Vaisala Oyj

Hello and welcome to Vaisala's first quarter 2025 results call. I'm Niina Alaluopa from Vaisala's Investor Relations and today with me in this call are President and CEO Kai Östömö and CFO Heli Lindfors. So Kai Östömö will now present the first quarter results and after the presentation we have time for questions.

So hello everybody and thanks for joining. As the headline says, We had a strong start of the year. And at the same time, obviously, when we kind of living through the first quarter, it was an increasing market uncertainty. There was almost like a no day without either a rumor or a change or a tweet in terms of what would be the anticipated import duties and so on, which then in the end were not implemented between our relevant geographies during the first quarter. Actually, the actual implementation dates only happened in April. So despite all the uncertainty and everything else, direct impact from tariffs were not visible during the first quarter. Obviously then the uncertainty, I'm sure, impacted our customers and investment decisions somewhat. Despite all that, we had, like I said, on all accounts, a strong start of the year. Net sales-wise and profitability-wise, clear improvement. Year-on-year-wise, net sales growth 21 percent year-on-year. EBITDA almost doubled year-on-year. EBITDA percentage almost doubled year-on-year. Kind of great improvements, obviously, both. Industrial measurements, excellent performance. I'll go into more details into the business areas in a short while. And on weather environment, a strong order book that we had opening order book obviously gave us a good understanding start and we continue to deliver against that strong order book. And then on subscription sales, kind of an extraordinary growth on a back of both. Good organic growth of 12%, and then obviously the acquisitions that we closed now on the fourth quarter, Speedwell Climate and Weatherdesk, boosted the subscription sales to 63% year-on-year. Fantastic number. Before going into the actual numbers and everything else, it's just good to kind of pause for a while on our strategy, which gives us a great backbone and great foundation to make the decisions, especially, I would say, in turbulent times. The mission, taking every measure for the planet, being on the right side with climate change, I think gives us good foundation to do good, solid business decisions, both short-term and long-term. Good examples on execution of the strategy when we talk about climate and societal resilience, kind of taking examples from different sides of our businesses. Data centers obviously has been a... growth segment or growth business for a long while driven by AI and a rapid increase demand on compute power and During first quarter, we continued to, this has been also a growth segment in our industrial measurements for many years in a row, and that continued during the first quarter, continuing to drive growth and winning larger projects, which typically the new data centers would be. Then on when we take the XWeather side, great to note that we were able to integrate both WeatherDesk and and speedwell climate on our numbers already late fourth quarter, and now being included for the entire quarter. Actually happy to report also that the entire integration of weather desk is completely done, and we were actually, we did that in kind of several months earlier than what we anticipated it to take, and able to stop the SLAs early also from the previous owner. And this gives us a great strength on further development on our offering on XWeather. And as I said a minute ago, it helped us to boost the subscription sales growth when we compare to year-on-year numbers. And on a more traditional side of the business, we continued the success on winning large orders, this time a weather radar and lightning detection network in Greece in terms of our absolute number, somewhat smaller, obviously, than the extraordinary things that we've been doing now during last year and end of the previous year in both Kuwait and Greece. Spain, but here, great to see another sizeable deal, giving more longevity in the strong order book that we have on this. And it's a great testament on our technology, great testament on our competitiveness, our products, and the leadership that we have been showing on weather monitoring infrastructure, and in this case, especially on the weather radar side. Now, when we look at the financials, as said, strong start of the year. Orders received wise, roughly on the same level as year before. Order book. similar level as what we closed the previous year with. And net sales, as I said earlier, grew very well at 21% year on year. If I now take the acquisitions of Speedwell Climate, Weatherdesk, and Nevis that we closed during the fourth quarter, and remove that from the growth numbers, the organic growth was very strong as well, kind of being 17%. The growth came from both business areas, as I will shortly show, and very, very good performance in the Americas region. And this is good to see. This is now fourth quarter in a row where Americas continued to improve as a region. The performance was strong in other regions as well, but especially satisfying to see the continued improvement in Americas. Gross margin improved a little bit over three percentage points. And as usual with our business, the cash conversion continued to be strong. Diving deeper into the business areas, industrial measurements, I would say, as the headline says, very positive development across all regions, all segments. Shown by the numbers, the orders received increased by 17% year-on-year, and net sales increased by 24% year-on-year. Obviously, last year's first quarter was a challenging one, but if you look at the graph on the right, you can see that even in a continuous basis, when you look at the second quarter, third quarter, fourth quarter last year, we had a very strong quarter in industrial measurement in all aspects, even if the relative numbers, when you compare to the year-on-year numbers, obviously, we got the benefit this time of week first, first quarter last year. Great to see also the gross margin improving and the business really scaling nicely when we get the higher sales, then also the EBITDA percentage increases correspondingly and now back on the levels that we should be with the EBITDA percentage starting with a two, being 21.7% at the quarter. Then looking at the weather environment, continued to deliver against the strong order book that we have had and continue to have. Orders received decreased. This is the one, maybe kind of a glass half full on the numbers and the quarter itself. This is really on the back of renewable energy as we flagged on our release that we are seeing the renewable energy market to decline and this is on the back of multiple things. One thing is that the continued economic uncertainty and lack of investments into kind of energy intensive green investments requiring lots of energy has been sluggish leading into competitive energy prices leading into hesitance on building new energy parks, combined with all the policy changes in the US, which put basically the renewable energy investments on hold in the US, given all the measures that were taken. So at least for short term, we are seeing a bit of a headwind on the marketplace. That being said, when we look at the long term, we continue to believe that renewable energy obviously long term remains a very lucrative opportunity despite the short term headwinds. Moving on to the net sales side on weather environment increased by 18% here. If I take the organic piece, so take all the acquisitions out, which happened to all to be within the weather environment, organic growth was great, 11%, and driven by large orders received during the earlier quarters. So the opening order book that we had, and subscription sales. Speaking of subscription sales, I said 63% growth on subscription sales year on year, and boosted by the two acquisitions I talked about, as well as then a strong organic growth of 12%. Gross margin improved mainly following the growth. Again, the business scales and And simultaneously we had a good sales mix when we compared to earlier quarters and then that led into EBITDA percentage being almost 10%. Cash flow continued on a good level. Here I would say this is roughly like a usual quarter that we have been having. Obviously the strong cash conversion being one of our strengths and continued to be so also during the first quarter. Operating result margin being 13%, and when you look at our financial results on this page, It's kind of almost boring to say, kind of continues to be kind of as strong as it has been for many quarters and many calls that you've listened to before. Net sales growth strong, organic net sales growth strong, gross margin improving, EBITDA improving, EBIT improving when we compared to the year before. Then operating expenses increasing, it's good to note, 12% year on year, but that's mainly on the expenses related to the businesses that we acquired in the weather environment side. And then simultaneously we are doing investments in digital sales channels, which we expect to yield into more efficient sales in the coming quarters and years. So important build for future on industrial measurement side. And EBIT, sorry, EPS earnings per share kind of also increasing strongly compared to same time previous year. Financial position continues to be strong. We are not really a very levered company at all. We have a business model that is very much asset light. And maybe on this page, you could note that we have been investing into the automated logistics center here in Vantaa next to our factory that is progressing according to the plan. And just as a reminder, the plan is that it should be operational now towards the end of the year in the fourth quarter of this year. Then the market and business outlook. The outlook for 2025, we expect industrial side life sciences and power to grow. As usual, meteorology, aviation, and roads to be stable. I mean, they are by nature that. And then, as I spoke earlier, renewable energy to decline, given the headwinds that I talked about. Business outlook for this year remains unchanged so we estimate our net sales to be between 590 to 620 million euros and we expect our operating result in terms of EBITDA be between 90 and 105 million euros. Good to remember, as usual, these kind of outlooks for the year kind of don't include any drastic changes in the outlook, and maybe that's good to remind, especially in these kind of days when when the visibility for the future, given what has been going on over the past quarter and past months, is maybe especially valid to say. With that, I want to close the prepared remarks and open up for any questions you may have. And I noted Niko was the first one well in advance to book the first question.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Niko Ruokangas from SEB. Please go ahead.

Hello, this is from ACB. Thank you for the presentation. I have a couple of questions and I maybe go one by one. And starting with declining orders in renewable energy. So could you kind of open a bit your order composition if you compare it to last year in terms of how big was the renewable energy maybe just thinking that should we expect kind of a similar order declines in weather and environment in the coming quarters also going forward?

Yeah so while we don't disclose kind of the exact numbers in terms of the sub-segments on our business but Maybe giving you a couple of pointers and color on this. So if you look at renewable energy, the size of the business is such that order intake, it's somewhat volatile between the quarters. It's not the same by nature, not the same between every single quarter, and it's relatively fast from book to bill. So it's in between industrial measurements, which is very quick, and then on the other hand, the traditional side of the meteorology, which is kind of slow, as you know. So this is like in between the two. I would not make the conclusion that it's a similar impact to the rest of the year. Our estimation at the same time is that the market itself is, there's a pause on the marketplace at the moment and a bit of a headwind. Size of that headwind, we'll see as the year progresses.

Okay. Okay. Thanks. That helps. Then maybe on the hot topic of tariffs and could you maybe explain a bit how are you mitigating the tariffs and have you already seen the impact of tariffs on your business volumes or demand in April? And how have those been taken into account in guidance and then the segment-based outlook? And I'm sorry if you mentioned this when discussing about outlook, my line was breaking.

Yeah, so first of all, if I start from the outlook, I mean, outlook remains unchanged. And obviously then everything that we know today is taken into account in the outlook. I mean, that's that. I will refrain from commenting how is the business going in April when we are talking about the first quarter numbers and April is not done yet, so it's too early to make any conclusive statements. But the question on how are we mitigating, what are we doing, and so on. We were prepared for various different scenarios, 20%, 10%, as it ended up being, and other scenarios. What we have done, and we were very quick on doing, is first of all, on a big part of the business, we are able to move the tariffs into prices, and we did it very swiftly. The day after the tariffs were set, the prices changed. And while it's too early really to say how will the market take and everything else, but I'll say this, that customers were not surprised and there was not by any means, on the contrary, I would say that the customers were expecting a change due to the fact that the tariffs were raised. How will it impact on the demand and sales? Let's take the quarter and see. But I think it's maybe helpful to understand also the dynamic that it's not a pushback from the customer side on it fully. They understand what needed to be done. And then other mitigation parts, obviously, I think the organization has shown its agility also in terms of when we know we have a blanket orders for certain things, we have a long-term orders for certain things for the rest of the year in the US. We were able to actually ship quite a bit of that into US, into our warehouse, creating our own hedge on on whatever the tariff may end up being.

Okay, I understand. And then, if you have orders from the US which were not delivered to the US before the tariffs were announced, are you able to transfer the increased tariff cost to those orders already in your backlog Do you have to take the heat for those?

Yeah, obviously it depends. I mean, if you have an ongoing delivery on a customer, kind of a government or public, based on a public tender, you know, in the middle of a delivery, you can't kind of change prices. Or it's kind of a new, then it's a new, complete new negotiation. That's the nature of a public side of the business. Private side, you know, we had a, short grace period and the prices are effective as of today and have been already for quite some time.

Okay, thank you. Then I'll ask one more question and then let others ask. So, and continuing on the U.S., U.S. government is targeting savings on U.S. national weather services. So, is that visible in your business and kind of, has this been a surprise to you?

No, obviously like, so two comments on that. So yes, so the National Weather Service budget has been cut to some extent. It's a bit unclear what that ends up being or the net impact of it is that some project that we anticipated to start have not been cancelled but have been postponed into the future when clarity comes. The unclarity comes also from the fact that the US government used a very blunt instrument in reducing cost in terms of personnel. So basically a random cut of people irrespective of their seniority or stay in the organization, which obviously, if you can imagine in your own organization, randomly you would pick every third person who would get fired. Decision making gets to be a little bit slow and unclear and kind of approval paths and stuff are broken. That's being like the National Weather Service is kind of people who are remaining are working on it. We are supporting them. You know, we know these people for from like 10, sometimes even 20 years. And we remain very close to the organization itself. And here's an opportunity to help also the organization to actually do their duty, which is really, really important for the society. Really, really important for the society.

I understand. But despite this, you are expecting Or taking this into account, you are expecting the material markets as total to be stable?

Yeah, yeah, of course. Of course, it's taken into account.

Yeah. Okay. Great. Thank you. I'll let others ask now.

Maybe one more piece, Nikko, as a caller on the National Weather Service side. We are taking into account what we know today. That being said, Given its importance, what kind of the task for National Weather Service is, I would not be completely surprised if some sense at some point of time would come back and the cuts would not be as deep as they kind of at the first go now have been. Over time, maybe it is this year, maybe it's next year, but over time.

Yes, makes sense. Thank you for that. That's all from me.

The next question comes from Atjotika from Evli. Please go ahead.

Thank you for the presentation. Still continuing on the tariff topic. How much of the America's region strong performance in Q1 can be attributed to perhaps front-loaded demand ahead of the set tariffs?

Not materially.

Okay, thank you. Definitely. Then, have you made any decisions already on some products on production or locations going forward now?

Of course, as I spoke earlier, we have looked into various different scenarios, various different levels of tariffs and so on. We are happy with the production network that we have today. It gives us obviously options. That being said, given our high-mix, low-volume business model, for many, especially the low volume products, splitting those volumes into two locations, the tariffs should be very high before that makes any sense.

Yeah, makes sense. on the kind of opportunities also from this situation. So do you think there's any opportunities on the sourcing side, for example, cheaper component from Asia or things like that now to Europe?

So I don't see, I don't have anything quantified visible yet, but obviously this is something that we are taking a serious look, same thought occurred to us and given all the changes in the world and uncertainty. Obviously, we are trying to take the benefit, as we usually do, in terms of sourcing the components in the best possible kind of place and at the best possible terms and conditions and prices.

Yep. Then to other topics. Life science was a positive on the first quarter. Was it due to a weaker comparable? And secondly, on that, was the development across all of the life science customer verticals, or were there some that stood out?

On the latter one, I actually haven't really looked at. I would argue, well, in my, so I better not comment since I have not looked at numbers on the sub-verticals. It was partly. I mean, if you look at life sciences, we've been talking about stable market for now a little bit over two years. We've indicated, I think, in this course that early signs in the U.S. towards the end of last year. It is partly comparable, obviously, since the market has not moved for quite some time. But at the same time, it's great to see that there's now life in life sciences as well.

Yes. Then on defense, Has the increased defense spending across Europe already resulted in stronger demand for your products on this defense side?

Not anything to speak of. I mean, and I'm not surprised. If you think about where the defense spending in Europe is, that it's mostly ammunition and tanks and missiles and filling the warehouses with all that. You know, the weather-related things probably were not the first ones on the list of military organizations. Can you hear me now? We had a little bit of a technical glitch. Hello, can you hear us?

Yes. Hello. Did you hear my question?

Yes, yes. Yes, I did. Yes, I did. Yeah, yeah. I did. I did. Sorry about the glitch. So no marked, nothing meaningful in terms of a defense spending increasing or defense orders increasing on our side. I'm not surprised on that at all. The increased defense spending in Europe is concentrated I would argue much more on kind of a hardware in terms of ammunition and tanks and guns and things of that nature, missiles, rather than enabling equipment that what we are producing for the time being anyway. Okay, very helpful. Thank you. That was all from me. Thank you.

The next question comes from Pauli Lohi from Indias. Please go ahead.

Good afternoon. This is Pauli Lohi from Indias, and thank you for the presentation. I would go back to the question regarding the Americas sales, and you guys said that it's not materially linked to pre-ordering for the tariffs, but kind of, do you think that this trend is sustainable and how do you know it?

That's a great question. And I don't, like nobody does. I mean, given the uncertainty in the marketplace, you know, every tweet seems to be moving the market in the US. You know, it's so unpredictable that it's very hard to make long-term predictions on where the overall industrial activity, GDP, overall spending goes in the U.S. What is the inflation, kind of an inflationary impact in U.S.? Time will only tell. It's a question of being agile and quick to respond to the opportunities in the marketplace. I think we are pretty good at that. And the only thing I can kind of comment is that the first quarter we didn't see any kind of a, there was not really a marked pull-in impact in the numbers that we were reporting. And then we'll have to wait and see a bit on how the performances are going to go in the second quarter and third quarter. Outlook remains, as I said, and this is the best view that we have at the moment.

Okay, thank you. Then considering the data business that you acquired in 2024, Is there a significant seasonality in sales, for example, similar to your existing data businesses?

No. No, it shouldn't be any. It should be more even, like normal data business. There's no reason to be cyclical.

Then my third question is regarding the cross margins. So could you once more elaborate the cross margin and maybe if you have any comments, do you see the current level in Q1 being fairly close to a normal or normalized level?

Yeah. So if I look at the gross margin, so the gross margin was good in both sides, whether an environment and industrial measurements. As we have seen in the past, continues to be the fact that our business scales very nicely. When sales increase, that impacts positively also the cross margin percentage. So that's one thing just as a nature of our business. Similarly, if ever the sales would drop, it would impact negatively our gross margin. So it's the scaling. The scaling impact is just something I want to remind you. And then the second thing is there are changes in like between the quarters. If I look at just the historical numbers between kind of what the mix is, both in industrial measurement side somewhat lesser extent but some extent in industrial measurement side and maybe a little bit more so in weather environment where you know how much of the project sales in a given quarter is recognized as bit more of an impact like creates a little bit more variance between the quarters in terms of a mix as such.

Okay but you don't see kind of any big fluctuation in Q1?

No, in Q1, as I said earlier, if you look at where the improvement comes from in industry measurement side, improved through the scaling, i.e. higher net sales, improving gross margin, and to some extent also favorable mix. And then if you look at the weather environment, it really was the same thing in terms of growth in net sales, i.e. scaling, and then favorable sales mix, i.e. a little bit less projects and more products in terms of weather environment.

Okay, that's clear. Thank you.

Within the normal fluctuation between the quarters, nothing extraordinary per se.

Okay, thank you.

Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So thank you for your questions. Thanks for following our call. Just as a kind of recap, it's great to have a strong first quarter behind us. It gives us a good start of the year, given especially the turbulence and challenges in terms of reading what the future brings. So it's a good solid ground under our feet. and give us a good position to build the rest of the year as well. So with that, I'll close the call. You know where to find us in case of any further questions. Don't hesitate. Give us a call. Drop us an email, and we'll jump on another call. Thank you very much.