Telefonaktiebolaget L M (NASDAQ:ERIC) reported first-quarter financial results on Friday. The transcript from the company’s first-quarter earnings call has been provided below.
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Summary
Telefonaktiebolaget L M reported a 10% decline in sales due to currency headwinds, but achieved a 6% organic growth across all segments.
The company maintained a strong gross margin of 48.1%, with the networks segment reaching 50.4%, despite mid-single-digit sales reductions in North America.
EBITDA was 5.6 billion krona with a margin of 11.3%, impacted by currency fluctuations, while cash flow remained healthy at 5.9 billion krona.
Telefonaktiebolaget L M announced a share buyback program worth 15 billion krona and an increased dividend, reflecting confidence in cash flow and financial stability.
Strategic focus areas include expanding into enterprise and mission-critical networks, with notable interest in defense solutions and 5G-based sensing technologies.
The company is cautious about rising input costs, including memory prices, and plans to mitigate these through pricing strategies and product substitution.
Management highlighted reduced geographic dependency, particularly on North America, and expressed confidence in growth from markets like India and Japan.
Future guidance suggests a flat RAND market with a focus on maintaining stable margins and strategic investments in new growth areas like AI-driven mobile applications.
Full Transcript
OPERATOR
Hello everyone and welcome to the presentation of Ericsson’s first quarter 2026 results. Joining us by video today is Börje Ekholm, our President and CEO. And in the studio I’m joined by Lars Sandstrom, our Chief Financial Officer. As usual, we’ll have a short presentation followed by Q and 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 subject 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. Now hand the call over to Börje and Lars for their introductory comments.
Börje Ekholm
Thanks Tanya 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 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, you, 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 result 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 krona with a margin of 11.3. And the strengthening of the Swedish krona affected EBITDA by 2.2 billion krona. 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 a 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 one 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 kroner. 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 will expect to see that coming through. Shrinking losses during the rest of the year comes from growth, operational discipline and of course at the one time cost a bit. 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 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 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 or 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 I’ll Let me give the word over to you Lars to go through the numbers in some more detail.
Lars Sandstrom (Chief Financial Officer)
All right, thank you Börje. I will begin with some additional comments on the group before moving over to the segments so net sales in Q1 totaled 49.3 billion which with organic sales growing 6% year on year the growth was broad based and sales grew in all segments and three 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. 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 iConnective. 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 Bay mentioned, adjusted Ebitda, which excludes restructuring 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 network’s 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 4 quarter gross margin stabilized around 50% and adjusted EBITDA 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 39.9% 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 4/4 adjusted gross margin was around 44% and adjusted EBITDA 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 4 quarters above our 9 to 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 where we’ll 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 the sales growth to be above the three year average quarter on quarter seasonality. We expect net works adjusted gross margin to be in the range of 49 to 51% and restructuring charges for 2026 are expected to be at an elevated level with a fairly large part already seen in Q1. So with that I hand back to you Bea.
Börje Ekholm
Thanks a lot lars. So our Q1 results demonstrate the strong execution on our strategic priorities and the actions we’ve taken over the last several years to strengthen the company operationally. This includes how we made Ericsson less reliant on any specific geographical mix, enabling us to sustain healthy margins in varying market conditions, as you have seen in today’s report. Our actions also include how we diversified our supply chain to mitigate as much of the geopolitical disturbances as possible. This continues to be a clear competitive advantage, enabling us to meet customer commitments amid the current backdrop. Of course, the global semiconductor situation remains challenging as the AI boom is increasing input costs. We continue to take actions, and Lars mentioned this as well, to mitigate this impact by working closely with both our customers and suppliers, of course, including our pricing. While we believe we’re in a good position, we’re not immune to these disturbances, so they will have consequences on price and availability. As of course AI may be the key driver for our industry. Longer term we see AI as a net positive for us. The next phase of AI will see AI being industrialized, shifting focus from current focus on data centers, large language models rather to applications devices use cases. This will require advanced mobile connectivity with capabilities such as ultra low latency and high uplink. This puts us in the middle of the next phase of …
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