Good morning and good evening. Thank you all for joining this conference call, and now we will begin the conference of the fiscal year 2026 first quarter earnings results by LG U＋. This conference will start with a presentation, followed by a divisional Q&A session. Our call is being webcasted on our homepage so that you can follow the conference simultaneously. Today's conference call will be presented for one hour, and due to schedule, we would appreciate if questions are limited to two per person. Now we will begin the presentation on LG U＋'s first quarter of fiscal year 2026 earnings results.
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Good afternoon. I am Sung Hyunmo, Head of IR team at LG U＋. Thank you all for joining our first quarter 2026 earnings report by LG U＋.
Please refer to the presentation, and do note that for the benefit of ease of comparison, revenue and breakdown and operating expense are on separate basis. Also, be reminded that all of the projections we are providing today may change depending on macroeconomic and overall market backdrop. We will also be providing consecutive interpretation for the benefit of our overseas investors. We will begin with the performance highlights for the quarter, followed by the Q&A. I will now turn it over to our CFO, Yeo Myung-hee, who will run through the first quarter 2026 earnings and business results.
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Good afternoon, this is CFO Yeo Myung-hee, and thank you to analysts and investors for joining Q1 2026 earnings conference call of LG U＋.
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LG U＋ fortified its executional capabilities with a core focus on profitability expansion for its telecom business, and we are securing distinctive competitiveness in AX business, which is the company's future growth engine.
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As a result, in Q1 2026, we laid a stable basis for meeting the target guidance by driving well-balanced growth across all business lines, including mobile, smart home and enterprise infrastructure, powered by a strong competitiveness of the telecom business. In terms of the operating profit, we've seen good results come through on the back of our structural enhancement efforts focusing on profitability, and we were able to achieve a meaningful growth on a year-over-year basis.
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During the Mobile World Congress last March, LG U＋ showcased Paju AIDC, which is a consolidation of AI infrastructure capabilities held by the LG Group, and ixi-O Pro, equipped with stronger functionalities.
Based on hyperscale infrastructure, Paju AIDC will proactively respond to enterprises growing AI demand, while ixi-O Pro delivers convenience and service efficiency through a context-aware AI functionality and that which does self-training and goes through self-enhancements.
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By speeding up AX transformation, we will strengthen business competitiveness and will continue to expand the foundation for mid to longer term growth.
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Now moving on to financial results for the first quarter of 2026. In Q1, service revenue posted 3.3% year-over-year growth on consolidated basis and 3.9% on standalone basis. While consolidated operating profit was up 6.6% year-over-year, reporting KRW 272.3 billion.
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Consolidated net income increased 8.4% year-on-year to KRW 176 billion, while EBITDA showed 4.1% year-over-year growth reaching KRW 958.8 billion, sustaining an improvement in operational cash flow.
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Separate basis CapEx reported KRW 317.2 billion, which is down 4.8% year-over-year, while consolidated debt to equity was flat versus end of 2025 at 117.5%, sustaining stable financial position.
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That was a brief report on business highlights and the financials. We will now have our management team report on results and outlook of each of our business lines.
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First is mobile business, and I'm Kang Jin-wook, Head of Mobile and Digital Business.
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Q1 2026 mobile service revenue was up 3.7% year-on-year, reporting KRW 1.58 trillion, maintaining a stable growth trajectory.
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Total mobile subscription count in Q1 expanded 6.4% versus last year, reaching 30,931,000. This result was driven by MNO subscription count growing 7.1% and MVNO growth of 4.7% respectively. 5G subscription also continued to expand, with 5G penetration going up to 84.2%.
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First quarter marketing expense increased 11.7% year-on-year to KRW 614.2 billion following subscriber base expansion. This led to a slight year-over-year increase in share of marketing spend against service revenue, but we plan to keep the level steady mid to longer term through continuous improvements in marketing spend efficiencies.
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LG U＋ has upgraded its customer experience management system and through network quality innovation towards stronger service stability. We improved convenience and reliability as felt by our customers. This landed us for the first time on number one ranking in mobile telecom services, as well as number one ranking in IPTV for five years in a row in April's NCSI, National Customer Satisfaction Index survey, recognizing us for an outstanding performance in customer satisfaction.
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We also introduced AlDot, which is a one-stop portal for comparing different MVNO rate plans, making it easy for people to activate their services online. The number of members for this service have reached over 500,000 and is receiving good feedback from the customers. There's also AlDot Care service, where users can check and pay bills on their own, which help to lower users' dependence on the CS Center and lifted practical user convenience across the MVNO usage.
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We plan to proactively cater to changing needs through service innovation pivoting on customer experience. We will further strengthen customer experience competitiveness through differentiated service offerings that add real value to customers everyday life.
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Next is smart home, I am Oh In-ho, in charge of Media Business.
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Q1 2026 smart home revenue was up 4.1% year-over-year, reaching KRW 656.3 billion.
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IPTV revenue was up 1.5% to KRW 335.1 billion, sustaining a steady trend, while internet broadband revenue, fueled by sustained uptrend in giga internet subscribers, saw 7.9% year-over-year growth, reporting KRW 320 billion.
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In terms of subscriber count, driven by year-over-year growth of IPTV and broadband internet, IPTV subscriber increased 2.8% to 5.76 million, and broadband subscriber count was up 4.5%, reporting 5.64 million subscribers. In terms of high value subscribers, share of subscribers with 15,000 rate plan and above for IPTV increased 0.5 percentage points to 47.6%, while the share of 1 giga plan and above for broadband internet increased 4.8 percentage points, reaching 33.3%, powering the growth trend.
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In Q1 for the smart home business, pivoting on stronger product competitiveness, we drove portfolio expansion and new service offerings. We brought generative AI features into TV by introducing AI Shortcut, making it more convenient for elderly customers who have relatively limited access to AI services to use such features. Upon this basis, we will broaden customer touchpoint and scale up IPTV user experience.
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We also fortified product lineup through a new release of DoorCam product, catering to demand for home security. By introducing differentiated product offerings that meet customers needs, we wish to enhance customer satisfaction and drive up ARPU, and gradually expand product-driven revenue contribution.
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Moving ahead, through differentiated content offerings and stronger service competitiveness, we will expand high value customer base and improve cost competitiveness by achieving better mid to longer term cost profiles, which will further drive stable earnings growth of the smart home business.
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Next is on B2B infrastructure, and I'm Ahn Hyung-gyun, Head of Enterprise AI Business.
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B2B infrastructure revenue in the first quarter was KRW 435.6 billion, posting a 6.3% year-over-year growth.
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AIDC revenue was driven by higher colocation and DBO revenue, coupled with DBO revenue, posting 31% year-over-year growth and drove B2B infrastructure revenue expansion.
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AIDC business took on the DBO model, which is designing, building and operating data, the data centers, diversifying its revenue stream and business domain, moving away from the legacy colocation approach. To that end, we added the relevant business objectives in the articles of incorporation of the company during this year's AGM. On this basis, we plan to strengthen development and service operational capabilities for third party assets in gradual phases.
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Also, based on strategic partnership with OpenAI, we unveiled next generation AI solution, Agentic AICC, during the MWC. This solution is LLM based, which understands customer's intent and the context on a real time basis and is designed to respond most optimally, even under a complex customer support scene. Thus, we expect to be able to upgrade quality of customer service and attain operational efficiency gains.
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Going forward, based on solid growth from AIDC business, B2B infrastructure business will accelerate DBO business development while exploring new AI powered businesses as we expand new growth opportunities.
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That ends the breakdown of business highlights. We will now invite our CFO back for second quarter outlook.
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In the second quarter, we plan to focus on quality-driven growth underpinned by ROI, return on investment, and drive cash flow enhancements. Boosting profitability of telecom business will be our key focus. By systematically building on competitiveness in AX business, we will place greater momentum behind mid to longer- term growth.
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Meanwhile, under the plan on implementation of corporate value enhancement, disclosure of which was made last November, we engaged in ongoing communication with the market. The commitments we've made to shareholders are being implemented as planned.
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During the recent BOD meeting, we decided to retire 1.26% of treasury shares purchased for the very purpose of enhancing shareholder value. This decision clearly showed company's commitment towards stronger shareholder return on the back of stronger value per share.
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This year, we are planning a review of flexible share buyback policy on the basis of corporate value enhancement plan. Once the details of the plan are finalized, we will engage in a transparent communication with the market and will continue our efforts towards stronger shareholder value enhancement.
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LG U＋ will continue to make profit-focused structural enhancements while implementing consistent and predictable shareholder return policy, while being mindful of our financial soundness so as to drive long-term growth together with shareholders on our side. Thank you.
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This ends the report on earnings. We now move on to Q&A.
[Non-English content]. Now Q&A session will begin. Please press star one. That is star and one if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two. That is star and two in your phone. [Non-English content]. The first question will be provided by Taehyun Kim from IBK Investment & Securities. Please go ahead with your question.
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Thank you for taking my question. I am Kim Taehyun from IBK Securities. I would like to ask you two question. First, are there any particular points that you wish to highlight with respect to this quarter's performance? Anything that we should take note of? Also, if you could provide more color as to the future direction of your performance and earnings on an annual basis, that would also be helpful. Second question, you unveiled your AI strategy during the MWC 2026. Can you provide a bigger picture as to what that AI direction for you look like? Also, what are your plans in terms of monetization of such AI technology for B2C and B2B?
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Yes, responding to your first question, this is the CFO. In terms of highlighting some of the key aspects of the Q1 result, also we share with you as to what our outlook is for 2026 on an annual basis. During the first quarter, we have seen well-balanced growth across all of our business units, including mobile, smart home, and enterprise infrastructure. Particularly, there was a strong tailwind for our B2B infrastructure business pivoting on AIDC business. We were able to overachieve our initial guidance. We have seen also a fixed cost savings on the back of our enhancement efforts, structural enhancement efforts, also thanks to operational efficiency gains focusing on AX, we were able to drive meaningful results from cost management as well.
All in all, if you look at Q1 top line growth, we've seen how the revenue growth has translated into improvement in profit. As you can see, we were able to report operating profit margin of 9%. In the rest of the quarter, we will continue to place our efforts so that we can solidify such uptrend in profitability.
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In terms of the 2026 annual outlook, basically our core strategic focus will be towards improving or driving structural enhancement with a strong underpinning of profitability. There is no change in that overall direction in that we want to further solidify our fundamental competitiveness that we have within the telecom business, upon which we will continue to place effort to further enhance profitability and to gain solid financial footing. Last year, as you know, we've put an effort to drive structural enhancement. On top of that, we have also worked hard to save on fixed cost. This year, we will be bringing AX across all of the aspects of our business so that we can fundamentally innovate our cost structure.
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Our priority area for applying AI transformation AX will be where there is a customer touch point, including the customer centers as well as online and offline store outlets. Through such effort, we want to be able to drive up the customer experience quality and also maximize operational efficiency. On top of that, in terms of network infrastructure management and bringing AX-based automation to also shared services of our organization. Through such effort, we wish to optimize the overall operational structure. To this end, we will focus on driving further improvement in profitability from a mid to longer term so that it will eventually contribute to higher shareholder value.
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Responding to your second question. I am Kevin Cho, the CSO of LG U＋. Under the overarching value of human centric AI during the MWC, LG U＋ unveiled its AI roadmap that cuts across the infrastructure as well as the greater service domain. First, in terms of B2C through ixi-O Pro, we were able to implement my own call assistant, which is most optimized for individual users. On the infrastructure side through Autonomous NW and security solution called ixi-Guardian 2.0, we were able to secure both safety, stability as well as efficiency. These innovations will lead to higher operational efficiency for our customer service centers and also it will directly come to bear on cost optimization, which is making real contribution to strengthening our profitability.
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In B2B, we are focusing on translating the AI transformation demand that the enterprises have into a real revenue creation opportunities. Particularly for AIDC, we've brought together the capabilities and synergies that the LG Group of companies have been able to generate, and we are hence in the midst of developing Paju AIDC which will be a global top tier infrastructure. On top of that, using the expertise that the LG Group has, we are at this point expanding into the Design-Build-Operate business project segment, thereby securing a new growth engine for us. Based upon such solid AI infrastructure competitiveness, we will continue to innovate our AICC business. Under this value of having human-centric AICC design, we will solve the problems that the enterprises are faced with and from that generate new and tangible top line revenue growth opportunities.
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We will take next question, please.
[Non-English content ] The following question will be presented by Wan-seok Jeong from Shinyoung Securities. Please go ahead with your question.
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Thank you. I want to ask you two question. First is your business outlook for AIDC business. The growth had been quite steep. Would like to know as to whether you believe that such steep growth going forward as well as higher utilization and more order wins for DBO project will be possible as you move forward. Second question is on shareholder return policy. You have recently made disclosure on cancellation of treasury shares. Would like to know as to what your future plans are in terms of additional share buyback, the timing, and whether you will be canceling more or what your DPS, dividend per share direction would look like as we move forward.
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Yes, responding to your first question, I am Ahn Hyung-gyun from Enterprise AI Business Group. If you look at IDC business with growing AI workload, we have seen higher demand for GPU dedicated IDCs, which is underpinning the growth of this business. Particularly around large customers, we see that demand is quite solid and is uptrending continuously. Accordingly, we are gaining more order wins.
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For the colocation revenue, we see that our existing customers, their usage is growing. Also, with the activation of the Koramco Gasan Center, the growth is going to come in and feed into the overall numbers. We expect this year or until the end of this year, we will continue to see this top line trend upward.
For the DBO business, we are seeing generation of operational revenue on top of which there is also revenue coming in from new project wins, hence, we expect growth to further continue. In 2025, as we entered into this new business, it is feeding through onto our top line figure. For 2026 as a whole, we believe that the growth rate will continue to be quite steep.
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In terms of business expansion endeavors, we will be stable in operating and managing the projects that we had already won and also we are working to add more DBO projects. Based upon the project pipeline that we currently have, we will strategically carry on with business expansion in line with the market situation.
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This is CFO responding to your question on shareholder return.
Last year, we've made KRW 80 billion purchases of treasury share buyback. Our plan is to cancel the entirety of such treasury shares in the month of May. In terms of added share buyback, at when we actually close our semi-annual performance, we would take a look at our mid to longer term financial objectives as well as the size of free cash flow that's been generated, upon which we will make the decision as to whether we will actually conduct share buyback, and if so, what the size would be. In terms of the DPS trend going forward, there is no big change. We are still going to focus on improving the profit of the company and really driving up the corporate value from a mid to longer term perspective.
In light of financial stability as well as free cash flow, our position is that we will progressively expand on shareholder return so that eventually we could create a virtuous cycle where corporate earnings growth as well as shareholder return coexist in a positive manner.
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With no further questions waiting in the queue, we would now like to close the first quarter 2026 earnings presentation by LG U＋. For any unanswered questions, we at the IR team will be happy to respond to them at latter time. Thank you.