Ericsson

Hello everyone and welcome to the presentation of Ericsson's third quarter 2025 results. Joining us by video today is Birri Ekholm, our President and CEO, and in the studio I'm joined by Lars Sandström, our Chief Financial Officer. As usual, we'll have a short presentation followed by Q&A, and in order to ask a question, you'll need to join the conference by phone. Details can be found in today's earnings release and on the Investor Relations website. Please be advised that today's call is being recorded and that today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risk and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in the annual report. I'll now hand the call over to Birger and Lars for their introductory comments.

Thanks, Daniel. And good morning, everyone. And a big thank you for joining us today. So we delivered a strong Q3 with continued expansion in our EBITDA margin, despite the FX headwinds. I would say that reflects our execution against both operational and strategic priorities over the last couple of years. We're optimistic about the growing demand for advanced mobile connectivity as AI is starting to be rolled out. By structurally improving our cost base, we have positioned Ericsson to deliver resilient margins also in the current market backdrop, which will give further benefits from improving operating leverage when growth comes back and actually comes in reality. Beyond operational improvements, of course, we focus on technology innovation, and that positions us well for the next key driver of our industry, the broader adoption of AI. As AI workloads move to the edge, demand on the network will increase significantly. These AI applications and AI devices will require wireless technology But it will also place new demands on the connectivity, such as ultra-low latency, high dependability, guaranteed uplink and very high security demands. So best effort connectivity, think of that as Wi-Fi 4G and 5G non-standalone, will simply not be enough. So to cater to these new type of demands, operators will need to invest in and migrate to 5G standalone networks, and later, of course, migrate into 6G. Their success here will depend on high-performing programmable networks, and here Ericsson is a leader. And we're also seeing some front-runner operators now starting to realize new monetization opportunities of network slices, as well as efforts to provide differentiated connectivity to different segments and different types of applications. So now let me move on to some key financial and strategic takeaways before Lars dives into the numbers. So organic sales declined by 2%, but we saw growth in three out of four market areas, with only the Americas reporting reduced sales following particularly strong deliveries in Q3 last year. FX continues to be a headwind, and we had a negative year-over-year impact of 4.2 billion kronor this quarter. As mentioned, we saw positive development in our margins. Gross margin came in at 48.1%, and we delivered another three-year high EBITDA margin of 14.7%, excluding the capital gain from the I-connective sale. And this is now starting to approach our long-term target. The margin expansion reflects actions we've taken over the last years to increase operational excellence and efficiency, including the work we've done on our cost base. Over the last year, we've reduced our headcount by some 6,000 leveraging new ways of working, and that of course includes AI. As we plan for a flattish market also going forward, we will continue our cost measures on levels similar to what we've done in the past years. The effect of actions we have taken over the past years are now kind of flowing through the P&L and establishing the profitability at a new level. Our continued focus on cost management will provide incremental benefits going forward, but it will also give operating leverage should the market improve. We ended the quarter with an elevated cash position. That's driven by strong recurring cash flow, but also, of course, the iConnective sales. As a result, we see scope for increased shareholder returns through extra dividends and or share buyback program. And the board will revert with a proposal in time for the AGM, as you know is the practice or is the Swedish governance model. In parallel with strengthening the company operationally, we're continuing to execute on our strategy to capture a bigger share of the value created by connectivity. So let me expand that a bit further. In our core mobile infrastructure business, we sign new customer agreements in the strategically important Japanese market, following our recent R&D investments. With Japan being one of the countries with a strong industrial base in such areas as automation, and one of the densest networks that have still not built out 5G coverage. We see this as a key market going forward. We also increased our share in the UK with an eight-year partnership with Vodafone 3 to supply a significant majority of the mobile networks and the entire core network. And this morning, we announced a five-year strategic agreement with Vodafone in Europe for programmable networks where we remain their primary vendor with more or less stable market share. Within the telco market, new monetization opportunities are needed to drive more network investments by our customers. So we continue to execute on our strategy to create new use cases for mobile networks. For example, we're seeing good development in fixed wireless access, where customer satisfaction is typically higher than for fiber due to the ease of use of cellular or wireless technology. In the quarter, we announced a contract with Barti Airtel to support their fixed wireless access rollout with Ericsson's core network portfolio. And we're starting to see good traction in mission critical, including, of course, defense, We're also taking important steps in our strategy to create a market by exposing the capabilities of the networks through APIs. This remains one of the key opportunities for us to capture more of the value created on top of the networks. And as you know, Aduna, our JV with the large operators for network APIs, closed this past quarter. Revenues are still small, but we see the uptake in Vonage's API business is actually starting to come through. And we see that in areas such as fraud protection as an early use case, but also in industrial applications. And today we have already applications live in the market. Also in Vonage, we're expanding our ecosystem partnerships with AWS. and added marketplace presence and product integration. So now let me comment a bit further on the market development we saw in Q3. In market area Americas, sales declined by 8% year over year, with declines both in North and Latin America. This follows, of course, very strong Q3 deliveries in 2024, where we had high deliveries to a number of large customers. Latin America continues to be a competitive market with overall low investment levels. Sales in Europe, Middle East and Africa grew by 3% year over year. But if we look closer at the region, we saw very strong development in Africa, partly driven by new 5G launches in Egypt and Morocco. In both the Middle East and in Europe, sales declined and we continue to see European customers being cautious with investments. In Southeast Asia, Oceania and India, sales increased by 1% year over year. And India continues to have rather low investment levels, but it actually grew quarter over quarter. We saw a decline in networks, partly due to the low level of network investments in India, but also stiff competition in Southeast Asia. Cloud software and service, on the other hand, saw an increase in sales. Lastly, sales in Northeast Asia increased by 10%, That was due to higher network investments and deliveries in Japan. In the quarter, we were awarded new agreements with customers in the Japanese market, including enhancement of SoftBank's 5G SA network, where we have clearly increased our market share. Overall, I would say that we continue to have good discussions with all our customers in Japan. With that, I hand over to Lars to go through the financials in more detail.

All right, thank you. So, net sales in Q3 totaled 56.2 billion, with organic sales declining 2% year on year. Most regions grew, but North America declined, mainly reflecting tougher comparisons with a high period of customer investments last year. At the same time, reported sales decreased by 9%, impacted by a negative currency effect of 4.2 billion. Taking a look at IPR performance, revenue declined by 0.4 billion year over year, now standing at 3.1 billion for Q3. It's worth noting that last year's quarter included retroactive revenue, so that skews the comparison slightly. The run rate coming out of Q3 is still around 13 billion. In Q3 adjusted gross income was 27 billion, including a currency headwind of around 2 billion. We saw an improvement in our adjusted gross margin reaching 48.1% and this positive development is a result of our cost reduction measures and operational excellence in both networks and cloud software and services. Looking at gross margin sequentially, we held stable, even though we lost a temporary boost from the Q2 IPR settlement. Excluding IPR, the improvement was around 2 percentage points. In networks, this benefited from organizational effectiveness in the market areas with well-planned and executed service delivery. This helped also manage supplier fish effectively and further optimize inventory. And in cloud software and services, the improvement is mainly coming from services where we are continuously improving our delivery performance. On the cost side, we made steady progress. Operating expenses excluding restructuring charges dropped to 19.3 billion, around 2 billion lower year over year. Of this, about half came from our cost initiatives and the rest is mainly currency. Excluding the iConnective gain adjusted EBITDA came in at 8.2 billion up by 0.4 billion including a negative currency impact of 1.2 billion. The EBITDA margin was up around 2 percentage points to 14.7. Behind this improvement is the good progress we have seen in terms of optimizing operations and lowering our operating expenses. Cash flow before M&A was 6.6 billion, driven by earnings with net operating assets broadly stable. Let's move to the segments. In networks, sales decreased by 11% year-over-year to 35.4 billion with a negative currency impact of 2.8 billion. Organic sales decreased by 5%. We saw organic growth in market area Northeast Asia, driven largely by Japan, which Berger already mentioned. Europe, Middle East and Africa also grew, driven by Africa. Sales declined in market area Americas and in Southeast Asia and India. Networks adjusted gross margin increased to 50.1%, benefiting from cost reduction actions and operational efficiencies, despite change in the market and product mix. Looking at the right hand graph, the rolling four quarters adjusted gross margin reached 49.9 and stabilized at the new level. Adjusted EBITDA in networks decreased by 0.9 billion to 7.2 billion, including a negative currency impact of 1.1 billion. EBITDA margin of 20.3% remained stable compared to last year. Then moving to cloud software and services, sales increased by 3% year-over-year to 15.3 billion, which includes a negative currency impact of 0.9 billion. So organically, sales grew by 9%, mostly driven by higher core sales across all market areas. Sales growth was helped sequentially by a softer Q2 as well. Adjusted gross margin came in very strong in the quarter at 43.6%, an improvement of 5 percentage points compared to last year. This was a result of the continued focus on automation, efficiency, commercial discipline and delivery performance. And looking at the right-hand graph, the rolling four quarters adjusted gross margin reached 41.3%, a new high level. Adjusted beta increased to 1.9 billion with a margin of 12.5%, supported by higher gross income, lower operating expenses and the effective implementation of our strategic initiatives, including AI and automation investments and our commercial discipline. In enterprise, sales decreased by 20%, impacted by divestments and currency, so organic sales were down by 7%. Global communications platform declined by 9%, reflecting the decision to scale back activities in some countries last year. The financial impact of this is now largely behind us, so we expect enterprise sales to stabilize on an organic basis in Q4. Adjusted gross margin declined to 51.6%, driven by the iConnected divestment. Margins improved in both global communication platform and enterprise wireless solutions. Taking out the contribution from Iduna and iConnecti, which were divested in the quarter, adjusted beta landed at minus 1.1 billion. Turning to free cash flow, which was 6.6 billion before M&A, a decline from 12.9 in Q3 2024, Last year, our cash flow received a boost from a reduction of operating working capital driven by the completion of large-scale rollout projects and lower inventories. Operating cash flow was 7.9 billion in the third quarter this year, driven by earnings with net operating fairly stable. Net cash increased by 15.8 billion compared to last year, of which around 10 billion was from M&A. Net cash has now reached 51.9 billion. Next, I will cover the outlook. The outlook assumes stable exchange rates and no changes in tariffs. For networks and cloud software and services, we expect Q4 sales growth to be broadly similar to the three-year average quarter-on-quarter seasonality. And as mentioned before, we expect enterprise sales to stabilize year-over-year on an organic basis. Next, networks gross margin. We expect networks adjusted gross margin to be in the range of 49% to 51% for Q4. Restructuring charges for 2025 are expected to remain at an elevated level and with a flat RAN market, cost-out remains an important lever also for next year. With that, I will hand back to you, Baja.