Q4 2025 Earnings Call — February 19, 2026
Analyst Curtis Nagel (Bank of America): First question comes from Curtis Nagel with Bank of America. Maybe just starting with the 26 margin guide that definitely stands out, you know, looks pretty good. Some of the biggest drivers, how much of that restructuring, leverage, stuff like that. And then, you know, I don't think I saw it, but, you know, any updates in terms of a long-term margin framework? Previously 24, you guys are well above that. Or maybe ask another way, sort of, you know, past 26, what's a kind of reasonable margin cadence of margin performance, you know, if you're still hitting that or on, you know, mid-single or growth. And then I have a follow-up.
Management: Thanks, Curtis, and welcome. Really what I want to start by saying is our 26 margin guide is a continuation of our continuous improvement philosophy. If you look at what led to our restructuring plan that we announced last year, it really was a confluence of a number of ongoing activities that we packaged into one event. We will continue to pursue continuous improvement activities on an ongoing basis, and that's really what underpins our guidance. But I'll let Ryan go into more of the details.
Executive Ryan: Yeah, thank you for the question, Curtis, and we're pleased with the 300 basis points adjusted EBITDA margin improvement in 2025 on top of the 190 basis points we delivered in 2024. As Jenny said, we're focused on continuous improvement and increasing that. The themes of improvement in 26 we anticipate to be similar to the year we just completed. Driving operational leverage through both price and volume, we intend to continue to increase the utilization of our lab capacity and our staff. The restructuring initiative will help on the cost side, but we also do have revenue reductions that we noted as well as a divested business. And so our expense and efficiency initiatives need to overcome those revenue changes. As I mentioned on the call, approximately 120 basis points of the adjusted EBITDA margin shift in the fourth quarter was related to that restructuring issue. All those things in FX go together to giving us comfort to guide to 26.5% to 27% for adjusted EBITDA margin in 2026.
Analyst Curtis Nagel (Bank of America): Okay. Thank you. Appreciate it. And then maybe just a quick one on cash. Just had to think about the pacing of debt pay down and, you know, potential use of proceeds. I think you said $200 million from the asset sale.
Management: Yeah, the initial use of proceeds general corporate purposes initially will repay debt. Our priority is to continue to reinvest back into the business, organic capex to grow and drive additional shareholder returns. It is a large distributed and consolidated industry, so we continue to evaluate acquisition opportunities. So in the short term, we'll pay down debt, but we will evaluate investment opportunities over time.
Analyst Stephanie Moore (Jefferies):
Your next question comes from the line of Stephanie Moore with Jefferies. I guess as I think about the underlying performance of the business, could you talk a bit about maybe where you're seeing some of your strong outperformance? For example, you called out introducing your first eco logo for industrial products and the like. Could you talk and see if the organic growth that you've seen in at least the fourth quarter are these higher margin verticals or ed markets? I guess just trying to think about the substantial operating levers that we're seeing and if this is just a function of, quite frankly, your initiatives around productivity and your investments, or are you seeing any kind of, you know, maybe mix or ed market benefit that would be different from just a steady course? And I have a follow-up.
Management: Thanks, Stephanie. I appreciate the question. And I would say it's all of the above. First of all, our focus on the megatrends is so important. As we're out there looking at things like the energy transition or digitalization that is really pushing AI data centers, and even the needs in the sustainability space, those are three of our biggest megatrends. All of those are yielding, as we look at it, double-digit growth. And while we transcend 35 industries and have a number of different services, that push for megatrends, it's important to our largest customers, and then it becomes important to their supply chains. So we do believe that the megatrends lead to that high-quality growth. At the same time, a number of initiatives that you've mentioned are giving us operating leverage. Pricing, as well as utilization of our teams, as well as introduction of new technologies and new tools to our business. All of those pieces fit together. And then finally on mix, Ryan mentioned that we expect that industrial will continue to have higher growth than consumer.
Analyst Stephanie Moore (Jefferies): Thank you. That's very clear. And then I wanted to circle back on maybe the first question on capital allocation but ask it in potentially a different way. You know, if I'm looking at this correctly, a net cash position is probably on the table here sooner than later. So, you know, as you continue to obviously generate significant cash, I fully understand your commitment to continuing to invest back in the business, but you know, as we think about the runway for the stepped-up CapEx, obviously 2025 you announced a lot of major investment projects. So how should we think about the magnitude of investments from a capacity or physical standpoint in 2026 compared to 2025? What's the runway on that magnitude of investments? And then given the debt position here coming in 12 months, what is the overall appetite for buybacks?
Management: Yeah, let me start. On the CapEx, you know, we always, you know, in addition to many of the large labs that we've publicly announced, you know, we have ongoing critical facility upgrades that give more capacity, lease renewals to extend our positions in markets, you know, as well as just individual services for many of our COUs. So our commitment to CapEx to, you know, deliver, you know, market-leading growth is an essential part of our strategy and an essential use of our capital allocation. Given high-quality growth as a strategy, you know, of course, we're also focused on M&A. We continue to see plenty of opportunities out there in the market, but we are very disciplined in our approach to that. We are renewing our focus for the year on... finding the right opportunities and successfully achieving that discipline and those results. So it's a balance. And then I'll let Ryan talk about other distributions of capital.
Executive Ryan: In addition to that, we have mentioned that over time we would consider share repurchases, particularly to offset dilution. We feel that we have been prudent stewards of our shareholders' capital, reinvesting back in the business and creating value. Our focus is organic growth and complementing that with accretive acquisitions, but we appreciate over time we need to evaluate all pieces of cash.
Analyst Andy Whitman (Baird):
The next question comes from Andy Whitman with Baird. I just thought maybe I would ask specifically on pricing. Ryan, in the past, you've talked about like kind of half of your growth-ish has been attributable to price. And I think historically, that's been a comment that you've been able to say kind of more confidently around your ongoing certification. Just wondering kind of how it evolved in the quarter. And I know it's harder to pin down on the non-cert and the cert testing portion, but do you feel like, can you comment on the order of magnitude that you think you're seeing in pricing in those businesses as well?
Executive Ryan: Yeah. Thanks for the question. We typically focus on our certification testing business and non-certification testing business, which have clear deliverables and it's easier to measure the impact on price and volume. And I would say in the fourth quarter and the full year, there were similar contributions in the revenue growth of both. We were pleased with the overall growth, particularly of certification testing in the fourth quarter. And our plan for 2026 would be to generally continue to grow with that mix.
Analyst Andy Whitman (Baird): Okay. That's helpful. And then, Jenny, I just thought I would ask for kind of an update on what you're seeing from new product releases from your customers, anything around the data center ecosystem. If you could maybe talk about some of the specific categories of testing or product types that you're seeing from that kind of area. Obviously, it feels like it should be a driver. I just feel like a little bit more on the specifics of what you're actually seeing kind of where you think you are in these product rollouts and the testing that you can do to help with this, I think would just be helpful for us to all understand as it contributes to your revenue growth. And if it is a material contributor to revenue growth, any quantification for how much it's adding to your revenue growth, I think would also be helpful for people to understand as well.
Management: Yeah, I think on the last point, I just want to highlight again, we've got 35 industries and a number of different segments that we target. So data center is extremely important, and we are seeing that digitalization trend really lead to double-digit growth rates in those types of services. Today we tested 70 standards, but what we're hearing from our customers is that the existing set of standards for the new complexities in data centers, it's just not enough. And so they're coming to us for leadership and expertise in how they handle just the new realities of the changing of the thermal dynamics, of a shift to DC current, 800 volts, on the ways in which cooling, rack cooling, immersion cooling, all sorts of cooling needs are happening. So the data center work that we're doing, it's across all of our industrial product categories, so power and automation, renewables has a play as these data centers are trying to get enough power to power them. Wire and cable, the shifts to that DC is a different type of wire and cable. The built environment around the fire suppression.
And then on the consumer side, again, those chillers, those HVAC systems, as well as then just the underlying technologies consumer technology, server technology, everything else that's going into those actual racks and pieces of equipment. So it is across the board, and it's an exciting area. Our customers, I mentioned in the fall, we were having a data center power summit. It was so important and so well-received. We're having a second one coming soon. And, you know, it's the attendees of that. It's the hyperscalers. It's the equipment and component and wire and cable manufacturers. And there's also the focus on the owners of the colos. So it's complex. It's growing. And we feel like we're right in the center of it all.
Analyst Andy Whitman (Baird): All right. That's super helpful. Just one kind of technical question here. The restructuring plan that you guys announced last quarter, I think at the time you were saying it was going to be a cost of 42 to 47. Just wanted to make sure that there was no change there, because I guess you're 37 versus kind of that target range that I set out. It seems like most of the actions have really been taken here. Is that right, Ryan, or have there been any changes in plan scope, reduction increases, whatever?
Executive Ryan: Yes. The range has not changed. We recorded the majority of that in the fourth quarter. We anticipate completing the rest of that substantially in the first half of this year, but the total range of both the cost to achieve as well as the benefits and timing have not changed materially since we communicated it last quarter.
Analyst Andy Whitman (Baird): Okay. Thank you.
Analyst Arthur Crosslove (Citi):
The next question comes from Arthur Crosslove with Citi. Just within the divisional growth. So if you look at the consumer business, you talked about consumer technology, including electromagnetic compatibility testing. I just wondered what end market that relates to and similarly in terms of the energy and automation within industrial. And then second question, just to confirm, you're obviously talking about mid-single digit organic growth on a full year basis, obviously net of the 1% from the businesses that you've abandoned. Just to be clear, does mid-single digit mean sort of anywhere between 4% and say 7% or do you have a different definition? And I suppose within that, you know, where does software fit in? I don't think you mentioned that when you talked about industrial and consumer. So thank you.
Management: All right. Well, I'll start with some of the diversified growth. So EMC testing is, you know, electromagnetic compatibility. And what this is is, you know, the FCC in the U.S. and similar regulatory agencies all over the world set tolerance levels for, you know, how much RF, radio frequency devices emit. So anything with a transmitter or receiver has to go through EMC. So for example, one of our capital announcements is EMC lab in Toyota City, Japan, targeting the auto industry because automobiles, as I like to say, have become driving data centers and driving nodes on the grid. So that's why as the world continues to connect, we continue to see demand for EMC growing. You also asked about energy and industrial automation and markets. You know, that's really everything around, you know, power and controls, electrical distribution, circuit protection, wiring devices, anything that really powers large industrial equipment. And again, a lot of that then becomes the types of products that get replicated into innovation into consumer products.
And then on the revenue guidance, Arthur, I would describe it in four parts, some of which are organic and some clarify the total growth. So first, in each of the past two years, we focused on high-quality growth, and we delivered on the mid-single-digit organic revenue guidance that we set at the beginning of the year. Second, if we start with the growth rate that we delivered in 2025 and back out what we announced in 2023, the exit of some businesses that accounted for approximately 1% of 2025 revenue, that puts us squarely in the middle of a mid-single-digit guidance for organic revenue growth year over year. And then third, in addition to the organic change, we announced the planned divestiture of the EHS software business, which accounted for $56 million of software and advisory revenue in 2025. And that was 1.8% of 2025 consolidated revenue. So we believe the sale will close in Q2, and therefore the total reduction will be for a portion of the year. And then finally, a fourth consideration is FX. This is based on market forecasts, but based on the current market forward rates, that would indicate about a 0.5% tailwind to revenue.
So if you account for 100 basis points headwind from the divestiture of the EHS business on a total basis and 50 basis points excess tailwind, we have a net 50 basis points headwind per year over year total growth rate. So that's squarely in the mid-single digit range. This is a year of a lot of small puts and takes, so I appreciate the question, and I hope that's helpful, Arthur.
Management: And then, Arthur, let me add you. I don't want to forget your question about software. And if you look at our revenue by major service categories in Q4, you'll see that software revenue in the fourth quarter grew at a faster rate than it did for the full year. And I would say that bodes well for what we're looking at in 2026. Additionally, the announced divestiture will allow us to focus on the higher growth categories of our Ultras platform, categories like our supply chain insights or our benchmarks, which all really fulfill risk and compliance needs that our core TIC customers have.
Analyst Jason Haas (Wells Fargo):
The next question comes from Jason Haas with Wells Fargo. You mentioned that you saw a surge of demand in consumer in 4Q, and it sounds like that may have potentially pulled forward some business from 1Q. So do I have that right? Can you just explain what caused that dynamic?
Management: Yeah, the biggest cause of that dynamic is consumer, our customers really move quickly. And when they have innovation opportunities that they're trying to get to market quickly, we need to respond. Our emphasis on customer centricity, as well as just our ability to have the right capacity allows us to do that. So we saw some particular strength in some of the most innovative customers in the world in both the consumer technology space as well as some of the really great small appliances that are going to market globally.
Analyst Jason Haas (Wells Fargo): Got it. That makes sense. Very helpful. And then I wanted to follow up on, I know it's been a trend for a while, but the advisory business has been softer and weighed on your overall growth rates. Can you just talk about what's driving that and then recognize it's shifting segments, but how integrated and synergistic is it to have that advisory business?
Management: It's a great question, and it's something that we spent a lot of time evaluating in 2025. And what we realized was that our original hypothesis was that those advisory businesses were contributing to our software businesses. But as we really decomposed it, what we realized is that those advisory businesses are much more tightly tied to our tech business. And so areas like the energy ecosystem, we saw some good strength in renewables advisory last year, a little softening in the fourth quarter in that. But with the shift, particularly with data centers and needing new sources of energy, we see a greater tie to our industrial businesses. Similarly, the softness in commercial real estate has affected our healthy buildings advisory. And again, we believe that opportunities to couple that with some of our built environment services will, you know, help contribute to strengthening that. And then certainly areas where we do advisory services into getting medical devices to market. And we also see that tying more closely to the TIC services that we offer. And so that was really the fundamental premise of changing our focus so that we're letting our newly named risk and compliance software segment focus solely on software and the purchasers of that software and those product roadmaps, and tying our advisory teams more closely to the TIC services that are really compatible with those advisory offerings.
Analyst Andrew Steinemann (J.P. Morgan):
The next question comes from Andrew Steinemann with J.P. Morgan. Hi, I'd like to focus a little bit more on lab utilization. How much of your 26 margin expansion is coming from higher lab utilization? And then also you mentioned technology investments expanding productivity. With that additional productivity, how do I think of the calculation of lab capacity and lab utilization and how much higher could lab utilization go from here?
Management: Yeah, thanks, Andrew. And it's a great question, something we spend a lot of time evaluating, because what I want to emphasize is it's not just lab utilization, it's expert utilization. So we've got, you know, our engineering team or technicians who also are part of the overall process. You've got the physical labs, and then within those labs you've got specific pieces of equipment. So anything that we can do to help improve the capacity of any of those three functions, you know, our people, our equipment, and then our overall facilities is where we're focused. And so certainly the technology initiatives that we're rolling out is expanding the capacity of our people. Better use of AI in our processes frees up our people more to have more capacity. At the actual equipment level, you know, better really monitoring what's the right lab for specific services to be delivered and ensuring that we're directing those customer projects to the labs at the greatest capacity. It's one of the reasons why we believe in running global P&Ls is essential. And then, as I mentioned, as part of our capital planning, we're always looking at what are ways that we should be extending the actual capacity of an overall facility, and we'll continue to do that on an ongoing basis. So that productivity comes from all three areas.
Analyst Andrew Steinemann (J.P. Morgan): And are you able to – my first question was, you know, could you tell us how much of the 26 margin expansion is coming from higher utilization of labs?
Management: I would say we have, Andrew, we have such a diversity of labs, and we even measure utilization in different ways for different types of services. It's hard to directly correlate those. We do see the improvement in trend, and it is driving our results, but it's difficult to precisely correlate it.
Analyst George Tong (Goldman Sachs):
The next question comes from George Tong with Goldman Sachs. In the industrial segment, we've seen organic revenue growth normalize from double digits in 2024 to mid-single digits exiting 2025. To what extent do you think industrial organic growth will re-accelerate and what are the key drivers? Or conversely, do you view current mid-single-digit growth as the new steady state for industrial growth?
Management: You know, industrial, we want to just remind everybody that we believe that there was pull forward in Q4 of 2024 due to anticipation of tariffs. So, you know, I would say that normalized level is, you know, more along the lines of our annual levels, which is, you know, on the higher end of single digits. But that said, as we look forward, you know, the demand that we're seeing for industrial, both in certification testing and non-certification testing, it's strong. These areas of the built environment, the energy and industrial automation, wire and cable, power and controls, these are all pieces that are being fueled by the megatrends. And we're seeing, you know, particular strength. The U.S. is strong across the board, by the way, both industrial and consumer. And particular strength also, you know, coming out of China and more broadly across Asia for that energy and industrial automation within industrial.
Analyst George Tong (Goldman Sachs): Got it. That's helpful. You noted that the industrial business should grow faster than consumer this year. Can you talk about how much of a spread you expect in growth between these two segments?
Management: We have not provided specific guidance for the growth for each of the segments. We added that comment because of the particularly strong performance of consumer in Q4, and we just wanted to clarify that that was in part due to a surge of activity in Q4 and not a fundamental change in the relative growth rates of the quarter.
Analyst Shlomo Rosenbaum (Stifel):
The next question comes from Shlomo Rosenbaum with Stifel. Can you talk about the shift of manufacturing activity from China and other parts of the world and how that trend looks in 2025 as it relates to UL?
Management: Yeah, you know, we're not seeing a significant shift out of China. We are seeing significant, I would call it China plus one continuation. So, you know, our China sites and our China, you know, the China sites of our customers that we inspect in our ongoing certification services continue to grow, albeit at a, you know, pretty low slope. But those sites that we visit, India is growing significantly, Malaysia, Thailand. So absolutely, we continue to see, I would say, you know, dispersion and de-risking of supply chains and our customers adding locations. Our China business continues to be strong, and we're continuing to be very pleased with our customer relationships. I'm going over there next month, looking forward to being back.
Analyst Shlomo Rosenbaum (Stifel): Okay, thanks. And what was the demand like for the artificial intelligence safety certification services that the company announced at the last quarter?
Management: Yeah, you know, it's still in early days, but it's an important topic. You know, what we're hearing is, you know, just how important trust is in AI, and we're working with different customers to understand how we adapt that standard for them to provide evidence that their customers can trust their use of AI. So it's still early days.
Analyst Andrew Nicholas (William Blair):
The next question comes from Andrew Nicholas with William Blair. Good morning. Thanks for taking my questions. First one I wanted to ask was just on kind of the advisory restructuring and the employee health and safety software sale. I mean, can you give us a little bit more color on the growth rates of those businesses over the last couple of years? I know you've called out advisory softness a couple of times over the past several quarters, just trying to figure out what kind of the restructuring there will do to the reported growth rates. And then any color on the margin profiles of those businesses would be helpful too.
Management: Yeah, it's a great question. And let me just start. Advisory in general tends to be somewhat cyclical and can be directly affected by very specific market conditions, such as slowdown in commercial real estate affecting our healthy buildings portfolio. I always say it's like a sine wave on an upward trajectory, but any given quarter it can be lumpy. And so our rationale as we were assessing that for moving it under industrial with TIC is that there are just better opportunities for synergies both in the opportunity identification with our TIC services as well as just the way in which we utilize our teams for some of those services. So we expect that to continue to be on an upward trajectory, but they will continue to be like a sine wave. The EHS piece of software, our rationale for divesting that is when we look at our TIC customers and the ultimate end personas of the users of our Ultras platform. EHS, it's an important service for many manufacturers. But that target audience isn't consistent with our target audience for our other Ultras offerings. So we felt it would be better off in stronger hands. And we're excited that it found a good home. It was lower growth in our software portfolio. So for us, we expect our software growth rate to improve as a result of that divestiture.
Management: And anything you can say on the margin profile there, just to tick that off the list?
Management: Yeah, I would say, Andrew, with the first quarter, we will provide pretty fulsome information on the realignment of the segments, including the newly named risk and compliance software segment. And so you'll be able to infer how that affects a change in revenue, how that affects a change in profitability. We wanted to be clear that our consolidated adjusted EBITDA guidance for the year includes that divestiture. So more detail to come, but the guidance includes the change.
Management: Yeah, and last thing on that, our software and advisory team has worked really hard to improve their EBITDA, and we expect that improvement to be durable with these changes and we'll report more in Q1 when we break them all out.
Analyst Andrew Nicholas (William Blair): Thank you. And then if I could just ask a follow-up question on 2025 results. Obviously adjusted EBITDA margin was I think almost 200 basis points better than what you had originally guided. I'm curious, you know, taking a step back where you felt like you kind of got the most surprise relative to your initial expectations, how much of it was just taking a conservative approach a year ago versus demand or pricing or some other factor beating your expectations?
Management: You know, I'm just going to give a general philosophy in continuous improvement that when you express to a team specific metrics or specific areas of process, that you're focusing on, you typically get results. And so within our processes, there were certain areas that we asked our team to focus on that really would lead to greater customer satisfaction and centricity. And those were areas that also dropped right down to our bottom line. So things like, you know, turnaround time or billable utilization or time to quote or use of the new pricing tool. Those are all examples of, you know, when you put, when you shine a light on them and apply metrics, people respond really favorably. And we've got a great team who did a great job in all of these areas.
Analyst Josh Chan (UBS):
The next question comes from Josh Chan with UBS. Hi, good morning, Jenny and Ryan. One question on laboratory productivity as it relates to people, I guess. Have you been able to keep your lab headcount relatively flat in this despite growing the top line? And if so, kind of, do you expect that to continue into the future?
Executive Ryan: Yes, we have been able to keep lab headcount flat, so our revenue per employee and our metrics of productivity per employee have been increasing. It's from a number of different initiatives. As Jenny mentioned, we're focused on continuous improvement. It's also an outcome of our laboratory footprint optimization, increasingly using centers of excellence that have higher capabilities, higher throughput, higher opportunities for our employees that work in those areas. So that has been a key contributor. As we file the 10-K, you'll get some additional information on our employee compensation as a percentage of revenue by segment and consolidated, and I think you'll be able to see that even more precisely.
Analyst Josh Chan (UBS): Great. Thank you for that. And then just a quick question on the margin guidance. So how much of the restructuring benefits is included in the 26 guide, and also why does the margin expansion become stronger in the second half than the first half? Thank you.
Management: Some of the improvements in the...