Vaisala Oyj

OMXH:VAIAS

Earnings Call Analysis

Q1 Challenges and Optimistic Outlook for Second Half

This quarter saw a 15% year-on-year decrease in net sales due to a complex ERP transition and industrial actions in Finland, resulting in temporary inefficiencies. However, the order book grew by 10% to a record €190 million, instilling confidence for the second half of the year. Although gross margins slightly fell to 54%, the company successfully mitigated inflationary pressures. The Industrial Measurement segment faced a 25% drop in net sales but maintained a 13.5% EBIT margin. Looking ahead, Vaisala expects net sales of €530-570 million and an operating margin of €63-78 million for 2024.

Market Overview: A Slow Start with a Bright Spot

In the first quarter of 2024, Vaisala faced a challenging market environment, particularly within its Industrial Measurement segment. The company reported a 15% year-on-year decrease in net sales, a drop attributed to lower market activity in comparison to a record high in the previous year. However, a notable silver lining emerged in the form of a record high order book, which stood at €190 million, marking a 10% increase quarter-on-quarter. This order book indicates strong demand for future deliveries, with 75% of the orders expected to be fulfilled within the year.

Operational Challenges and Their Impact

Q1's performance was hampered by a combination of internal and external factors. A significant shift to a new Enterprise Resource Planning (ERP) system, which caused operational disruptions, was compounded by industrial actions in Finland. These issues resulted in lost sales, estimated at around €4-5 million, due to inefficiencies in production capacity. The operational difficulties not only affected order fulfillment but also saw a slight decline in gross margin from 56% to 54%, primarily driven by reduced manufacturing volumes and increased factory overheads.

Growth in Subscription and Service Sales

On a positive note, subscription sales grew by 50% year-on-year, highlighting strong demand in this area despite broader sales declines. The service sales in the Industrial Measurement segment also increased by 30%, indicating that while project sales were weak, recurring revenue streams are fostering stability in revenue generation.

Weather Environment Segment Shows Resilience

In contrast to Industrial Measurement, the Weather Environment segment displayed a more stable performance, with a gross margin of 51%. Sales in this area decreased by only 7% year-on-year, suggesting that the business is more resilient to quarterly fluctuations. The longer order-to-delivery times in this segment compared to Industrial Measurement allowed for better adaptability to market changes.

Solid Financial Position Amidst Challenges

Despite the sales drop and operational challenges, Vaisala maintained a healthy cash flow with a cash conversion ratio of 2.4 and generated approximately €15 million in free cash flow during the quarter. With low leverage and a strong financial position, the company’s asset-light business model remains a competitive advantage. Additionally, sustained efforts in managing operating expenses led to a 12% reduction in fixed costs, reflecting a strategic initiative to navigate through the downturn.

Future Outlook and Strategies

Looking forward, Vaisala anticipates a slight improvement in market conditions for the Industrial Measurement segment in the second half of the year. The company has reiterated its revenue guidance, projecting net sales between €530 million to €570 million for the full year, with operating earnings expected between €63 million and €78 million. The leadership remains cautiously optimistic about future growth, driven by internal initiatives such as launching new brands and strategic business priorities focused on climate action.

Commitment to Sustainability

Vaisala has reaffirmed its commitment to sustainability through the approval of science-based targets aimed at reducing greenhouse gas emissions by 50% by 2030. The company is determined to play a pivotal role in climate action, aligning its business strategies with broader environmental goals. This commitment not only enhances Vaisala's branding but also positions the company favorably within a rapidly evolving market that increasingly values sustainability.

Earnings Call Transcript 2024-Q1

[Kai Öistämö, executive]

Welcome to Vaisala's Q1 earnings call. I am Kai Oistamo, I'm the CEO of the company. And I'm joined here with Heli Lindfors, who is our CFO; our Chairman of the Board, Ville Voipio; and as well as Paula Liimatta, who is our Head of IR. As usual, I'll give a short presentation on the quarter, and then I'll open up the meeting for the questions you may have. So when looking at the first quarter, it's characterized in terms of weak sales, but at the same time, record high order book. And diving deeper into the sales side, first, it's partly explained by very high comparable. It's good to remember that the quarter that we are comparing the sales to was a record high in the industrial measurement at the first quarter 2023. So comparable, it's very high at the same -- and the market activity last year dropped in the second half and then remained on a lower level. And as indicated for the first quarter and for actually entire year, we do not expect a major improvement on the market itself. A slight improvement towards the second half, but no major improvement this year. So the market environment was clearly more difficult in Industrial Measurement than what it was still in the first quarter of '23. Then we had internally do things that impacted on the net sales, one very much planned, which was cut over in the ERP side, where we moved into the new ERP during the first week of January, and there was kind of a planned cut over a week when we moved all the data and got the new ERP up and running and have been working on that ever since. But that meant otherwise a loss of -- if you look at, for example, the factory perspective, there's a loss of a little bit more than a week in terms of not being able to produce anything. And like I said, that was very much anticipated before. And what was not anticipated was the industrial actions during the first quarter, which after we had kind of gotten the new ERP up and running post first week, there obviously was quite a bit of a learning curve when you take a complicated system or systems and system integration. There's a lot to learn for different people, different functions, different jobs to operate in the new environment, no matter how much training you do, it's really then in the end, the efficiency comes from actually in working with the new system and then simultaneously having an industrial action altogether, a full of working week and in conjunction, a constraint on over time. So there's actually the over time was forbidden by the industrial action at the same time. That mean 2 last weeks in terms of manufacturing. And that meant also that while the efficiency was slower, especially during the first 6, 7, 8 weeks of the quarter with the ERP kind of climbing up and getting kind of catching up what we lost in the efficiency was very difficult or actually impossible to do simultaneous action through the industrial actions. And furthermore, the learning curve was slowed down as I said, comes from repeated use of new tools. And when you work on the new tools, then you are on strike for three days, works for two days. Strike for three days, work for two days. It actually kind of puts you back in your learning curve. So kind of getting up the efficiencies, obviously, was impacted as well by the simultaneous ERP ramp-up and the industrial actions. Then other things in terms of what happened in the first quarter, we launched a new purpose, new brand and new strategic priorities. And this is very important for the company and clarity on what we are doing and how we prioritize our work, our strategy, our investments going forward and so on. I'll talk about that in a second. And the second big other event I want to take up at this stage was the approval of the science-based targets for the company, which is reducing the greenhouse commitment and plan to reduce our greenhouse gas emissions directly and indirectly by the year 2030 was approved by the SBTi organization and a little bit more on that later in the presentation as well. But first, let's start with the renewed purpose and the strategic priorities.The renewed purpose for the company is taking every measure of the planet. What that speaks of is really the importance of being part of the solution for fighting climate change, bringing solutions to our customers and being very responsible in our own operations. Taking every measure for the planet, I think, describes extremely well what this company is really for. What is our purpose now and in the future. It's also reflected in the category, how we define what category we are in. We are in instruments and intelligence for climate action. And again, the climate action is very much highlighted here. We are determined to be on the right side of the history in climate action. We are going to be part of the solution, not part of the problem. In terms of megatrends, a slight update there as well. climate changes for us, it's not a mega trend. It actually is part of the purpose. It's way, way bigger than a megatrend. It's the biggest challenge that the humanity is facing. But within that energy transition and industrial decarbonization is actually a big megatrend as we see it. It's actually part of these kind of solutions on how companies are becoming more and more sustainable, both in energy production as well as in their own operations and own products and services. AI and process optimization is a very important trend for us. Especially when you think about AI a little bit longer term, what AI runs on actually is uniform excellent quality data, and that's exactly what we produce. So I think this is a very important megatrend impacting our environment for next years to come. And then the health and well-being, you may recall this from a pass as well, very important as well, partly related to climate change, especially kind of from a buyer reducing biodiversity perspective as well as the aging population around the world. So the challenges in health and well-being are just going to increase. And again, we play an important part in creating solutions. The success drivers are much what you have seen before in terms of the strategic priorities, we clarified them. First one being growing in industrial measurements through breakthrough technologies. That's very familiar from the past. And then drive profitability as a global leader in weather systems. This is just clarifying that our traditional weather and environment business for institutional customers. We play an extremely important role. The importance of this for the societies in terms of adapting to climate change is very important saving lives, saving infrastructure, especially vis-a-vis the increasing extreme weather events, and we play a very, very important role in it, and we have a very strong position, and we see it as a possibility to continue to improve on the profitability on kind of monetizing that position while recognizing that we also carry a very important role in that whole industry.Expanding energy transition and build recurring revenue in data speaking out the growth opportunities, utilizing the great knowledge that we have created over the years across the company in how to measure weather-related parameters, weather-related events, forecast weather-related weather and different weather parameters and monetizing that in renewable energy, which you can think about if you think about wind and solar, weather really is the fuel for renewable energy. And then the recurring revenue, i.e., data software and solution as a Service sales, which we also see as an important growth opportunity for us. And then very importantly, more internally than externally is the simplify and scale as we are a growth company. When we are looking for new things, we have to, at the same time, always be looking at our old ways of working and challenge ourselves, how can we be more scalable, how can we be more efficient? How can do the working practices that have brought us here, do they still apply for the future? Or should we actually take a new look at it and simplify them as such. Very important from the small actions to bigger actions across the entire organization and I think a very important part of being a growth company story as well. When we talk about climate change and sometimes it gets to be a little bit abstract on how do we really aspire, how do we contribute? What does it really mean in concrete terms? And there's plenty of these examples if you go to isala.com, and I've taken here three very different types of examples on how do we contribute into climate actions through our own products and solutions through our customers. The first example on the left is a Finland-based start-up carbonate who transforms concrete emissions from concrete from being an emission source to be an emission sync. And it's sometimes overlooked. Concrete is actually one of the single biggest greenhouse gas sources, and there has not been an efficient kind of a solution on how to turn that kind of actually kind of in absolute terms, also a very big CO2 source to be not the source, and in this case, actually a sink. And with our instrumentation, we've been helping carbonate to actually move from great idea to actually into real scale production, really and providing a real solution for an important element on human societies carbon emissions. In the middle, very different example. This is very much about the use of data. It's a city of Independence in Missouri U.S., who actually uses and improves its response to snowstorms using real-time weather data provided by us. And here, again, extreme weather events are more and more frequent and that means also in the winter time and being the response to snowstorms is an extremely important part. And if nothing else, if you think about first responders' ability to actually do their job in case of kind of extreme snow storms, it's very important saving human lives and so on. And here, we provide actually the great data based on which the City of independents actually has greatly improved its capability to respond to these kind of challenges. On the right, shipment industry, sea freight, actually is quite a big source of carbon dioxide emissions as well. And lots of different kinds of solutions have been proposed. And one of the most more promising is to actually use sales of different kinds. In here, it's actually a mechanical sale. We notice propulsion through noise power and here, in combination of their kind of a mechanical sale. And our data on wind, accurate data on wind, we can actually jointly create a solution which reduces the fuel consumption of sea freight from 5% up to 25%. So a very significant improvement in terms of a reduction in fuel consumption, which is directly correlated in the reduction on greenhouse gases. Then moving on to the sign-based targets, where really what we -- during this quarter, the news was that we got the approval on our plans for the reduction from science-based targets initiative. And our commitment is reducing our direct and purchased energy-related emissions to half from the absolute level of 2021 to by the year 2030. Here, we already are very, very far. Actually, only 1% of our greenhouse gas emissions actually falls into this category. 99% of our emissions actually fall in the category at Scope 3, which is the lifetime usage of our product solutions as well as all the components, materials and so on used for creating our production solutions. And here, I think partly this reflects also our responsibility on this subject that we have been doing over the many years already. We have been 100% renewable energy for many, many years. Our efforts on this actually are things that many companies are going to be facing a little bit later. And I think it's quite suitable for us to be a trailblazer on showing how the Scope 3 emissions can be halved in relation to gross profit by the same time frame, i.e., by 2030. A lot of work to be done, but I think it's a very important part of both the values of the company, and I think it will give us competitive advantage as we progress on this target. Then moving on to the financials. So as I said, a slow start in the year in terms of our net sales. The orders received, it reflected partly the continued lower market activity, especially on the Industrial Measurement side. And here, we are. Remember, we are comparing to the first quarter of last year when the market activity was record high. The order book, on the other hand, end of first quarter to EUR 190 million, which is record high, up 10% quarter-on-quarter. So from fourth quarter of last year. And if you look at how much of that order book is slated to be delivered during this year, that 75% is planned to be delivered during 2024. So that actually gives us a good confidence for second half. Net sales wise, the first quarter, down by 15% year-on-year. And I already talked about the things that impacted on net sales. On one hand, high comparable. That's what the slow market indicates for. And then simultaneous the industrial actions in Finland and the ramp-up of the ERP system, especially the 6, 7 weeks beginning of the quarter actually were impacted towards the end of the quarter are actually in terms of our own efficiency to take orders to deliver to turn orders to sales, I think we are pretty much back to normal already by now. Then the decrease on net sales, we partly were able to mitigate by lowering the operating expenses during the quarter as well. The gross margin slight decline from 56% to 54 percentage points. That's reflecting the lower volumes in the manufacturing side. So if I look at how well did we manage to get the pricing, for example, though, we were kind of quite successful when we kind of -- when we look at isolated that we were very much able to mitigate the increase in inflation in the components and services that we buy. But the lower than planned volumes during the quarter meant that the factory overheads since the only subscale usage of the manufacturing was used that meant that was then reflected in the gross margin as you can see.Then looking at more into Industrial Measurement. The EBIT margin was 13.5 percentage points despite the clear drop on net sales. So the net sales was actually decreased when you look at year-on-year, almost a quarter. Orders received decreased by 14%, and you look at year-on-year. The order book, on the other hand, on quarter-wise by end of the quarter actually was up by 5%. When you look at the orders received decline on year-on-year, the one thing which apart from all the things that I already explained one specific thing in Industry & Measurement side, also that we took some orders in anticipation on the ERP change already in December of last year, which otherwise would have been kind of recorded in the quarter. And we are talking about in order of magnitude EUR 4 million, EUR 5 million in terms of orders as such. Then again, it was the same thing in terms of a gross margin side. Here, very much so that the lower delivery volumes, lower level of business led to lower utilization of the factory utilization rate of the factory that impacted the gross margin side. One highlight I want to take on Industrial Measurement side is the services sales, which I'm very happy to report that, that grew by 30% despite the weak top line development otherwise.Moving on to weather environment. Here, the top line decline, which was 7% when we look at year-on-year. I would put that more in terms of that's kind of within the normal changes between the quarters that we typically have in the weather environment, taking into account the project type deliveries, the timing of recognizing revenue and so on. Where do certain deliveries fall, whether they fall in the quarter or whether they don't and so on. So here, the net sales decline was not really that much impacted by lower market nor that much by all ERP changes and the strikes. The difference also between the industrial measurements and weather environment is that the time from purchase or the order to delivery is completely different. That typically in Industrial Measurement, you can think about the -- from order to deliveries 3 weeks order of magnitude, whereas in whether environment is 3 months. So there's more time to kind of catch up despite the same impacts on ERP and the strikes, there's more time to kind of catch up and less prone in quarter incidents in weather environment. The gross margin continued to improve. So that was now 51%. Very happy to report that as well. That's a continuation kind of -- that reflects the success of continuation of implementation of our strategy where we drive the profitability in the detrition side of the business. At the same time, we look for growth both in the renewable energy and in the data sales. And the subscription sales actually did grow by 50% when we look at a year-on-year number on that.EBIT also reflects the successful continuation of implementation of the strategy reflects the improvement on the gross margin as well. So it's typically in weather environment, the EBIT is very heavily in the second half of the year and now being kind of a clear when you look at the -- despite it's a very low number in absolute terms, it's a clear improvement from the year before. And when you look at the kind of first quarters over time, actually years before. Cash flow-wise, continued on a good level. Some decline due to the fact of lower net sales. But overall, in terms of cash conversion and so on very good on very good level. Cash conversion on 2.4. And then if you look at the free cash flow, about EUR 15 million in the quarter leading also into a very strong financial position. The title, as I said, I think, on a past couple of quarterly calls, the title of this slide has been the same for a long time and I'm very satisfied that it stays that way. So we have very low leverage on the balance sheet and it reflects the asset-light business model that we have. The cash that we have had at hand, it's good to remember that we do have a post quarter we have the dividends payout and so on. And then maybe the other news here worth noting is the new CapEx- investment, EUR 10 million over a few years that we -- where we are investing in new automated logistics center here in Vanta, whereby we can automate and get much more efficient handling of our warehouse. And at the same time, we anticipated that will give us further improvement in efficiency in the factory itself as well. And we now anticipate in kind of early summer when they estimate the start on this project happens. Moving on to the market and business outlook. No change in the market outlook exactly the same as what you saw in our fourth quarter anticipation for '24. And likewise, our business outlook remains unchanged. Net sales, we anticipate being between EUR 530 million to EUR 570 million and operating margin between EUR 63 million and EUR 78 million. And I would like to conclude the prepared remarks here and open up for any questions you may have.

[Operator]

[Operator Instructions] The next question comes from Pauli Lohi from Inderes.

[Pauli Lohi, analyst]

I would like to first ask about fixed costs, which declined by EUR 7 million or 12% from the comparison period. Was there any one-off savings, for example, related to strikes in into your own company? Or should we see this as a valid run rate in Q2?

[Kai Öistämö, executive]

So no one-offs would be the answer. Actually, on the contrary, due to the strikes, we actually had probably a little bit higher operating costs since we had to post strike time we had to use over time. It's a marginal cost to increase, but nevertheless, the net of that actually is probably a net increase rather than a decrease in OpEx. But it's more we post some projects we did control very much. Both hiring of new people as well as the especially external projects that we had, and that's what drove it. Now I would not anticipate that we kind of set a new level in terms of where we were in the first quarter. As I said in my remarks, it was more done for the mitigation or kind of as we saw the top line coming lower. And we manage that OpEx as the business moves.

[Pauli Lohi, analyst]

Okay. That's clear. Do you think you lost any orders to the operational challenges and maybe postponed delivery in Q1?

[Kai Öistämö, executive]

We did. So back to kind of what I said in so in Industrial Measurement side, not in weather environment. And in Industrial Measurement, there's like 2 kinds of orders. There's kind of things that are like typically kind of very small and very fast-moving orders. And if I said, on average, from order to delivery is 3 weeks in this kind of very fast-moving kind of a small order kind of order flow, it's actually faster than that. And it comes in and we deliver in kind of kind of end of the following week, that's the promise. And that business, we lost somewhat. I don't think it's any of permanent loss of market share. But like think about it this way, that probably 2 weeks of net sales, order of magnitude, we lost due to the fact that we were unable to deliver for our delivery capability was limited for a period of time. But that was going to limit it to that very period where we had the limitations of our capability to deliver.

[Pauli Lohi, analyst]

Okay. Then about renewable energy, the new orders didn't increase from the comparison period, but you see still is growing. So would you consider this orders not growing a sign of weakness or do you have a strong outlook still?

[Kai Öistämö, executive]

I would say it this way, that it's a reflection partly on changing the geographic where the growth happens. I think we've spelled out in the past years, especially Japan, which is the financial year is actually ends end of March. And even if no company admits being on the budget cycle, nevertheless, somehow the fourth quarters tend to be higher in activity in the annual years. And the relative weight on Japan is a little bit less than it doesn't mean that it's dried up in any way of fashion, but it's a little bit less than what it was in the past. So it's more of a mix in terms of geographies. And when I look at the pipeline, I'm confident on the outlook.

[Pauli Lohi, analyst]

So the rate of Japan has decreased?

[Kai Öistämö, executive]

Relative weight on Japan has decreased. Probably not. So we're still probably -- so it's an example of things rather than the only explanation. But if I look at overall the pipeline, as you indicated yourself, it actually makes me confident on the annual outlook.

[Operator]

The next question comes from Atte Jortikka from Evli.

[Atte Jortikka, analyst]

First, still on the ERP and industrial actions. So those were obviously flagged already in the year-end report where the kind of effects more or less what you already then kind of assumed.

[Kai Öistämö, executive]

When we gave the year-end report, the full scale of the industrial action was not -- we were anticipating it, but we were not -- it was not clear to us what the scale of that was. And so probably was not fully visible, but to a large extent, we knew it, and that's why we flagged it.

[Atte Jortikka, analyst]

Yes. Then do you see any kind of sales spill to Q2 because of these issues in Q1?

[Kai Öistämö, executive]

No. I think from an operations perspective we -- if you look at it from a company perspective, we are back to normal. There's a whole host of items still to be the iron out in the ERP as usual, but it's not limiting our performance anymore. Industrial actions? Who knows what happens in the future.

[Atte Jortikka, analyst]

Yes, sure. Okay. Then on better environment, can you still open a bit more on the business mix. So was it just basically driven by higher services and subscription sales and lower amount of projects I mean the kind of gross margin.

[Kai Öistämö, executive]

Yes. So that's basically where it comes from. So the mix was more favorable.

[Atte Jortikka, analyst]

Yes. And just making sure, so you had something around 1% negative effect for gross margin from spot purchases last year, Tier 1. So no, you have nothing I guess.

[Kai Öistämö, executive]

That's correct.

[Atte Jortikka, analyst]

Yes. Then lastly, from my side, just a quick update on the Airport Service observation system project. Has it started as you previously assumed? And should we expect that to deliver projects sales now?

[Kai Öistämö, executive]

Yes, it started already, and it's a multiyear project. So there's a certain amount of that will come to this year, but majority is actually for the future years.

[Operator]

The next question comes from Waltteri Rossi from Danske Bank.

[Waltteri Rossi, analyst]

First, on the Industrial Measurements. Adjusting for the upfront orders in Q4 due to the ERP implementation. Can you say what would have been the kind of real decrease in Q-on-Q order intake?

[Kai Öistämö, executive]

I actually didn't do the math. It's a good question. In a way, like, as I said, EUR 4 million to EUR 5 million would have been like in other conditions, other situations probably been in the first quarter rather than in December. And that's the order of magnitude. And Actually, the second thing impacting this order intake for the first quarter since you asked the question, and I forgot to say it in the prepared remarks was that there was some shift in terms of kind of annual blanket orders where kind of especially over the past couple of years when there has been kind of constraints in the component side that has given incentive for our customers to give us blanket orders, which were all recorded in the first quarter. And this year, that, again, was significantly lower since there are no constraints as we just discussed, and our delivery promises what it is. So the incentive of actually making kind of a commitment in the year. There's a kind of a question is why would anybody really want to do that in the beginning of the year, at least not to the same extent. So I think it's a normal thing the market it's like more back to normal. And when you compare it to the last year first quarter, there's another 5 -- maybe a little bit more, that order of magnitude takes EUR 5 million that when you compare it to the first quarter last year, that $5 million, I see more spread out during this year rather than all coming in, in the first quarter.

[Waltteri Rossi, analyst]

Okay. All right. That's very helpful. Then on the Weather and Environment segment, just an overall question, what's the most important thing in improving the segment profitability in the longer term?

[Kai Öistämö, executive]

I'll answer even if you ask the most important, I'll still answer it as I will. So it is both improving the important -- the profitability of the traditional side of the business as well as driving scale, especially on the digital business side, increase improving the profitability and getting the profitability really through in the digital subscription sales. It has been still subscale in the past, but we are clearly seeing and we have an internal target when that will start to contribute also on the bottom line. And so that will be another one kind of significant opportunity compared to last year and the years before.

[Waltteri Rossi, analyst]

Okay. And I actually missed the first part. I heard the driving scale in digital. What was the first?

[Kai Öistämö, executive]

The first one is the profitability on driving -- continue to drive profitability on the traditional side of the business.

[Waltteri Rossi, analyst]

Okay. All right. Then two more. On the Industrial Measurements, what's then the most important thing driving the growth in there? Is it gaining new verticals or growing in existing ones?

[Kai Öistämö, executive]

I think short term, it's growing in the existing ones clearly. And I think short term, if you look at this year, really, the growth will come from more activity, more investments in like segments that we are in, where investments around different kinds of industries have been on hold to a large extent, very cautious, kind of a small scale, if anything around the world. And we do expect that, that situation should be starting to improve during the second half. Obviously, the new verticals are going to be important as well.

[Waltteri Rossi, analyst]

Yes. Great. Then last one for me. How has the data center solutions have been growing within the segment. Can you give any color on that?

[Kai Öistämö, executive]

I have not -- to be honest, I have not looked into it. It's not a material, but I don't see why there would have been any change in the trend that we have experienced over the past year on that specific thing.

[Waltteri Rossi, analyst]

Can you remind what the trend was?

[Kai Öistämö, executive]

Trends, that was obviously investments into data centers. I was one of the few exceptions to the rule of investments in kind of new investments in our customer base. So people are still building new data centers and so on. So I don't see any change in activity level on that side.

[Operator]

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

[Matti Riikonen, analyst]

A couple of questions from my side. First of all, you had a 15% growth in the subscription sales. I was just wondering was there any seasonal or some unusual support behind that growth? Or was the growth kind of representative of the normal underlying trend that you see in the business?

[Kai Öistämö, executive]

There was no single deals, no seasonality. Nothing like that. Sorry, so other one.

[Matti Riikonen, analyst]

All right. Good. Then was there any particular reason behind the weather and environment order backlog, which grew fairly well? Or is it just kind of healthy new orders and less deliver base in Q1 kind of boosting the backlog?

[Kai Öistämö, executive]

Yes. It's the other one. It's a healthy backlog, and we are seeing a good market activity. Nothing extra in a sense.

[Matti Riikonen, analyst]

All right. Then you mentioned that you had temporarily lower fixed cost in R&D and marketing, particularly in the Industrial Measurement side, when do you think that you will increase the costs again? And do you actually have external R&D, which can be kind of scaled up or down because having kind of internal resources it's quite difficult to say from them, I assume.

[Kai Öistämö, executive]

Yes, completely right. So if I start from the kind of second part, absolutely. So it's all coming from external slowing down external projects. And to some extent, I grew slowing a little bit higher and higher pace. But materially, it's all -- I think about it from an external projects and external R&D and so on. And then when do we start to invest again. We manage the business in such a way that as we see the top line supporting the investment and we invest top line and the profitability supporting them when we invest. That all being said, we are in the long-term business. So we are very comfortable with our long-term outlook, and we do see a good return on investment on our long-term investments, especially in the R&D side.

[Matti Riikonen, analyst]

Okay. Then regarding your guidance now after soft Q1, are your internal forecasts for top line and EBIT for Q2, 3 and 4 is basically the same today as they were in mid-February, so that only Q1 would have been weaker?

[Kai Öistämö, executive]

Without going into exact numbers, I think the overall picture is exactly like you said. It really is the weakness if you think about it, and as I said in the remarks as well, so kind of strikes, ERP, like all things happening at the same time. That actually happened in a relatively limited time frame. And I think if I look at it, it's a number of weeks when the weakness happened rather than the number of months.

[Matti Riikonen, analyst]

Okay. Let me rephrase. If we think that you had some figures, the most likely figures in front of you or the midpoint figures in the guidance when you entered the year. And now Q1 was weaker than your internal expectations. Then if Q2, Q3 and Q4 are pretty much the same as your internal expectations were, then obviously, the full year internal expectation should be lower because Q1 was lower. What you are kind of looking.

[Kai Öistämö, executive]

I follow the logic that you had. And I would answer this this way that short-term outlook, meaning like if I look at this quarter has not changed at all. But then the ongoing quarter. But then if you look at the entire year, remember that what we are saying as well that we are anticipating that the market starts to improve in the Industrial Measurement side towards the second half of the year. And there is obviously quite a bit of uncertainty and the capability to predict very accurately given the very short-term business that we are in. The accuracies of our forecast and then the way we work is -- I follow your logic in the math, but we do one of our models are bigger.

[Matti Riikonen, analyst]

All right. I think you have received this question already beforehand, but I'll ask it anyway. Do you have any concrete evidence of improving industrial measurement demand in the second half? Or is it just --

[Kai Öistämö, executive]

Yes. That's the anticipation going to go back to what I said in the prepared remarks, remember, the average time from order to delivery is 3 weeks. So we are not getting close to taking orders in any meaningful way for second half at the moment. At the same time, obviously, we talk to the customers. We see the industrial activity. And then we combine that with all the macro side, the PMI indications and everything else. And I would say this way that I would be cautiously optimistic that our outlook should be realistic. The indicators, various indicators are the combination of them should serve like, I think, to support the outlook that we are giving on the market side.

[Operator]

The next question comes from Waltteri Rossi from Danske Bank.

[Waltteri Rossi, analyst]

Waltteri Rossi from Danske Bank again. Maybe it was actually answered just before, but a follow-up question on what makes you believe that the industrial measurements will improve in H2 and kind of what gives you confidence?

[Operator]

I did answer that. You're right. I just answered that question. So if I look at really the kind of what we hear from customers, what we see what their activities are and combine that with what they say in public as well as in private as well as then what the macro indicators are.

[Waltteri Rossi, analyst]

All right. Maybe just a quick follow-up, like any idea what next year might look like in Industrial Measurements side. Is it a full swing from the stock?

[Kai Öistämö, executive]

We better come back to it a little bit more in kind of when we get into the second half of the year. I think it's a bit too early to speculate on that.

[Operator]

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

[Kai Öistämö, executive]

All right. Thank you, everybody, who listened and thank you for the great questions. So any further questions, you know where to contact us. And we are happy to jump on another call if we have any further questions. So thank you very much, and have a great weekend.