Vaisala Oyj (VAIAS) Earnings Call Transcript & Summary

Hello, and welcome to Vaisala's Third Quarter 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. 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 maintained 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 and 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 within -- inside of the third quarter, we kind of we start -- it started with the tariff changes and kind of 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. So, the environment has many moving parts, and the depreciation of euro, 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, like 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 remain 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, we picked a couple of kind 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 industry measurement probes are recalibrated and provide a reuse service where the customers maintain a dedicated pro 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 always accurate on 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 that 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 Vaisala Circular is an example of, but we are doing similar things also in the Weather and Environment side. Then on Xweather, the hail forecasts. Hail actually is one of the more difficult weather phenomena to actually forecast. And it's been really one of these places where -- one of the things that really is -- has been really a challenge for meteorologist for a long, long time. Super happy to report that now we have an Xweather hail forecast. And hail is really important in terms of the damage it causes for various kinds of a property or infrastructure. For us in Finland, the hail sometimes gets to be kind of pea size and even that can kind of cause some damage. But in more southern countries where more extreme weather and extreme thunderstones 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 kind of places. The example we are showing here where we can apply the kind of capability to 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 hail forecast as an example. And then WindCube, 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, increased data availability and much, much more robust performance in clean air and complex terrain environment. 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 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, with -- 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 performance side. Order book consequently kind of down from same time last year. And then net sales-wise, a 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 a 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 and all geographies. And super happy to see that now Asia performing really well compared to the same time last year, equally so -- almost equally so, Europe and at the same time the U.S. growth continuing. Obviously, in the U.S. and in China, for example, where the local currencies have devalued vis-a-vis euro, that has a negative impact. If you -- like if I take, for example, U.S. in a constant currency, year-on-year growth was 9% in Industrial Measurements in Americas 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 here 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, kind of big part of the impact was the proportional impact on the U.S. tariffs. And here, maybe worthwhile kind of 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 the -- even if it's fully mitigated in absolute terms, since the divider and the 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. 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 changes have been and it's worthwhile saying also that while we are in the Industrial Measurement side, it's obviously easier to kind of mitigate by price changes, extraordinary events like the 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 pricing. Obviously, long-term, there are kind of pricing means to compensate this. But short-term, you cannot kind of 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 received in 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 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 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 the China investments due to a large extent, I would argue, to the fact of the cycle in terms of the 5-year plan this year being the last year of the 5-year plan and very often being the least investment in at least in this sector. So that we have seen that in declining order intake and then simultaneously, the administration changes and so on impact on delaying the order intake in this year in the U.S., 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 the 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 kind of a very strong now 2 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, 1.5 years that are still in our order book, and are being executed. Now on the gross margin side, a decrease of 3 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 Industrial Measurement side on exchange rate and the U.S. tariff impacts, albeit somewhat less pronounced in case of Weather and Environment as the sales mix it's not as heavily weighted in euros and dollars or the U.S. business is a little bit less than what Industrial Measurement 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 1 and free cash flow around EUR 40 million during the period. Now if I look at the year-to-date, both net sales and profitability clearly improved during the first 9 months compared to the same time last year. And orders received did decrease by 13% year-on-year and while net sales grew by 9% year-on-year. And subscription sales, if I take the first 9 months of the year, almost incredible 58% up, obviously boosted by the acquisitions of WeatherDesk and Speedwell 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 or same time last year. And then worthwhile saying on the operating expenses, the restructuring costs, as I 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-light business model, no changes seen or foreseen in that. And 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 Quanterra 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 zinc or carbon emitter, which 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 the beginning of the year, whereas the meteorology and aviation now suffering a slightly different market conditions, as I explained before, in terms of the government subsidies and government incentives kind of on a lower level than when we compare to last year. And then on the business outlook, no changes to this. We continue to see the net sales to be between EUR 590 million and EUR 605 million and operating result being between EUR 90 million and EUR 100 million. With that, I want to conclude my prepared remarks, and I'll open up for any questions you may have.

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

This is Nikko Ruokangas from SEB. I have 3 questions, and I'll go one by one. Starting with Weather and Environment and orders, which you already discussed, and you told the reasons why they have now declined for a couple of quarters. But should we soon start to see the trend in orders happening there? Or has the demand continued sequentially weakening? And then do you think that the U.S. government shutdown could affect you now in Q4?

Yes. So obviously, kind of when we talk about we compare to year-on-year kind of things will obviously, when the comparables change, then that will change. Your question was on a sequential basis especially aviation, meteorology, things kind of come as they come. So even if there would be like numbers improvement or decline from one quarter to another, it would be hard to make a conclusion out of it since it's a lumpy business as a starting point. As I tried to explain on meteorology and aviation, it is more of a -- it's a bit of a cyclical business where now we have enjoyed, I would argue, almost like exceptionally high cycle in it for good almost 2 years. Now it's more on a normal basis, what it looks like. So, I would not be overly worried about it where I'm standing today. Then, on the U.S. government shutdown, it's a great question. And so, 2 comments on that. We've seen the budget proposal, and I would be actually happy, and this is the government's budget proposal, not minority budget proposal. I would be happy if and when that is approved. So, I have no issues with what is proposed. The shutdown itself, obviously, during the shutdown and getting a new order for next year since there's no budget approved nor and then there are a whole host of people furloughed. It's postponing things. If I look at bit on the history, typically, what has happened is that during this kind of U.S. government shutdowns, the orders will just come a little bit later in. But if I take kind of 12 months average or what kind of a little bit longer time series, it will normalize itself post the shutdown. So, it's like a little bit plowing snow in front of a snowplow kind of a thing, at least has been in the past. And we'll see how long it will last, it can stop tomorrow, or it can be continuing for some time.

Yes, I understand. Then on the guidance, as it indicates for Q4, clearly kind of year-on-year basis, weaker sales and EBITA development than now in Q3. So, is this basically explained by smaller project deliveries expected for Q4?

A big part of it is also very high comparable. If I actually go -- and I'm usually not doing this, I'll try to go back in my slides just to illustrate what I'm saying on this slide. And it's not this slide, here. So, if you look at this slide, it's kind of like highlights the unusual nature of the last year in terms of how the order intake kind of behaved and especially net sales behaved that we had a very weak first quarter, very strong second quarter, weak third quarter and a very strong fourth quarter. And if you went back into '23 or earlier years, typically, the second half, both quarters have been stronger. Typically, even the third quarter has been stronger than like second quarter clearly on an average year. So, there's a bit of when you compare to year-on-year kind of numbers, the anomaly of last year makes it a bit harder this time around.

And I think the second topic is actually the FX that Kai was referring to earlier on. So, in the beginning of the year, the FX was still more similar level to last year, whereas now in the second half of the year, we see more of an impact of the volatility of the FX. So that will definitely be a factor in Q4 as well if the kind of rates remain as they are currently.

Correct. And it's again, a good illustration of that. If you go back and look at our second quarter results, we said that there was not really a material impact on FX yet.

Okay. So, this year, more normal seasonality expected than last.

Correct. Correct. Correct.

Then last one from me, at least at this point on cost side. So, you mentioned the EUR 3 million restructuring expenses. So, if we leave those out, so to me, it seems that your operating expenses were down in weather despite the acquisition or fixed expenses, but then clearly up in Industrial side. So, if you exclude those restructuring expenses, were those including something extraordinary? Or is it kind of describing the trends you are now having?

Yes, the extraordinary costs, as I said, was they were related to the restructuring that what I talked about in relation to the energy business and renewable energy business. So, I think your conclusion was exactly right. And like if you look at our numbers, and we have now a good trend also on the Industrial Measurement side, we have been a little bit longer kind of time series again, over the past 2 years where we had more modest growth, we were more conservative in spending and spending increases in Industrial Measurements. And now we see kind of clearly more growth opportunities and a bit more spending, not going wild, but a bit more spending on Industrial Measurement side.

The next question comes from Pauli Lohi from Inderes.

It's Pauli from Inderes. I would start with this demand-related question. Have you seen any signs that the increased tariffs could start to dent the good market activity you have seen in the U.S. market or elsewhere compared to what we have seen already this year?

So elsewhere, I don’t see it go, it could have, now I understand your question. So okay, no, answer is no. We can't point anything in the U.S. or anywhere else, that would be at all related to tariffs. It's been more positive than what would have speculated pre-tariffs.

Well, that's definitely positive. And your scheduled deliveries for the rest of the year in the Industrial Measurements are a bit lower compared to Q3 last year. So, do you think that the current favorable market activity could still offset this?

No, Pauli, remember what Heli just said in terms of the exchange rate changes, which is, if you compare to last year, I think we are about 15, 16 points cheaper dollar than it used to be a year ago, and Industrial Measurements and Xweather are highly exposed to dollars.

Also, in dollars and renminbi. And especially for the Industrial Measurements, the renminbi is also very important currency.

So, it's not [indiscernible] then you can draw your own conclusions. I would not be worried about the demand picture per se.

Okay. Then, regarding the cost base, how large savings you expect from the recent restructuring on an annual level?

We have not communicated that. I'll put it this way that when we said in earlier quarters, similar calls, we've said that we are going to adjust our operating expenses to the level that matches the market picture on the renewable energy business. We've now done it.

All right. Then, regarding the new logistics center, do you expect any short-term cost-base increase or operational extra costs from starting to use the new center?

No, no, no. Absolutely not.

And do you see that it could provide any material financial benefits next year?

Over time, I think it clearly -- I mean, if you think about it now, fully automated material flow, it should yield into kind of a better rotation days, better management of the inventory, multiple benefits in terms of how much capital is tied into an inventory, and different tools also to optimize that inventory. So obviously, we have a business case, and over time, this is an investment where we expect a payback as well.

Okay. Finally, on Xweather, do you think that the current roughly double-digit organic growth rate is sustainable going forward? Taking into account the new product launches and maybe potential synergies from the recent acquisitions?

Yes. So, short answer, yes. And here also, short-term, we have to take into account the currency exchange rates when we look at the euro reported numbers. But typically, we do the pricing changes at kind of around the year-end in all of the businesses, well, at least Industrial instruments as well. So, we need to then see how those impact kind of going forward as well, depending on how the exchange rates then turn out to be.

The next question comes from Waltteri Rossi from Danske.

A few questions. First, about the Industrial Measurements orders in America. The report said that they grew slightly. I think the wording was a bit softened from the previous. So, have you seen any changes in the activity level in the Americas? Or is this only related to the FX?

So, I think I earlier said that it was a 9% on a constant currency level year-on-year. And if you look at the reported currency, it would have been 2%. So here, you see kind of direct impact on the currency exchange rate. I would be very happy with the 9%. I'll offer you that.

Okay. Okay. Perfect. But you don't disclose how much the Americas is of the Industrial Measurements orders. Can you give us...

Not on orders and not on a quarterly basis, but it's clearly the biggest market that we have, and it's clearly north of 1/3 of Industrial Measurement sales.

Okay. Okay. Then, about the Xweather business, it said that over the past quarters, it's actually been contributing positively at profitability. So, does that mean that the segment is now making positive operating profit already? And if so, are we talking about a low single-digit margin, or what?

We are not reporting that business separately. So, I will decline to answer you. So, we have not quantified. But contributing positively kind of would imply that it actually makes money.

Yes, yes, sure. But I was just making sure that we're talking about EBIT on an operating profit level. But kind of...

Remember on the EBIT level, we did the acquisitions last year. And that's obviously kind of the amortizations of those assets raised the hurdle on one hand. But if you look at on an operating profit side, then that's what I'm referring to.

Okay. Okay. So, we should still expect that you are continuing to invest in the growth of that business and shouldn't expect the profitability to kind of start to improve or scale up from now on?

Yes. Well, if software business grows 50% year-on-year, one should expect that it scales.

All right. But you are still keeping the view that you are shifting focus from growth to clearly start improving the profitability side only later during this strategy period?

No. There's no shift between profitability and growth to be foreseen. It's always -- like when you are scaling a software business, it's always a kind of a trade-off, of how much you invest in the growth. And typically, in this kind of a software business, it really is investments into sales and demand generation rather than increasing the R&D when software businesses are scaling. And then the return on investment should be quite quick. And it's relatively easy to verify as well, kind of from a cost of acquisition side. If you kind of invest in customer acquisition cost, you can actually measure what the return on investment is, and it really should be quite quick.

Okay. Okay. Lastly, as of now, earlier in the year, the expectations were kind of lowered because of the U.S. tariffs and how they will impact, especially the Weather and Environment public side sales. How would you describe the impacts of the tariffs on public sales this year today? Like, has your view changed since at all...

I would say no impact so far on the Weather and Environment sales in the U.S. from the tariff side. As you may recall, we did kind of a plan for the tariffs, and we mitigated the tariffs by actually shipping into our own warehouse in the U.S. so kind of that we have a little bit of time to pass the tariff costs into prices. And I think we are executing against that plan very well.

The next question comes from Joonas Ilvonen from Evli.

It's Joonas from Evli. I have a couple of questions about Industrial Measurements. You already discussed this question of cost, but if I can come back to it. So, I think like R&D costs were down this quarter at a relatively low level. And of course, I think there's always a bit of like a quarterly variation when it comes to that. But then also you say -- and I saw your total OpEx still grew quite a bit, albeit it was still at a rather moderate level. But you mentioned this investment in sales and digital capabilities. So, my question is that how do you see the kind of overall Industrial Measurements investments continues to grow from now on? Like, do you expect it to grow basically at the rate of sales volumes?

If I take all kind of that will be a good approximation over time. Obviously, these things change over, like vary over quarters, and the quarters are not equally strong, and so on. So, kind of different quarters are a little bit different. But over time, that's a good proxy.

Okay. That's clear. And then you mentioned IM APAC growth that was especially strong. So, was this mainly due to China? Or were there any other countries there you would like to highlight, and which specific industry groups, like you mentioned, life science and power in your report?

Yes. As I said in the prepared remarks, if I start from the kind of latter side of the question, it came from all segments in the Industrial Measurement side. So, all market segments, grew. And it's both in China and outside of China. China did have a marked change compared to the second quarter, clearly having more market optimism in the third quarter, great to see. But it was not only in China, it clearly was outside of China as well. And if I pick one very interesting market, which continued to be strong is Japan, and where obviously, lots of industrial activity, and we have a great position in Japan in various different segments, but not only those 2 markets. It's broader than that.

All right. So, there weren't basically any kind of weaknesses in terms of geographic regions or...

No, no, not that I can think of.

Okay. That's clear. And maybe one last question. So, you already discussed this IM gross margin headwind due to exchange rates and tariffs. So, it's going to fade at some point, but did you comment on when exactly is it going to? Does it still continue over Q4 or into next year? I mean, considering how things look right now?

Yes. So, 2 things on, if you look at gross margin, and this was a bit on the net sales side as well, what I tried to say earlier, one thing is we -- and then they function differently if you think about FX and then the tariffs. The tariffs, what I said and what we've been saying all along, is that we fully mitigated that by raising prices. And that has kind of by itself a negative relative impact on gross margin. And I'll do you the math, pardon my details here. But if you think about that -- let's imagine that the transfer cost out of which the tariffs are counted would be 100 units. And then you put a 15% tariff on it. Now that cost would be instead of EUR 100 million, that will be EUR 115 million. And you fully move that into the sales price and let's do an easy math and call it like it's EUR 200 million and you put EUR 15 million on top of EUR 200 million. Now you fully mitigated it. And if you do the relative calculation, there is a negative impact on relative number.

All right.

Sorry about that. I think it's good to understand that that's when you -- and then on FX, as I said, you can't manage FX-related changes within a quarter or within a half a year. You cannot like fluctuate your local prices based on exchange rates. But we do try to be smart when we do the annual price increases as we do every year in the beginning of the year. So that's a chance of actually taking the currency exchange rates and our costs and everything else into account.

[Operator Instructions] The next question comes from Matti Riikonen from DNB Carnegie Investment Bank.

It's Matti Riikonen. And sorry if I have to ask some questions again because I had to jump to another call for 15 minutes during the presentation. So, some of the questions might have been asked already. So, I start with the math question that Kai you just explained. So is it in rough terms, we are talking about that the price increase that you made, it covers the kind of cost price, but then the margin that comes on top of that doesn't follow. So, you are not getting the compensation for the lost margin compared to the normal situation where you put the kind of markup to the imported price.

Yes. And even if you put a markup to it, you can do the math in different scenarios, how much of a markup you need to do in a high gross margin business in order to kind of mitigate the gross margin if you -- and there's obviously a limit how much you can pass on the costs if you think about the tariff a drastic change in the middle of the year, it's what's acceptable from a customer side. So yes, in a way, what you asked for. And then I'll go back to what I just said that beginning of the year, we are going to review our prices anyway, and we are going to look at different kinds of costs and things that where do we put the prices going forward.

Yes. But basically, isn't it always so that when the new year begins, you are trying to kind of achieve the same profitability level or higher what it used to here. So, it takes some time for the following price increases to kind of correct the situation into what it was from there.

Yes. That being said, when the book-to-bill cycle is 3 weeks in the Industrial Measurement side, that's pretty fast.

Right. Then regarding the Weather and Environment, when you talked about received orders and how they were kind of suffering different things, you meant that there's also industrial cyclical fluctuations or I don't remember what the term that you used was. But what does that actually mean in the Weather and Environment business? So, what kind of industries are there on the customer side that are affected if you're not talking about the renewable business, which I would...

No, I was not talking about the renewables business. And maybe I'll just explain it a bit more. So, it's not really an industrial activity. Think about it this way that this is -- it's a relatively small market in the end, I mean, in the total market as we are the market leader in terms of an absolute market leader in this. So, you kind of -- it's a relatively small market. And then many of the products are having their natural cycles and sometimes they are quite long cycles. So, if I take the radars that we just sold, I'm not expecting the same kind of a complete renewal of Finnish network until 15 years from now or something like that. And here, relatively small individual things like the COVID-19 fund to renewal, which was used to renew Southern European radar network kind of increased the tide a bit and now the tide is kind of lower as we speak. But that has been a phenomenon, if you go on a longer-term kind of a history in meteorology and aviation that the relatively small 2 big airports get to be built at the same year, kind of increases the size of the market and the years are not exactly the same. So, this market kind of just has a phenomenon where there's a relatively small discrete demand changes change the size of the market somewhat.

Yes. Okay. And that clarifies because maybe the wording in the Finnish stock exchange release was about the industry and basically, it means the sector where you operate in the crisis.

Correct, correct. That's good. Thank you, Matti, well spotted.

If we then think that these sector changes tend to be quite slow and one year is not necessarily enough to make it go away. Are you afraid that this would continue also in 2026? I'm not talking about the order backlog, which you already have or the Indonesian order, which might come sometime next year, but basically new weather orders that you were -- or you are expecting every year. Is there a danger that we would see an even slower 2026 when it comes to new business? And if your order backlog is decreased this year, then, of course, you would have less to kind of deliver in '26 based on old kind of order backlog. Do you think that is a kind of risk that you would like to highlight? Or of course, you have to take a stance on that when you give the guidance for '26. But at least -- I mean, at this point of the year, you probably already know, and you have made some internal plans how it's going to be in the weather business in '26. So, any thoughts on that would be great.

Correct. Yes. So let me answer -- well, it's exactly like you said, we're going to give guidance next year when the time comes. But let's think about it this way that there are the product sales, which are selling to existing projects and existing customers and the fluctuation on that business is very small. The fluctuation really comes from the kind of new projects and bigger and smaller and so on. So, there's kind of a level that has been at least relatively stable in the past, and I don't see any changes why that assumption should be different going forward. But then how will individual projects come through and so that obviously will not only impact our sales but actually like if kind of a couple of big orders come -- big projects come in a half a year, that kind of theoretically means also irrespective of who wins that impacts the entire market as well.

All right. So we will wait for your guidance for '26 to see that what is your plan that you promise to deliver.

Correct.

Okay. I'm just saying that it doesn't look so good when this year, of course, the order backlog has been decreasing. And when you have basically negative outlook for all key metrological...

For the rest of the year. Remember the outlook.

What would need to happen that it would kind of recover to a normalized situation in '26. Do you foresee some positive changes to this current trend, which you have now said that will impact '25, but do you see some positive triggers that would change the situation for '26?

Yes. Like I said, so as the market impact -- market size is really individual like bigger orders can swing that different ways. So that's something that is, as you know, historically, it's really, really hard to say when certain things kind of come through. The pipeline remains on a good level on new projects. But kind of a flow through the pipeline continues to be very unpredictable as it has been in the past. So...

All right. Fair enough. Final question, you already touched the topic of Industrial Measurement and some investments in digital capabilities. Just out of curiosity, what kind of digital capabilities are you talking about?

So online as a sales channel, whether we talk about to our distributors or whether we talk about to the end users, especially on the services side. If you think about -- so today, it's mainly -- we don't have much of a sales through the digital channel. We are doing demand generation, but the actual sales transactions we do very little through digital channels and that capability we are building. And very important, like kind of first it will have an impact on the services delivery side. But longer term, I believe, like in any other business, obviously, kind of -- it will have an impact on our overall sales, I believe, as well.

Does that mean that the existing customers would kind of want or need a different approach to maybe order from you? Or does it mean that you are seeking new business through those channels?

I think in the end, it will be both. And I don't think any businesses will remain as they have always been, and I'll just use the car analogy here that nobody ever believed that a car can be bought online and look where we are today. Try to buy a Tesla offline, then they will throw you online.

The next question comes from Waltteri Rossi from Danske.

So just to still clarify the Xweather profitability question. I was actually -- I think I was talking about EBITDA and operating profit as a synonym previously. But just let's talk about EBITDA. So, is the Xweather currently contributing positively on EBITDA level?

Yes. Subscription sales to be specific. That's what we report today. We don't report separately Xweather.

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

Okay. That was our Q3 call. Thank you all for joining. Thank you for the questions. Thank you, Kai. And I would like to mention or remind that we will arrange a virtual investor event for analysts and investors on November 24. And there, Kai and our business area leaders will provide an overview of Vaisala's strategy and business areas. And you will find more information on the event on our investor website, vaisala.com/investors. But now thank you all for joining and have a nice rest of the week.