, some service lines, but also a broader expense reduction initiative. The large majority of the uh expenses are people related costs and that will occur.

Through q1 of of 2027, the impact in 2026 will be moderate as the, uh, Revenue comes down and it's, it's offset by expenses coming down and 2027 is when we'll see, uh, the Lion Share of that 205 to 30 million Improvement range that I mentioned at an operating income level.

Okay. Um,

And then is it, I guess so, just just to follow up on there. So there's is, is there like process improvements that are going on? I understand it sounded like there was some of that, but I just want to confirm that. And then just, uh, also the capital intensity guidance is going down a little bit for the year and it sounds like, you know, your view of the Outlook of Investments are are are are the same. I I think you mentioned something about timing going on, but I wanted to know if you can just give us a little level of detail of what's going on over there. Like, in terms of thinking about a capital intensity going forward is is is everything the same and it's just timing. Or is there anything like your focusing on that is less Capital intensive uh in terms of driving the growth?

Yeah, let me follow up on your process Improvement. Questions on all of Ryan talk about Capital intensity. Um I'm a huge believer in ongoing business process Improvement and we have invested um in various Technologies and intend to continue to do so.

To help our employees have better tools and techniques, uh, to improve their ability to service customers. So indeed that type of process Improvement, uh, on the backs of Technology investment uh, is helpful.

And in regard to capex, we we continue to be excited about the portfolio of growth Investments.

In recent months, we've announced several exciting Investments uh including our Global fire science center of excellence here in Northbrook, as well as an advanced automotive. Electromagnetic compatibility laboratory in Japan, uh,

There was some investment that we had planned for 2025 that will just shift into 2026. Uh will provide more uh overall guidance uh with our, our year-end reporting but the portfolio of growth initiatives remains from

thank you.

We now have a question from the line of

Please go ahead.

From pricing versus maybe just volume volume growth in general and how we should think about just pricing in general, just given maybe the competitive environment or anything else. You'd like to call out for this year as well as as you think about your normal pricing practices going forward. Thank you.

Yeah, um, so first off, Certification testing had strong growth, 8.7%, non Certification testing uh, was up. 6.8% so strong growth from both of those. Those are the service lines they can they comprise 59% of our Revenue that are most measurable by price and volume? They are the delivery of discrete projects for our customers and and the we can count the unit volume of the completed projects.

Um, so overall, those grew 7.7% and there was relatively similar contribution from both price and and margin the price and volume. Uh, both very similar. We did, uh, comment uh, that ongoing certification Services particularly benefited from pricing. Um, so that would be in addition to the testing related activities that I spoke with

Got it. And I guess on that, that last part. Is this just I, I'm just the normal course of pricing given where we are in the year, or was this a more um, maybe active approach to take some incremental pricing?

Yeah, for the testing related Services, we're continuously pricing hundreds of thousands of projects. So uh it it is an ongoing uh value-based pricing evaluation ongoing certification Services uh are more done on an annual basis and we benefit from that throughout the year.

And then just 1.

String program, a couple questions here. You know, as you think about on the the the revenue impact for 2026. Um, I think you called out the percent from, you know, discontinuing from businesses. You're effectively walking away from, you know, do you believe that despite that headwind that you should still continue to grow in line with the algorithm that you have laid out in terms of your kind of long-term or medium-term Topline growth algorithm? Thanks.

Yeah, I I would say the things that drive our growth, our our unchanged, um this will be an organic headwind for 1 year, as we compared against, uh, businesses that we previously were in. Um,

We, we are still going to be in 99 plus percent of the same businesses, so the growth rate of those our overall growth rate, uh, is, is not materially changing, um, but it does allow us to focus. The, you know, businesses that are underperforming. Take take up a disproportionate amount of management time. Um, so it allows Focus to serve our customers

Uh, in our core businesses.

Thank you, appreciate it.

The next question comes from the line of Andrew staman from JP Morgan. Please go ahead.

Um, hi Ryan. I was

Really asking just to make sure that I understood the implied uh fourth quarter, organic Revenue growth, right? Uh in your full year guide. I get a little bit under 4% organic Revenue growth. I definitely heard you note the tough year of your comp and the explanation for the strength. Uh in fourth quarter of 24. I was just wondering if there's any other call outs. Affecting fourth quarter, 25 that didn't affect um, um, you know, third quarter 25, uh, and for example are the exiting of the service line through the restructuring affecting fourth, quarter revenues

Thank you for the for the question. So, a, after strong Q3 performance, we have a similar Outlook about Q4 is when we reported last quarter and we're very pleased that put us in a position to raise our 2025 full year guidance.

Q3 and Q4 have historically had similar uh, Revenue quarters in a given year in our, our guidance assumes that that Trend will will continue. Uh, when you look at the varying growth rates across quarters, the the biggest factor is a tough comp in Q4.

Reminding that we had 9.5%, total organic growth in Q4 last year, which included 13.9%. Organic growth in industrial.

Pleased with the momentum. We built through the third quarter and our ability to raise guidance.

and then Ryan yeah the last part about exiting the service lines does that affect you know what order I I would say that just the timing of that that's that's more like

Likely to be impactful in 2026 and not expected to have a material effect. In Q4, the biggest single effect is, as you pointed out, Constellation, particularly in ongoing certification services, which grew substantially. We believe it is ahead of tariff anticipation.

Gotcha. Okay. Thank you.

Thank you.

We now have a question from the line of Josh Chen from UBS. Please go ahead.

Hi, good morning, Jenny. Ryan, thanks for taking my questions. Um, Jenny, you mentioned data center, uh, a while back. I guess, could you triangulate for us? You know, the areas in your business that touch data centers and and maybe how big in total of an exposure that might be for you.

Yeah, we have a

Quantified, the total exposure. But let me just give you an example of, of the types of effects that that this has on our business. Um, some of our, our largest global and strategic account customers, uh, came to us. And, and they asked us to host a data center power Summit, uh, which we hosted at our headquarters in September, and the

The safety challenges around this is that there's this rapid evolution of, you know, the energy that's needed in data centers. And then there's the power infrastructure that has to support that and that energy is needed. You know, because of, you know, the AI

Uh, uh, you know, just amount of compute that's going on as well as, you know, the density of of gpus and and the, you know, the thermal environment that that creates. And so, you know, there's things around uh,

Shifting to direct current DC as a systems architecture, there's changes in cooling, that's required, you know, and typically you think about air cooled or water cooled back in, you know, my former days but now you've got inra Cooling and on ship Cooling and immersion Cooling. And that's just 1 example of the complexities and and types of innovation that our customers are pursuing in the data center environment and this rapidly changing world. So,

we're right there with them. We're continuing to to focus on, uh, this growth area and opportunity. And I think there's just a lot of innovation to be had around. Uh, you know, this this completely different world of different types of data centers that are required.

Thank you for the call there. Um yeah, that that's really helpful. Um and then on the uh, on the broader expense reduction initiative, it it certainly seems like this is a more concentrated way to kind of reduce cost. So I'm just wondering, you know, what's what's the historical source of those kind of excess costs if you will? And you know, is there anything changing in? That's enabling you to now. Take out those costs whereas historically they they were uh needed. Thank you.

Josh, thank you for the question. We we'll provide more detail uh

About the program that we're announcing that will undertake in in Q4 with the completion of the of the quarter and an ongoing basis. Um we do anticipate the majority of the restructuring expenses and therefore the cost reductions will be in our uh testing inspection certification businesses, both consumer and in industrial but we'll provide some more detail on on what we're doing and how we're how we're achieving that as we progress through the program.

Okay, great. Um, congrats on the on the good quarter.

Thank you.

The next question comes from the line of Arthur tools. Love from City please go ahead.

uh, thank you very much and uh like to take my question Australian Ron, um,

Sounds great time. Uh, 3 questions, if I may um the first question um, is on the sort of underlying software business. So you obviously talked about how um the sort of project businesses have gone pretty well in Q3. Um, but full year, you have a view that the software business might strengthen. Are you able to just talk to that?

And second question, um, are you able to just um, give us a reassurance of the growth Outlook. So I guess

be back into the if you like um, clearly the

Mathematically the Q4 guide would appear to be 3 to 5%. Um your capex guide is down and obviously you're doing a restructuring. Um so could you just provide reassurance that your expectations for the underlying growth of the business have not changed? And then, um, I guess finally, um, just in terms of um, the cost savings, um, you've obviously what my sense is and please put it on role that you are essentially abandoning a couple of business lines. Um, and that what you're saying is that your organic growth will be lower next year because you're not doing those businesses anymore and that the organic growth in the rest of the business will be pretty much as it was this year. Is that the right way to think about what you're saying or have? I misunderstood something? Thank you.

Software.

Advisory business was a 6.4% organically and software was up nicely. Um, and the great thing about software being up is that there's operating leverage that you get from that, and it certainly, um, both the, the throughput and advisory, and the growth and software, uh, expanded the software and advisory margins by, you know, 790,

Basis points and I think if you look at our software growth rate in the third quarter, um you'll see that it it continues to grow at an expanding rate versus year to date. Um, so so we're pleased and um, you know, and and there's more to do we're excited uh, that our Ultras releases have been welcomed by the marketplace. Uh, we had, you know, new releases around sustainability and peas and um,

Some purchase goods and services and some focus on what will be needed in sustainability reporting as demand around fulfilling csrd. Needs, uh, bounces back.

And then we were really pleased that verdantix, uh, an independent research and advisory firm, uh, labeled us as a leader in their inaugural green quadrant for product compliance software. So overall, I think, you know, the underlying momentum in our software business continues, um, I'm going to ask Ryan to provide some reassurance on the growth Outlook, but I do want to highlight that. That those 3 pieces, the Q4 guide, the capex timing and the restructuring are not related. They are 3 independent variables that happen to all come together, uh, on this call. Yeah.

Agree. I think that's that's well described.

Uh and then the the impact of the expense reduction. I think that's a you described it. Um

Uh, appropriately. We we are, we are just discontinuing some service lines, uh, and we will focus on, uh, the, the remainder of the business. It's roughly 1%. Uh, so it, it does not materially change our overall growth rates for, for other things.

Okay, thanks, this is making this up but if you thought you were going to grow 6%, organically next year, it will now be 5 because you're basically abandoning 1% of your business to that kind of, right? That's correct. That that that's directionally, correct. Thank you.

We now have a question from Jason Haas from Wells Fargo. Please go ahead.

Good morning. This is Jenny on for Jason hos. Um just wanted to jump back on the software and advisory segment advisory has been a drag on that segment for a couple quarters and it kind of flipped this quarter. You saw a lot of good momentum there. I know you guys noted that the advisory part of that is very lumpy, but do you have any sense, why you saw such a big upswing? What was fundamentally driving that?

Yeah, interestingly the, the upswing in this was in our Renewables advisory business, um, and and I'll remind you that business focuses on supporting financial decisions for um uh Banks and other Financial Services in uh, financing Renewables projects. Uh, so there was an uptick in that and our team has been working really hard uh, to facilitate that demand.

We do continue to see some headwinds and advisory in particular, you know, the commercial real estate affect on our healthy buildings advisory.

And, um, you know, that's an area that, you know, we expect, as um, commercial real estate continues to evolve, uh, to continue to hopefully bounce back in the future.

Got it. That's a really good color and then you guys have talked a lot on this call about your organic Investments, but I'm more Curious on the opportunity. On the inorganic side, you know, with the exit of some of these non-strategic service lines is there more appetite to conduct more m&a related to your more core growth areas and also I noticed there was no m&a done in the quarter. Is there any reason why has you know the market not been very appealing.

You know, we'd like to say that we're disciplined and we're active in m&a and a lot of it has to do with timing and quality of opportunities. Um so we will continue if there's a conversation to be had about an acquisition in the product tick space and opportunity out there. Uh

We like to be involved in those conversations and um, you know, timing is uh, somewhat capricious sometimes and um, we will continue to pursue appropriate opportunities for inorganic growth.

Great. Thank you.

again, if you have a question, please press star then 1

This concludes our question and answer session. I would like to turn the conference back over to Jenny Scanlon for any closing, remarks.

Thank you everyone for joining us today. Uh, we appreciate your questions and your support and we look forward to updating you on our progress next quarter.

The conference has now concluded, thank you for attending today's presentation. You may now disconnect