Vaisala Oyj

Hello and welcome to Vaisalas third quarter results call. I'm Niina Alaluopa from Vaisalas Investor Relations and today with me in this call are President and CEO Kai Östämä and CFO Heli Lindfors. And like always, first Kai will present the results and then we have time for questions.

Hello and welcome everybody from my side as well. Vaisala had a good third quarter, strong sales and profitability as the headline says. So let's dive a little bit deeper. Where did it come from and what are the details behind? So first notion, the net sales growth was strong, 13% in reported currency, which can be characterized really as strong sales in a quarter. The orders received simultaneously declined by 21% and leading into a decline in the order book. Whilst when going back to the financial performance, we maintain a very solid profitability, 18.2% EBITDA margin. And if I exclude extraordinary items due to the restructuring and so on, actually the EBITDA margin was 20%, which I think is all time high for us in terms of an EBITDA margin, if I recall right. Really happy on industrial measurements on the demand picture and now clearly also broader than earlier and on demand and on the other hand, weather environment side. more challenging market environment. And I'll talk about both in detail in the coming slides. And really happy on the subscription sales growth continued to be very strong, 57% year on year, and also the underlying organic growth on a very healthy level. And as I said in the release already, it was great to see also subscription sales now contributing positively also to the profitability of the company. The market environment continued to be challenging. If you think about the entire third quarter, inside of the third quarter, it started with the tariff changes and fixing the tariffs between Europe and U.S. And then at the same time, during the year, continued in the third quarter, the depreciation of euro vis-a-vis USD and Chinese yuan increased So the environment has many moving parts and the depreciation of dollar and renminbi really are things that don't often get talked about as much as the tariffs. But actually, if you think about it, the magnitude of the depreciation of those currencies vis-a-vis euro, the impact actually is equal, if not greater than what the tariff impacts actually are. So it's good to remember that as well. And as I will conclude at the end of my presentation, the business outlook for the year 2025 remained unchanged. But before going into the numbers and performance of the company in more detail, Good to look at a couple of words on strategy execution inside of the company and this time in terms of a couple of interesting launches that are reflecting also the strategy and strategy execution of the company. The first one, Vaisala Circular, it's a service product and the emphasis really is on the word product where the industrial measurements probes are recalibrated and provide a reuse service where the customers maintain dedicated probe pools at our service centers. Essentially, what it means is that we have productized the calibration service in such a way that now we are selling an always accurate uptime and continuous operations in our customers operations, instead of talking about calibration or other technical terms. This is obviously kind of crucial in terms of selling services. How do you productize it? Crucial for the customers to understand what's the value. And crucial for our sales to actually then be able to communicate what the value is and what the customer should be paying for. So kind of a great example of the things that we are doing to drive our service sales, both in industrial measurements where the Weissler Circular is an example of, but we are doing similar things also in the weather and environment side. Then on X-weather, the hail forecasts. Hail actually is one of the more difficult weather phenomena to actually forecast. And it's been really one of the things that has been really a challenge for meteorologists for a long, long time. Super happy to report that now we have a next weather hail forecast. And hail is really important in terms of the damage it causes for various kinds of property or infrastructure. For us in Finland, the hail sometimes get to be kind of pea-sized and even that can kind of cause some damage. But in a more Southern countries where more extreme weather and extreme thunderstorms typically are, when hails get to be baseball sized, they really can kind of create quite a bit of damage. And it really is like billions of dollars losses in various kinds of places. The example we are showing here, where we can apply the capability to the forecast and create alerts for hail is solar parks. And if you think about solar parks, there's a whole host of glass facing upwards. And in case of a hail, that's really prone for damages. And if you think about solar parks, one of the features is also that in many cases, they actually track sun, i.e. they are turnable. So in case of hail forecast, you can actually turn them sideways so you can avoid the damages. And there's a kind of a big market and unsolved problem that we are solving for here with a hail forecast as an example. And then WinCube, the next generation. Here, this is really, again, a good example of how we push the boundaries of the technology with our own R&D. With this evolution on LiDAR technology, we can actually increase the distance out of which we can read the wind and the wind fields, increase data availability, and much, much more robust performance in clean air and complex terrain environments. So significant step up in terms of our performance, which I believe both demonstrates our capabilities and is important for that business and puts us squarely in the lead also from from technology and solution and performance perspective in that business. Then moving on to the financials. So starting with the group level, strong growth, as I said, in both business areas. Orders received decreased, as talked about, and I'll still kind of talk about that a little bit later when I go into the business areas, because there's differences in those, in performance side. Order book, consequently, kind of down from same time last year. And then net sales wise, very strong quarter, 13% up year on year. And if you take the constant currency side, perspective, it would have been 16% up from year on year, same time, so third quarter last year. Gross margin a bit down, and I'll give you, it's easier to explain when I go through the different business areas, nothing dramatic about that there. And then on the profitability side, as I said, if you exclude the restructuring side, actually the EBITDA margin being all-time high, at least in my recollection, and cash conversion, no news there, remained on strong level. Now, going into industrial measurements, yet another strong quarter, and really happy to note that now the positive results are coming from all market segments on all geographies, and super happy to see that now Asia performing really well compared to the same time last year, almost equally so Europe, and at the same time, the US growth continuing. Obviously, in the US and in China, for example, where the local currencies have devalued vis-a-vis Euro, that has a negative impact. If I take, for example, US, in a constant currency, year-on-year growth was 9% in industrial measurements in America's region. And I promised to talk about the gross margin in the business area side. And if I take industrial measurement side first. So first of all, what I forgot to say is the orders received actually increased on the industrial measurement side, corresponding to the net sales growth, actually a little bit more, increased 9% year on year when the net sales grew 6% in reported currencies. But back to the gross margin. So gross margin decreased a little bit. And this really is due to exchange rate impact. But clearly, a big part of the impact was the proportional impact on the US tariffs. And here may be worthwhile just pausing and explaining the math. that we've said that we have been fully mitigating the tariff impacts in our business. And that means that we've raised the prices correspondingly to whatever the tariff costs have been. And if you think about how that math works, it means actually that even if it's fully mitigated in absolute terms, since the divider and the divide above the line and below the line, kind of when you do the division, are added the same amount the relative number actually goes somewhat down. So that's really like, if you have time, just play with the math and you'll see what I mean. And so that's a big part of the explanation. So I am not worried. It's within the normal boundaries in terms of what the gross margin is. changes have been, and it's worthwhile saying also that, well, we are in the industrial measurement side. It's obviously easier to kind of mitigate by price changes, extraordinary events like import duties and such, changes in import duty regimes, compared to fluctuations in currencies. Since we price, and any global company would do the same, price in local currency, you cannot go every time currency exchange rates go back and forth, go change the local pricings. Obviously, long-term, there are pricing means to compensate this, but short-term, you cannot react to all of this, and it would not be constructively taken either from a customer perspective. Then weather environment. In net sales, actually a great quarter. And subscription sales-wise, equally so. At the same time, the orders decreased in weather environment, driven by a couple of things. There's a strong decline in renewable energy market, as we have been saying since the first quarter of this year. Nothing has really changed on that. And there was a kind of a significant change in the market in the beginning of the year. And it continues to be on a low level. And we do not expect that to change in any time. soon and I'll come back to that in the outlook. And then likewise now in aviation and meteorology markets, there was a very strong comparison period and kind of big orders taken in the comparison period last year. But also this part of the market, when you take aviation and meteorology, there is a fluctuation between, a kind of natural fluctuation in those markets, as well as this year where there have been a couple of headwinds that we talked about before, one being that China investments due to the pandemic to a large extent, I would argue, to the fact of the cycle in terms of the five-year plan this year being the last year of the five-year plan and very often being the least investment, at least in this sector. So we have seen that in declining order intake and then then simultaneously the administration or the administration changes and DOGE and so on impacts on delaying the order intake in this year in the US, which obviously is another contributor to this. And then there are kind of gives and takes on the rest of the market, which is within that kind of, I would argue, in the normal boundaries. And good to remember in the comparison period in the aviation and meteorology side, on the back of really a kind of a very strong, now two years in terms of an order intake, really driven by the European Stimulus Fund on the radar networks in Southern Europe. Most notably in our case was the big order that we got from Spain, but there were multiple other ones that we benefited from as well during the past year, year and a half, are still in our order book and are being executed. Now, on the gross margin side, decrease of three percentage points, sales mix, a stronger portion of the... project revenues being recognized. So that's in plain English what the sales mix means. And then same things as what I talked about in industry measurement side on exchange rate and the US tariff impacts, albeit somewhat less pronounced in case of weather environment as the sales mix is more in it's not as heavily weighted in dollars or the US business is a little bit less than what in the same measurement it is. And then EBITDA percentage being on a very healthy level of 14.6%. I mentioned the cash flow continued on a good level. Here you see on the bridge on puts and takes on the cash flow and cash conversion being at excellent level of one and free cash flow around 40 million during the period. Now, if I look at the year to date, both net sales and profitability clearly improved during the first nine months compared to the same time last year. And orders received did decrease by 13% year on year, while net sales grew by 9% year on year. And subscription sales, if I take the first nine months of the year, almost incredible 58% up, obviously boosted by the acquisitions of a weather desk and speed with the climate, but also a great performance on the underlying organic growth. And then gross margin, slightly negative. Again, same explanations that I went through. And then on EBITDA percentage and EBIT percentage up from comparable time, same time last year. And then worthwhile saying on the operating expenses, the restructuring costs, as said, also in regards of this past quarter have been not insignificant, as we have been adjusting our renewable energy business to the new market reality. And that's now behind us, that restructuring. and then acquired businesses and so on, other explanations when you look at the year-on-year comparison on operating expenses. Financial position continued on a very good level, low leverage on the balance sheet, and we continue to have asset-like business model, no changes seen or foreseen in that. On this page, I think it's good to note that the automated logistics center is now in a phase where we are loading it. So it's actually fully in schedule and we are putting material into that and starting to use it as scheduled in the fourth quarter of this year. And then also notable thing during the quarter was the acquisition of Quantira Systems. Think about it this way, that it's kind of an interesting team and technologies on monitoring CO2 fluxes, which means question whether individual Geographic area, field, or piece of land is a carbon sink or carbon emitter, which is a very interesting piece of technology. Potential long-term, kind of quite a bit of potential on that, and that was announced in September. Market and business outlook. We continue to see growth in industrial instruments, life sciences and power. We continue to see roads as a stable marketplace and then renewable energy, meteorology and aviation decline. And this is outlook for the rest of the year. And obviously, the renewable energy being kind of a clear change in the marketplace since beginning of the year, whereas the meteorology and aviation now suffering, suffering a slightly different market conditions, as I explained before, in terms of the government subsidies and government incentives, kind of a, on a lower level than, when we compare to last year. And then on a business outlook, no changes to this. We continue to see net sales to be between 590 and 605 million euros and operating result being between 90 and 100 million euros. With that, I want to conclude my prepared remarks and I'll open up for any questions you may have.

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