Ericsson

Hello, everyone, and welcome to the presentation of Ericsson's first quarter 2026 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 as well. 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 subjects to risks 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 our annual report. I'll now hand the call over to Bury and Lars for their introductory comments.

Thanks, Daniel. And good morning, everyone. And thanks for joining us today. Q1 was a solid start of the year and with the results that reflects our continued execution against our operational and strategic priorities. We saw a very large currency headwind during the quarter, probably one of the toughest quarters from a comp ratio, as the Swedish krona strengthened towards almost all currencies compared to last year. So this, of course, materially impacted every line of our financial statements with reporting sales falling 10%. At the same time, we've performed well operationally, realizing strong organic growth of 6%, with all segments contributing. Our results are a testament to our leading portfolio and the investments we've been making in furthering our technology leadership. Over the last few years, we've actively managed to reduce dependence on geographic mix, Of course, we realize that North America often receives a disproportionate interest from, I guess, the analyst community, but also around the world. And that's, of course, natural because it is a front-runner market. And this quarter, we saw sales reduced by mid-single digits in North America. But we could still deliver a gross margin of 48.1% for the group and 50.4% for segment networks, indicating that the work we've done to balance out the geographic mix is coming through in the results and giving us less sensitivity to geographic mix. Cloud software services continue to execute well. We reached a gross margin of 43.2%. That's up more than 300 basis points year over year. Revenue seasonality was in line with the guidance we had for the quarter. And we saw some deals being pushed into Q2. And we expect to see that therefore stronger seasonality than normal next quarter. EBITDA came in at 5.6 billion kronor with a margin of 11.3. And the strengthening of the Swedish kronor affected EBITDA by 2.2 billion kronor. And you've also seen we had the revaluation of the long-term stock-based programs. And all of those are, of course, included in the result. Cash flow during the first quarter is seasonably lower, typically. Despite this, cash flow came in at a healthy 5.9 billion kroner, with a net cash position of 68.1 billion. And as you've seen, just a couple of weeks ago, the AGM approved the board's proposal on increased dividend and our first share buyback program. we will start to execute on the share buyback program next week with the target to buy back 15 billion kronor. In the next phase of AI, we see that high-performance mobile connectivity will become increasingly important. Even so, our planning assumptions for the RAN market remains flat over the longer term. With disciplined execution, we create room to make selective investments in growth to broaden the mobile platform to new use cases and new sectors. We believe the growth will come in areas outside of our traditional CSP markets, and then we're talking about areas like enterprise and mission-critical networks. In our enterprise segments, which includes our wireless WAN business, private networks, network APIs, or as we now call it actually, network-powered solutions, and mobile money, organic growth was stronger, which is encouraging. There are new markets that we see as key opportunities going forward. Of course, new markets take time to develop, but we're now seeing these efforts start to scale. I would also comment on the loss in enterprise of 1.4 billion kronor. It's clearly unacceptable, but it also includes a number of one-time costs. And we have an improvement plan in place that we're executing on. And we expect to see that coming through through shrinking losses during the rest of the year comes from growth, operation and discipline. And of course, that the one time costs abate. We're also driving several other growth initiatives and there we see good progress. In mission critical networks, which tend to be a bit lumpy and vary by quarter, we're experiencing strong interest in several verticals, particularly within defense solutions. In modern defense applications, high performance, and then I'm talking about large capacity connectivity, is required. And this will make 5G standalone a cost-effective alternative. And we've seen a trial with the Italian Navy or actually a deployment with the Italian Navy this quarter. Another very exciting area is 5G-based sensing, where one of many use cases is about detecting unconnected drones, And a few weeks ago, we showcased our solution, which is seeing significant customer interest, of course, given a difficult current market environment geopolitically. We see that our technology here has great market potential, and we're now starting to invest to capture these opportunities. I would say this is just one example that you don't have to wait for 6G to get part of new exciting use cases with the technology we have. So we're seeing good momentum on our strategy execution. And we've strengthened Ericsson operationally. And I would say this is showing now in our Q1 results. With that, let me give the word over to you, Lars, to go through the numbers in some more detail.

All right. Thank you, Bayer. I will begin with some additional comments on the group before moving over to the segments. Net sales in Q1 totaled 49.3 billion, with organic sales growing 6% year-on-year. The growth was broad-based, and sales grew in all segments, and free market areas delivered double-digit organic growth, driven by continued 5G rollouts and increased uptake of 5G core. Americas declined 2%, with strong growth in Latin America, more than offset by a mid-single-digit decline in North America following a strong quarter last year. Reported sales decreased by 10%, impacted by a negative currency effect of 7.8 billion then, so organic growth again grew 6%. IPR revenues were 3.1 billion and this run rate coming out of the quarter is approximately then 13 billion. Adjusted gross income was 23.7 billion with a negative currency impact of 3.8 billion. Adjusted gross margin was 48.1 in line with last year excluding iConnected. On the cost side, operating expenses excluding restructuring charges dropped to 18.4 billion, around 2 billion lower year over year, driven mainly by currency as well as the divestment of iConnective. Underlying inflationary pressures were more than offset by cost reduction driven by headcount as well as efficiency measures. And as Barry mentioned, adjusted EBITDA, which excluded structuring but includes the other one-offs, was 5.6 billion. This is down by 1.4 billion, including a negative impact of 2.2 billion, the divestment of iConnective, and 0.5 billion of additional share-based compensation costs coming from the increased share price here during the quarter. The EBITDA margin was 11.3%. Cash flow before M&A was 5.9 billion, driven by earnings and reduced net operating assets. So let's move to the segments. In network, sales decreased by 8% year-on-year to 32.9 billion, with a negative currency impact of 5.2 billion. Organic sales increased by 7%. Organic revenues grew in three of our four market areas. Two strategic markets, India and Japan, grew strongly. North America declined, impacted by customer spend reallocation in Q1 this year following recent market consolidation. Customer investments were also elevated last year due to tariff uncertainty impacting the comparison. Networks adjusted gross margin decreased slightly to 50.4%, mainly reflecting actions to enhance resilience in the supply chain. Adjusted EBITDA was 6.4 billion impacted by a negative currency impact of 2 billion and benefiting from lower operating expenses, which were also supported by continued efficiency improvements. Adjusted EBITDA margin was 13.3%. Looking at the right hand graph, the rolling four quarters gross margin stabilized around 50% and adjusted the beta margin at around 20%. Moving to the segment cloud software and services. Sales here decreased 9% to 11.8 billion, including a negative currency impact of 1.6 billion. So organically sales grew by 4% with growth primarily in core. Adjusted gross margin came in at 43.2%, an improvement from 49.9% last year, supported by improved delivery efficiency and a favorable product mix. Adjusted EBITDA increased to 0.6 billion with a margin of 5.3, despite a negative currency impact of 0.3 billion. Lower gross income was offset by lower operating expenses here. Looking at the right hand graph, the rolling four quarters adjusted gross margin was around 44% and adjusted beta margin around 12%. And these are both new high levels. So reported sales on the enterprise side decreased 30% impacted by the sale of iConnective and Currency. On organic basis, enterprise grew by 4% and this marks the second quarter of organic growth. Adjusted gross margin declined to 49.0%, reflecting the impact of the divestment of iConnective and change in business mix in global communications platform. Adjusted EBITDA landed at minus 1.4 billion, reflecting the divestment of iConnective and non-recurring cost of 0.3 billion in the current quarter. Turning then to free cash flow, which was 5.9 billion before M&A in the quarter. We delivered a cash to net sales of 13% for the rolling four quarters above our 9-12 target. And cash flow generation was strong, supported by earnings and a stronger than normal seasonal reduction in operating net assets. Net cash increased sequentially by 6.9 billion to 68.1 billion here in the quarter. The buyback program of up to 15 billion was approved by the AGM and share repurchases will start now soon. Next, I will cover the outlook. Global uncertainty remains elevated given the broad geopolitical and macroeconomic environment, including the global semiconductor situation, and I will come back to this. The Q2 outlook assumes no tariff changes and the exchange rates specified in the report. For networks, we expect sales growth to be broadly similar to the three-year average quarter-on-quarter seasonality. And for cloud software and services, we expect sales growth to be above the three-year average quarter-on-quarter seasonality. We expect NetWorks adjusted gross margin to be in the range of 49-51%. And restructuring charges for 2026 are expected to be at an elevated level, with a fairly large part already seen in Q1.