Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) Q3 2023 Earnings Call Transcript

Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) Q3 2023 Earnings Call Transcript October 17, 2023

Telefonaktiebolaget LM Ericsson (publ) beats earnings expectations. Reported EPS is $0.08, expectations were $0.07.

Peter Nyquist: Hello, everyone, and welcome today’s Ericsson’s Third Quarter 2023 Results. With me today I have here Nyquist; our CFO, Carl Mellander; and direct from New York, I have our CEO, Borje Ekholm. Last week, Thursday, we preannounced our Q3 numbers as we announced impairment of goodwill attributed to our acquisition of Vonage. Today however, we will not only give you more details around the Q3 report and expectations going forward, we will actually also spend some time talking about our GMP strategy. So we’ll start with Borje summarizing Q3and then we’ll talk more about the GMP strategy and then call will return back and give more details around the Q3 result and expectations going forward. As usual, we will end the presentation with a Q&A session.

And in order to ask those questions, you need to join the conference by telephone. Details can be found at today’s press release or at our website, ericsson.com/investors. Please be advised that today’s conference is being recorded. But before handing over to Borje and Carl, I would like to say the following. During today’s presentation, we will be making forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risk and uncertainties. The actual results may differ material due to factors mentioned in today’s press release and discussed in this conference call. We encourage you all to read about these risk and uncertainties in the earnings report as well as in the annual report.

With that said, I would like to hand over the word to Borje. So please, Borje.

Borje Ekholm: Thanks Peter. First of all, welcome to our report presentation for the third quarter and thanks everyone for joining us. As Peter mentioned, we will spend some more time now on GMP and this presentation. But the first, let me hit on some key takeaways. So Q3 was in line with our previously indicated expectations, with a bit soft, the top-line in North America than we expected, but we bet the margins in the rest of the business. Despite the uncertain macroeconomic backdrop, we continue to execute against our three key priorities, strengthen our leadership in mobile networks built upon technology leadership, grow our enterprise business and drive a continued cultural transformation. We’re encouraged by the progress we’re making and it’s truly a testament to the strength of our team, our strategy, and the excellence of our products and our ability to execute.

I would like to use this presentation to describe why we are excited about what we’re creating with GMP and the value we believe it’ll deliver to our shareholders. Carl will take you through the more financials in detail and outlook in greater detail. So in common with the rest of the industry, rising interest rates and changing demand trends have been headwinds to Vonage current core business and the impairment we took last week is simply a consequence of this. And Vonage in itself remains key to our expansion into enterprise and to the transformation of our business. We believe this is a massive opportunity that can redefine our industry by providing a new source of revenues to the whole industry. But first, let me touch on the market environment.

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Q&A Session

Over the last two decades, we’ve seen that investments in the mobile infrastructure have had built-in cycles and in aggregate it’s been overall flattish. We believe this pattern will continue. We don’t believe the peak levels of 2022 will return, but we do believe that investments will normalize from current levels. And the reason for this recovery is that data traffic continues to grow and thus more capacity will be needed as well as modernizations of the networks will be needed. So it’s important to note that while data traffic continues to grow at a very high rate, this implies market normalization, not an incremental market growth. So the reason for a flat dish market for mobile infrastructure is really that the operator service revenues have only had very limited growth.

And this is something we actually also see reflected in the operator’s market multiples. So to achieve growth in our core infrastructure market, we need a catalyst to increase service revenue growth for the operators. And we need that by addressing new monetization opportunities. And this is what we’ve been driving with our global network platform and more on that later on. We remain committed to our long-term EBITDA margin target of 15% to 18% and we aim to get there as soon as possible. However, given that our customers are cautious on investments in a current uncertain market environment, we will not give guidance beyond Q4 of this year. We have started to see more positive discussions with operators about network investments, but it’s clearly too early to call this a turning point.

We although confident that the recovery will come but the timing is really in our customer’s hands and given that we think it’s prudent to plan for current market conditions to prevail into 2024. Therefore that provides the basis for how we manage our business with a focus on cost control as well as operational efficiency. And with the actions we take when the market recovers, we will actually see significant operating leverage in the business. So now let me move over to comment on what we’re building with Vonage. As you have heard us say before, we are on the journey to fundamentally re-imagine our business. While this takes time, we remain confident in our long-term plans and trajectory, and believe that Ericsson has a very exciting future ahead of us.

Our enterprise strategy and positive outlook on the global network platform remains unchanged, positive interactions with customers have further strengthened our belief in the area. From a strategic lens, Vonage is developing, how we saw it and how we envisioned it. So with Vonage, we are developing a platform business and have extended our growth trajectory in new and existing markets, adding to our total return profile for our shareholders. None of this would be possible without the acquisition. This quarter, we were also proud to announce that, Vonage was recognized as a leader in 2023 Gartner Magic Quadrant for CpaaS. But let me take a step back now and expand on our strategy for this area a bit more. So in the coming 5 to 10 years, we will see an acceleration of major trends such as electrification, the green revolution, resilient supply chain, increased efficiency productivity and automation.

These trends will not progress unless we fully leverage the mobile first, cloud first and AI first world. Making this future reality will require ubiquitous high performance, differentiated networks and the broad ecosystem of businesses and developers, who can innovate and build upon the network’s powerful capability. That’s what we are doing through our strategy, making networks fully programmable and globally available with open interfaces and open APIs that enable continuous business growth and innovation. This includes our investments into Cloud RAN. And in doing all this, we can drive a much-needed transformation of the telecom industry. The global network platform is a vital part in exposing the capabilities of the mobile network to the full ecosystem around us including the developers.