Welcome to Nordic Semiconductor. It's the time for Q1 2020 presentation of our financial numbers. As you see here, we are in an extraordinary situation now, so we're doing our presentation from the office on webcast only. 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 $70.2 million. It's up 33.5% year-over-year. Our gross margin also increased 0.9% year-over-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 the home offices that was created through last quarter.
For the first time, we got some meaningful revenue from Cellular IoT, $1.1 million it end at. The gross margin was mainly driven by cost reduction and also because of the mix of components. 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, needs memory. This is exactly the parts that Nordic has been building over the last years. Now we get payback for that strategy. Our backlog increased. It ended at $123 million. It's up 39% compared to Q1 2019, and 16% about exiting backlog of 19. We see that some customers are placing early orders to secure supply. I come back to supply later on. Nordic has adapted very swiftly to COVID-19.
As there is an extraordinary situation, we really care about our employees' health. It has always been a top priority since this crisis broke out. We have been in full compliance with rules and recommendations 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%. We are delivering, as I'm going to show you later on in this presentation. We have done severe travel restrictions, or it 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 kinds of conference calls and travel much less. We do 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 this horrible crisis. We embrace our social responsibility, and we really were very happy when Avnet and Hackster.io, together with UNDP, introduced a 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. It has given result. We see currently that we are into more than 20 relevant design to prevent, to monitor, or to track the outbreak of COVID-19. 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 additional software connection to this product, and they can have purposes to track and to limited the spread of disease. What we're going to see now, and what we saw actually end of the quarter, is a second wave that we use 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 today. We see most of these applications are Bluetooth to your handset, but not very long from now, you're going to see the patient connected straight to the base station through LTE from Nordic. 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. Most of the fabs in Asia were closed for longer than normal, end of January until February. 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. We had a strong recovery through March and it's totaled to $70.2 million. This was a very good quarter. What we see now is that most fabs are close to normal operation and there is still supply chain risk because we don't know what's going to happen tomorrow or next week. If all parameters are alike, we are pretty optimistic about the quarter we're in. We also need to do some action to reduce risk. We have increased buffers 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. It doesn't help to have parts if you don't have demand. We see that most of our distributors have normal operation, and we also see an accelerated sell-through through March, which leads that distributors are having moderate levels on their inventory. We're exiting the quarter with a moderate level, or I would say lower level on this inventory than we enter the quarter. Obviously, Nordic, like any other business in the current extraordinary situation, we have lower visibility on future user demand.
There is three main uncertainty, we don't know the length and the magnitude of this situation, we really hope to see that we can help the communities to get rid of the virus and minimize the effect. 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, we see that the backlog is strong. There is not only negative things when it comes to a connectivity company like Nordic. I think you're going to see a radical shift in technology adoption and several verticals of which we are working on will generate upsides. We see that already now, 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 the end was $124 million. We are asset-light model. We outsource 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 commitment to Tier 1 customers, which we really need to fulfill. 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 adapt to different market scenarios. We feel very strong at the moment, both on design win, both on supply chain, and also on the financial position of the company. We maintain our long-term strategy and targets. Of the strategic pillars, lead on connectivity, excite developers, customer engagement, scalability, investing early.
I think some might have been a little bit bored with me talking about healthcare and connected patient for so many quarters, but now it's finally pays off. 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 ones and new platform ecosystems, and we are well-positioned for market leadership in IoT. This quarter, we show $1.1 million revenue on our new products. There is multiple designs behind it, but we see some particular customer starting to do full production now. We had a Capital Markets Day end of last year. We showed some ambitious targets.
We have a target to becoming a $1 billion US company within the next five years. We have ambition to be at 20% EBITDA margin when this happens. Nothing has changed on that ambitions. I talked about market share. This quarter, Nordic had 49% market share on Bluetooth SIG's registration page. This brings us up to an annual market share of 46%. It's mainly driven by high-end products, where The customers, not people. Customers need MCUs, powerful MCUs. They need much memory. They use multiple protocols. Nordic has products that fit into this category. We get honored by 49% market share due to our product mix and excellent people selling our products. As usual, we show some products that launched during this quarter. Panasonic made a module with the nRF52840.
For those who are not familiar with products, nRF52840 is this System-on-Chip I talked about, the advanced System-on-Chip from Nordic. Accent is a bracelet that is basically repurposed to use towards COVID-19 tracking. It was an ordinary sports band up till they understood you can use this for a different use case. Smart lock from SimpliSafe. We also see two nRF9160 designs here. Secure asset tracker from IoTeX. Signetik do a full module that is pre-certified using a Nordic chip. Yes, there is good launches both in BLE side and in the cellular modem side. What we've seen push most for is healthcare use cases. We have a customer called Masimo, which are doing, among other products, doing oximeters.
What we see is that the need for this and the speed of adoption 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 their products, and we are working as hard as possible to be able to support them with their connectivity needs. Besides what these extraordinary things are quite ordinary. We continue to crunch, we continue to deliver. We launched our nRF52820. It was a component in the 52 families for budget constraints application. It has not budget features. It's a full-speed USB2, Bluetooth 5, Mesh, Thread, Zigbee. Look at the specification here and the fact that this is going into budget constraints application. It is great. It also support 105 degrees. Why do we write it?
There is verticals where they need more than commercial temperature grade, and the nRF52820 will address those applications. We spend tremendous time, tremendous money on cellular products. Finally, we see revenue. Q1 contributed $ 1.1 million, 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 exactly the same software. 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 field application engineer group to perform the tests that our test group used to do when they can't be able to travel.
Before I leave to Pål, 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, we are supporting the UN Sustainable Development Goals, and we've been publishing just now a ESG report, and you will find the link just below the picture there. If you would like to see what we do, what we're going to do, and how we do it's all available in that document. I hand you over to Pål.
Thank you, Svenn-Tore. Before I start on the financials, I want to remind you that when after the presentations are done, we are going to have a Q&A session. If you have any questions, you can send a mail to ir@nordicsemi.no. For the financials. As Svenn-Tore mentioned, we did have a strong revenue growth of 33.5% this quarter. Despite the COVID-19 situation, we ended within our guided range. Compared to last quarter, we had a reduction of 18.4%, which is normal for a seasonal, since Q4 last year was very strong also. The growth came in both Bluetooth and in proprietary business, where the Bluetooth showed this 37.1% growth, driven from applications in most markets. Proprietary had a 23.4% 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. Cellular IoT, first time above $ 1 million. Main reason for that is that for the first quarter, we actually see sales to end customers, not just sale of the Thingy:91 and development kits. The cellular revenue will continue to have volatility going forward. I want to jump to the market analysis. With an overall growth of 33.5%, all markets show a strong growth. 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 pull for home office applications now that 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 wearables market, especially in China, where we see that we have a very strong attraction in the high-end market. Building and retail had a growth of 63%. Main driver for this is 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. Svenn-Tore 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%, 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%-50% for the short-range business. The reason is that we do see and we do expect a 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. The strong growth in gross profit is reinvested in growing the company.
Although the R&D spending as percentage of revenue is down from 34% last year to 27% this year's, the underlying cost increases from around $ 18 million-$ 19 million. 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&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-focused business in order to capture the growth that we're working on currently. Due to the strong revenue growth, EBITDA increased from -1.4% last year to 7.5% this year. I will now turn to cash operating expenses. These numbers are excluding the effects of capitalized R&D and equity-based compensation.
Nordic is capitalizing some R&D. 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 $ 2 million, 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 $ 33.5 million, more or less the same as we had last quarter, but increase of 12.7% compared to last year. We do show a continuing disciplined growth execution. We do have a favorable effects development due to the significant weakening of the NOK. However, it's important to mention that this will most take effect into the Q2 as the big depreciation of the NOK happened towards the end of Q1. 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. It's growth in both customer-facing teams, and also in R&D and then sales. Other OpEx really varies with product introductions. I talked about before the tapeouts of new products is the main cost driver in this area. We are, of course, with reduced travel, reduced activity, seeing that these costs are contained. I will now go focus on the EBITDA. We do see a good EBITDA improvement. If you look at the left side of the chart, is the quarter-over-quarter. Last year, we had -1.4% 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 17%.
We also like to focus on the last 12 months revenue, capturing the high revenue quarters. This year, we have a 12.7% over the last 12 months. If you exclude Cellular IoT, EBITDA margin is 21.3%. For the second quarter in a row, we're above our 20% target. CapEx in the quarter was $ 3.8 million or 5.4% of revenue. We did have high investments towards the end of last year, where we were building up the lab in Trondheim, the test and verification lab. These investments are now reduced, so compared to revenue this quarter, we invested $5.4 million. 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 $ 33.7 million to $ 124.3 million. However, excluding finance activities, we had a negative cash flow of $ 8.5 million, slightly more negative than last year, where we had $ 5.3 million negative. The operating cash flow was $ 1.5 positive, despite a buildup of inventories. The reason we build up inventories is in order to have a better buffer in the current situation. The increase in inventories resulted in a slight increase in net working capital compared to revenue.
Total investments, including capitalized R&D, was $6.5 billion. Nordic has 75 or had $75 million in credit available. When the COVID-19 lockdown happened, we decided for precautionary reasons to draw $40 million on the RCF. This was done to serve to secure liquidity in the current position, and also to have available funds to continue the growth that we're seeing coming. Svenn-Tore, I'll now hand over to you, and you can go through the outlook for Q2.
As Pål has described, and I have said, we had a solid Q1, and obviously there is uncertainties in this situation. If you look at our backlog, it really supports our guidance range. We are guiding revenue in the range of $ 75-$ 85. It's a little bit wider range than we've done previously, also we are in a situation I never been in, and I think nobody else has been in, so we have to take measures 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, we discussed it earlier. We think we have taken measures 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, 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. The most important thing is that we have seen through this quarter that there is radical shift in technology adoption. 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. I will say all the long-term drivers in place is there, and it's going to support our strategy and going to make us achieve our financial ambitions.
Despite all the horror around us, if you look isolated to Nordic, I will say that we've gone through this Q1 in a great way, and I would like end of the quarter presentation to give a thanks to our IT department that have facilitated so well. We have workers, engineers around the globe, and it's been working flawless. Engineers sitting home, they're doing school for their 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. We open for questions, I have to go to Ståle and see what kind of questions we got in. Could you join me, Pål, to try to answer?
Yes, we have a few questions, and then we have split it up in topics. We start with backlog questions, and from Christoffer, DNB, what is the customer concentration in backlog?
Yeah, we did analyze the backlog here, obviously by end of the quarter. We see there is more customer contributing, so we will have more customers up to the magical $1 million a month, monthly. It's more spread.
Yes.
We're still awaiting some of the Tier 1 customers will contribute to that, change it a bit in the coming quarters.
We have a question from Arctic, Henriette, can you give any color on the length of the backlog? Last quarter you said that the backlog is spread between Q1 and Q2 , what is the length of the backlog?
It's exactly the same spread, but it has come in earlier in the quarter. I would say it's still soft for Q4, strong for Q2 and three.
Petter Kongslie from SpareBank 1, what type of chip dominates the backlog? Has that changed over the last quarter?
It's changing as we speak. The high runner has been the nRF52832. What we see now is the 840, the most complex part, is number two of backlog contribution. 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. We go over to guidance, questions on the guidance. From Christoffer at DNB. 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-19 or just the lower end of the range?
This is obviously a guidance based on current situation. We're not guiding on the guidance. This is the guidance we've been calculating, working on this, and 75%-85% is the best guidance we can give currently. There could be stops in logistics. There could happen things that we can't control. Basically, we feel pretty comfortable with this range.
Thank you. We have questions from Henriette, Arctic Securities. On your two Q2 guidance, could you give some more color on the split between Bluetooth Smart and proprietary?
See, both verticals are strong. We continue to see that proprietary is doing increasingly well. I've just read the report this morning that even the PC manufacturer in Taiwan is seeing pickup. There will still be home office to be furbished over this quarter. We think we're going to get a strong proprietary Q2. Obviously, if we meet the guidance, we are going to get a strong Q2, and it will be contributed from both product lines.
Thank you. We go over to cellular questions. Questions about cellular. Christoffer, DNB. Can you say anything more about the revenue growth in Cellular IoT? What segments, for example?
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 out a bit in length. We also showed today, and we have showed on our website, new designs like the HomeBox, and there is consumer application with LTE. 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, but we see a continuous stream of customer going into production.
Thank you. We have question from Henriette, Arctic. The cellular test and certification processes are pushed out due to COVID-19. Can you give any color here on when you expect the inflection point? When it's going to get approved?
Unfortunately, we cannot. It all depends on the environment around us. We know that we are intensifying our effort to get through it by using local resources that can do the testing that will normally be done with the Finnish team. I can't give any timing. We expect to see certifications even this quarter under these circumstances. New certifications.
Let me see. Aksel from ABG. Can you say something about the size of the pipeline in cellular? How long have tests and certification been pushed out in time, given that they have been delayed?
I think basically I answered for you second already. The size of cellular, and we are not splitting over backlog either on proprietary, Bluetooth, or cellular. Guidance is 75 to 85, and cellular is a new product family entering into production, and we are not going to split out backlog even going forward.
Okay. Then we have some others. We just start to take questions here. This is to Pål. This is from Petter Kongslie, SpareBank 1. 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 cost?
As I mentioned, the FX impact wasn't that strong in Q1 because the main depreciation of the NOK happened on the 15th of March, then we paid the salaries earlier in the month. Normally in the quarter, if the FX rate goes from nine to 10 versus U.S. dollar, you will save around $1 million in total. For this quarter, the number will be much less than that. For Q2, if the FX rate keeps as it is today, we will see underlying savings also on OpEx.
Okay. We get some questions about these FX effects. One more from Henriette. Gross margin driven by product mix and cost savings. Can you give any details on the savings bit here? How much you estimate FX effects impacted your cost base in Q1?
Was there a question on gross margins?
Yeah.
Sorry. Gross margins, it's a mix between customer and products. 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 application lab, failure analysis lab, and we can do failure test, we can do optimization at a much earlier point, and we get into the market earlier with higher yield.
Okay. Yes, we have Aksel from ABG. How much of the cellular growth quarter-to-quarter was driven by production orders versus, for instance, kits shipped?
I think if you look back one quarter, I think we reported $ 500,000 revenue and Cellular IoT was mainly kit. We sold more or less the same amount of kits, so around $ 500,000 of this $ 600,000, I have to be correct, of this revenue, was driven by modules into pre-production and production.
We have from Aksel again, from ABG. Nordic inventory is up quarter-to-quarter to $ 57 million from $ 53. Can you split this on finished goods in progress? Should we expect $ 57 million to go down or to be flat over the next quarter or continue to go up?
Inventory will follow revenue. As 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 don't have control, negative things that we can't control of. We have tried to build in a buffer, and I'm not sure if it's going to be visible end of Q2. I think it will most probably be at the same level. 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 a process we're working hard on, and it's less than seven days to convert a wafer to a finished goods product. Importantly for us is to ensure wafers, the rest of the process we should handle.
Same from Aksel, ABG. How is the roadmap for increasing the workforce for the rest of the year? Is this affected by COVID-19?
Yes, it's affected by COVID-19. 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. Some regions we've seen that there have been more layoff than others, and we are more active in those regions. We don't have a number of engineers we are seeking. We have basically focusing our recruitment on the capacity and knowledge.
Okay. We have from Danske Bank, Hans. Growing in end markets due to home office demand in proprietary products, city bikes and healthcare, this sounds like a positive driver from COVID-19. When you expect reduced end market demand near term, which market is primary?
As we saw on the numbers we just showed, we had growth in all verticals. Until we see the weakness, we can't comment it. So far it looks good. The guiding indicates also.
I have a question on the RCF drawdown of $40 million. Excluding the RCF drawdown, we have the strong $84 million in cash. I think 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. That's the reason for drawing down on the RCF.
I must excuse the rest of the guys that are questioning us because we have a general assembly just after this. Okay, Ståle wants one more question. We take it.
Yeah, this is from Aksel, ABG Sundal. Can you talk about the opportunities with the nRF52820, which includes USB? What opportunities do you see? Will it drive further conversion of proprietary? Will it impact gross margin, et cetera?
It will not impact gross margin because margin is a function of cost and selling price. We are not bringing new components to the market to drag down margins. The important thing here is that we've been supporting these proprietary parts for years, and we have reached a floor of cost. We also reach a floor of selling price. What we're going to do now is to most probably replace some of the proprietary USB dongles with parts like the nRF52820. Gaming is also another segment you're going to see picking up using that one. Now we have to close because we have all our shareholders awaiting the general assembly.
Thank you very much.
Thank you for everyone that basically asked online. If there is further questions, pick up the phone and call Pål and Ståle. Thank you all.
Thank you.