Good morning and welcome to our presentation of Q3 2022. My name is Svenn-Tore Larsen, and with me, as always, I have my CFO, Pål Elstad. We are once again reporting a record result in a very turbulent environment with supply issues and increasing macroeconomic uncertainty. Our revenue increased 36% up to $202 million, whereas our gross profit increased by 47% to $116 million. Our EBITDA more than doubled to $60 million. As I said last time around, the frustrating thing is that revenue and result could have been significantly higher if our delivery capacity had not been severely impacted by wafer supply constraints. Unfortunately, we see a stable revenue outlook for Q4 only due to continued supply challenges.
We are guiding revenues of $190 million-$210 million again, and we will continue having a strong gross margin above 54%. Our backlog has come down from the peak levels we saw at the end of last year. In our second quarter presentation, we said that you should expect further backlog adjustment until the wafer situation is resolved. As we have told you before, the order backlog has been significantly higher than our delivery capacity given the shortage of supply. We've been working with both end customers and distributors to adjust order volumes and try to be able to deliver really needed parts at needed projects. In the third quarter, we also see some order consolidation from smaller customer, but what we mostly see is that Tier 1 customers, our orders and volume forecast remains very, very firm.
The current order backlog of $1.1 billion continues to, I would say, provide a strong support for our revenue growth ambitions going forward. Our position in the broad market remains strong and our share of Bluetooth design certification last quarter was around 40%. The number of designs are fairly stable. That really shows that the value of the Bluetooth market, which is increasing, also indicates that the value Nordic have per design is increasing. We see that both with more advanced products and that leads to higher ASP devices from Nordic. If you dive below on these numbers, we see that out of this 40% market share, 58% of these are in non-consumer applications. That shows how the organization have adapted to basically the turbulence that have been globally regarding consumer.
We are now focusing on non-consumer applications, and 58% was a result of design win last quarter. I'm very proud of sales organization and the strategy we took early when we started seeing this development. We continue to see a steady stream of new products being launched with us, both in Bluetooth and cellular IoT. I mean, this time we have highlighted a few applications. We have some cold chain shipping product. We have beacons combined BLE and ultra-wideband, as you will see a lot coming going forward. We have a child tracker combining BLE and cellular, and we continue to see new cellular products released to the market. One of these we show here is a collection of data and health monitoring. We are a clear leader in Bluetooth Low Energy, both when it comes to design wins and sales.
As we have shown you on many occasions, this made us a natural partner for the large platform companies. We are seeking to strengthen the position for the hubs such as Amazon Echo, Apple HomePod or Google Nest. These platforms need connectivity in BLE, and Nordic is a natural choice. What we see now is Apple, Amazon, Google, and Samsung, and the large companies, around 240 companies actually, are now working together in what we call the Matter Working Group. Nordic has a natural place in such a common standard, and we've been elevated to board membership of Matter lately. If you look at our products, I mean, we are actively supporting Matter 1. Both on nRF52, nRF52840 or nRF5340 parts, and also on the nRF7002, the Wi-Fi chip.
Obviously, do we support the parts, we also have the support in our SDK. Following up on the Wi-Fi chip I just mentioned, we are on call to be able to introduce our first Wi-Fi product already this September. After acquisition of the IP and Wi-Fi team from Imagination last year, we were able to release the product. We have been sampling customers, and we are very excited to see the result when we now start delivering in volume in Q4 in full production. I will also share the pricing that we have given. We said that it's going to be around $2 in volume. If you look at that, it's actually double the price of an average Bluetooth. This chip is on two bands, a dual-band chip, both 2.4 and 5 GHz.
As always with Nordic, it's in a small form factor, 6 x 6 QFN. This is very exciting news for us. We see multiple users with our location service, hubs, gateways, and it's going to be a lot of solutions enhanced by adding Wi-Fi in combination with short-range and long-range products. Wi-Fi was missing in our portfolio, and it was a capability that our customer demanded or wanted from Nordic. By introducing Wi-Fi, we now cover most of the widely used IoT technology. Bluetooth Low Energy, Zigbee, Thread in the short range, Wi-Fi in the medium range, and both LTE-M and NB-IoT in the long range. Common advantages across the portfolio include, of course, low power, common software solution, and advanced development tools. We do what we can to allow our customers to focus on their application. You might recall ease of use.
We continue to have ease of use on top of our list. I'm certain that this portfolio holds a great long-term growth opportunities. With that, I will leave the mic to Pål, which will take you through the financials for the quarter. Welcome, Pål.
Thank you, Svenn-Tore. As Svenn-Tore mentioned, we're once again reporting record numbers despite the challenging supply situation and the more uncertain macroeconomic environment. Revenue came in slightly above the midpoint of the $190 million-$210 million we guided for in the Q2 presentation. This hides quite large differences between the different technologies. Overall, we had a revenue growth of 36% compared to last year. This growth was a result of a mix of higher prices and more supplies. Compared to last quarter, we had a 1% increase, mainly slightly more wafers received in the quarter. However, this could not absorb the reduction in proprietary revenues that we saw in the quarters. Anyway, Bluetooth had a 44% increase. As I said, Bluetooth revenue increased by 44% year-over-year and 7% versus last quarter.
The 44%, compared to last year, of course, reflects the price increase we did at the end of last year, but we also received significantly more wafers for Bluetooth. Proprietary revenue declined by 29% year-over-year, and the number this quarter was actually just half the number we had in Q2 this year. Proprietary revenue has been very strong since the start of COVID-19, with high demand for PC accessories and other home office equipment, such as gaming and virtual reality. As we said at our Q2 presentation, we are prepared for lower demand in this segment, given that people have returned to work and consumer sentiment has weakened.
The lower Q3 revenues primarily reflects inventory adjustments at the distributors and the weaker end-user demand from the smaller customers in the portfolio for proprietary, whereas demand from Tier 1 customers have held up firmly. As we communicated before COVID-19, we see a decline in proprietary as there is a transition to more advanced products at our customers. Proprietary will continue to be important, although only 10% of our total revenue currently and declining. Turning to cellular IoT, the numbers are still relatively small, but we saw a good uptick in Q3 after a weak Q2 due to supply issues. Assessing the cellular IoT development over a somewhat longer timeframe, you can see that revenue has increased significantly over the past year. For the last 12 months, revenue amounts to $26 million, up from $14 million a year ago.
However, looking ahead, we see that the tougher economic environment is creating a more uncertain short-term outlook. We do have a very large base of some 250 projects that we're working on, and several of these have begun to gain commercial traction. However, in the current economic environment, we see that some of these projects might be at risk, and this might affect growth in the short term. For example, project financing can be more challenging for smaller customers or IoT startups who have been working on cellular IoT projects. Looking at sales from another perspective, in terms of end user markets, we see that growth within the consumer or market was a little bit muted in the quarter, whereas industrial continued to grow at a reasonably healthy pace. Consumer is, although, still our largest market by far.
The market allocation partly reflects underlying demand trends, but also our product allocations under the constrained supply regime that Svenn-Tore was discussing. Healthcare is a very important growth market for Nordic. We saw a dip in Q3, but this is mainly explained by when our large customer projects go into production. Yet another way to address this is to look at the development by customer size. We have been building a strong relationship with several Tier 1 customers over time, and over the past years, this has led to an increasing order inflow from these customers.
Even though we have managed to grow revenue also in the broad market and focus a lot on the broad market, the current supply constraints means that we have needed to prioritize the high volume customers, and this is showing through in the revenue concentration. The revenue share of top 10 Bluetooth customers bottom out just below 30% in 2018, and has since increased to 43% over the last 12 months. Actually, in Q3 in isolation, the top 10 customers accounted for 45%. This shift in revenue composition reflects significantly increased sales to Tier 1 customers in the U.S. and Europe, and relatively lower sales to small and mid-sized customers in other regions. Turning to gross margin, we continue to see a strong gross margin also in the third quarter.
Gross profits increased by 47% to $160 million from $79 million the same period last year. The gross margin increased to 57.2% from 53.1% in the same quarter last year. This is a result of positive effects of both product and customer mix, combined with pricing power, given the constrained supply situation. Turning it to the operating model, we see positive developments across the board. As already mentioned, the revenue increased by 36% year-over-year, and the gross margin increased by 4.2 percentage points. We are, however, continuing to invest in our future growth. R&D increased by $2.6 million- $38 million, but as a percentage of revenue, this was a decline from 24%- 19%. This is actually the lowest we've had for some time. It's not reflecting lower investments.
It's reflecting low, increased operational leverage. Similarly, as selling, general, and administrative expenses increased by $2.6 million- $17.4 million, declined from just under 10%- 8.6%. However, it's important to note that both R&D and SG&A have been favorably impacted by stronger US dollars compared to our main currencies, NOK and euro. The FX effect on payroll alone is around $6 million this quarter compared to the FX rates we had a year ago. Summing up, EBITDA more than doubled to $60 million in the quarter. This is close to 30% EBITDA margin, a 10 percentage points increase from the same period last year, and 5% above the long-term target we outlined on the Capital Markets Day.
I'll talk a little bit about cash operating expenses. They amounted to $55 million in Q3 when adding back capitalized development expenses and deducting for depreciation and equity-based compensation. This compares to $50 million in the same period last year and actually a decline from the $58 million we had last quarter. Compared to last year, the 10% increase is actually well below the revenue growth, therefore the higher operational leverage. Payroll of $38 million is only marginally higher than the same amount last year. Even if we show the 20% increase in number of employees, we are now very close to 1,400 employees in Nordic.
The reason the OpEx didn't increase more is that, as I mentioned, we had a very positive FX effect in the quarter compared to last year of $6 million. If we adjust for this $6 million, the OpEx increase will be very close to 20% or the number of employees we have increased. As I mentioned, the weak NOK and euro is very favorable for Nordic when we convert our accounts to US dollars. Fifty percent of all our OpEx and not production related, but all of the other OpEx is in NOK and 20% in euro. If, for example, the NOK goes from a commercial of 8.5- 9, we have approximately $1 million of favorable EBITDA effect.
Now NOK is well above 10.5 compared to the dollar. Of course, this can quickly shift both ways. It's important when you analyze OpEx to take into account the FX rates that's prevailing. Other OpEx increased from $13 million in Q3 last year to $17 million this year, which is still lower than the previous quarter. The year-on-year increase mainly reflects more traveling and higher tapeout activity in this quarter. CapEx has started to increase a little bit compared to previous periods. We're now at $7.2 million for the quarter. Mainly reflecting investments in additional test capacity to finalize end products, and also we've invested quite a lot in IT infrastructure.
CapEx intensity overall remains below the previously indicated levels of around 4% of revenue, and now is expected to end below 3% for the full year. Finally, I'll talk a little bit about our cash flow. We have a very healthy cash flow and a strong cash position. Through Q2 to Q3, we overall added $33 million to our cash balance and ended the cash at $353 million. Operating cash flow was close to $45 million with a strong EBITDA only partly offset by increased working capital. We did see an increase in net working capital of $17 million in the quarter, and as a result, the net working capital in percent of revenue is up to 24%.
Overall, we have a very strong cash balance together with the newly sustainability-linked RCF that we signed in late June last this quarter, last this year. Well, I'll come back to you, Svenn-Tore Larsen, to go through the outlook.
Thank you, Pål. I mean, as I said in the beginning, we see a relatively stable development from Q3 to Q4. Total Bluetooth demand continues to exceed supply. Although we see some reduced demand in some verticals, the Tier 1 customers and the new projects we won the last two years are demanding significantly higher supply than we are able to ship. We are working every day, every week to increase our supply. We know that the revenue to be recognized, we need to see parts in early December to turn it into parts that we can ship out in Q4. We are working hard to see how much we can pull into the quarter. As of today, the revenue guidance will be flat $190-$210.
We expect to keep the gross margin at healthy levels, and it's driven by favorable product and customer mix. Looking further ahead, we acknowledge that the market uncertainty has increased. You can see that around every day. Over the past months, we've seen newswires relaying stories about the global economy, the cooling semiconductor sales, increased trade tensions between U.S. and China, and it's adding to recession fears over the last period. We obviously acknowledge this, but we also have the other side of the equation when we see new projects coming into Nordic demanding higher volume. To address the latter first, we do not expect to see any significant direct impact of the new U.S. export controls on our business, although the new regulations could affect some of our customers.
More generally speaking, we see a market outlook that differ quite a lot across the verticals, geographies, and different customer types. As I said earlier, we see strong order bookings and forecasts from our Tier 1. It is the Bluetooth customers. As Pål mentioned, we have seen a shift in the revenue composition, with significantly increased sales to Tier 1 in the U.S. and Europe, and relatively lower sales to small, medium-sized customers in other regions. Overall, our revenue ambitions remains intact. However, we had to see what's going on, and we have to have a more cautious outlook for proprietary. Obviously we have had this cautious outlook for our proprietary products for two-three years now, and it got a boost through the COVID period, where a lot of people moved home and bought new equipment. The main trend is the same as pre-COVID.
Most of our customers in proprietary are moving to Bluetooth products. The challenge for Nordic is to be able to ship Bluetooth products in these new end products. I think we have been working flat out the past year or a year and a half to get hold of as many wafers as possible, and we continue to work to get more. Also in 2023. With new products, some help from our vendors, if we can get more wafers, I am pretty firm on keeping up the goal that we have set for 2023. The important thing is though that Nordic continue to invest.
We know that the market we're in is a market that's going to grow from now to 2023, and our ambitions of more than double revenue from 2023 to 2026 stands still, is still there. If we don't invest in R&D, it will be hard to make this happen, but we are continuing to invest. As you understand, we don't have order coverage that far out, and these revenue ambitions build on assumptions of continued economic growth and continued demand growth from both customers and consumers and industrials. If you look at the projects we're working on, if you look at the forecast we get from our Tier 1 customers, it's very much in line. If we see a persisting negative macroeconomic development or major change in customer behavior, obviously Nordic will adapt to the situation. We are in a good position.
We have a capital light model, fabless production, external distributors, and this leaves us with high flexibility to adapt to changes in the business environment. Summing up, we have completed another quarter with record revenue and result. We continue to see strong demand and order forecast from our Tier 1 customers. This provides a solid fundament for further growth. Although we need to see higher supply of wafers to fully meet the ambitions for the next year, we are optimistic. I am optimistic. If we should believe in the development and everything we read around, we just work even harder to achieve more of semiconductors coming Nordic way. With this, I would like to open for questions. Thank you for listening. Pål?
Yes. Hello. We have gotten a lot of questions. My name is Ståle, I'm the head of IR. We can start with guidance from Adam, from Bank of America. Did you receive less wafer allocation in Q4 than expected? Was it not planned to grow sequentially throughout the year?
We did not receive less wafers. We received wafers from different nodes. On the proprietary, which is a different node from what we use on Bluetooth, we received wafers that we're not able to send to customers. On Bluetooth, we received more than we expected.
Supply capacity from Robert Sanders, Deutsche Bank. What is the initial indication from TSMC regarding your wafer allocation for 2023?
I'm sorry, Rob, but we're not discussing commercial discussion with TSMC here. As I said, we remain to keep the goal. That indicates that we need more wafers.
We have a question from Lars Lægreid , Kepler. Regarding your $1 billion revenue target, you now mention that you will require additional Bluetooth wafer supplies to meet that target. Does that mean that you depend on extra deliveries outside the allocation plan?
The allocation plan, I don't know where you're, what you're referring to. When we did the calculations, when we had the goal, it's soon two years ago, and we have maintained that goal. Obviously, we need to get more wafers to catch up the, I would say, shortfall on proprietary. We also have other products coming into our portfolio.
Think we can also-
Based on different technology nodes.
I'd also say, Svenn-Tore Larsen, that in the dynamic market we're in today, we are discussing with our suppliers constantly and working on pulling in wafers. It's part of the business we're working on. You mentioned that we work constantly on this.
Thank you. We have a question regarding supply capacity from Adam, Bank of America. Do you expect wafer allocation shortages for Nordic to continue through 2023 and potentially into 2024?
I think this is something that the industry struggles to give a clear answer on. As you know, we are competing with the automotive industry, and the automotive industry is still catching up from COVID, and there's a strong demand. It basically depends on how our competitors are doing over the next year. I don't see today that there is a structural change in that situation.
Thank you. We also have a question regarding backlog. Adam from Bank of America. Could you explain backlog decline in terms of your adjustment versus weaker demand?
Basically, I think it's very fair of us towards our end customer to indicate what we can ship and not always what our customer wants. We've been trimming the backlog, as we said on the slide, to more match the capability we have of shipment currently.
Thank you. We have a few questions regarding gross margin. We can start with Christoffer Bjørnsen, DNB. Gross margin remains around 54% into Q4 due to tight supply versus demand. Given that you say demand remains above supply into 2022, should we assume that the gross margin remains at this level, at least for the next year?
I got it. We've commented on 54% for Q4. In Q3, we had low proprietary. We had some favorable product mix. Going into Q4 and then the rest of next year, we will see probably higher top ten and maybe a little bit more proprietary and also a little bit more proprietary. The overall mix will go slightly down from the 57 we had in this quarter, down towards the 54 we mentioned in the presentation.
Thank you. We are coming to Adam from Bank of America. Will increase in concentration to large Tier 1 customer lead to further gross margin headwinds? I think.
No, I think Pål answered that.
Oh, yeah.
I think also it's important to understand that if you look at these Tier 1 customers, we can say that, Pål, that none of them are contributing more than 50% of our revenue, so they spread over multiple customers. We have a healthy margin.
Thank you. We have a question regarding OpEx from Lars Lægreid , Kepler. Do you expect to increase, decrease R&D going forward as a result of the macro headwinds?
I think, Svenn-Tore , if you look at underlying spending, not just for FX, we communicated on the Capital Markets Day that we need to stay around 20% in order to develop the company and grow further. Svenn-Tore talked about that in the presentation. Of course, we do have a lightly capital intensive business. If we see significant changes in environment, of course, we will have to adapt.
We have to be faithful to what we see from customers and our belief. We see now the activity we have at Nordic on R&D. We can add more people, even to fulfill the need for our customers, and that's what we're doing. We hope to continue this aggressive hiring on R&D personnel as we enter into 2023. There is more projects out there that want to use Nordic, and it's our responsibility to give the best connectivity chips on the market to these customers.
Thank you. We have a question regarding this China and U.S. situation from Lars Lægreid , Kepler. How will the new U.S. export restriction to China affect you?
We spent the last three days with lawyers and legal people to see what is current impact of the regulations. Current impact, we don't see any direct either downstream or upstream for Nordic. We think this could be even tighter going forward, so we are prepared to do whatever we need to do to ensure that we keep within the regulations.
Thank you.
The short answer is we don't have any impact on short term.
Thank you. We have a question regarding cellular from Øystein, ABG. You say the Q4 guidance reflect increased short-term uncertainty for cellular IoT. Can you give some flavor on this?
We have a lot of customers starting to bring new products to the market. With this macroeconomic situation, we are not sure if all of these products will be accelerated or if they will be held. We are cautious, as I think it is important to be in such a situation.
Thank you. We also have a question regarding Wi-Fi. How has the initial response for Wi-Fi release been?
Don't take me too positive. I mean, I'm always positive because I'm impressed with the feedback we got from existing customers. We've been sampling a few customers already. We are doing a software update on the 7002, the Wi-Fi chip, as it's called, in late October, and we are going to sample a significant number of new customers, as soon as this software is released. The feedback has been good. Obviously, it should be good because it brings the DNA of Nordic, the ultra-low power, straight into the heart of this product. We expected it to be positive, and it's been very good.
Thank you. Johannes Rees, Opus Capital, has a question regarding Wi-Fi. When will you enter into the phase of high volumes? Any comments on the development on your other adjacent products?
When it comes to revenue volumes, I think you're going to see in 2024, end of 2024. When you see into productions now, we're going into volume production in Q4 this year. Actually, this quarter. That's why we can sample more customers in October. But again, it's the development time at customers that takes one year.
Thank you. We are getting some more questions regarding the revenue target of $1 billion. I think we just take one more on that. From Christoffer Bjørnsen, DNB. On the one hand, you say that the $1 billion backlog, $1.1 billion backlog is now aligned with your ability to supply, while in the presentation, you say more wafer supply will be needed to reach your $1 billion revenue target. What are you trying to say?
What I'm trying to say, there's a fair chance for Nordic, and there's a good reason to uphold the $1 billion goal. I also say that we have to calculate revenue based on existing allocations from our vendors. Obviously, we've seen that working throughout the year, there is opportunity to achieve higher support.
Thank you. I think that concludes everything.
Okay. Thanks everyone that have asked us questions. We have a huge roadshow ahead of us, so most probably going to speak to you directly, either on Teams or face-to-face. Thanks.
Take care.