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A Quick Take On UL Solutions Inc.
UL Solutions Inc. (ULS) has filed to raise $100 million in an IPO of its Class A common stock, according to an SEC S-1 registration statement.
The firm provides testing and certifications for a wide range of products worldwide.
UL Solutions Inc. says it may be at risk for disruption from AI-related technologies.
I’ll provide a final opinion when we learn more IPO details from management.
UL Solutions Overview
Northbrook, Illinois-based UL Solutions Inc. was founded to test and certify the safety of electronics, buildings, chemicals, services, mechanical and consumer products.
Management is headed by President and CEO Jennifer F. Scanlon, who has been with the firm since 2019 and was previously President and CEO of USG Corporation and serves on the boards of several companies and organizations.
The company’s primary offerings include the following:
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Independent testing
-
Inspection
-
Certification
-
Software and advisory services.
As of September 30, 2023, UL Solutions has booked fair market value investment of approximately $1 billion from investors, including parent firm ULSE Inc. (UL Standards & Engagement).
UL Solutions Customer Acquisition
The firm pursues new customers through its direct sales and marketing efforts as well as through word of mouth and referrals.
In 2022, the company provided its services to over 80,000 customers in more than 110 countries.
Selling, G&A expenses as a percentage of total revenue have varied as revenues have increased, as the figures below indicate:
|
Selling, G&A |
Expenses vs. Revenue |
|
Period |
Percentage |
|
Nine Mos. Ended Sept. 30, 2023 |
32.3% |
|
2022 |
31.5% |
|
2021 |
35.4% |
(Source – SEC.)
The Selling, G&A efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A expense, rose to 0.2x in the most recent reporting period, as shown in the table below:
|
Selling, G&A |
Efficiency Rate |
|
Period |
Multiple |
|
Nine Mos. Ended Sept. 30, 2023 |
0.2 |
|
2022 |
0.0 |
(Source – SEC.)
UL Solutions’ Markets & Competition
The overall safety science market can be segmented into the Industrial Safety Market, the Global Safety Service Market, and the Environmental Health & Safety [EHS] market.
The Industrial Safety market is projected to reach $8.8 billion by 2027, growing at a Compound Annual Growth Rate [CAGR] of 6.8% from its 2022 value of $6.3 billion.
The growth of the Industrial Safety market will likely be driven by the requirement for reliable safety systems to ensure personal and asset protection and increasingly strict mandates for safety regulations.
The Global Safety Service market was valued at $3 billion in 2022 and is expected to surpass $6 billion by 2030, registering a CAGR of 8.80% during the forecast period of 2023 – 2030.
Global Safety Service is projected to grow at a significant rate due to growing security concerns. Growth opportunities will improve in the subsectors of environmental safety, pollution control, waste management, and sustainability consulting.
The Environmental Health & Safety [EHS] market was estimated at $46 billion in 2022 and is expected to expand at a CAGR of 6.5% from 2023 to 2030, reaching a projected value of $77 billion.
EHS is forecasted to grow due to growing public concerns regarding environmental issues, continued environmental protection law expansion, and increasingly stringent operating norms.
Major competitive or other industry participants include the following:
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Intertek
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SGS
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Bureau Veritas
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Eurofins
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Element
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TÜV Rheinland
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TÜV SÜD
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DEKRA
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DNV
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Others.
UL Solutions Inc. Financial Performance
The company’s recent financial results can be summarized as follows:
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Growing top line revenue
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Increasing gross profit and gross margin
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Higher operating profit and cash flow from operations.
Below are relevant financial results derived from the firm’s registration statement:
|
Total Revenue |
||
|
Period |
Total Revenue |
% Variance vs. Prior |
|
Nine Mos. Ended Sept. 30, 2023 |
$ 1,994,000,000 |
5.4% |
|
2022 |
$ 2,520,000,000 |
0.1% |
|
2021 |
$ 2,517,000,000 |
|
|
Gross Profit (Loss) |
||
|
Period |
Gross Profit (Loss) |
% Variance vs. Prior |
|
Nine Mos. Ended Sept. 30, 2023 |
$ 963,000,000 |
7.6% |
|
2022 |
$ 1,207,000,000 |
2.4% |
|
2021 |
$ 1,179,000,000 |
|
|
Gross Margin |
||
|
Period |
Gross Margin |
% Variance vs. Prior |
|
Nine Mos. Ended Sept. 30, 2023 |
48.29% |
1.0% |
|
2022 |
47.90% |
2.3% |
|
2021 |
46.84% |
|
|
Operating Profit (Loss) |
||
|
Period |
Operating Profit (Loss) |
Operating Margin |
|
Nine Mos. Ended Sept. 30, 2023 |
$ 282,000,000 |
14.1% |
|
2022 |
$ 412,000,000 |
16.3% |
|
2021 |
$ 287,000,000 |
11.4% |
|
Comprehensive Income (Loss) |
||
|
Period |
Comprehensive Income (Loss) |
Net Margin |
|
Nine Mos. Ended Sept. 30, 2023 |
$ 195,000,000 |
9.8% |
|
2022 |
$ 358,000,000 |
14.2% |
|
2021 |
$ 273,000,000 |
10.8% |
|
Cash Flow From Operations |
||
|
Period |
Cash Flow From Operations |
|
|
Nine Mos. Ended Sept. 30, 2023 |
$ 341,000,000 |
|
|
2022 |
$ 372,000,000 |
|
|
2021 |
$ 421,000,000 |
|
|
(Glossary Of Terms.) |
(Source – SEC.)
As of September 30, 2023, UL Solutions had $457 million in cash and $1.6 billion in total liabilities.
Free cash flow during the twelve months ending September 30, 2023, was $220.0 million.
UL Solutions Inc. IPO Details
UL Solutions intends to raise $100 million in gross proceeds from an IPO of its Class A common stock, although the final figure may be as high as $1 billion.
Parent firm ULSE Inc. will remain the controlling shareholder of the company, retaining all Class B shares, which will be entitled to ten (10) votes per share.
Class A shareholders will have one vote per share.
The firm will receive no proceeds from the IPO. All proceeds will go to the sole shareholder, parent firm ULSE Inc.
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management believes there are no legal proceedings that would have a material adverse effect on the firm’s operations or financial condition.
The listed bookrunners of the IPO are Goldman Sachs, J.P Morgan and several other major investment banks.
Commentary About UL Solutions’ IPO
ULS is seeking to begin the separation process from its parent company, ULSE Inc.
The firm’s financials have generated increasing topline revenue, growing gross profit and gross margin and higher operating profit and cash flow from operations.
Free cash flow for the twelve months ending September 30, 2023, was $220.0 million.
Selling, G&A expenses as a percentage of total revenue have fluctuated as revenue has increased; its Selling, G&A efficiency multiple rose to 0.2x in the most recent reporting partial period.
The company currently intends to continue making regular quarterly cash dividends on its common stock at a rate of approximately $100 million per year starting in 2024.
The firm has also paid special cash dividends to its parent firm totaling $1.8 billion in 2021 and 2022, funded from cash on hand and debt.
ULS also intends to pay an additional $600 million special cash dividend to parent firm ULSE from cash and additional debt prior to the completion of the offering.
The company’s recent capital spending history indicates it has spent heavily on capital expenditures as a percentage of its operating cash flow.
The market opportunity for providing safety, testing and related services is large and expected to grow moderately in the years ahead, although the company faces material competition in its various business segments.
Business risks to the company’s outlook as a public company include recent advances from artificial intelligence technologies, which may serve to automate various functions and thereby sharply reduce the marginal cost of such services.
When we learn more about the firm’s pricing and valuation assumptions, I’ll provide a final opinion.
Expected IPO Pricing Date: To be announced.
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