Vaisala Oyj (VAIAS) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Vaisala's Second Quarter and Half Year Results Call. I am Niina Ala-Luopa from Vaisala's Investor Relations and today here in this call with me are President and CEO, Kai Oistamo; CFO, Heli Lindfors; and Chair of the Board, Ville Voipio. First, Kai will present the results. And after that, we have time for questions. Let's start with the presentation.

Thank you, Niina, and welcome also from my side. Looking at the second quarter, as the headline says, mixed second quarter. And while there was a -- there was a strong growth in many parts of the business and good performance. At the same time, there was a decline, especially in the renewable energy business. So let's dig a little bit deeper into the quarter. Net sales-wise, we were roughly on the previous year's level. The slight decline is largely explained by changes in the exchange rates. When we look at the net sales, strong growth continued in Industrial Measurements across the board. I'll go a little bit deeper into that a little bit later in the presentation, while Weather Environment side suffered from slowdown, especially in the renewable energy markets. The subscription sales continued on a very strong growth as it was also in the first quarter, both from inorganic side, i.e., the acquisitions that we did late last year as well as the organic side, underlying organic business. In terms of order intake, a decline, and this came from 2 places. It's order decline, obviously, in renewable energy. That was visible there, but also in meteorology and aviation. Here, I'll talk about this a little bit more in detail later. This, I would say, is more in, explained by the cyclicality of the underlying business, and I'll give you a little bit color later in the presentation. From an EBITDA perspective, lower compared to a very strong quarter last year. And it's good to remember when we compare to the second quarter last year, and remember the abnormality in terms of the different quarters in last year, where first quarter was weaker than -- much weaker than in a normal year and then second quarter was compensating part of that. First quarter last year had the ERP change and the strikes at the same time is impacting both net sales and order intake, and then that was partly compensated in the second quarter. So that's good to keep in mind, and I'll show you also the year-to-date numbers in comparison to the last year. It's very visible there as well. And then I'll conclude the presentation with the remarks on the market and the business outlook. Before going into the numbers, it's good to remember that we have a very, very clear strategy. And while the market public side and myself in this call will talk much more about the short-term impacts on the marketplace, whether it is the import duties, whether it's the trade war, whether it's the real war in Europe, whether it's the turbulence in the marketplace, it's good to remember that climate change has not gone anywhere. It's progressing. We see just looking outside of the window, how the impacts are more and more prevalent. And it's important to remember that we are basing our decisions on the very, very solid strategy, looking at business in the long term and the real importance of fighting climate change and its importance on many business trends as well, where we really strongly feel that we are on the right side of the history, and it's good to have this kind of a solid basis for making business decisions guiding us in the long term. Now going into the financials, first looking at it on a Vaisala level. The order -- as said, order intake decreased despite the strong demand in the Industrial Measurement side. Year-on-year comparison, it's 16% decline. And consequently, also the order -- ending order book declined compared to the same time -- or the starting order book for this year, i.e., at the level of end of last year, 7% decline. And net sales declined slightly here, essentially flat if we look at constant currencies. So more than half of this is -- the decrease is explained by changes in the currency exchange rates. Strong growth, but more interestingly, what's happening underlying on the top level numbers is the strong growth in Industrial Measurements and in subscription sales and at the same time, weak demand in renewable energy, which then impacted the net sales significantly on that side of the business as well. The gross margin on a good level, albeit a slight decline compared to second quarter last year, and the cash conversion continued strong, and I'll show you a slide on that as well. Industrial Measurements, a very good quarter. Growth continued in all geographic areas and all market segments. This is -- it's great to see, has not been the case for quite some time in Industrial Measurements that I can actually say that the growth really comes from all geographic areas and all market segments. In terms of orders received increased compared to a very strong comparable year-on-year by 10% and net sales correspondingly increased by the same 10%. The growth, America has continued strong, but it's the clear growth also in Europe and in Asia as well as in all market segments that we serve. Slight decline in gross margin compared to exceptionally high level same time last year, but well in the range that I can say that it was -- I can be very happy about the gross margin as well as on the EBITDA level on Industrial Measurement side. Mixed inside of Weather Environment. Weak market demand in renewable energy. So orders received decreased, as I said, significantly when compared to -- strong comparison point, albeit the strong comparison point last year, 32%. And the order book consequently is 7% down compared to the end of last year. And then net sales decreased by 10% compared to the same time last year, which again, was strong not only in orders received, but also in net sales, as you can see from the graph on the right on the slide. And where did it come from? It came from slowdown in the renewable energy market. Maybe worthwhile a little bit opening up what this means is the investments into especially Wind, as we've said before in previous calls, have slowed down around the world. There are specific markets also that where we operate in. This has now gone into the early phases also in terms of a new potential Wind park explorations, which is really where we have our biggest exposure in renewable energy business. And many of the markets or some of the markets where we are specifically strong like Central Europe or Japan have slowed down significantly, so the impact on the market comes through fully in our numbers, but also the complete slowdown in U.S. as the administration changed and the regulations are in flux in the U.S. This has caused a complete slowdown in the U.S., which obviously is seen also in our demand and in our numbers. And then -- in subscription sales, I said this earlier as well, a very strong growth, 53% growth in subscription sales. And this is obviously coming from the acquired businesses and also very happy on the organic growth of 11% year-on-year on underlying business on subscription sales. So continue to progress very, very well on the subscription sales business, driven by the Xweather business that we have. In Weather Environment, it's worthwhile also in the order intake side, maybe a few words on the traditional side of the business. And I referred back to the cyclicality of nature of that business. A couple of -- maybe opening up a couple of pointers to that, like if we compared to the last year or last -- second quarter last year or last year and some partly the year before, the cycle was driven up in a couple of things. One thing being in -- as an example, the use of COVID-19 recovery fund for renewing meteorology infrastructure, especially in Southern Europe. We benefited quite a bit from that during the past 2 years. A prime example of that was the investment in the complete new radar network in Spain, but also in Greece and many other smaller deals in other countries in Southern Europe. The use of that fund obviously now finally is over, and at the same time, many of those investments now are on the way. Second thing, I'll, albeit much smaller impact, but atypicality of this business is China, where we are now in the fifth year of the 5-year plan. And as we anticipated, the investments in meteorology are lower in the last year as it's typical in this 5-year plan executions that China has done. The investment quite a bit of it boosted the investments in China last year and the orders came in last year and this year, clearly on a lower level in China. But like I said, these are the nature of the traditional side of the business, the meteorology and aviation side of the business, and that's seen, especially in the order intake in that business inside of Weather Environment. And gross margin decline, 2 things impacting that. It's lower net sales like scalability working the other way. And then on the other hand, unfavorable sales mix, meaning that there's a little bit more project revenue in the mix compared to some other quarters, leading also lower profitability compared to the previous year same time. I mentioned the cash flow continuing on a good level. Here, you can see changes in the cash flow. Nothing really major here, cash conversion continuing on a very good level, 1.0 and free cash flow consequently being EUR 22 million in the quarter. And I spoke about the seasonality and comparisons to last year, and here, I promised to talk about beat the year-on-year comparisons also from a first half perspective, which give you a slightly different picture compared to just looking at the second quarter, given the cyclical nature of our business -- so cyclical in terms of between the quarters. And now when we look at first half compared to previous year, orders received decline was somewhat milder. But at the same time, the company's net sales strong growth and same drivers, Industrial Measurements, Subscription Sales as well as then to some extent, also the traditional Meteorology business. Gross margin actually ahead of last year and EBITDA ahead of last year, EBIT being ahead of last year. And the operating expenses well in control, some increase, but that really was driven by the acquisitions that we did in the second half of last year, which we are very happy and actually contribute to the net sales and profitability as well already and then earnings per share being on the same level as last year. Financial position continued to be on a strong level comparing to first half last year, obviously, gearing a bit higher since we did the acquisitions last year, but we stay low level -- stay very low levered and we continue to have the asset-light business model. And here, it's good to remind also and report that the investment in the automated logistics center here in Vantaa continue as planned. So we actually have completed the building. I'm watching out of the window and seeing corner of it. We received the building and inspected and it's already -- already completely done. And as we speak, we are installing the automation machinery into the building, and we expect that to be taken into full use during the second half of this year as we have planned. Now maybe changing the focus into the future and a few words on the market and business outlook. So business outlook for this year, we continue to see growth. We expect growth in the markets underlying Industrial Measurements, i.e., Industrial Measurements, Industrial Life Sciences and Power. Roads continue to be stable. I talked about the meteorology and aviation in terms of the traditional business having a bit of a cyclicality and the cyclicality compared to last year in a lower cycle. And then the challenges in the renewable energy, I spoke about as well and thus, those markets we see declining this year. When I look -- if I were to look at long term, then I would say no changes in the outlooks on meteorology and aviation roads. Traditional markets continue to be stable long term. And long term, we continue to believe, obviously, the energy transitions and so on, as I spoke about in the strategy of the company. Now consequently, we are now in the middle of the year, and it's time to look at the business outlook as well, and when we specified the range, it's a little bit narrower than what we started the year with. And we see the net sales being now between EUR 590 million to EUR 605 million and then operating result in terms of EBITDA being between EUR 90 million and EUR 100 million. So this concludes my prepared remarks. And now we would be very happy to answer any calls -- any questions you may have.

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

This is Nikko from SEB. Thank you for the presentation. I have a couple of questions, and I'll go one by one. Starting with Weather and Environment. So you mentioned that the cuts in public spending affected demand in Weather and Environment. And also, there have been made proposals for Weather services budget cuts in the U.S., both from presidential office and then from Senate and Congress. So could you discuss what do you think about this? And then as you discussed about the impact of public spending cuts, so do you think that the biggest risks of that relates to '25 or then '26?

Yes. So when I -- on my prepared remarks, I actually spoke about really, yes, it's a public spending, but it was more a stimulus fund post COVID, that was I was mentioning. So really we can argue whether that's a cut or not. It's just like on the back of previous stimulus funds. Similarly, in China, it's really not a cut in public spending, it's just the cyclicality of the public spending. But you're quite right, back to the U.S. and National Weather Service NOAA, and there has been cuts in -- both in the personnel as well as in the budget in terms of the NOAA and underlying National Weather Service at least for this year. This has consequently postponed some of the projects that we were anticipated that would be coming to a closure during this year. So far, we have not seen a dismissal or stopping of any of the projects that have been ongoing. They have -- everything has just moved forward in time rather than being canceled entirely or even rescoped. It really has been moving forward in time and that's the visibility that we have today. So we have no reason to say that this would be like a permanent level in the longer term, we'll see, and still relatively early days. I mean we are talking about, right, sitting here, it's about 4 months since the DOGE-ing started in -- regarding National Weather Service and NOAA. And we'll see ongoing negotiations, I think, within the administration on how to spend the money and where do you -- where the cut is too deep and where not and so on and how will the future years look like. So I would say too early to really speculate the longer term. And on the other hand, I think it's a positive sign that no project has been cut so far.

All right, understand. So the biggest impact from less public spending in Q2, you mentioned. So it is not U.S., but other countries...

Yes, yes. And this was -- we anticipated this. So we all knew that the COVID-19 recovery fund in Europe. I mean we are living in the year 2025, and that's like 3 years ago when in my books, COVID ended. So it's about time to stop using my tax money on recovery on COVID.

Yes, I understand. But then you still cut the outlook in traditional Weather and Environment side to decline from stable. So which part of this was a surprise to you compared to expectation in Q1?

A bit -- like the only really a new thing is compared to Q1 is what you actually were asking in terms of U.S. And it comes on top of the other cyclicality that I was talking about, whether it's the Europe or whether it's the China or just the normal cyclicality between the quarters in the -- in that market, being relatively small market all in all and single decisions move it one way or the other, between the quarters and half a year. So the only real material change is the impact in the U.S. for rest of this year.

All right. And then gross margin development, if we continue with Weather and Environment. So gross margin there declined year-on-year quite much. So was this Q2 specific or were there specific explanations for this? And was it affected by tariffs there? And were you able to transfer the tariffs to prices also in Weather and Environment?

So good question. So there was nothing really specific to any meaningful extent in the second quarter numbers. Really, the biggest weakness is in renewable energy and really a significant decline in the marketplace itself. And remember, the renewable energy business is -- has been a higher gross margin business and a higher profitability business than the average Weather Environment as a reported segment. So that has an impact directly into the reported segment numbers. So that really is where it is coming from. In the first half, regarding the tariffs and everything else, in all practical purposes, we were able to mitigate that a little bit from price increases, but mainly actually pre-shipments into U.S. We -- like again, it's a longer cycle business. So we will actually be able to actually ship much what we shipped and closed sales in U.S. So this moved from our -- like into our warehouse and the factory in U.S. and then turned into sales during the second quarter. So that was part of the mitigation in Weather Environment on the traditional business side regarding the tariffs.

Okay. And then if you think about H2, so will you then also be benefiting from pre-shipments or will you...

So yes, when we did this, we not only looked at the quarter, we looked at obviously whatever we could anticipate for the year. And remember, pricing changes in public -- when we talk about the public business and longer-term commitments, it happens much slower than in a fast-moving business like Industrial Measurements.

Yes, I understand. Then I have still many questions, but I think that I'll ask one and then let others ask. About fixed cost development, and you also mentioned that you are doing actions to improve cost efficiency in renewable energy. So basically, your fixed costs did not increase much even though you had made acquisitions in Weather and Environment side. And then on the other hand, you showed increase in fixed costs in Industrial Measurement side. So can you explain a bit background for that development? And was it already impacted by the cost actions you are taking?

Part of this is like we've been saying that -- many other people agree with me that the visibility into the year has been very challenging. The trade war, like what tariffs, when will the tariffs hit, what categories will the tariff hit, how will that -- what is the currency exchange, how will it impact the market demand and so on, which has led that we have been prudent in deploying our investments since the start of the year, and that's mainly what you see in the numbers. And the specific cost actions into renewable energy. Some of it is visible now in the second quarter, but most of it, as you can imagine, this takes some time to actually reduce when you change the focus of the investments and so on and reduce investments and reduce costs. It takes some time before they become visible in the numbers and that's not yet really in the second quarter numbers at all.

How much do you think that there is room to tighten the belt?

It's a bit too early to say. I would like -- would not like to comment yet on the number. I'm happy to report in the third quarter, but it's a bit early since much of this still is under planning.

The next question comes from Pauli Lohi from Inderes.

It's Pauli Lohi from Inderes. First, I would like to ask, have you seen any changes in the competitive landscape or your market share in the renewable energy business?

No, no. So the decline is entirely coming from the changes in the marketplace. We actually -- many of our competition is privately held, so getting quarterly numbers is impossible. But having seen now one of the biggest competition that we have their annual numbers from last year, they actually saw that a significant decline already last year. Them having an even bigger exposure to U.S., maybe even exaggerate -- compared to a lot of exaggerated, but made it even stronger than and faster why we did not see it last year yet the same way in our net sales.

And then I have understood that China -- the competitive landscape in China is a bit different from Western markets, but is that a significant share of your revenue?

No, no, really nothing at all in renewable energy.

Okay. Then my second question is regarding the currencies. So do you think that the current weakening of U.S. dollar to euro would affect your EBITDA margin? I mean, the relative profitability materially, if we consider that most of your expenses are paid in euro and many of your suppliers are European?

That's correct. And now that remains to be seen. It's all speculative what the currency exchange rates will be going forward. I think -- the part of this obviously, we can mitigate depending on what the exchange rates are. I think the impact on top line would be probably more challenging. I'll give you just an example. If I talk about our Wind business in U.S. and not only in U.S., but also in China is a good example. So if you look at renminbi, it's actually followed exactly the rate -- maintained its rate to USD and thus weakening the same way vis-a-vis euro now being 10% lower level compared to, say, beginning of this year or even February this year. That means in -- like just mathematically means that if we compare to last year and it would stay, say, in this 10% depreciation, that would mean that we would effectively need to sell 10% more in terms of the USD and renminbi just to stay in the same place in Industrial Measurements in, say, in the U.S. or in China. I'm just not saying that that's the case, but I'm just visualizing you what is really the impact on the currency exchange rates on the top line.

But you don't see a squeeze if you produce in Europe and then you have costs in euro and then sell to other currencies. So you don't see the squeeze in profitability?

Of course, like any squeeze on top line has an impact on profitability, but that's all reflected in our guidance already.

Okay. Then finally, you already gave some explanation for the -- about the impact from tariffs and you have mostly mitigated them through pre-delivered products. But how about looking forward, if we assume that there will be some 10% or 15% tariffs permanently? Can you offset them in both -- or I mean, can you give some color for both divisions how you can...

Yes. Industrial Measurements, we have been able to offset them completely by pricing actions. So -- and I feel confident that we have now enough evidence that we can do that. Obviously depends on what now we speculate. If it stays on the current level, we have no evidence that we can offset them without really impacting the demand picture or the competitive picture. And then on -- and there, as I said earlier, it's obviously much easier to pass on the prices to customers when it's more of a transactional nature and book-to-bill turnaround is 3 weeks. So you don't have the same way long-term commitments and long-term dealers -- deals as you have in the Weather Environment where it does have some shorter-term business also, but it takes a longer time to pass the costs to our customers. We certainly are going to be doing pricing actions on it, but then we need to do other actions on it to mitigate. And we will -- we will see how -- what will be the levels of tariffs and what will be the levels of the currency exchange rates longer term. But I think we have, on one hand, different levers between the different units, but we have levers in both units.

The next question comes from Atte Jortikka from Evli.

This is Atte Jortikka from Evli Research. Firstly, more of a general comment/question. Looking at the specified outlook range, at least for my eyes, it looks rather narrow in terms of top line, especially given that we're only halfway through the rather uncertain year. What are your thoughts on this overall, this narrowness on the guidance and how you take into account, for example, currency movements here? I think you already commented that.

We don't. So I don't think it's for us to speculate what the USD versus euro rate is going to be at the end of the year. So it's impossible for businesses like us to take a view on a stance on that. And similarly, taking a view on what will be the -- tariff regimes towards the end of the year, and it's anybody's guess. We are not taking really a case stance on either one of those.

Then a couple on the renewable energy. If I remember correctly, I think you started seeing some weakening there during second half of last year. If we compare it to that market situation, how is it? Is it substantially weaker now than late last year?

Yes, it is. Yes, it is. So it continued. So like you said, early signs were in the second half last year and clearly much more prevalent during the first quarter and now going into the second quarter. I'm not expecting any material improvement on that market, not this year, and we'll see a little bit -- and then how it behaves longer term.

Okay. Then lastly, from my side, you commented on that you expect the renewable energy business sales to be down EUR 15 million this year. You already gave us some color, but could you comment on how this spreads across the operating regions for that business?

Can you repeat the question? I'm not sure if I really got.

Yes. So just asking of -- you expect the energy business to be down this year, how you expect that to spread across your operating regions?

Yes, it's -- so it's across all geographies, so I don't think there's really a material difference in terms of whether market is down, whether we talk about North America, Europe or Asia, which those are the geographies like where we are selling.

The next question comes from Matti Riikonen from DNB Carnegie Investment Bank.

It's Matti at DNB Carnegie. A couple of questions. Firstly, you mentioned the Chinese public sector investments being softer. I was just thinking that when you explain that the 5-year plan in China is now having the last year. Does that mean that -- or could you discuss that what is your experience from those 5-year plan that when we go to the next one, do you think that it will start strongly if you say that the last year of the 5-year plan is slower than normal years? Or what kind of pattern do you see there?

Yes, the pattern has been such that the last year for some reason -- I don't have the details on what's the logic behind, but it has been for previous 5-year plans as well that the last year seems to be a softer public spending, especially on industries that are related to us, and then it starts again, the cycle starts again when the next 5-year plan starts. So there seems to be a pattern.

All right. In your view, does it seem like China would be buying more from local manufacturers? Do you see that kind of trend?

Yes. So like this is a general question, obviously, that if I take -- put it in pieces, a bit on the Weather Environment side, that change already has happened, and we've changed the business model in terms of -- we are partnering with the local partners and -- it's not -- remember that serves like maybe sectors that have national interest, and that change already happened many, many years ago. So we've adapted into that. And I don't really see a change happening. We have not seen anything that would mark that change in that. So it's already is where it is. And then on Industrial Measurement side, there is local competition. But again, I'm not seeing any changes like the competitive environment really materially changed at all compared to last year or the year before.

Okay. Then the U.S. situation with the public spending, do you think that you now have a slightly better visibility that you already took your market estimates down for the U.S.? So in Q1, I think you discussed that you had not seen yet any major changes in the so-called inventory orders so that there would be -- they had come a bit softer, but you expected that they would return to normal towards the end of the year, but you had seen slowness in the new business. So is this still the picture that you are looking at?

That is still the picture we are looking at the running business and honoring the old contracts that has continued. So the softening of the market is less visible in net sales, much less visible in net sales. It really is on new orders and new orders moving right, i.e., into the future.

Right. And roughly, what net sales exposure we are talking about with the U.S. public sector? So is it more than EUR 10 million of your sales annually? Or what numbers are we talking about?

Yes, it's more than that. I would say this way that -- and this is no scientific number. This is my own back of the envelope calculation and estimation and all disclaimers to it that the impact on the -- by the DOGE-ing into the related markets to us. The market probably order of magnitude would be down in terms of new orders this year, maybe EUR 20 million, the entire market. It is based on no scientific. This is just my expectation on the market.

So -- and were you talking about the total buying?

Yes, yes, total buying related to -- would be whatever our market share would be.

Okay. Fair enough. Thank you. And then moving to nitty-gritty things in financials, the Industrial Measurement, Q2 was very good. Was there any particularly good trends or some relief rally, maybe companies returning to normal after -- the situation is not very clear yet on U.S. tariff policies, but at least most people have to -- or most businesses have to go forward. And then was there some relief after the April events?

It's widespread. So nothing that I could point out to. As I said in my remarks, all geographies performed well, all underlying market segments performed well. So it was widespread, like nothing I could point out to.

All right. Then one technicality that with that kind of top line growth, one would have expected slightly better gross margin, but that didn't scale much higher. Does it mean that you have increased your resources in the delivery organization? Or was there just weaker sales mix?

It's about the sales mix. And so in terms of -- if you look at the profitability, so EBITDA, even the tariffs had no impact. And in -- like if you think about how the tariffs when you compensate it by increasing prices, then actually the tariffs go into the bill of material. So that actually technically lowers the percentage a little bit, but I can't go behind that. That's just a small piece of the decline. It really was a mix.

All right. Now if -- now it seems that you have pretty much taken into account the U.S. administration's decision regarding the DOGE cuts on your customers. But the biggest risk now going forward still that the tariff policies in general would be changed and there would be some additional tariffs and maybe some additional disturbances towards the rest of the year affecting your business, not only in the U.S., but also then having repercussions outside the U.S., meaning global?

Yes. Thank you for the question. And I think it's a great question, and I maybe should have emphasized this that that's absolutely the biggest risk that the tariff changes compared to whatever it is today, obviously -- and we have a direct impact to us. I would be even more worried about the impact to our customers and therefore, the entire market and the demand across like. And longer the uncertainty continues, it's not good for our customers. And similarly, the currency exchange rates, that's another a big uncertainty, not only directly to us, but also to our customers. And again, like the compounding impact of all of these uncertainties and how do you plan investments, how do you plan your spending in this kind of environment. And I'm talking about our customers. That, I think, is by far the biggest risk.

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

This is Nikko Ruokangas from SEB again. I have one additional question. And going back to the U.S. public spending topic, but from a bit different angle. So do you think that possible additional spending cuts in the U.S. could affect your subscription business in North America? So how dependent are you on the public data there?

No, no. I don't see any of that.

The next question comes from Waltteri Rossi from Danske Bank.

Hi, Waltteri Rossi from Danske Bank. Firstly, on the renewable energy, have you disclosed the geographical footprint in there? How much is the U.S. sales from renewable energies?

It's small compared to Europe and Asia. We have not really disclosed, but that will be an answer.

All right. Fair enough. Then about the public sector exposure in Xweather. Have you said anything on that?

There's a bit. But remember, all public sector spending that Xweather has, is kind of like, for example, will be the lightning data. That will be an ongoing spending. That's not an investment. That requires no new gear, that requires no new projects. That's an ongoing spending. And we don't see any -- like I said, also in the traditional business, we don't see any really an impact on the ongoing business itself.

Okay. Clear. Then about the Weather and Environment profitability, you said that you will lower costs because of the lower sales volumes. How efficiently do you think you can mitigate the negative profitability impact through these actions this year?

I think we have -- first of all, we have multiple levers to pull from, and we can -- and we are definitely doing that. Quantifying exactly all of this, as I said earlier, I answered to somebody else earlier that I would rather talk about it in the third quarter call. It's still under planning, and it would be premature to really comment too much about it yet.

Okay. Alright. And 2 small questions still. About the budget reductions in China, could you open up what is actually driving those there?

Like clarifying comment. It's not a budget -- don't think about it as a budget cut. It's a cyclicality of the -- of the public spending. It's a cyclicality of how the public spending is done in China. There is no cut per se. It's where they allocate the public spending in a given year, and it's just a cyclicality thing, nothing else.

Okay. Fair enough. And lastly, about the competition in the public sector in the U.S. Would you say that the U.S. government has any meaningful local options?

I don't think that's the question here at all. Like they have -- there are multiple vendors and everything else, but this is not about U.S. or not U.S. We are very close to the governmental actors and the customers and everything else. We are not seeing like this being at all a question on what U.S. or not U.S.

Okay. So kind of improving their competitive...

No, no. Sorry, you were asking about tariff impact.

Yes. I mean, because the tariff don't impact the local players, then they would have a competitive...

No. It depends -- my comment only would be depends on their supply chain. The local people, maybe the manufacturing, it doesn't impact, because the manufacturing itself is a small piece depending on where the supply chain is. If you use Chinese components, if you have Mexican subassemblies, the tariff impacts may be higher than what it is for us.

There are no more questions at this time. So I hand the conference back to the speakers.

Okay. Thank you very much for joining the call today. We will publish our interim report January-September on October 23, and we will have our next quarterly audiocast and conference call then. But now thank you very much, and have a nice weekend.