Siemens Aktiengesellschaft (SIE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Siemens 2026 Third Quarter Conference Call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on Page 2 of the Siemens presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Tobias Atzler, Head of Investor Relations. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to our fiscal Q3 '26 conference call. All documents were released this morning and can be found also on our IR website. I'm here today with our CEO, Roland Busch; and our CFO, Veronika Bienert. Both will review the Q3 results. After the presentation, we will have time for Q&A. With that, I hand it over to you, Roland.

Thank you, Tobias, and good morning, everyone, and thank you for joining us to discuss our third quarter results. Siemens delivered another record third quarter with strong performance across all metrics despite a persistently volatile geopolitical environment. We have been making good progress in driving customer value and fast innovation by executing our ONE Tech program. Our technological leadership across all our businesses, our focus on driving industrial AI and our strong position in attractive markets provide a solid basis for sustained value creation. Let me now turn to the highlights. Book-to-bill reached an outstanding 1.34, lifting order backlog to a record EUR 132 billion. Group orders surged to an all-time high of EUR 27.9 billion, up 14% on the prior year. Smart Infrastructure topped the EUR 8 billion order intake mark for the first time. SI's data center vertical showed exceptional momentum, again, with triple-digit order growth over the prior year and exceeding our excellent Q2. Customer demand remains dynamic, driven by the rapid build-out of cloud and AI infrastructure. With plus 9%, Digital Industries stayed on its path to healthy growth. Its market environment was supportive in industries such as electronics, semiconductors, aerospace and defense. Besides the beneficiaries of the AI infrastructure build-out, DI also saw some improvements in the broader manufacturing space. Mobility achieved one of its highest quarterly order volumes ever close to the prior year's exceptional level. Looking ahead, several high-profile contracts for improving rail services in Germany are already on the books for the fourth quarter. Overall, broad-based revenue growth reached 8%, fueled by Digital Industries and Smart Infrastructure. All regions contributed to growth. The Americas led the way, up 11%, fueled by strong momentum in the United States. EMEA grew 6% and Asia, Australia was up 10%, driven by India, which was up 13%. Industrial Business profit reached a record EUR 3.5 billion, resulting in a profit margin of 17.3% on operational trends of Digital Industries and Smart Infrastructure. Effects from tariff refunds in the U.S., primarily at Siemens Healthineers also supported profitability. Margin expansion resulted into higher earnings per share pre-PPA of EUR 3.14. Free cash flow was a standout achievement, reaching EUR 4.1 billion. After a strong year-to-date performance, we raised our earnings outlook for fiscal 2026 on the group level, Veronika will give you some more color later. To drive future success, we have continued investing organically in switchgear capacity in Frankfurt as well as in bolt-on acquisitions to strengthen our portfolio in the real and digital worlds. We made progress regarding the plan to deconsolidate Siemens Healthineers, and Veronika will give you an update on the tax authorities' decision and the time line. In addition to contractual topics that we discussed in a constructive dialogue with Siemens Healthineers, we plan to reduce our Supervisory Board mandates from Siemens AG Managing Board members from 3 to 1 effective as of Siemens Healthineers' next AGM in February 2026. Veronika and I will drop our mandates. Over recent years, 3 companies have developed from Siemens' roots into market and technology leaders in their respective fields. We understand Siemens Healthineers and Siemens Energy's considerations regarding the use of independent brands in the future. We are pursuing a clear strategy in this respect to ensure an orderly process with both companies in line with existing agreements and for the benefit of all stakeholders involved. Siemens will sharpen its image as the trusted technology partner for the AI age, a company with a unique ability to combine the real and the digital worlds. Now let's look at the 4 key levers for driving our growth ambitions as ONE Tech company. And first, we start with grow digital. During the first 9 months of fiscal year 2026, we grew our digital business revenue by 18% on a nominal basis, well ahead of the ambition level of 15% that we see last November -- set last November. With Vectron X, we welcome a new member to the Siemens Xcelerator family. Vectron X is a highly digitalized next-generation locomotive that builds on our best-selling Vectron platform. Its digital driver's cab features a smart screen app functionalities with standardized interfaces and near real-time connectivity. The result, enhanced driver experience, higher operational efficiency and optimized data-driven maintenance. Second, grow regions. With the landmark agreement, we have deepened our collaboration with HD Hyundai to create a scalable blueprint for digital shipyards. The agreement includes a low triple-digit million contract for a broad range of industrial software and automation offerings. By connecting data, software and automation technologies across the shipyard, we are creating the operating system for industrial AI. These capabilities will help shipbuilders increase capacity, improve quality and reduce rework. We will support the launch of the U.S.-Korea Shipbuilding Technology Cooperation Center. It will be a platform for exploring modernization strategies and strengthening maritime competitiveness in the U.S. and allied markets. Third, grow verticals. The semiconductor industry showed strong growth momentum driven by the AI flywheel. We capitalized on this demand with attractive orders across our entire portfolio. Among them was a wide-ranging electrification win for a major new fab project in the U.S. With COMPUTEX, we announced an expansion of our partnership with Intel across the entire value chain from design to chip manufacturing. Fourth growth lever, Grow AI. Our Eigen Engineering Agent continues to demonstrate our ability to rapidly translate advances in AI into commercial industrial software. We have expanded the product globally while continuously introducing new capabilities based on direct customer feedback. Adoption has been strong. Hundreds of customers from across more than 30 countries and ranging from small system integrators to global industrial OEMs have signed on. With the launch of this agent in China at the World AI Conference, we were the only global company to receive the prestigious Super AI Leader Star Award. The PAC Innovation Radar recognized Siemens Eigen Engineering Agent as the leading platform for Gen AI advanced industrial engineering in Europe 2026. Another example, at our global customer conference Realize LIVE, we launched Intelligence Center X, a powerful new offering to orchestrate industrial AI available as part of Siemens Xcelerator. Our customers run plenty of AI pilots, but they usually get stuck in the testing phase. Intelligence Center X breaks that pattern. This system enables experts to orchestrate AI agents and bring industrial AI into live operations at scale. The system features 4 capabilities that work together seamlessly. First, it pulls together customer data from across the entire life cycle in our knowledge graph. Graph Studio puts individual data into their overall context, live and in real time from design to engineering, manufacturing and maintenance, but also from supply chains and customers, for example. Second, and this is crucial, Intelligence Center X comes with industrial ontologies right out of the box. They map how assets, products and processes in industrial engineering and manufacturing relate to each other. The result is codified industry-specific knowledge ready to use. And the ontologies are linked to our Siemens Xcelerator portfolio, for example, to our market-leading most secure PLM Software Teamcenter. Third, AI comes into play. AI Studio delivers machine learning and AI models trained on real operational data. It continuously monitors model quality and established rules, giving AI agents and LLMs access to advanced machine learning and data science to make more reliable predictions and decisions. This approach makes AI explainable and predictable and thus ready to move into production at industrial scale. And fourth and finally, Mendix. Customers use this AI-augmented low-code platform to develop their own AI agents and connect them to existing systems and external agents. They govern their AI engines with workflows based on clear roles where humans continue to have oversight and make critical decisions. As a result, the power of automated AI delivers measurable outcomes in business processes. So in short, Intelligence Center X makes AI scalable for industry. Early customers are already seeing real successes. It's further proof that Siemens is using AI to deliver unique value to customers. These applications show that industrial AI is becoming real and will continue to drive exceptional growth opportunities for data center infrastructure and compute power. Market fundamentals remain strong, and we are a trusted partner across the entire spectrum from hyperscalers to colos to enterprise customers. 9 of the global top 10 data center providers rely on Siemens. The first 9 months order volume reached close to EUR 6 billion, up triple digit over the prior year. Similarly impressive, the team grew our revenue by more than 50% to EUR 3.1 billion. Our backlog and customer framework agreements provide visibility well into fiscal year 2027 and even beyond, while the sales pipeline looks healthy. Yet looking ahead, we might see some volatility in order intake due to lumpiness of large orders. Our strong position today is based on several long-term success factors, such as a comprehensive portfolio across disciplines, including prefabricated, modular and standardized solutions. Our reliable track record of execution with the ability to grow global delivery capacities and supply chains accordingly, proven global domain know-how available in regional hubs and a strong ecosystem of partners across the full value chain. Building on this strength, we are shaping the road map towards 800-volt direct current architecture, which will be required to deal with higher rack density in AI factories in an efficient and reliable way. Rather than being a wholesale shift, adoption of 800-volt DC is likely to progress in stages over the next 4 to 5 years with hybrid architectures dominating the early phases. As technologies mature and operational requirements and standards evolve, a centralized DC distribution architecture will become viable. But we expect that AC and DC will also coexist with mixed topologies in brownfield retrofit and greenfield installations. We are helping major data center providers to design, test and deploy safe and reliable DC power distribution to tackle the high-density challenge they are facing and we expect the first pilots in 2027. At Siemens, we know how to handle a DC environment based on our experience in other areas such as marine applications, battery storage and industrial campuses. With our proven capabilities in digital twin, automation and electrification, we can deliver a holistic approach from design and simulating systems to innovating on the component level. We are driving organic innovation partnerships and a broadening of the ecosystem. Now let me highlight some recent innovation examples to show our progress. We developed a reference architecture together with NVIDIA, nVent and Fluence across compute, cooling, power and control systems for the latest DSX Vera Rubin platform. The goal, maximizing tokens per watt and ensure predictable, scalable operations. Building on this architecture, we have developed a modular and scalable automation framework with ready-to-use SIMATIC libraries. Our PLCs are already automating critical OT infrastructure in several megawatt scale data centers. In the electrification area, we are continuously optimizing our factory assembled pre-tested kits and are working on new DC products. One great example is our collaboration with Infineon, where we are integrating their silicon carbide power modules into our latest solid-state circuit breakers, a critical enabler for safe and reliable distribution of DC power. Summing up, we are very well positioned to win in traditional and hybrid architectures and on the way forward to 800-volt DC. I'm very pleased with the momentum and performance of our DI software business. At 11% over the prior year quarter, organic ARR growth remained at a very healthy level. Integration of our Altair and Dotmatics acquisitions is progressing very well. We are bringing our simulation products together and are launching new products. Early revenue synergies are materializing as well. Strategic partnerships such as those with IFS and Xometry complement our industrial AI offerings. With IFS, we are offering a digital twin to connect design, production and asset performance in order to deliver productivity and adaptability for manufacturers. The software business is moving fast strategically and in operations. And over to you, Veronika.

Thank you, Roland, and good morning, everyone. Let me share further details on our record Q3 and our outlook for fiscal 2026. Orders for Digital Industries at EUR 4.9 billion were 9% above the prior year with a book-to-bill of 0.98. Orders in automation were up 11% with a book-to-bill of 1.01 driven by the short-cycle business. As Roland mentioned, overall market dynamics have been further improving. In addition, I want to point out that DI saw an upswing in its core vertical of machinery, driven by China, but improving elsewhere as well. Yet capacity utilization in some of our key industrial markets, particularly in Europe, is still on a relatively low level. DI software business delivered 5% growth over the prior year with orders close to EUR 1.7 billion. A key driver was the PLM business, including a major order with a large automation -- automotive OEM modernizing its entire system landscape. The EDA business was softer as expected. Our backlog at Digital Industries was stable at around EUR 10 billion. Revenue for DI increased 10%. The software business was up a strong 15%, driven by the EDA business growing more than 30%. DI's Automation revenue was up 7% to EUR 3.1 billion on broad-based growth in Discrete and Process Automation. DI's profitability improved sharply to 18.7% with a strong contribution from its software business. A high share of accretive EDA revenue and the successful integration of Altair and Dotmatics drove margin expansion. Economies of scale and a clearly net positive economic equation supported margin improvement in the automation business. Sustainable productivity gains more than compensated for cost inflation and increasing pressure from rising prices for selected electronic components. Integration-related costs for Altair and Dotmatics accounted for 70 basis points in the third quarter, in line with expectations. I'm very pleased with DI's extraordinary free cash flow performance of almost EUR 1.5 billion, which is an all-time quarterly high. Cash conversion was excellent in both software and automation. Looking at the regional top line perspective, DI's Automation businesses grew strongly across most regions. China showed good momentum with orders up 17% and revenue grew 9% on healthy sequential revenue dynamics, fueled by Motion Control. Our local China portfolio was accretive to revenue growth, up by a rate in the mid-20s. The picture in Europe remains somewhat mixed. Order recovery is on the way with a book-to-bill above 1 and healthy growth. Revenue in Germany was still muted due to discrete automation, while the latter drove clear growth elsewhere in Europe. The U.S. continued its growth path. The AI-driven investment boom also supported core manufacturing industries. This benefited our Discrete Automation business. Based on delivering a strong performance after 9 months, we confirm our DI guidance for fiscal year 2026 in all aspects. Revenue growth is expected in the range of 7% to 10% and profit margin is expected to reach 17% to 19%. For the fourth quarter, we see DI orders around the prior year level on very tough comps due to an exceptionally high volume of EDA bookings. Automation orders are expected to be clearly up, while the software order volume will be below the prior year's record level. Nevertheless, the software sales funnel is promising. We anticipate that DI's revenue growth will be in the range of 5% to 7%, supported by growth in automation and software. And we expect DI's profit margin to be flat sequentially because of the business mix. Now let's turn to Smart Infrastructure, which once again delivered an outstanding performance across all businesses and key metrics. Orders were up 42%, reaching a new record level of EUR 8 billion. This increase was driven by a massive growth of 58% in SI's electrical products business and 55% in its electrification business. Both businesses benefited again from a high volume of large order wins with data center customers in the U.S., but also in Europe, where we won, for example, a large project in the Nordics. Even without the data center-related business, order growth was strong and reached the high teens. Book-to-bill came in at an outstanding 1.25. SI's record order backlog of EUR 23.7 billion gives us a lot of confidence for sustained growth momentum into fiscal year 2027. Revenue growth was broad-based and reached 13%. The largest contribution again came from the Electrification business, up 20% and the Electrical Products business up 18%. Consistent backlog conversion led to further operational margin expansion. SI's margin was up 120 basis points year-over-year to 20%. An impairment related to the e-mobility charging business partly offset positive effects from tariff refunds in the U.S. The net effect amounted to 50 basis points, implying an operational margin of 19.5%. Structurally, SI's business continued to benefit from economies of scale due to higher revenue combined with improved capacity utilization and from sustained productivity improvements. Pricing measures in SI's product business compensated increasingly, but not yet fully for higher commodity costs. Free cash flow showed consistent cash conversion at 0.94 with a seasonal increase in operating working capital well below the top line growth trajectory. Looking at the regional top line development, orders were up double digit across the board and stringent backlog execution drove revenue in all geographies. The U.S. again showed exceptional order momentum, up 81%, led by data center and semiconductor wins. Bookings in Buildings saw growth in the low double digits. Germany recorded substantial order growth in Buildings. Electrification and Electrical Products grew around 10%. The Europe and Middle East region also benefited from large data center orders in Finland and Spain. SI's top line in China recovered further with order strength in Buildings ahead of price increase, while Electrical Products drove revenue. The service business delivered 7% growth, clearly up in Asia and in Europe. Our SI teams continue to expect very healthy end market dynamics with data centers and power utilities as key engines for growth. After delivering 11% revenue growth in the first 9 months of fiscal year 2026 and given high visibility from order backlog, we raised SI's guidance for the full fiscal year. For comparable revenue growth, we now expect a range of 10% to 11%, up by 150 basis points at the midpoint. Building on a very consistent margin expansion trajectory, we lift SI's profit margin outlook by 50 basis points to a range of 18.5% to 19.5%. For the fourth quarter, we anticipate that SI's revenue growth will be -- will approach the lower end of the full year range and that the profit margin will be in line with full year expectations. Mobility recorded a robust set of results in the third quarter. Orders at EUR 7.6 billion included a high share of attractive service contracts and topped our expectations with an excellent book-to-bill ratio of 2.35. Order backlog increased to EUR 58 billion with an attractive gross margin profile. As Roland noted, we see a very promising sales pipeline for the fourth quarter of fiscal year 2026, including the booking of the majority of a EUR 3 billion contract with Italo Holding. The contract includes rolling stock as well as a 30-year service agreement. Revenue in Q3 was up 6% over the prior year, fueled by low double-digit growth in the rail infrastructure business. Margin performance was solid at 8.6% with a somewhat less favorable project mix and slightly higher severance costs compared to the previous year. As indicated, free cash flow picked up materially and cash conversion improved due to stringent collection of large payments from customers. Looking at project payment profiles and the timing of order awards, we continue to expect further substantial catch-up in the fourth quarter. After a consistent Q3 performance, we confirm Mobility's full year outlook for revenue growth in the range of 5% to 7%. We continue to anticipate that Mobility's full year margin will come in with the range of 8% to 10% with the expected outcome towards the lower end. For the fourth quarter, we expect Mobility's revenue growth to accelerate on strong backlog execution and achieve a level between 9% and 11%. Profit margin is expected to be within Mobility's full year guidance. Page 17 in the appendix shows our below IB performance. The results included a strong SFS contribution fueled by a gain of EUR 156 million from the sale of a stake in an equity investment in the U.K. Free cash flow of more than EUR 4.1 billion in the third quarter was up more than 40% over the prior year, driven by all industrial businesses. Free cash flow return on revenue stood at 11% after 9 months, and we are firmly on track to achieve a double-digit return again for the full year. We further deleveraged our capital structure to 0.6x for industrial net debt/EBITDA, which gives us the entrepreneurial freedom to act from a position of strength. Our leadership team remains fully committed to delivering stringent capital allocation and strong shareholder return. As Roland already mentioned, we made good progress with our plan to deconsolidate Siemens Healthineers. Meanwhile, and as expected, we have now received binding decisions from the tax authorities clarifying the relevant tax topics. As a result, we can proceed with the spin-off of Siemens Healthineers as planned. We confirm the time line for receiving the shareholders' approval at the Annual Shareholders' Meetings of both companies in February 2027. Currently, we are working on contractual details. In connection with our Q4 earnings release, we will update you on the next steps and related decisions. At the beginning of July, following completion of the previous program, we launched our new share buyback program for up to EUR 6 billion over a period of up to 5 years. Execution started swiftly with a buyback volume of EUR 400 million in the first month. Finally, our group outlook and expectations for our core business at a glance. Following the strong first 9 months, we raised our fiscal 2026 outlook for EPS pre PPA to a range of EUR 11.20 to EUR 11.50, up by EUR 0.45 at the midpoint. We continue to expect to reach the upper half of our group revenue growth guidance of 6% to 8%. In a time of highly volatile geopolitics, we are leveraging market opportunities and are delivering strong earnings performance with healthy growth and excellent free cash flow. With that, I hand it back to Tobias for Q&A.

Thank you, Veronika. We are now ready for Q&A. [Operator Instructions] Operator, please open the Q&A now.

[Operator Instructions] And the first question comes from James Moore from Rothschild & Co Redburn.

I wondered if I could ask about the DI automation orders in China at the 17% growth really in 2 dimensions. I think you mentioned a strong start to the quarter in April and May. So I wonder if that is showing us that June has slowed in speed a little bit. So could you talk a little bit about the momentum in the quarter, the speed into July and what's happening by end market and channel and whether you see any sign of the strong Chinese cycle where you've grown 25%, 30% now for 9 quarters slowing at all? The second dimension is really on the 17%. It might seem slow to some against some of the locals growing closer to 40%, but you do have a different premium versus value-for-money mix. Would it be possible just to remind us of the share of sales or orders from value for money? And I think you mentioned, Veronika, that the VFM segment grew in the mid-20s in revenue, but could you say what it grew at in terms of speed on orders?

So your observation that there was a little bit of a slowdown in June, it's right. However, in July, we are picking up momentum again. So therefore, it's -- I would say it's all intact. If it comes to China, also the local products and the 40% you're mentioning, this is the value-for-money portfolio. And now let's compare value for money with value for money from our side, our China new products or smart products, as we call them, year-to-date, it's plus 30% from our side. And you compare that April to June, I'm assuming 40% of Inovance. We know that Q1 in Inovance was also not that strong. So I would say we are equally or even a little bit ahead compared to Inovance. If you compare us to international competitors at the same time, I would say, in this segment, we are definitely outperforming. Last point is we also see a pickup in the demand for the, let's say, the higher-end automation devices, which we like very much because again this is a very strong position of ours, which we're also going to expand. So therefore, from that perspective, I would say we feel quite comfortable the way how we are working in and with our Chinese customers with our products.

Yes. And really from my side, if we look at, again, at the China portfolio, really the orders were up in Q3, up 20% and as well the revenue, the 17% I already mentioned. And if we really look at the development in July for automation, we could see in China, if we look at our dailies really in the lower 20s in order entry, the development. So the FX comparable. So therefore, we are quite confident here for the fourth quarter, even though the entire environment is mixed. So we definitely see at the K-shape development. So we have a strong continued -- we had a strong continuous growth in certain key verticals in Q3 in electronics and the like. And in the -- for the fourth quarter, the outlook is really that the automation orders are expected to be clearly up year-over-year.

The next question comes from Ben Uglow from Oxcap Analytics.

Just getting into the kind of sequential progress and the dynamics on the automation hardware side. Veronika, if we look at the margin, I think it maybe a little bit lighter than some of us expected. And obviously, we're hearing from a number of companies now in the automation world about supply chain constraints, memory shortage, lead times, et cetera. Can you give us your thoughts on if that is going to be a factor in the next couple of quarters? And I guess a broader question, maybe for Roland is if we look at this up cycle, if we look at the growth and the uptrend that we're seeing across a number of industries, not just electronics or semiconductor, how comparable is this with what we were seeing after COVID in that sort of '21, '22, '23 period? And if we looked at the supply chain situation today, how does it compare with back then?

So I give it a start with regards to the commodity costs, which we are seeing in the DI business, and they are having a drag on DI margins. I think that is something we, in a very diligent way, work with it. And as already mentioned, we are -- we contributed, the DI team contributed with a net positive economic equation in the third quarter. And productivity, we continue to contribute it and was really reinforcing the overall economic equation and was really significantly helping to offset cost pressure as well. And if we look at the more or less the entire fiscal year and from an overall outlook, we are as well confirming a net positive economic equation as well for the entire fiscal year and are very confident with our productivity measures and with a very continued high focus really to offset inflation and demand-related cost pressures from supply side.

Then the next question comes...

Sorry. Ben, to your question -- to your second part and comparing that with the COVID time, there are 2 dimensions. One is the go-to-market, the stocking on the one side and one on -- the supply chain on the other. Let me start with the supply chain. Since this was -- I mean, the uptick in the demand was so strong that there was really a supply chain shortage, in particular, on international semiconductors, less local Chinese ones, which was raising lead times for supply to, I don't know, 10 weeks, 20 weeks, whatever, so completely off. We don't see that. We are looking at the supply chain. There are, I mean, certain constraints, but we don't -- there's no alarm at this point in time that we aim it will fall short. Could that be that there's a price increase? Yes, but our economic equation is positive, as I said, and it will stay positive. It even increased a little bit. So therefore, that's good. If it comes to the sell-through and we don't see an increase in stocking. We are watching that closely. So there is no sign that this happens. But we have to stay tuned, and we do that in order to avoid any signals from this perspective.

And the next question comes from Jonathan Mounsey from BNP Paribas.

I'd maybe like to ask one about software strategy, particularly in the context of what's been happening in the first half in terms of investor sentiment around software. So obviously, software revenue looks strong this quarter and SaaS transition is almost complete. But I just want to understand, I think, is the market moving away and towards new ways that you'll have to adapt to? Investors have been worried about the revenue model of PLM competitors in the first half. And I know that's been traditionally linked to the number of seats as kind of a proxy for product usage, at least historically when humans were doing the work. But going forward, AI may drive down the number of seats. And how are you going to adapt to that future? Are you tokenizing your software? Are you able to charge for actual usage on outcomes? And are you moving your customers towards that? And if so, how are they responding? Are you having those conversations?

So this is quite a bit. Let me start. Yes, we are seeing a strong demand on our software, which underlines that what we are saying that the software which we are selling, it's not a workflow-based, rule-based software. It's physics-based simulation. It's data center with a single source of truth with a very structured way of storing your data with contextualization. So -- and this was true for our PLM as well as EDA software. So therefore, I mean, good things here, firstly. Secondly, yes, our SaaS transition is -- we are through. We see higher growth rate. We see a very good picking up in the margins as well, which continues also in the next year. So whatever we planned at that point in time when we pull the trigger for the SaaS transformation happens, materializes as planned or even better. On the other point, you know that we are rewriting and charging our software with AI capabilities. So we are taking care that, for example, in the future, simulation was -- or simulation software was used by engineers. In the future, it will be used by engineers and agents. So the user interface changes. We have embedded functionality in our software, which already creates revenue. And currently, we are looking into -- we are currently not charging tokens. We are running a license model and SaaS model pushing also for SaaS. We have the highest growth for SaaS, which plays out very well. So we are ready from that perspective that we run software out of a SaaS model, out of the cloud. We can update a very short notice, which is super relevant for any kind of AI functionality which rolls in as we go forward. The more we are using AI models and also underlying LLMs, by the way, we use all of them, also open source model, in particular, those because once you have your model trained, you can use cheaper tokens and any kind of model on the edge or in our software. We are also thinking about how we monetize, would we then go into a token-based, but this is really more the future. We are looking into that. For example, I give you one example, where we did not do that, our Eigen Engineering agent, which is by design, priced as what it is, it's an engineering tool. And in that market, people used to pay license. So we are charging license fees. Customers are ready to pay. We have doubling and tripling over the last weeks of customers. So this is -- I think this is one of the fastest-growing products, which we -- at least as long as I can look back, which we launched in the market. So it's a very dynamic environment, and we are definitely looking into how we can change our models going forward, pricing models. Of course, we are looking more and more for ARR-like models because they have a lot of advantage, again, in driving innovations faster because you can update. Last point is on this amount of seats going down, yes, but the use -- we believe the usage goes up, which we eventually then charge via a usage of agents and/or engineers because we have now much more powerful tools, which can be used, thanks to AI by many, many more people. We are democratizing our software away from scientists or physicists who are making models. And to give you one example, when -- currently, when you simulate something, you have to mesh your object. Our software avoids this whole cumbersome mashing exercise, and you can start right away with simulations, check out for our reinvent streaming, and you can see that what we offered there.

The next question comes from Phil Buller from JPMorgan.

Just to clarify, firstly, if I may. Veronika, on your economic equation commentary, did you suggest or say you put through additional pricing actions in the quarter? My question though is on SI margins. 20% is obviously very strong. I appreciate there's some tariff refund in there, but your performance is now at or around the high end of the medium-term guidance. You're booking huge orders. Is there any reason to believe that those orders are margin dilutive by nature because of the data center dynamics? Or should we anticipate further progression in 2027? Or is there a need to step up investments?

So with regards to the economic equation in this quarter, so we could really compensate cost inflation as well with the relevant pricing measures. So therefore, we are here very well underway. And with regards to the tariff refunds, I already mentioned that really net, the impact out of tariff was only kind of 50 basis points. So therefore, the tariff impact was really on a lower level here. And going forward, the teams are extremely committed to level out the relevant price increases and to in a very diligent manner, steer that as well with the relevant kind of pricing of our products. That's the current approach. And therefore, I confirmed as well that we are committed to a net positive economic equation for the entire fiscal year. And going forward, we will maintain this very ambitious productivity approach going forward within SI.