WEG S.A. (WEGE3) Earnings Call Transcript & Summary

[Interpreted] Good morning, and welcome to WEG's Second Quarter 2025 Earnings Conference Call. I would like to highlight that simultaneous translation is available on the platform on the interpretation button via the globe icon at the bottom of the screen. We would like to inform you that this conference call is being broadcasted. And after its conclusion, the audio will be available on our Investor Relations website. [Operator Instructions] If we do not have time to answer all questions live, please feel free to send your questions to our email at [email protected], and we will answer your questions after the conclusion of the conference call. We would like to emphasize that any forward-looking statements contained in this document or any statements that may be made during the conference call regarding future events, business outlook, operational and financial projections, goals and WEG's potential future growth are merely the beliefs and expectations of WEG's management based on currently available information. These statements involve risks and uncertainties and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operational factors could affect WEG's future performance and lead to results that will be materially different from those in the forward-looking statements. Joining us today from Jaraguá do Sul are Andre Luis Rodrigues, Chief Administrative and Financial Officer; Andre Menegueti Salgueiro, Finance and Investor Relations Officer; and Felipe Scopel Hoffmann, Investor Relations Manager. Please, Mr. Rodrigues, you may proceed.

[Interpreted] Good morning, everyone. It's a pleasure to be with you once again for WEG's earnings conference call. Let me begin with the highlights for the quarter on Slide 3, where net operating revenue grew 10.1% compared to the second quarter '24. In Brazil, we had a positive performance in the solar generation business and continued delivery of transmission and distribution projects despite slower overall growth due mainly to a significant drop in revenue from the wind generation business. Abroad, we saw another quarter of growth in the power generation, transmission and distribution businesses, particularly in North America, along with a healthy level of industrial activity and higher sales of short-cycle equipment across key regions where we operate. Our operating results measured by EBITDA reached BRL 2.3 billion, up 6.5% from 2Q '24. EBITDA margin closed the quarter at 22.1%, remaining at a very healthy level. Along the presentation, Andre Salgueiro will provide you more details on this point. Return on invested capital, one of our key financial indicators, remained at a high level of 32.9% as we'll see in more detail on the next slide. Revenue growth and operating margins in the period helped to maintain return on invested capital at a high level, even though there was a decline compared to the same period last year. In addition to the increase in invested capital due to investments in fixed assets and acquisitions during the period, it's important to note that the second quarter '24 return on invested capital was positively impacted by the recognition of nonrecurring tax incentives. Now I'll turn to Andre Salgueiro.

[Interpreted] Thanks, Andre. Good morning, everyone. On Slide 5, I will go over revenue trends across our business areas. In Brazil, we saw a strong demand for low-voltage electric motors spread across the various segments we serve. For serial automation equipment, demand fluctuated mainly due to high inventory levels at key clients. For long-cycle equipment, such as medium voltage electric motors and automation panels, project delivered slowed down, reflecting a more cautious environment for large-scale investments. In the GTD segment, despite lower wind projects revenues in 2025, we maintained a high volume of centralized solar generation project deliveries, combined with solid performance in the T&D business, this contributed positively to the quarter. It's worth noting that excluding the wind generation business, all relevant segments posted double-digit growth this quarter. In the Commercial Motors and Appliance (sic) [ Commercial and Appliance Motors ] segment, we maintained sales in line with the same period last year with solid results in key sectors such as air conditioning and motor pumps manufactures, although revenue in the washing machine segment declined. In coats and varnishes (sic) [ Paints and Varnishes ], demand remained strong, particularly in the water and sanitation and agricultural equipment segments. Abroad, industrial activity improved across all our main regions of operation with solid performance in short-cycle equipment, such as electric motors and serial automation products. For long-cycle equipment, we continue to see good demand in the oil and gas and water and sanitation sectors. However, the current global political and economic scenario has been impacting decision-making for new investments. In GTD, we continue to benefit from opportunities in the T&D market in North America despite a lower concentration of project deliveries this quarter. It's important to highlight that the T&D order backlog remains healthy and plants are running at full capacity. Generator business from Marathon in the United States and China also contributed to segment growth. In Commercial and Appliance Motors, we saw revenue growth in several key regions, especially in China and North America. In Paints and Varnishes, demand growth was mainly driven by the strong performance of our operations in Mexico, along with exports from Brazil to other Latin American countries. Slide 6 shows EBITDA evolution, which grew 6.5%, while EBITDA margin closed the quarter at 22.1%, improving compared to the first quarter '25 and slightly down versus the same period last year. This is mainly due to the change in the product mix as well as the consolidation of acquired businesses during the period. Finally, on Slide 7, we show the evolution of our investments, which totaled BRL 583 million with 63% allocated in Brazil and 37% abroad. In Brazil, we continue to modernize and expand T&D production capacity as well as increased capacity and productivity gains in Jaraguá do Sul. Abroad, we are moving forward with investments in Mexico, particularly with the construction of a new transformer plant. That concludes my remarks, and I'll turn the floor back to Andre.

[Interpreted] On Slide 8, before we move on to the Q&A session, I'd like to highlight the following. First, in May, we announced the acquisition of the assets of Heresite Protective Coatings, a U.S.-based industrial coatings company founded in 1935. Heresite is well established in the industrial coatings market with operations in the U.S. and strong international presence. Last week, we also announced our continued and significant improvement in the FTSE4Good Index, one of the world's leading benchmarks for corporate sustainability performance. WEG has been part of the index since 2016, and this recognition reflects our ongoing efforts to foster sustainable business practices, both within and outside the company. Finally, a few words on the outlook for the rest of the year. We continue to see healthy operational dynamics and the product mix should keep supporting good operation margins. We remain confident in our strategy based on global presence, a diversified product portfolio and operations across several segments. This allows us to respond quickly to changing scenarios and mitigate potential macroeconomic impacts. Lastly, it's essential to keep a close eye on the geopolitical and macroeconomic context as shifts in this environment could affect business dynamics throughout the rest of the year. This concludes our presentation, and we can now proceed to the Q&A session.

[Interpreted] [Operator Instructions] Our first question comes from Rogério Araújo from Bank of America.

[Interpreted] I have 2 on my side. The first, I'd like to explore the GTD market abroad. We see that most of the segment comes from T&D. And we see a level of organic revenue in dollars going down at low teens, lower than the fourth quarter '24 and going up now 2% year-on-year in the second quarter. That has been lower than what we have seen in global companies in the electrification segment. However, when we see the profit for T&D in North America, it continues to go up. So it shows that you're probably having some incremental price increases in deliveries, which make us conclude that we might be seeing a drop in volume compared to the fourth quarter and less growth than global peers. Does it make sense what I'm saying? Is it a matter of mix? Is it because of generation and expectations for the coming quarters? This is my first question. The second question is with regards to growth in revenue. Wind had a steep drop in the second, third and fourth quarters '24. Now it is stable. And thinking of this expectation for centralized solar generation going down in the coming quarters, do we see a lower GDP for Brazil in the coming quarters? Do you think you have a more adjusted base? How do you see that? And a sterling revenue growth, you talked in the release for less demand for long-cycle products and industrials, both in Brazil and abroad. And we do not see a drop in revenue in industrials in any of the regions. Can that be an advanced indicator of lower growth for this division for the coming quarters or not necessarily?

[Interpreted] Rogério, this is Salgueiro. Thanks for your questions. I'm going to start talking about GTD, the first part of your question. First, it's important to mention that we have GTD in abroad with a high exposure of T&D, but we also have generation. So in mega numbers, we are talking about 75% for T&D and 35% is generation. When we see the performance in the last quarters mainly, specifically the first and second quarter this year, we see performance that is very healthy in T&D as we have been reporting for some time now, a full backlog, the plant is running at full operation, foreign operations full capacity, too, and showing growth comparing to last year. In practice, that can change a bit from quarter-to-quarter, depending on the level of deliveries that you have. So you might have some differences. It's natural in this kind of process. But when we look at T&D as a whole, the segment continues with a very good prospect for the year and growth for the year. What is happening and is somehow interfering in our performance is generation. Generation had a weaker quarter in Q1, and we also saw the same dynamic in Q2. So we have some operations, especially in India with our joint venture and also exports in Brazil that are running at a slightly lower level than the previous year, so consolidated numbers showed a decelerated growth. But basically, this is because of generation and some delays in T&D delivery. But again, this is going to be offset as we move on to the next quarters. As for the performance of GTD Brazil, indeed, we do have some important segments that are changing dynamics from one year to the other. Wind, as you mentioned, and we have been mentioning that since the end of last year, that we wouldn't have a backlog for this year. If we take a look at the performance last year, it was a positive performance with higher concentration in the first quarter of the year. So the first and second quarters of last year were more relevant in terms of wind revenue. But then revenues started to go down as of the third quarter. So for wind generation, we should have a lower impact from now on. What I think it's important to mention is that we do have solar and solar is picking up in terms of relevance in centralized generation as of the fourth quarter last year. So when we are looking at the fourth quarter this year, you're going to have a stronger base of comparison for solar, but not as much for wind. The third quarter -- the third and fourth quarter, sorry, had a slower comparison base. And finally, when you talked about long-cycle internationally or overall, in electric and electronic industrial equipment, we have seen some fluctuation in revenues. But I would say that the most relevant impact, or at least the signs that we are having, is basically our backlog. And I think that with the new tariffs and geopolitical discussions, this is being a bit impacted, especially when people think of new projects. So we do see a deceleration. But overall, short cycles continue very positive. When you think of electro-electronic industrial equipment, foreign market for the second quarter of the year, we did see a significant improvement compared to Q1. So it is more concentrated on long-term projects, and we have to see what happens in the coming days.

[Interpreted] Our next question comes from Lucas Laghi from XP.

[Interpreted] I'd like also to touch some points with regards to revenue and a follow-up on the previous question, organic growth first. If you remove the effect of acquisitions and we adjust for FX, we do see a deceleration. It's 1% year-on-year, excluding the effects, if I'm not mistaken, with the greatest impact from wind. But just to try and understand the prospects for the future. First, North America, and even thinking of the results of the competition, we do see a strong backlog especially for motion equipment, short-cycle equipment. But what draws our attention is this difference of short-cycle and long-cycle equipment. Generally, short-cycle equipment decelerates before, then long cycles. And we see just the opposite. So for North America, what do you think can explain this difference? Is it any movement of prebuy for short-cycle equipment, just expecting the tariffs to escalate? Or how do you see in July this new orders for these 2 categories, again, in this context of higher tariffs? Just to understand if the difference of performance because generally, it's the opposite, short cycle starts to decelerate before. And in T&D, we understand that the capacity is full. So occupancy is very high. But given that the last orders came to your backlog in a context of lower supply, we would expect higher prices as you start billing these orders. So thinking of revenue growth, can you consider an acceleration for the second half or in 2026 for T&D even with a low idle capacity? Or should we see that more in 2025 when the new capacities in Mexico and the U.S. start operations? So basically, short cycle, long cycle, united in North America, and then thinking of acceleration or deceleration of revenues for the future?

[Interpreted] Okay. Lucas, thanks for your questions. Well, as we did mention in Q1, we did feel an accommodation of revenues in North America. But we were seeing a prospect for an improvement in orders for short cycle. So what we are seeing is an opportunity in this process. We have to remember that short cycle, you have a visibility of portfolio, of your backlog for 2, 3 months. So we do see an improvement in the coming quarters, but we don't know if this is going to be sustainable along the year. So we do have a better prospect than Q1 for short cycles. But long cycle, this is very much related to what Andre Salgueiro mentioned. It has to do with geopolitical uncertainties and tariffs. So we'll have to follow from close what's going on. When we talk about T&D, this is something that we have also been saying is that abroad, we see a certain price accommodation. So we are not working with a scenario of raising prices. I think prices are already at a high level, and we prefer to be a bit on the ground this time focused on the deliveries that we have in our backlog. I think the main challenge of T&D for WEG today and for the coming quarters, especially in 2026, is to deliver as fast as possible the capacity that we are building and eliminate bottlenecks in the United States, Mexico, Brazil, so the capacity will start to be delivered along 2026. And if everything goes right, the expectation is for the beginning of 2025 to '27 to close with all the investment cycle. Remember, in the last 2 WEG Days, we announced the volume of investments of T&D. And in 2027, we are going to double the production capacity compared to what we had in '24. So I think that's it. I think that's the main challenge of ours to move faster to have capacity and really enjoy this extraordinary moment in the market. And this is also what we have been saying, we are operating at full capacity with our current facilities. And in T&D, except there is a difference in the price composition, we are going to have a lower growth rate until the capacity increase is finished.

[Interpreted] Our next question comes from Lucas Marquiori from BTG.

[Interpreted] My question is more with regards to tariffs. Could you quantify the impact of tariffs in Q2, at least the tariffs that started to be applied in Q2? So what did you have in terms of extra cost because of tariffs? We understand that WEG U.S. imports most of the products, I think this is an internal cost, and also hear from you about your plan. We are eventually at the verge of a drastic increase in tariffs. This is a relevant shock to the business. So what do you have in terms of mitigating factor to try and deal with that. Perhaps, I don't know, produce more in Mexico, ramp up capacity in the U.S. And when I say tariffs, I'm not talking only about import tariffs, but also tariffs on copper. So basically, that's it.

[Interpreted] Lucas, this is Andre Rodrigues again. The increase of 10% that we had along the second quarter didn't show a large impact because we did make some price adjustments in the North American market to offset that. So the impact on our results was not significant. What is most important is to look into the future, the second part of your question. To start answering your question, I think it's very important to say that right now, it's very difficult to have a firm position because of all the uncertainty and volatility in the commercial structures that are being discussed. But given the current situation, WEG has an action plan that can mitigate some of these impacts. I think it's very important to highlight that, first, we have global industrial presence. And along the last years, we have been accelerating the amount of investments in production capacity in different geographies where we operate. And now because we started doing that way back, that can help us in this process. Just for everyone to be on the same page, today, we produce in Brazil a bit less than 1/3 of what we sell to the U.S. and most of it are electric motors because transformers, for instance, that are produced in Brazil, the main market is not the U.S. It's basically Brazil and the neighboring countries. So what we have today is basically the following. We may relocate export route. For instance, we can use Brazil to meet the local demand in Mexico and use the production of Mexico to meet the demand in the American market. That can take us some months. But after the change is real, we believe we can mitigate some of this impact. And it's also important to mention that the scenario depends on the level of tariffs of other countries. Today, we are considering the scenario that Brazil is suffering the highest level of tariffs, but we have to assess that. Today, it's very difficult because we don't know if other movements are going to happen. But the idea is to continue monitoring market conditions and, as we did the first time, assess the commercial strategy and the price of our products. But again, it's important to remember that the local American market depends on the import of finished products and supplies, and we see already an increase in price in that market. So it's very important to highlight that WEG in the first Trump administration did already have an action plan. The discussion at the time was, again, the tariffs. We had a very structured plan what we would do to mitigate if something came a bit stronger in Mexico a few years ago. And today, we are at a much better position, industrially speaking, to have the flexibility to relocate export chains. And in terms of copper, we still do not have a position of what the increase is going to be.

[Interpreted] And our next question comes from Jens Spiess from Morgan Stanley.

So I was just delving into the previous questions about the lower growth of GTD, and T&D in particular, in the external markets, more specifically in North America. You mentioned that you don't foresee any relevant price increases for T&D, which means that, as you already mentioned, capacity growth will be key for revenue growth going forward. So I was just trying to figure out how capacity, the progression of capacity increases, will evolve in the North American region for T&D. Is it 15%? Is it 10%? How will it happen in, I don't know, for the rest of this year, 2026, 2027? So very interesting to understand that. Obviously, I know there are a lot of uncertainties, but any guidance would be much appreciated.

[Interpreted] Jens, thanks for your question. I'm going to continue speaking Portuguese so that we can have the simultaneous translation. But as for T&D in North America, and you asked about product prices, when we talk about T&D, most of it, especially in North America, are more long-cycle products and pricing happens project by project. So I think the comment of Andre Rodrigues, when we see a plateau of prices, I would say that the prices is somewhat stable at a higher level for some time now. But when we take a look at the backlog that we are performing today, transformers that are being delivered today were sold 1 year, 8 months ago. So as time progresses, we do have some increase in prices that are going to be seen. But again, as we are seeing this price is stable for some time, the increase is going to be less relevant from now on. So we are going to have some increase, but less relevant than previous years, just to make it clear. As for production capacity, the number that we released for T&D considering all the investments, inclusively those in Brazil, is that we want to double T&D capacity to serve all geographies in which we operate based on the capacity that we had in the end of '23, '24 and the capacity that we are going to have as of the first quarter of '27. Part of this capacity has already been added in Brazil and Mexico. And now the second important time is going to happen next year. So that's why Andre Rodrigues mentioned that the expectation for '26 in terms of new volumes is a bit lower than what we added in previous years. We are going to have as of the end of '26 and beginning of '27 then a new increase in capacity. And then we are going to have growth again because of this capacity. Now we are at full capacity. The plants are full. The backlog is full, and we have that until the end of '26.

Perfect. So we can assume that growth, capacity growth, will again accelerate in 2027 relative to 2026. Is that correct? Just to be clear.

[Interpreted] Yes, that's correct. That's correct, as of '27.

[Interpreted] Moving on, our next question comes from Jonathan Koutras from JPMorgan.

[Interpreted] Andre Salgueiro, I have just one question. If you could give me an update about the idle capacity that you have, especially for the second quarter and if you see any gap in your EBITDA margin, if the margin is at the double-digit level.

Jonathan, this is Andre Rodrigues. We have to separate -- and you're asking specifically about Marathon. Remember, Marathon, we have low-voltage motors and we have the generators. Low voltage, we are more or less at this capacity that you mentioned, a bit lower than the acquisition. But in generators, we are running at full capacity. We are expecting, for the end of September, the first investment to increase our production capacity in generators in North America and a new cycle of investments given the demand and the new orders for this product, again, very much connected to generative artificial intelligence, the building of data centers. You need redundancy and therefore, you need generators. So on one hand, we are moving forward to have a higher number of orders in low-voltage motors. But for generators, the more capacity in the short term, the better because, as I mentioned, by the end of September, the idea is to have a new level of capacity and in '26, new investments to continue growing in generators in North America. Now when you talk about margin gains and integration, well, the plan is going on as planned. This is a long-term journey. It will take us some time. I think what we could capture in the short term has been done: synergy, the buying of inputs. Back office for North America has also been completed in the second quarter. And now the teams are working to reevaluate our portfolio, see if it's possible to standardize components and also increase capacity for the production of components so that we have a higher verticalization for Marathon businesses that will impact the business for the future.

[Interpreted] Our next question comes from João Frizo from Goldman Sachs.

[Interpreted] I have 2. The first is a bit more related to the big picture. You mentioned that long cycle, both in Brazil and abroad, for electric industrial motors is being impacted by a more uncertain scenario abroad and higher interest rates here. I would like to know how this impacts your target of '26 to grow double digits because I know this has always been your target because, at the end of the day, you have a lower long cycle, so you are projecting lower revenue for the coming years. So I would like to hear from you. And also about margins, we did see an evolution of EBITDA margins quarter-on-quarter. Could you break down this margin to say how much is owed to a lower share of solar, an increase of prices, anticipating tariffs, because we know this is one of the movements that we saw in different peers abroad. So just for you to elaborate on these movements.

[Interpreted] João, thanks for your questions. As for expected growth for '26, I think it's still a bit early for us to comment on that. We have our budget that is generally designed in October, November of the year, and we still have a lot to be changed. When we talk about industrial long cycle, the lead time is not that long. You're talking about an order that we can have today or in the coming months, and that would already generate revenues for the next year. So that will depend a lot on the new orders coming in from here on, and this is connected in Brazil and abroad to different reasons that can change along the year. So we have to monitor that and have our budget more towards the end of the year for us to have a bit more clarity for next year. Consolidated numbers, we also have other businesses, other initiatives, and then we go back to diversification of bank because remember, when one part of the business is not doing so well, we see growth in other parts of the business. And we have mentioned that, for some time, synchronous compensators, we are having a very healthy order with a good backlog for next year, even electric mobility gaining a bit more momentum for electric buses, powertrain and also the BESS business that somehow we did even have a higher expectation for this year because of the action that was delayed for next year, but we are seeing orders, smaller orders, coming in. And we do have an expectation that this business is going to contribute positively to our growth. So we have to follow all these variables. But more towards the end of the year, I think we are going to have a bit more clarity to understand the performance of next year, and then we are going to share the information with you. You know and we always say that we do not have -- our objective is to grow at double-digit levels. As for the margin of the quarter, there were very many moving parts. It's very hard to say the one thing. It's a bit of everything that you said. We have 2 aspects about mix. One, well, if you consider the first quarter, this is basically solar. Solar was lower in the second quarter compared to the last year. We also have the wind. And we have all the other effects of the other businesses. So eventually, we are talking about price adjustments outside, abroad, other factors and better dynamics in terms of demand for short-cycle products, especially in the foreign market.

[Interpreted] Our next question comes from Gabriel Rezende from Itau BBA.

[Interpreted] Can you hear me?

[Interpreted] Yes, Gabriel, go ahead.

[Interpreted] I would just like to go back to the tariff dynamics. We have a joke that some competitors of yours in Brazil are very much oriented to exports in the U.S., especially for transformers. I would like to understand if a competitive scenario in some specific segments, especially for transformers in Brazil, would be a problem. What could protect WEG if this competitive scenario deteriorates? And the second point, we just discussed margins here. We talked about the price of transformers abroad. Could you mention how you and the competition has been behaving in terms of pass-through of prices abroad and also for other products other than transformers?

[Interpreted] Gabriel, thanks for your questions. Okay. So how does this transformer, large transformer, market operates, how our competitors based in Brazil are focused on? Because these are the products that they are exporting to the U.S. Basically, from what we see is that they all have contracts, raw material, they are already under production planning for '27. So we do not see a change in the dynamics, not for the short term, even up to '27 because that has already been ordered under contract. So WEG is going to continue its strategy to serve the markets in regions close to these markets as we have in Brazil, as we are increasing capacity in Colombia, in Mexico, in the U.S., and we can even rethink that a bit longer. But we do not see a scenario, not in the short term, where we are going to have a drastic change in the process of rerouting exports to the Brazilian market. And if I understood your question in terms of the prices of transformers, this is a bit of what we mentioned before. We do see a situation in which we are not working with additional price increases compared to prices today because I think prices are already well adjusted. And if we have a higher price in some geographies, you can even give room to new entrants. So the market is operating at good prices. Margins for WEG and components are very suitable, so we do not see a change in that.

[Interpreted] Very clear. If you could talk about other products abroad, especially for motors, we saw the competition talking about good prices in the last quarter. Do you also see healthy dynamics?

Yes. Sorry, I forgot to mention the motors. Not WEG, the other competitors did adjust prices because of tariffs in the North American market, but not in other markets.

[Interpreted] Our next question comes from Andre Mazini from Citi.

[Interpreted] I just have a follow-up on the comments of Andre about the synchronous compensators. After the blackout that we had in Spain and Portugal, basically because of probably the lack of synchronous compensators there, are you seeing an increase in demand? And yesterday in the call of Vernova, they talked about the market of synchronous compensators would be $5 billion. I don't know if they are talking about the whole world, and there was an increase also in Saudi Arabia. So could you talk about this market, if you are in Saudi Arabia, if you were part of the bids for the synchronous compensators because they want to have clean energy until 2030 and they need the product? So this is the first question. And then about domestic GTD. The line ahead, a drop of BRL 600 million, and I think there is a lot of solar to leave. And so I would like to know how much in the solar has already an impact in the margin for the end of the year.

[Interpreted] Mazini, thanks for your questions. Well, the synchronous compensator market or synchronous condenser market, this is something that we have been talking for some time now. And it is connected to this idea of more renewable energy in the grid. And here, we are talking about wind, solar and energy storage that brings stability to the grid and a way to work with that is the synchronous compensators or condensers. So for some time, we realized a greater increase for this product. Remember, this is a product that WEG has had in its portfolio for some time now. But in practice, the market demand has been increasing a lot in recent years, especially because of renewable energy and also the problem that you mentioned in Spain and Portugal. So this is a problem that people have. And more and more, we are going to see investments connected to that in several regions in the world. Today, we have a backlog for the synchronous condensers that are very healthy. These are projects not only in Brazil. We do have projects in Brazil, but also we are selling to Portugal, the United States and Chile. In Chile, this is a project that we have a partnership with Alupar that we already announced to the market. So it is a heated market, and we have positive expects for the remainder of the year and for the coming years, especially considering that for the next auction, T&D auction, part of it is going to be of synchronous condensers in Brazil, which should help the market develop even more in Brazil. But as I mentioned, we do see good opportunities also in other markets where WEG is present. As for GTD in Brazil, compared to last year, we did have a drop in revenue, 1.5%. I think here, it's important to say that the drop is basically because of wind. And we did mention that in the beginning of our presentation. If you exclude wind from the comparison base of GTD Brazil, we would have grown more than 20%. So we did have a concentration of wind in the second quarter and lower revenue this year because what we have this year is maintenance operations. We are not selling new machines. As for the performance of the first quarter, the greatest effect was solar because we had a higher concentration of centralized solar farms in the first quarter with good performance in the second quarter, but below the level of the second quarter '24.

[Interpreted] Our next question comes from Alberto Valerio from UBS.

[Interpreted] I would like to ask a question more about your balance sheet, and you can have the follow-up later on. You don't have to answer now. But basically, R&D at this line went up year-on-year at about 3% of the revenue. So if you could give us a bit more color on this line and if you capitalize part of this line and how. And second, about net equity, there was a change also you had some accrued numbers to the company's capital. So why the change? So these are my 2 questions.

[Interpreted] Alberto, this is Salgueiro. Thanks for your questions. Well, research and development, the 3% that you mentioned, is basically our usual number, generally 2.5% to 3%. So perhaps there was a slight increase this year, but I don't have details here. I can then get back to you for a follow-up, but nothing really comes to mind. We continue with investments for the development of new products, and this is what we have been doing regularly along the years. As for the change in net equity, that was an increase in capital that we had in the beginning of the year. And then basically, we have an accounting issue that the profit reserve cannot be above the capital stock. So when it get part of close to this number, then we decided to have the capital increase. But this is something that happened along the first quarter, basically, a [ drop ] of this line to capital stock.

[Interpreted] We are now closing the Q&A session. Remember that if you have any questions, please feel free to send questions to our e-mail, [email protected]. Andre Rodrigues, your mic is open for your final remarks.

[Interpreted] I would like to thank you all for joining us in our earnings conference call for the second quarter. And again, we would like to once again invite you for our WEG Day 2025 in Jaraguá do Sul on the 3rd of October. I hope to see you in Jaraguá on the 3. Thank you very much, and have a wonderful day.

[Interpreted] WEG's conference call is now concluded. We thank you all for attending, and wish you an excellent day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]