Vaisala Oyj (VAIAS) Earnings Call Transcript & Summary

Hello, and welcome to Vaisala's First Quarter 2025 Results Call. I'm Niina Ala-Luopa from Vaisala's Investor Relations. And today with me in this call are President and CEO, Kai Oistamo; and CFO, Heli Lindfors. So Kai Oistamo 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're kind of living through the first quarter, it was -- it was an increasing market uncertainty. There was not 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 kind of our relevant geographies during the first quarter, actually, the actual implementation dates only happened in April. So despite the -- 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%; year-on-year EBITDA almost doubled year-on-year or 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 and Environment, a strong order book that we had opening order book, obviously, gave us a good start, and we continue to deliver against that strong order book. And then on subscription sales, kind of extraordinary growth on a back of both a 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 even and 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 a 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 and kind of taking different side -- 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 rapid increased demand on compute power. And during first quarter, we continued to -- this has been also a growth segment in our Industrial Measurements for kind of 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 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 WeatherDesk is completely done, and we did that in kind of several months earlier than what we anticipated it to take and are able to stop the SLAs early also from the previous owner. And this gives us a great background strength on further develop on our offering on Xweather. And as I said a minute ago, kind of helped us to boost the subscription sales growth when we compare to year-on-year numbers. And on 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 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 Spain. But here, great to see another sizable 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 of 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, a 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 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 the Americas. Gross margin improved a little bit over 3 percentage points. And as usual, with our business, 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 kind of a very strong quarter in Industrial Measurement in all aspects, even if the relative numbers when you compare to year-on-year numbers, obviously, we get the benefit this time of weak first quarter last year. Great to see also the gross margin improving and the business really scaling nicely when we get higher sales and also the EBITDA percentage increases correspondingly and now back on the levels that we should be with the EBITDA percentage starting with a two, like 21 -- being 21.7% at the quarter. Then looking at the Weather and Environment, continue 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 U.S., which put basically the renewable energy investments on hold in the U.S. 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 the renewable energy, obviously, long term remains a very lucrative opportunity despite the short-term headwinds. Moving on to the net sales side on Weather and Environment increased by 18% here. If I take the organic piece, so take all the acquisitions out, which happened to all be within the Weather and 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, as 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 we had -- simultaneously we had a good sales mix when we compare to kind of earlier quarters and previous quarter year before. 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 continue to be so also during the first quarter. Operative result -- operating result margin being 13%. And when you look at our kind of financial results on this page, it's kind of almost boring to say kind of continues to be kind of 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 compare to the year before. And then operating expenses increasing. It's good to note 12% year-on-year, but that's mainly on the back on the expenses related to the businesses that we acquired in the Weather and 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 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 very levered company at all. We have a business model that is very much asset-light. And maybe on this page, good to 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 in -- towards the end of the year in the fourth quarter of this year. Then the market and business outlook. The outlook for '25, 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 of 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 EUR 590 million to EUR 620 million, and we expect our operating result in terms of EBITDA to be between EUR 90 million and EUR 105 million. Good to remember, as usual, this kind of outlooks for the year kind of don't include any drastic changes in the outlook. And maybe that's a good to remind, especially in these kind of days 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.

[Operator Instructions] The next question comes from Nikko Ruokangas from SEB.

This is Nikko from SEB. I have a couple of questions, and I maybe go one-by-one. And starting with the declining orders in renewable energy. So could you kind of open a bit your order composition if you compare 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?

Yes. So while we don't disclose kind of the exact numbers in terms of the subsegments 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 kind of -- it's somewhat volatile between the quarters. It's not the same. It's not like 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 on to 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.

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 the outlook, my line was breaking.

Yes. So first of all, if I start from the outlook, I mean the 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 kind of 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 big part of the business, we are able to move the tariffs into prices, and we did it very swiftly 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 the customers were not surprised and there was not a -- by any means, on the contrary, I would say that the customers were expecting a change in -- 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. 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 some -- kind of we have a blanket orders for certain things, we have long-term orders for certain things for the rest of the year in the U.S. We were able to actually kind of ship quite a bit of that into U.S., into our warehouse, kind of creating kind of like our own hedge on whatever the tariffs may end up being.

And then if you have orders from the U.S., which were not delivered to the U.S. before the tariffs were announced. So are you able to transfer the kind of increased tariff cost to those orders already in your backlog? Or do you have to take the hit for those?

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

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?

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. The net impact of it is that some projects that were anticipated to start have not been canceled, but have been postponed into the future when kind of clarity comes. The unclarity comes also from the fact that the U.S. government used a very blunt instrument in reducing cost in terms of personnel. So basically, a random cut of people on kind of -- irrespective of their seniority or stay in the organization, which obviously, you can imagine in your own organization, if randomly you would pick every third person 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. We know these people from like a 10, sometimes even 20 years, and we remain very close to the organization itself. And here's an opportunity to help then also the organization to actually do their duty, which is really, really important for the society, really, really important for the society.

But despite this, you are expecting -- or taking this into account, you are expecting the material market as total to be stable?

Yes, of course. Of course, it's taken into account. As I said maybe one more piece, Nikko, as a color on the National Weather Service side. We are taking into account what we know today. That being said, given its importance, what the 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 at over time.

The next question comes from Atte Jortikka from Evli.

This is Atte Jortikka from Evli Research. Still continuing on the tariff topic. So and how much of the Americas region strong performance in Q1 can be attributed to perhaps front-loaded demand ahead of the set tariffs?

Not materially.

Then have you...

That was the shortest reply.

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

Yes. We -- 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, 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 2 locations, the tariffs should be very high before that makes any sense.

Yes. Makes sense. Then 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.

Yes. Then to other topics. Life science was a positive on the first quarter. How much 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 -- so I better not comment since I have not looked the numbers on the sub-verticals. It was partly -- I mean, if you look at life science it has been -- we've been talking about a stable market for now little bit over 2 years. We've indicated, I think, in these calls that kind of early signs in the U.S. towards the end of last year, now kind of -- so part of -- it is partly comparable, obviously, kind of 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. The weather-related things probably were not the first ones on the list of military organizations. [Technical Difficulty] Can you hear me now? I think we had a little bit of a technical glitch. Hello? Can you hear us? Yes.

Did you hear my question in regards to the defense spending?

Yes, 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.

The next question comes from Pauli Lohi from Inderes.

This is Pauli Lohi from Inderes. I would go back to the question regarding the Americas sales. And you said that it's not materially linked to preordering for the tariffs, but are 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, every tweet seems to be moving the market in the U.S. 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 inflationary impact in U.S.; time will only tell. I mean 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 -- 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.

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...

More even?

It should be more even like normal data business. There's no reason to be cyclical.

Then my third question is regarding the gross margin. So could you once more elaborate the gross 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?

Yes. So if I look at the gross margin, so the gross margin was good in both sides, Weather and 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 gross 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. It's the scaling. The scaling impact is just something that 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 and Environment where how much of the project sales in a given quarter is recognized as a bit more of an -- like creates a little bit more variance between the quarters in terms of a mix as such.

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

No, in the Q1, as I said earlier, if you look at where did the improvement come from in Industrial 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 and 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 and Environment. Within the normal fluctuation between the quarters, nothing extraordinary per se.

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 good questions. Thanks for following our call. Just as a kind of recap, it's great to have a strong first quarter behind us, gives us a good start of the year, given especially the turbulence and kind of challenges in terms of reading what the future brings. So it's a good solid ground under our feet and gives 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 e-mail, and we'll jump on another call. Thank you very much.