Welcome to Nordic Semiconductor. It's time for Q1 2020 presentation of our financial numbers. So you see here, we are in an extraordinary situation now, so we're doing over presentation from the office on webcast only. But the picture in front here is not extraordinary. I think it's very common today.
Nordic has also moved most of our people back home, and I will come back to that later on. We delivered a solid Q1. It was in the high end of our revenue and even gross margins were above. Our revenue came in at $70,200,000 It's up 33.5% year on year. Our gross margin also increased 0.9% year on year, up to 51.9%, strong gross margin.
Bluetooth revenue ended at 51.2, up 37.1% proprietary revenue at 15.4, up 23.4, driven very much by all home offices. That was created through last quarter. For the first time, we got some meaningful revenue from cellular IoT, $1,100,000 at the end of that. And the gross margin was mainly driven by cost reduction and also about because of the mix of component we sold more of the high end Bluetooth parts than we ever done. It also underlines the fact that The applications that are generated today and was generated throughout last year needs strong CPU need memory.
This is exactly the parts that Nordic has been building over the last years. And now we get payback for that strategy. Oil backlog increased. It ended at $123,000,000 is up 39% compared to Q1 twenty nineteen and 16% about exiting backlog of 2019. We see that some customers are placing early orders to secure supply.
And I'll come back to supply later on. Nordic has adopted very swiftly to COVID-nineteen. As there is an extraordinary situation, we really care about our employees' health has always been a top priority since this crisis broke out. And we have been full compliance with rules and recommendation from both local and national authorities. At the moment, we are approximately 90% working from home.
What we see is also the effectiveness of people at home are close to 90%. So we are delivering, as I'm going to shove you later on, in this presentation. We have done severe travel restrictions or There is not possible to get from Oslo to anywhere. So basically, we are staying at home. We are working mainly on webcast, we are doing all kind of conference calls and travel much less.
We do a few physical meetings. We have basically a no visitor policy and we have strict sanitation standards. I think that's been part of the reason why there has been no outbreak in Nordic And we really work hard to ensure it's going to last no outbreak through these horrible prices. We embrace our social responsibility. And we really were very happy when Alnet and Haxura IO together with UNDP introduced the new product, our new project, And we are obviously participating and contributing with design kits and try to make this activity keep going to prevent the spread of the virus in all countries, basically.
And it has given the result. We see currently that we are into more than 20 relevant design to prevent, to monitor or to track the outbreak of corona. And Healthcare is a segment we've been discussing for a long time. Finally, we see the pickup in usage of Connected Healthcare. What we see is that the first deployments is based on repurposing existing products like activity monitors.
You go in and you make a additional software connection to this product, and I can have purposes to track and to limit the spread of deceased. What we're going to see now And what we saw actually end of the quarter is a second wave where we used to monitoring patients outside hospital. Obviously, when you do that and you take a patient out of the room, he has to be connected wirelessly, Nordic has the solutions to date. We see most of these applications are Bluetooth to your handset But not very long from now, you're going to see the patient connect this rate to the base station through LTE from Nordic. And this is a result of a long term strategy to get the old analog medical equipment to become digital.
Let's go to Supply Chain. We've been managing the Supply Chain Disruptions in Q1. And most of the fabs in Asia were closed for longer than normal end of January until February. But what we saw, and last time I spoke on the presentation, I said we had a good January. We didn't have as good February as most of the fabs were closed.
But we had a strong recovery through March and is totaled to $70,200,000. This was a very good quarter. What we see now is that most fabs are close to normal operation And, there's still despite there is still supply chain risk because we don't know what's going to happen to more on next week. But if all parameters are like, we are pretty optimistic about a quarter related. We also need to do some action to reduce risk.
We have increased workforce for critical devices. We have excess capacity for variable demands. And we are qualifying multiple sources so that we can ship from destination B if destination A can't provide. Demand growth is an important thing doesn't help to have parts if we don't have demand. And, we see that most of our distributors has normal operation.
And we also see an accelerated sent through through March, which leads that distributors are having moderate levels on inventory. So we are exiting the quarter with moderate level or, I would say, lower level on this inventory than we enter the quarter. But obviously Nordic like any other business in the current extraordinary situation, we have lower visibility on future user demand. There is 3 main uncertainty. And we don't know the length and the magnitude of this situation.
And we really hope to see that we can help the communities to get rid of the virus and minimize the effect, but we don't know when it's going to end. The depth and the length of the expected setback in economy, growth and consumer spending we just have to wait and see. We don't have opinion on that, but we see that the backlog is strong. But there is not only negative things when it comes, connectivity company like Nordic. I think you're going to see a radical shift in technology adoption.
And several verticals that which we are working on will generate upsides. We see that already now, and I will discuss some of them later in the presentation. Nordic, we have good liquidity, we are solid and flexible. We have increased our cash position Cash at end was $124,000,000. And we are asset light model.
We outsourced most of our production and distribution. These people and IP are the most important factor for Nordic And currently, we still are recruiting because we have some to Tier 1 customers, which we really need to fulfill. So we are always looking for Good software engineers. Actually, we are looking for the best software engineers. Our equity position and equity ratio is 67%.
It really also show that we are flexible to add that to different market scenarios. We feel very strong at the moment, both on the sign wind, both on supply chain and also on the financial position of the company. So we maintain our long term strategy and targets. Our strategic pillars, lead on connectivity, excite developers, customer engagements, scalability, investing early. I think some might have been a little bit more than me talking about health care and connected patient for so many quarters, but now it's timely pace off.
And obviously, all this investment is linked to our financial ambitions. We have high financial ambitions. We are in a solid position. I will show that later also. Market leader in Bluetooth low energy, We have strong ties to vertical Tier 1s and new platform ecosystems and we are well positioned for market leadership in IoT.
This quarter, we show $1,100,000 revenue on our new products. There is multiple designs behind that, but we see some particular customer starting to do full production now. I, we had a Capital Markets Day end of last year, We show some ambitious targets. We have a target to becoming a $1,000,000,000 U. S.
Company within the next 5 years. And we have ambition to be at 20 percent EBITDA margin when this happens. And nothing has changed on that ambitions. I talked about market share. This quarter, Nordic had 49% market share on Bluetooth Seag's registration page.
This brings us up to an annual market share of 46%. It's mainly driven by high end products where people need the customers, not people with customers need MCUs, powerful MCUs that need much memory and they use multiple protocols. And Nordic has products that fit into this category. And we get honored by 49% market share due to our product mix and excellent people selling of our products. As usual, we show some products that's launched during this quarter.
Panasonic made a module with the 52840. For those who are not familiar with products, 52840. Is this system ownership. I talked about the advanced system ownership from Nordic. Accent is a bracelet that is basically repurposed to use towards COVID-nineteen tracking.
It was an ordinary sports plan up until I understood you can use this for a different use case. Smartlock from SIPPE Safe. We also see 29160 designs here. Secure asset tracker from AeroTechs to a full module that is pre certified using the Nordic ship. So yes, there is good launches, both in VLE side and in the cellular modem side.
But we all what we've seen most for is health care use cases. We have a customer called Masimo, which are doing among other products, doing oximeters, And what we see is that the need for this and the speed of adoption and Nordic made Nordic to do extraordinary work to ensure supply to these verticals. Kinsa Health is doing thermometers, the same. They have got incredible demand for products, and we are working as hard as possible to be able to support them with connectivity needs. But beside well, these extraordinary things, things are quite ordinary.
We continue to crunch. We continue to deliver. We launched our 52,820, was a family is a component in the 52 families for budget constraints application, but it has not budgeted features is a full speed USB 2 bluetooth 5 mesh thread Sigve. Look as a specification here, And the fact that this is coming into is. Why do we write it?
Cost there is verticals where they need more than commercial temperature grade and the 52A20 will address those applications. So we spend tremendous time, tremendous money on cellular Products. Finally, we see revenue. Q1 contributed 1.1 And we are gaining quite a bit of traction with new designs. We released a new software package and now it's seamless between Bluetooth and LTE.
You can use exact, the same software. And we are obviously a little bit hindered by travel restrictions. But we continue to do certification work and test around the globe. We've been taking some of our feed application engineer group to perform the tests that our test group used to do when they can't Before I leave to Paul, I also would like to say that we, for years, have been focusing on ESG And it's important for Nordic because I think IoT is a key to enhance sustainability. And we are doing whatever we can to support this trend.
It's important. We have committed as a signatory to the UN Global Compact, and we are supporting the UN Sustainable Development Goals. And we've been Publishing just now, ESG report, and you will find the link just below the picture there. So if you would like to see What we do, what we're going to do and how we do it, it's all available in that document. So then I hand you over to Paul.
Thank you, Santura. Before I start on the financials, I want to remind you that when after the presentation. So done, we're going to have a Q and A session. If you have any questions, you can send the mail to irnoricsemi.m0. So for the financials.
As Santoshi mentioned, we did have a strong revenue growth of 33.5 percent this quarter. So despite the COVID-nineteen situation, we ended within our guided range. Compared to last quarter, we had a reduction of 18.4 percent, which is normal for a seasonal since Q4 last year was very strong. Also. The the the the growth came in both Bluetooth and in proprietary business where the Bluetooth showed the 37.1 percent growth driven from applications in most markets.
Proprietary had a 23.4 percentage growth and is back to levels we saw a few years ago. The reason for this strong growth is the mix in Q1 last year. There were some strong inventory corrections in the distribution channels. And in addition, the proprietary PC sales is strong during this quarter. Seller IoT, first time above $1,000,000.
Main reason for that is that for the first quarter, we actually see sales to end customers not just sale of, the the thing in 91 and development kits. However, the cellular revenue will continue to to have volatility going forward. And now I'll jump to the market analysis. With an overall growth of 33.5 percent, all markets show a strong growth. However, I want to highlight some of the key areas.
The 16% growth in consumer electronics, came mainly as part of the strong proprietary business where we saw a big pool for home office applications while the people are working at home. The second big area is wearables. We actually had a 48.5% increase. The main driver in this area is the high end variables market, especially in China, where we see that we have a very strong, attraction in the high end markets. Building And Retail had a growth of 63% main driver for this is, the the city bikes.
If you remember a few years ago, we had a very big pull for city bikes. Now that people prefer biking instead of taking public transportation, we see a rebound in the city bike market. Finally, Healthcare has talked a lot about Healthcare and the big opportunities we have within monitoring and tracking diseases. This will happen in the quarters to come in Q1. We mainly had a strong pull for the new products with our existing customers within Healthcare.
Gross margin at 51.9 percent, which is above our indicated guidance level, mainly driven by a positive product and customer mix. Gross margins are expected to be around 50% in Q2, However, we want to reiterate the medium term gross margin range of 48% to 50% for the short range business. The reason is that we do see and we do expect the change in both the product and customer mix. Briefly on the operating model, of course, a 33.5% revenue increase combined with an improved gross margin, really gave a strong push on our gross profits, which increased by 0.9 percentage points. Or a 36% growth.
So the strong growth in gross profit is reinvested in growing the company. So although the R and D spending as a percentage of revenue is, is down from 34% last year to 27% this year's the underlying costs increases from around CHF 18,000,000 to CHF 19,000,000. We do see a small reduction in the short range business, although we are continuing to invest to capture growth opportunities here. The largest growth comes from the cellular IoT business where we do see a high activity during the commercialization stage. SG and A, is where we have the largest increase.
We have been talking about this before that we are building the sales and marketing and the direct customer focus business in order to capture the growth we're working on currently. Due to the strong revenue growth, our EBITDA increased from minus 1.4% last year to 7.5% this year. I will now turn to cash, operating expenses. So these numbers, are excluding, the effects of capitalized R and D. And equity based compensation.
So Nordic is capitalizing some R and D. So this year or this quarter, we capitalized 2.7%. That's more or less the same amount as we capitalized a year ago. Most of this around CHF 2,000,000 is related to the short range business the rest related to the long range business, which is, as I said, now in more in the commercialization phase. Total cash OpEx was $33,500,000, more or less the same as we had last quarter.
With an increase of 12.7% compared to last year. So we do show a continuing disciplined growth execution. We do have a favorable FX development due to the significant weakening of the Norwegian kroner However, it's important to mention that this will most likely most take effect into Q2 as the depreciation on the knock happened towards the end of Q1. So underlying, we have added employees and we have invested more into the business. We increased the number of employees by 14.5% compared to last year.
So we're now 799 employees. So it's growth in both customer facing teams and also in R&D and then sales. Other OpEx really varies with product introductions I've talked about for the tape outs of new products is the main cost driver in this this area, but we are, of course, with reduced travel, reduced activity, seeing that these costs are curtailed. I will now go focus on the EBITDA. So we do see a good EBITDA improvement.
If you look at the left side of the chart, it's, quarter over quarter. So last year, we had 1.4 minus in EBITDA. A more operational leverage this year with higher revenue gives us a 7.5% EBITDA margin. If we exclude cellular IoT, which still has only marginal revenue, the EBITDA margin for the company is is 17%. We also like to focus on the last 12 months revenue capturing the high revenue quarters.
So this year, we have a 12.7% over the last 12 months. If you exclude cellular IoT, the rate is, EBITDA margin is 21.3%. So for the 2nd quarter in a row, we're above our 20% target. CapEx in the quarter was $3,800,000 or 5.4 percent of revenue. We did have high investments towards the end of last year, where we were building up the lab in Trondheim, the the the test verification lab.
These investments are now reduced. So in compared to revenue, this quarter, we invested $5,400,000. We do expect that The absolute level of investments in Q2 will be around the same, giving a less percentage compared to revenue. Main focus has now moved from building up labs to focusing more on the supply chain part of our business. Finally, I'm going to talk about our cash position.
During the quarter, we increased our cash balance by $33,700,000 to $124,300,000. However, excluding finance activities, we had a negative cash flow of 8,500,000, slightly more negative than last year where we have 5,300,000 negative. The operating cash flow was 1.5 positive, despite a buildup of, of inventories, The reason we build up inventories is to in order to have a better, buffer, in the current situation. The increase in the inventories resulted in a slightly increase in net working capital compared to revenue. Total investments including the capitalized R and D was $6,500,000,000.
Nordic has, 75 or had $75,000,000 in credits, available. When the COVID lockdown happened, we decided for precautionary reasons to draw $40,000,000 on the RCF. This was done to serve to secure liquidity and the current position and also to have available funds to continue the growth that we're seeing coming. So I'll now hand over to you and you can go through the outlook for Q2.
So as Paul has described, now I've said, we had a solid Q1. And obviously, there is uncertainties in this situation. But if you look at our backlog, it really supports our guidance range. We are guiding revenue in the range of $75,000,000 to $85,000,000 is a little bit wider range than we've done previously, but also we are in a situation, I never been in, and I think none of nobody else has been in. So we have to take measurements that match the situation.
We still know that there will be contribution from new Tier 1 applications coming in the next quarter. Hence, we are guiding the margins to be around 50%. Yes, there is some supply chain risk, but we discussed it earlier, we think we have taken measurement to avoid the worst hits if things happen. We have no knowledge of end use demand. Most probably you listening to me have more knowledge about it.
But we are doing what we can to ensure supporting new verticals that's going to combat this virus and hopefully be back on track as early as possible. And but the most important thing is that we have seen through this quarter that there is radical shift in technology adoption. And we've been foreseeing that patients would be connected for quite some time but now we don't foresee it, now we see it and experience it. And I will say all the long term drivers in place is there and is going to support our strategy and going to make us achieve our financial ambitions. So despite all the horror around us, if you look isolated to Nordic, I would say that we've gone through this Q1 in a great way.
And I would like end of the quarter presentation to give you thanks to our IT department that have facilitated so well. Now we have workers, engineers around the globe, and it's been working flawless. And engineers sitting home They're doing school for the kids. They're doing work for Nordic and our efficiency rate at 90%. I'm extremely proud of the guys working in Nordic.
I'm sure we're going to get stronger out of this situation we have now and hope to meet you guys in person for the next quarterly presentation. Now we open for questions. I have to go to steel and see what kind of questions he got in. Could you join me, Paul, to try to answer?
Yes, we have a few questions and then we have split it up in topics. We start with backlog, backlog questions. And from Christophe Denver, what is the customer concentration in backlog?
And we did analyze the backlog here obviously by endofthequarter, and we see there is more customer contributing. So we will have more customers up to the mid and matrical $1,000,000 a month, monthly. So it's more spread.
Yes. Then we
have We're still awaiting some of the Tier 1 customers. We'll contribute to that. Change it a bit in the coming quarters.
Then we have a question from Alktech, Henrietta. Can you give any color of the length of the backlog? Last quarter, you said that the backlog is spread between Q1 and Q3. So 2, what is the length of the backlog?
It's exactly the same spread, but you can't it has come in earlier in the quarter. So I would say it's still soft for Q4, strong for Q2 and Q3.
Stepte Commsley from Spyder Bank. And what type of chip dominates the backlog? Has that changed over the last quarter?
It's changing as we speak. The higher one has been the 832 What we see now is the 840, the most complex park is number 2 of backlog. Contribution. And that's what we see. We're getting into new verticals that need, I say it again, more compute power, more memory, more multiple protocols, and Nordic have those parts.
Okay. Then we go over to guidance questions on the guidance. From Kristofer, the Embraer. What negative effects on consumer demand have you baked into lower end of the Q2 guidance range has the whole guidance range been revised down to reflect recession COVID-nineteen or just the lower end of the right range?
This is obviously, guidance based on current situation And it's we're not guiding on the guidance. So this is the guidance. We've been calculating working on this and $75,000,000 to $85,000,000 85 is the best guidance we can give currently. There could be stops in logistics that could happen things that we can't control But basically, we feel pretty comfortable with this range.
Thank you. Then we have questions from Henriette, Arctic, Arctic. 1, on your 2, Q2 guidance, Could you give some more color on the split between Bluetooth, smart and proprietary?
We can see both verticals are strong and we continue to see that proprietary is doing increasingly well. And I've just read the report this morning that even the PC manufacturer in Taiwan, seeing pickup. So there will still be home office to be furbished over this quarter. So we think we're going to get a strong proprietary Q2 obviously a bigger thing if we meet the guidance, going to get a strong Q2. And, it will be contributing from both product lines.
Thank you. We go over to cellular questions. Questions about cellular. Kristofer, the end there, Can you say anything more about the revenues revenue growth in cellular IoT? What segments, for example?
We have seen, we have been talking about logistics for a length. We have our customers doing application with logistics. We also have seen some automotive vertical designs. Unfortunately, Automotive is not the one that has the highest speed at the moment, so that might be pushed off a bit in length. But we also showed today, and we have showed on our website new designs like the Homebox, And there is consumer application with LTE.
And we are excited about all the design activity we have, and we don't know exact today when we're going to see the pickup, what we see a continuous stream of customer going into production. Thank
you. And we have, question from Henietta. The cellular test and certification processes are pushed out due to COVID-nineteen. Can you give any color here on when you expect the inflection point? When it's going to get approved?
Unfortunately, we cannot. I mean, is all dependent on the environment around us, but we know that we are intensivating over effort to get through by using local resources. They can do the testing that will normally be done with the Finnish team. But I can't give any timing, but we expect to see certifications, even this quarter under these circumstances. New certifications.
Let me
see. Auxhall from ABG. Can you say something about the size of the pipeline in cellular? And also how long have test and certification been pushed out in time given that they have been delayed.
I think basically I answer for your second already. The size of seller, we are not splitting over backlog either on proprietary blue or cellular. So guidance is 75 to 85. And cellular is a new product family entering into production And we are not going to split up backlog even going forward.
And then we have some others. So we just start to take questions here. This is to Paul. This is from Peder Commsley, Spybank can you give some color on the underlying cost increase with higher cost in U. S.
Dollars when the NOK has depreciated significantly, where are you increasing costs?
So as I mentioned, the FX impact wasn't that strong in Q1 because the the main, depreciation of the NOK happened on 15th of March and then we paid the salaries earlier in the month. So the impact will happen first in April and for Q2. So normally in the quarter, if the FX rate goes from 9 to 10 versus U. S. Dollar, you will save around $1,000,000 in in in total.
So so for this quarter, the the number will be will be much less than that. But but for Q2, if the FX rate keeps as it is today, we will see underlying savings also from OpEx.
We get some questions about this FX FX effects. One more from Henrietta. Gross margin driven by product mix and cost savings. Can you give any details on the savings bit here? And also how much you estimate FX effects impacted your cost base in Q1.
Was there a question on gross margins? Yes. So also gross margins? It's a mix between customer and I think it's difficult to give an exact answer.
I think we can talk about the underlying reason for why we are saving costs is that we invested heavily in a application lab, failure analyst lab, and we can do failure tests, we can do optimum utilization at a much earlier point, and we get into the market earlier with higher yield.
Yes. Then we have, OXXIL from ABG how much of the cellular growth quarter to quarter was driven by production orders versus for instance, kits shipped?
I agree. If you look back 1 quarter, I think we reported 500k revenue and cellular was mainly a kit. We sold more or less the same amount of kit. So around $500,000 of this $600,000 I be correct of this revenue, was driven by modules into preproduction and production.
Then we have from Akcil again from ABG. Nood inventory is up quarter to quarter to US57 million dollars from US53 dollars. Can you split this on finished goods goods in progress and should we expect 1,000,000 to go down or to be flat over the next quarter or continue to go up?
Inventory would follow revenue. As the revenue goes up, The ideal situation is that we can maintain the same ratio of inventory. It could be some challenges if it happens things that we had on time control, negative things that we can't control of. So we have tried to build in a buffer And I'm not sure if it's going to be a visible end of Q2. I think it will most probably be at the same level.
But I don't think you should be concerned about whether it's product that's on wafer or finished product because the process from wafer to finished product is, approximately working hard on, and it's less than 7 days to convert a wafer to a finished goods product. So importantly, for us, is to ensure wafers rest of the process we should handle.
Same from OXcel, ABG, How is the roadmap for increasing the workforce for the rest of the year? Is this affected by COVID-nineteen?
Yes, it's affected by COVID-nineteen. We see quite a bit of startups, companies backed with venture capital, which are laying off people. The important thing for Nordic is that we are searching for the best engineers available in any region. So some regions we've seen that there'd be more layoffs than others and we are more active in those regions. And we don't have a number of engineers we are seeking we have basically focusing over recruitment on the capacity and knowledge.
Okay. Then we have from Danske Bank, Hans, grow in end markets due to home office demand, in proprietary products, city bikes and health care. This sounds like a positive driver for from COVID-nineteen when you expect reduced end market demand near term. Which market is primary?
As we saw on the numbers we just showed, We have growth in all verticals. And until we see the weakness, we can't comment it. And the guiding indicates also
that this looks I have a question on the RCF drawdown of 40,000,000. So so we we excluding our Cepro dam, we have the strong $84,000,000 in in in cash. I think As a as a company, when you get into the situation, you have available funds. I think most companies, the boards would like to secure liquidity for the strong growth opportunities that
we have. So that's
the reason for drawing down on the RCF.
I must excuse the rest of the guys that are answering a questioning us because we have a general assembly just after this. So we have to, okay, Stole wants one more question, we take it.
Yes, this is from Akcel, ABG Sundar. Can you talk about the opportunities with the 52 A20 which includes USB? What opportunities do you see? Will it drive further conversion of a proprietary? Will it impact gross margin, etcetera?
It will not impact gross margin because margin is a function of cost and selling price. So we are not bringing new components to the market to drag down margins. And the important thing here is that we've been supporting these proprietary parts for years. I mean, we have reached a floor of costs. We also reached a floor of selling price.
So what we're going to do now is to most probably replace some of the proprietary USB bundles with parts like the A-twenty. Gaming is also another segment that you're going to see picking up using that one. But now we have to close because we have all our shareholders awaiting the Jaguar assembly. So thank you for everyone that basically asked online. And if there is further questions, pick up the phone and call Paul and steal.
Thank you all. Thank you.