Good morning. I'm Henrik Brill Jensen, CEO of Napatech. I'm pleased to welcome you all to Napatech's Q1 2023 presentation. Our Q1 interim management statement was released earlier this morning on the OSE, and it's also available on the Napatech website. For your information, a recording of this webcast will be available later today. As usual, we will answer questions at the end of the presentation, and you may submit your questions via text on the webcast page, or we can take your questions on the phone. If you'd like to ask a question, please follow the instructions on this slide. Please note that this presentation contains forward-looking statements. Those are subject to risks and uncertainties. Our actual results may differ from those discussed in forward-looking statements.
Our agenda today will cover updates on our progress in business and partnerships and an overview of the market development as we see it unfolding during 2023. Finally, a review of our Q1 financials and expectations for 2023. With respect to our Q1 business performance, we have encountered a slower than expected start to the year, primarily due to delays in server deliveries by our customers, the supply challenge is expected to improve over the coming quarters. Napatech have not lost any business, but merely experienced delays as a result of this. We have now not only established a very strong technology and product position, but very importantly, secured a strong partnership with market-making industry partners that have exceptional knowledge of technology products and markets and customers.
I believe this will position Napatech in the best possible way to leverage our leadership position in the fast-growing SmartNIC domain. As I'm going to talk about today, Napatech have made solid progress together with our key partners over the past month, which is setting us up for a compelling 2023 and beyond. I'm pleased to report that Napatech is on track to meet our overall objectives and deliverables for the year. We believe through dedicated effort and teamwork, we have made significant progress in key areas and remain committed to achieve our goals. We'll continue to monitor our progress and adjust as necessary to ensure successful completion of our objectives by the end of the year. In the beginning of Q1 2023, we still felt the impact of the recession in the IT technology industry and with many of our customers.
Going into Q2 2023, we believe that improvements are starting to emerge, which support our ambitions and expectations for 2023. In general, I'm optimistic about our business development over the coming quarters. While there are still some potential obstacles, I believe that with careful planning and especially solid execution, we can achieve our goals. In April, we released our next generation of SmartNIC platform, NT400D, based on the Intel Agilex F-Tile FPGA. This product supports the latest technology standards and is a powerful enhancement to our current product portfolio of SmartNICs. Initially, the new platform is launched with the Napatech capture software and features and will be enhanced with the more Napatech software applications later in 23 and beyond. The NT400D will start selling from Q2 2023.
In addition, we also expect that some of our latest SmartNIC design wins, like our design win with F5 Networks, will start to generate business over the coming quarters. During Mobile World Congress in Barcelona, we achieved an impressive interest for our new inline software for the 5G User Plane Function offload. The solution is doing all the work to connect the actual data coming over the 5G radio network to the Internet, and it is improving efficiency and user satisfaction. The 5G UPF solution is now creating a solid foundation for next phase of system testing and business discussions, and that is with a series of cloud-native edge software providers, server vendors, and system integrators. We expect to see initial business from these activities later in 2023.
In February 2023, we were able to name our new key partnership with Intel and talk more about the significance of this partnership and how we expect it to strengthen our position and enable us to leverage our leadership in the fast-growing SmartNIC market. As a part of the collaboration agreement with Intel, Napatech will develop, manufacture, and deliver complete customer-ready IPU solutions exclusively available from Napatech. In addition, we'll develop turnkey software packages that includes Napatech full suite of software as well as two new offerings that are jointly developed with Intel, targeting well-established differentiated use cases within the high-growth programmable SmartNIC and IPU markets.
We have made good progress on these various parts of the project and have initiated the solution definition and development of the first Oak Springs Canyon hardware platform, and we expect this to be available by Napatech to the market in Q4 of 2023. The storage and content delivery software definition and development have been initiated, and we expect to deliver proof-of-concept versions of those to the market by Q4 2023. Our new IPU platform and software will be jointly marketed and sold by both companies to targeted customers. Use cases and geographies are fulfilled by Napatech. This exciting venture unlocks a scale of opportunities that can be transformational to Napatech. While we have traditionally shipped around 8,000 units per year, these new solutions initially target more than 70 prospects who individually could consume upwards of 5,000 units per year.
In addition, we in April released our new Napatech NT400D 400 gigabit performance solution based on the latest Intel technology. The NT400D will start selling from Q2 '23. As a part of the agreement with F5, Napatech is developing and delivering a production-grade SmartNIC based on Intel FPGA technology that will meet F5's rigorous requirements for high performance and efficiency. The SmartNIC that we're developing for F5 is built upon Napatech's new NT400D family of SmartNICs, but enhanced to target high-performance security functions. This leading technology from Intel and Napatech is targeted to power F5 next generation of product designs. We will deliver the first product to F5 during Q2 '23, which will enable F5 to do product integration. Following this, it is our expectations that product rollout could happen during the second half of '23.
The design win is expected to support substantial annual and lifetime unit volumes, as well as valuable commercial and operational terms for Napatech. In April 2023, we were able to disclose that Napatech and NETSCOUT have entered into a strategic collaboration agreement. Along with this agreement, NETSCOUT has invested $7.5 million in Napatech. The agreement and associated investment are the extension of a successful long-term relationship that includes Napatech SmartNIC hardware and software solution, which in turn help improve the performance of NETSCOUT's applications. Napatech's expertise and scale has, over the years, been leveraged by NETSCOUT to meet the demanding requirement of NETSCOUT market-leading solutions. We are very much looking forward to provide more details during 2023 about deliverables and business opportunities based on this enhanced collaboration between the two companies.
We remain cautious about speculations on how fast we expect the market conditions that impact Napatech business will improve, as our multiple drivers providing both head and tailwind. While Napatech have ensured control of component supply for '23 for building our products, we still see several customer having challenges in sourcing servers and related equipment that are key part in their products. This in turn delays their SmartNIC orders to Napatech. In addition, we see that organization that use IT technology products and services are being cautious about how much they are spending, primarily due to the economic uncertainty. The one exception is technology for the cybersecurity sector. On the other side, several major trends are providing tailwind for Napatech, fueling our opportunities in '23 and beyond.
The most important for Napatech short term is within the 5G edge computing, where our new inline software for 5G User Plane Function offload has caught significant interest during Mobile World Congress in Barcelona. The solution is now creating a solid foundation for next phase of system testing and business discussions with a series of cloud-native edge software providers, server vendors, and system integrators. We expect to see business from these activities later in 2023. Overall, these factors are the positive churn within the market where programmable NICs, including SmartNICs and IPUs, are expected to grow faster than the rest of the NIC market. I'll now hand over the presentation to our CFO, Heine Thorsgaard.
Thank you, Henrik. Revenue in Q1 amounted to NOK 37.1 million, a decline of 29% compared to Q1 of 2022, an increase in USD of 11% compared to Q4 of 2022. The gross margins in Q1 was 55%, an increase of 4% compared to Q1 last year. Margins are still impacted by extraordinary component costs related to components purchased in 2022. We expect our margins will begin normalizing in Q2 and return to our historical levels from Q3 and onwards. Our staff costs and all the external costs in Q1 amounted to NOK 38.4 million, compared to NOK 35.7 million in Q1 of 2022.
The increase is a result of our strategic R&D investments and is following the plan we communicated in our Q4 announcement of adding in total 13 new R&D resources in 2023 and accelerating our investment in new products even more. EBITDA in Q1 amounted to negative NOK 17.9 million, compared to negative NOK 9.1 million in Q1 last year. Staff costs transferred to capitalized development costs in Q1 amounted to NOK 5.1 million, compared to NOK 7.1 million in Q1 of 2022. EBITDA in Q1 amounted to a negative NOK 12.8 million, and EBIT amounted to a negative NOK 20.5 million. Net cash flows from operating activities in Q1 amounted to positive NOK 23.3 million, compared to negative NOK 0.3 million in Q1 of 2022. Our cash flows are impacted by a significant improvement in our networking capital.
Net cash used in investing activities in Q1 amounted to DKK 6.1 million, compared to DKK 10.9 million in Q1 of 2022. Free cash flows in Q1 amounted to DKK 17.2 million compared to negative DKK 11.2 million in Q1 last year. Cash and cash equivalents at the end of Q1 amounted to DKK 12.3 million. In addition, we had unused credit facilities of DKK 19 million, making the total cash and credit facilities available end of Q1 more than DKK 30 million. In addition to this, we've received DKK 52 million for the 6.2 million new Napatech shares we issued last month. Our cash position is strong, and our operations and investments in 2023 and beyond are fully funded.
We still expect gradual improvements in our markets as the year progresses, and with everything we can see today, we're iterating our annual guidance for 2023. We expect revenues in the range of NOK 180 million-200 million, corresponding to a growth rate of 20% in the middle of the guided range. We expect gross margins for the year to be in the range of 68%-71%. As a result of our R&D investment, staff expense, and other external costs are expected to be in the range of NOK 160 million-170 million. Staff costs transferred to capitalized development costs are expected to be in the range of NOK 20 million-25 million. With performance in the middle of the guided ranges, EBITDA will be NOK -10.5 million. With this, I'll return the presentation to you again, Henrik.
Thank you, Heine. Now we are ready to answer your questions. If you would like to ask questions, you can submit it now on the live webcast page, or you may dial one of the phone numbers on the screen, and an operator will transfer your call. Operator, do we have any calls in the queue?
Yeah. To ask a question, please press star followed by 1 on your telephone keypad. If you change your mind and wish to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. That's star 1 to ask a question. We currently have no questions from the phone lines.
We got a couple of questions here on the queue here. We'll take that. The first one is about how much of the revenue from the last 12 months come from NETSCOUT. While we usually don't disclose a specific customer revenue percentages, we say that it's a rather large amount of revenue, of course, from NETSCOUT. There's a large customer over the past many years. Another question here. Napatech has recently announced key partnership with Intel and NETSCOUT, which are expected to strengthen the company position in the SmartNIC market. Can you elaborate on how those partnerships will contribute to Napatech's financial robustness in the coming years and how they align with the long-term strategy?
Innovation seems to be a driving force behind Napatech's success with products like the 5G UPF. As we said, last time and also to a certain extent, this time here, we really believe that these partnerships are transformational in the sense that they are not only bringing value from technology point of view, but certainly also from markets, and also customer engagement point of view. The engagements here are compared to what Napatech have done previously on a totally different scale. Usually Napatech do around 8,000-10,000 products a year.
The customers and key partners we are talking about here, those numbers are almost the same per customer per engagement, which significantly improves the volume and also the sale we could achieve from those customers. In addition, have to realize that the effect of working with these companies will give us a understanding, a better understanding of the markets and of the technology that is needed in those products. That answer the questions here. We have a question, I think, for you, Heine.
Yep. Thank you. The question is regarding our CapEx. It says how should we expect CapEx to develop throughout the year? The CapEx is basically driven by our development projects, and we expect the year, the coming quarters to be pretty much on the same level as the Q1 investments. As you'll be able to see in the reports, Q1 investments were around NOK 6 million in purchase of tangible assets and investments in intangible assets. We expect this to continue on pretty much the same level in the coming quarters.
I think that was the last question in the queue. Thank you everyone for attending today's presentation. Thank you.
This does conclude today's call. Have a lovely day.