Good morning, and welcome to Nordic Semiconductors' Q1 presentation for 2018. Today's presentation will be as the same as last time. I will do the business update Paul will do the financials, and Thomas will look into the future of Nordic Semiconductor. So we believe we are off to a good start in 2018. Our revenue were ended at $60,100,000.
This is the best Quarter LQ1 ever for Nordic is a 27% growth year on year. We had very good growth in Bluetooth, but also keep in mind that last year was not a very strong Q1 for Bluetooth. So the comparable was relatively low, but still 57.6 percent is a strong growth in Bluetooth. Proprietary declined 7.7% in line with what we've been predicted previously. Important thing is that if you look across our markets, the growth year on year in all markets.
Remember, the difference between technologies and markets. I mean, markets is what we sell into. Technology is proprietary and Bluetooth. So we didn't grew in proprietary, but in all the markets we were shipping into, Bgroup. We continue to diversify our customer base and had growth in our customer base.
So we are very, very happy with the underlying factors that we see at Nordic. We had improved profitability EBITDA margin went up 1 point year on year. We always are watching out for cost savings, and we have a good discipline when it comes to cost and usage of money. We basically had a 6% down quarter on quarter on quarter on over OpEx, which is great. Because we didn't have less activity.
We had huge activity in Q1. Our gross margin ended up at 48.9percentpoint is basically we've been working on cost reduction for long time. We start seeing effects of this. We also had a favorable customer and product mix this quarter, so we don't expect to see Our EBIT $800,000 versus a loss of $100,000 last year at the same period. So if you look here, as I said, revenue 60.1 27% growth year on year.
It was down 6.6% from a very strong Q4. We think this was a great number. Bluetooth revenue, 38.4 As I said, 57.6% growth is down 13% quarter on quarter. And Proprietary revenue ended at 19.9 percent. It's a 7.7% year on year decline.
But was 9.3 quarter on quarter growth. Gross margin, up 2.2 points since last year. Even up 1.3 points since last quarter. We really up $46,600,000 to $4,400,000. It's 11.2% up quarter on quarter.
So we were pleased to present these numbers today. What generates these numbers is Bluetooth driven. If you see here, there is, 2 things we're focusing on very much is to get the industrial, up. And if you, sorry, it's two things we've been focusing is to ensure that we are diversifying over customer base to get less dependent on 1 or 3 customers. We can see that really happening now.
Last year, we had 34% top 10. This year in Q1 is 30%. It really shows that the broad market approach that we have is paying off. But important thing here is to see how non consumer continue to be strong. The, as I said, the characteristics of non consumer is longer lifetime.
And this means that we have customers that keep on producing over a long time and each new customer build on top of this, the churn is much, much less on industrial customers. And I think that's also reflected in the backlog, which Thomas can discuss a bit later. That industrial customer have a longer backlog. And obviously, we need to continue to grow customer base. We had a 17% from Q1 2017 to Q1 2018.
So if you look into the market, consumer electronics 23.6 It's a 3.2% growth year on year. Importantly here is that despite that preparatory is slowing down a bit, consumer growing, it means that Bluetooth is taking a bigger share of consumer industry. That's what we've been preaching for a long time that Bluetooth will replace some of the proprietary in consumer. It's exciting to see wearables back to growth. It's basically quite a bit of Chinese customers that still are making activity monitors.
And obviously they're using Nordic. Building retail, up 42% year on year. Healthcare has strong growth year on year. On a small number, we believe that health care will continue to add on revenue going forward. And if you look into We see, I mean, the new customers we are working with today are customers that maybe are nontraditional component consume.
They are basically into more industrial application, where they're not known as a consumer of electronics. Nordic is working hard on generating revenue from these customers. I usually show some new products that power by Nordic. Beam Smart button is a small HD screen you can have on your jacket and give information to anyone. For example, if you're coming on a date, you can put in on your, from your phone.
It is nice to see you. And then you can see, oh, so great. Anyway, this is customized LCD button. I think it's a cool application. Ancoral smart band is a gaming band, you wear it and if you get sweat, you can see it in the game that you get sweat.
It picks up your mood. If you get high blood pressure, you get the message: a cool product. No fence. It's basically for kettle. It is, as it says, you can have the kettle there, and it prevents the kettle.
You just need to have a fence. It tells the capital year outside your border or limits. And I think we should stop a bit on this one. This is a first product with a customer making a sensor using thread. This is a company called particle mesh, which are making these sensors.
And these are the first customer we've been announcing using Fred. When did we release Fred? Not very long ago. Now we basically have products. And did we make any new hardware for this product?
No. We have a flexible hardware platform that can incorporate these kinds of protocols. I switch is a smart switch for smart home using the 52. Well, still I want to go back to this one. I think the thread is really good to see the first design.
So we are happy, but it looks like we also start getting industry recognition. No uncellular. We've basically been sort of, very much recognized for our Bluetooth product we continue to do that, but Nordic Tingue got to award most competitive development tool in China. Before that, it's good. But see here, light reading currently we have finalists in the most innovative IoT, M2M strategic vendor category, 4 of a low power cellular modems.
Who are we competing with Amazon Freeway, Nokia Verimatrix. These are much larger companies than us, but we are still recognized as the most leading IoT machine to machines. Vendor with our LTE products. I think the competition will be closed in a couple of weeks So hopefully next time we speak, we're not only finalist. So this was basically what I want to say.
I want to hand over to Paul, which will take you through the numbers.
Thank you. So I'm gonna go through the operational, case for the company, just like we do every quarter. So just a reminder, these are the the reported number I'm coming back sort of the cash OpEx, etcetera, on a later slide. Also remember that in, in Q1, revenues are seasonally down compared to Q4, so which will, of course, impact on the, the metrics as we're going through. And also, the activity in Q1 has been relatively high.
Just like in Q4 on new products. So first of all, as Santo already mentioned, revenue is up 27% year on year, of course, driven by a very, very strong Bluetooth growth in the quarter. Gross margins at 48.9 percent, up 2.2 percentage points compared to last year. Remember that last year was we were really at the low due to the ramp issues with the NRF 52, which has been continuously improving. Compared to last quarter, the 1.3 percentage point increase is both improved production, but also product mix variances.
On the total OpEx, total OpEx, this quarter in percent of revenue is 41.5 percent, which is just up slightly, from 40.4 percent a year ago, Of course, revenue has increased for pretty much this period. So the underlying OpEx has gone up 5,900,000 from from 'nineteen to to $25,000,000. If you look just on the R and D part of it, it's 26 percent, compared to the revenue, just more or less the same number as as last year. However, we have made some small changes to the capitalization. The reason for that is that the cellular IoT product has gone into a commercialization phase.
So so for for the first time, we've actually capitalized 1,500,000 on on the the LTE business. Actually resulting in a downward trend on the actual, KPI. However, the underlying number is 6 point 2,000,000, but we report 4.7. So in total, capitalized 3,300,000 versus 2.2 last year. On the the R and D short range, even if it's it's going up, it's it's more or less compared to the capitalization that impacts this.
Much of the R and D on the short range is now on software enhancing current products and also generation products. SG and A 15.3 percent, more or less the same as as last year, we are still scaling the business, to to manage the future growth we're seeing. So overall, an EBITDA margin of 7.4%, up 1.1 percentage points compared to last year. We are still being impacted from low power cellular investments, where there is no year revenue currently. So on the previous slide, we showed the the quarterly, metrics is, of course, this revenue is going up and down, and If you compare the the OpEx to the last 12 months' revenue, you see that the the metrics is pretty stable at, 37 plus percentage, out of this, 23.5 is is R and D.
Remember, industry average, we've stated this is around 20% for comparable numbers. So Nordic is trailing, slightly above this number. Mainly due to the cellular investments, but this ratio will increase, decrease when we get revenue on
the cellular.
On SG And A, spending for comparables companies are around 12 to 15%. So the spending of 14% is is more or less within this, ratio. We are scaling sales and supply chain to meet future growth and and more customer demands. Gross margin, I think, Santura mentioned quite, in detail. However, I have a few more comments.
First of all, as I mentioned, the bottom was back in 2016, 2017. We've now been able to draw that up to close to 49%. This increase is is sort of a mix of, of, improved yields, better, wafer purchases, and also improved visibility that mix is able to do bigger production runs and thereby reducing, costs. Compared to last quarter, margins are 4.3%. We we do see some favorable product mix effects in Q1 compared to what we commented in Q4.
When we saw some negative product mix, fluctuations. Going forward, we still maintain the 50% margin this improvement will come from the same three reasons, I I mentioned before, and but also expanding the product portfolio, being able to deliver the right product to the right customer at the right price. On on cash OpEx, the cash OpEx is adjusted for capitalization of 3,300,000 and the compensation of, 400,000, we had an increase year over year of, 32%, so cash up went from 21000000 to 28000000, so a 32% growth. But this increase came mainly from a 12% increase in the number of employees from 549 last year to 615 at the end of Q1 2018. So the growth in these employees comes in most areas, but but but mainly within, sales and, R and D, and then more R and D focused on customer activities.
But however, also all of the costs related to our business, IP infrastructure, etcetera, is included in the growth numbers. Compared to last quarter, we are keeping a continued cash dis cost discipline. So costs in total only went down 3.6, percent. So we can see salary costs somewhere less the same. So so we did have some reductions in in other OpEx.
However, investments will continue in order to capture future growth So finally, on my on my working capital, or cash flow, so we did have a cash outflow of $4,500,000 in the quarter. If you compare previous years, normally in Q1, you will have a, working capital reduction, so you will have a positive cash flow However, this year, we saw much of that effect in Q4 at the end of Q4 as we reported last quarter, And we also have effect of Chinese New Year, when Chinese New Year comes in the year, resulting in the higher accounts receivable balance at the end of the quarter. So overall, overall, we increased net working capital by 2,500,000, in the quarter. However, if we look at this KPI in percentage of revenue, it is a slight reduction quarter over quarter. So CapEx, pretty low, 1,900,000 in this, quarter, so below our sort of average we've been running the last quarters.
That is more or less a mix when when purchases happen. So so we will trend at the same CapEx as previous years. So we are doing a tight cash management and optimizing our cash generating ability. We do have a financial headroom of close to NOK 90,000,000 at the end of the quarter, including undrawn facilities of close to $60,000,000. Okay, that's all I have.
I'll hand over to Thomas who will go through the business outlook. Thank you, Paul.
So I'll talk about, 4 things in my part of this presentation. Short term outlook, including a little bit of comments around our guidance. I'll talk about the production ramp of the 52,840, We got some recent news around our efforts on expansion in short range, low power IoT. And then finally, an update on cellular IoT. So as Svennora and Paul talked about, we are pretty satisfied about how this first quarter of 2018, played out.
Now one quarter into 2018, we're getting some improved visibility on the next few quarters, and we are exiting Q1 with an all time high backlog of US81 million dollars. That's up 76% year on year and 50.9 percent quarter on quarter. This backlog is stretching well into, well into Q4 this year and it also gives us some indications on how the full year is going to look like. As mentioned earlier, in this quarter, we had some tailwind in terms of gross margin from a favorable customer and product mix. Looking at this backlog and looking at specifically what is looking in what is in Q2, we're seeing some indications that the the, customer and product mix is gonna be slightly less, favorable for second quarter.
In no way, anything dramatic share, dramatic care, we see customer and product mix fluctuating from quarter to quarter and this is just in line with what we anticipate. So, with this, we are maintaining our guidance for first half of 2018 with revenue between $123,000,000 to $133,000,000, Bluetooth growth between 40% to 50% and a gross margin between 47% to 49%. We got solid coverage for this backlog, in our guidance and we have additional confidence coming from, customer forecast and the overall business momentum. Entering Q2 twenty eighteen, we will continue our investments, to fuel future growth as well as scaling supply chain to meet increased capacity and also more stringent quality requirements from our customer base. During this quarter, we ran production of the 52840 and just a quick recap of this chip it's the flagship of our 52 series, lineup of ICs.
It's by far the most complex short range chip we ever built It's at the high end spectrum in terms of memory, in terms of security features, in terms of radio performance, and it's also our most advanced chip when it comes to multi protocol capabilities. This, chip supports the legacy bluetooth low energy standard, the latest and greatest bluetooth 5. It supports 80215.4 provides a foundation for other protocols like Tread and SigBI, and it also supports AMT and proprietary communication. We started sampling this trip to customer a little bit more than a year ago, and now we have a broad and solid design with air base across a number of different applications. And with this production ramp, We expect to have revenue contribution and growth contribution coming from the 52,840,000,000,000 dollars, $840,000,000 starting now in Q2 2018.
In terms of average sell price, the 52.80 with its feature set, with its value proposal or multi protocol capability, sits at the premium end compared to our other 52 serious ICs. Yesterday, We also released the 1st production grade of our thread software that we announced exactly, a year ago. And thanks to Particle IO, that's Toro mentioned, earlier today, we're pleased to announce that we're going to get revenue contribution from our trading investment starting second half of this year. As I talked about over a few, quarterly presentations, thread is part of our effort to expand our offering in short range IoT, beyond Bluetooth low energy, and at the Q4 presentation, we announced, ambitions to, to do further expansion expansion beyond what we've already done. And yesterday, we made a pretty significant announcement related to that, we launched our first SIPD solution.
It's a Sigve 3.0 software stack for the 502814. So this is essentially a software upgrade an additional software for a chip we already have, and the first engineering release was made available yesterday. With this release, we are providing a baseline feature set in terms of Sigve, but from day 1 and out of the door, this software we have provides advanced multi protocol capabilities, allowing customers to combine thread, Bluetooth and Sigbee into the same product. This represents a major step forward for us with regards to our strategy for expansion in short range IoT, and we now cover all the 3 key open standard low power short range technologies for smart home and for industrial and enterprise applications. This essentially means that with the software, we are now addressing a much bigger market opportunity, especially in smart home, where we are seeing tons of activity these days.
Having support for all of these 3 technologies, is, you know, you know, in multi protocol and multi protocol capabilities, is definitely also a value add proposal into this market. For Sigve, for now, we're applying a pretty focused go to market strategy, We've recognized the situation out there that there is a lot of vendors that have strong and positions in this market. We're currently working on some very selected strategic opportunities, where we have a unique proposal, a value proposal with the objective of establishing some strategic bridge sets in this market over the next 6 to 9 months. We feel very confident in our offering around Sigve, and we aim to have revenue and growth contribution from Sigve coming in 2019. So that was quite a lot about Fred and Sigbee, now back to Bluetooth.
That said, you know, Bluetooth is core to our business. It's core to our growth now, and it's gonna be core to our business for years to come. So according to DNB, there was 102 new design certification based on our chips in Q1, That is up 7% year on year and down 17% quarter on quarter. In this quarter, our share of, certification was 38%. While the share is down compared to last quarter, we still feel that we have a leading and the most broad in Bluetooth low energy and is in a separate category compared to other players.
On the seller IoT side, I'm pleased to report that we are making steady progress. Of course, the focus for the whole company now is our lead customer sampling program, And under this program, we are working with carefully selected few customers, providing close and direct direct support, and with these efforts, we are laying the foundation for the first design wins. And then most importantly, for the production ramp and starting to get revenue contribution from cellular. During this quarter, we sampled more than 10 customers, with with our kits. And region wise, these customers spans both US and Europe.
And in parallel to sampling and working with customers, we are working with, carriers in the same regions to go ahead and certify our solution. We continue to see strong interest and demand in our solution, and the lead customer sampling program, and we are working really, really hard to bring in new customers, and we're going to roll in, more customers now in second quarter 2018. So just to summarize things, summarize things. From our perspective, We we've got a good start on 2018. You know, outlook lies wise, we feel that we are on track with our ambitions for 2018.
In Q1, 20, in this first quarter, we delivered solid growth and in unimproved profitability. And keep in mind that Q1 is the most seasonally challenging quarter for us. Revenue up 27% year on year and seasonally down only minus 6.6 quarter on quarter, which is low compared to the historical seasonality we have going from Q4 to Q1. Up one percentage point on EBITDA margin and a positive EBIT of US0.8 $1,000,000, compared to minus 1,000,000 in Q1 2017. We got an all time high backlog of US81 million dollars that provides us solid coverage for our H1 guidance.
We have a continued good business momentum we see an underlying market with robust growth. We have a lead and unique growth position across that market, we continue to see strong diversification and growth in our customer base. We're getting revenue contribution from the investments we've done in additional software, and we're pleased to announce that we're gonna get revenue contribution from Fred starting now second half of twenty eighteen with the first customers we announced, earlier today, particle IL. We continue to work on expansion in short range IoT to build a more robust position and have more growth potential. And yesterday, we launched our Sigve software solution for the 502840.
We continue to see strong underlying momentum on design wins, both across the broad market, but also with Tier 1 customers. And thank you. That concludes the presentation and we will move on to Q And A.
Christopher from DNB. I was just wondering when you start to see revenues from thread and Sigbee, etcetera, will you start to split that out so we can see how the various protocols are performing?
Let's get the revenue first and then we should decide how we report it.
And then, secondly, I saw you, as you said, you increasing or continuing to invest in supply chain and preparing your business for stuff like LTM, can you say anything about the OpEx for Q2?
We're not guiding our OpEx, but but, the KPIs we we have been reporting, I think we will be within these KPI range as we've been reporting every every quarter.
Hi, Axel from from ABG. You have a very broad based, growth across market verticals this quarter, but we see, building in retail and health care, which has previously been very strong, have a downtick quarter over quarter in Q1. And you say that this is partly due to some customer being in between design cycles. Now do you see these new design cycles picking up pace in in Q2 and and more specifically, can we expect that these verticals will grow sequentially in in in from Q2 and onwards?
It's a mix. I think, it's very much dependent on customer and customer production time. And also about growth. It depends on especially on the building retail. It's more down to the customers to design cycle and, production cycle.
Healthcare is going to be basically a bit more when customer get into production. So it's a 2 different, reasons for it. As I said, building and retail is very much related to one customer when it comes to health care is more cycled.
I'm building in retail. Do you have visibility on whether, or that will pick up in Q2 now?
It was stronger in March than in the beginning of Q1. Okay.
Thank you. And, follow-up question, on, 91 series. Follow-up question on 91 series. So, you said that you are working with a certification and you have previously said that you aim to start general sampling in in in, at the start of the second half of twenty eighteen. Are you according to the previous, are you in line with the previous schedule on getting that certification before the second half of twenty eighteen?
Carrier certification?
So we've said, general sampling mid this year. And we need certain certifications to make that happen in those regions. And we're on track with the previously communicated, ambitions.
Okay. And and and one final question on on gross margin. You said that you had some benefits from a positive effect on product and customer mix this quarter, and you expect to see some negative effect next quarter. If you were to try to quantify that effect, is that like 0 half a percentage points positive this quarter and and half a percentage point negative next quarter, or is it more?
As I said, it's not it's it's not dramatic. And keep in mind also, we don't have full backlog coverage for Q2. So we're only seeing portion of the Q2 revenues. It depends on what's coming in. So, we're just signaling because our gross margin for Q1 was at the very high end of our guidance range.
And, if it were not to go slightly down or stay at the same level for next quarter, we would have to change to guidance.
Okay. You tested the guidance for 2017? The 14 9? Yeah. And we did 48.9.
So, basically, it can't be much of a variation.
Oh, okay. Yeah.
I'm with Aspartes and Kepler Cheuvreux. Two questions. Firstly, both on the 91. How has the feedback been on the sampling process? That's number 1.
And and secondly, the the incumbents in in the cellular space have a strong position in certain verticals. And given the the strengths of the the 91 offering, could you elaborate a little bit on which verticals you believe Nordic has the best chances of of success in this future market?
So getting very, very good feedback from our customers. As I said, we're really sampling and we see strong interest from a diversified set of applications, and in line with what I said on the briefing, we're also a lot of that is coming from customers who are currently not using cellular. So with power consumption size and things we bring in. We are enabling new applications for customers that have never used cellular before. I don't want to point out any sort of specific verticals as such.
We have mentioned previously, you know, that with the on chip GPS one we have an attractive solution for, asset tracking, but it's really, really a broader and diversified set of applications we're seeing.
Okay. And and to follow-up, are you seeing any, consumer related applications that are, going to be the key markets for you?
Yeah, there is a mix of consumer applications in there too.
Hi there, Oscar for Exumer's Artic Securities. For the last couple of quarters, we've seen sort of the backlog entering a quarter, being 100% or less of the following quarters, revenues. Why is that not the case in this quarter? Why should we not see revenues exceeding $80,000,000 in the second quarter this year?
Basically, if you saw or shopper about industrial customer versus consumer customers, the industrial customers are more long sighted in the order placement. That's really expensive.
So that's a big change this quarter?
It's been gradually building up. We're getting more customer in, in that role, and they have much longer order, windows.
So we have reported throughout 2017 that the the the backlog length is is has been growing quarter on quarter year on year. So this is just a continuation of this trend. Okay. Thanks.
Christopher here from DNB again. I was just wondering 52840 with thread and Sigmund and everything. Could you just comment on how significantly higher the ASPs on that chip? Compared to the others.
It's double digit percentage, higher than the others.
Then which one, then how?
All done, the middle chip, which is the 52,832. Okay.
Great. Thanks.
But remember, the most important thing for Nordic is to enable new customers to get into volume. This is not going to be a marching sort of, milking hub. We really want to enable our customers to be able to get new products out ensure customers are making money
Okay.
Okay. Thank you all. And now we have a general assembly. So if you want to join, you're welcome.