Nordic Semiconductor Ord

everyone and welcome to the Nordic Semiconductors Q4 quarterly presentation. For the first part of this call, all participants are in a listen-only mode. Afterwards, there'll be a question and answer session. To ask a question, please press five star on your telephone keypad. This call is being recorded. I now turn the call over to Steele. Please go ahead, Steele.

Thank you, Patrick. And good morning, everyone. As Patrick said, this presentation is being recorded and will be accessible on the Nordic website in the investor relations section. Additional, our earnings press release, quarterly report and presentation material can also be found on the IR website page. With me today are Vegard Volland, our CEO, and Paul Elstad, our CFO. They will share details about our recent financial performance and updates on key business developments. Following the presentation, we will move on to the Q&A segment. During this time, live questions can be submitted through the Q&A dial-in features. The instruction on how to dial in, please refer to the earnings call invitation available under stock exchange notice on our IR website.

Please keep... Morning, everyone, and welcome to the Nordic Semiconductors Q4 quarterly presentation. For the first part of this call, all participants are in a listen-only mode. Afterwards, there'll be a question and answer session. To ask a question, please press five star on your telephone keypad. This call is being recorded. I now turn the call over to Steele. Please go ahead, Steele.

Thank you, Patrick. And good morning, everyone. As Patrick said, this presentation is being recorded and will be accessible on the Nordic website in the investor relations section. Additional, our earnings press release, quarterly report and presentation material can also be found on the IR website page. With me today are Vegard Volland, our CEO, and Paul Elstad, our CFO. They will share details about our recent financial performance and updates on key business developments. Following the presentation, we will move on to the Q&A segment. During this time, live questions can be submitted through the Q&A dial-in features. The instruction on how to dial in, please refer to the earnings call invitation available under stock exchange notice on our IR website. Please keep in mind that dial in is required only if you like to ask questions. As a reminder, this presentation includes forward-looking statements that comes with inherent risk and uncertainties. Actual outcome may differ materially from those statements expressed or implied. We highly recommend reviewing our detailed Q4 quarterly report and the annual report 2023 for a deeper understanding of the risks and uncertainties that could impact our business operation. With that, I will now hand the floor over to our CEO, Vegard Volland.

Thank you Stil, my name is Vegard Wallan and I'm the CEO of Nordic and with me I have our CFO Paul Elstad. Let's get straight into the main takeaways from the fourth quarter. Revenue amounted to 150 million dollars in the fourth quarter in the very high end of the guiding range. This was an increase of 39% year on year, though bear in mind that we also had some inventory adjustments negatively affecting revenues in the fourth quarter last year. The revenue increase is quite broad based across all our end user markets and with higher revenue in both short range and long range. The gross margin came in at 49% in the quarter, generating a positive EBITDA of $9 million in Q4, compared to a loss of $7 million in the same quarter last year. Looking ahead, we are guiding for revenue of between $140 to $160 million for the first quarter. This reflects generally healthy demand and somewhat higher shipments to individual customers in the quarter. Generally speaking, we continue to see stronger demand in consumer and healthcare than we do in industrial, especially in Europe. It's been a year now since I took over as CEO in Nordic and we have done quite a lot of work to lay a foundation for renewed profitable growth in the years to come. You know that we have strengthened the management teams and established a business structure of four business areas in short range, long range, Wi-Fi and PIMIC. We have reorganized and reallocated resources to enhance efficiency and cut costs, meaning that we intend to grow on a flat cost base in 2025. We have successfully launched the NRF54 series, offering our short-range customers a step change in performance. and we have successfully launched a smaller and greatly improved NRF9151 module, which will improve cost-benefit and begin to open a larger part of the long-range market. Finally, we are continuing to develop our Wi-Fi and power management offerings, which are still in the early commercial stages. It will take time to capture the full benefit of our changes made, both the operational changes and the product launches, but we ended 2024 on a strong note and in good shape. As we have talked about repeatedly, we have built and are maintaining and further developing very strong relationships with our key customers. If you look at the development from the peak levels in 2022, you see that revenue from our top 10 customers are down by less than 10%. However, from the other Bluetooth customers in the broad market, declined with around 50% in the same period. And we have made it a high priority to regain traction in the broad market. As we showed you on our capital markets day, we have begun to see the total number of customers beginning to grow again. However, we also said that renewed growth in the broad market will build on the success of the NRF54 series. That's going to take some time before that's reflected in our revenue numbers. On the same note, we remained a clear design win leader in terms of number of Bluetooth Low Energy and product certifications. But in Q4, we saw a drop both in the absolute number of product certifications with NordicInside and in the share of certifications. And there are two main reasons for this drop. Firstly, we see a larger portion of the signs in the market that are relatively low-cost products in the lower end of the market, where we have been clear previously that we are currently not participating. Secondly, and maybe most important, our transition from our NRF 5253 series to the NRF 5400 series creates a bit of a timing gap for us. I want to make it clear that these are product certifications and there are zero NRF54 designs in these numbers. We see a very high design activity with many customers designing with our NRF54 product and we expect this to gradually translate into more product certifications throughout 2025 and into 2026. I also want to make it clear that these data doesn't differ between high- and low-volume products, as this is reporting the count of certifications. We are maintaining our strong foot-hold and activity with our high-volume customers, and thus we believe we are keeping our market share in terms of Bluetooth Low Energy volumes and revenues. As we stated on our CMD, we have a unique growth opportunity with the introduction of the F54 series and we look forward to rolling out a competitive portfolio covering the entire serviceable market. But since design cycles take time, we'll see only a limited effect of this in 2025. We will launch more products throughout 2025 and 2026. And as we continue launching products, you will see that we will both expand our portfolio upwards in complexity and value, as well as expanding downwards to lower and to increase our overall serviceable market. We are very confident with the competitive strength of our 54 series. meaning that we will see accelerated growth in designs and revenue for many years. We launched the first three variants of our NRF54L series at the large electronica show in Munich in November and we received very strong and positive feedback from our customers and many new customers. The NRF54 series are fully integrated system on chip products built on the smaller 22 nanometer platforms and they are built on our proprietary ultra-low power technology and IP. Customers obviously appreciate the low power, advanced security features and our new and more advanced next generation radio system. Many focus on the fact that we are the only one offering fully integrated single chip solutions with multiple CPUs and all the memories integrated on the chip. That saves the customers from having to add external memory solutions that add costs, take up space and increases power consumption. We carried the same focus and energy into CES in Las Vegas at the beginning of 2025, focusing on the NRF54 for use in both existing and new applications with our North American customers. As I'll show you in a minute, we also saw the first customers demonstrating end products with the NRF54 series SOC at the CES 2025. Module makers are also eagerly awaited our launches and we showcase new modules incorporating both the 54L and the 54H from 12 different module makers at our stand. Coming from a skiing nation, it was also great to see Olympian and world champion Bode Miller present his peak skis with a Nordic powered tracking and sensor system integrated. As I just mentioned, we saw the first customer presenting end products with the NRF54 series at the CES. One example was the gaming accessory company Cherry, launching the world's first true dual 8K rate wireless keyboard, powered by our new high-end NRF54H SoC. The NRF54H offers great compute performance with its four CPUs on chip and is more complex compared to the 54L series and our previous products. While the early adapters like Cherry are already launching products with the 54H, we do see a strong and increasing design activity with the 54H over the last months. With such high interest and activity for this complex product, we are intensively working our world-class software support and solutions to enable the ramp of both our key customers and other selected early adapters. Summing up, the introduction of our NRF54 series has truly been great and we're really looking forward to work with our customers on new and exciting designs over the years ahead of us. We are already a technology leader in our markets and continue to enable pioneering products such as smart rings, smart watches, smart eyewear and other wearables. What we are seeing now is that more and more of our customers are looking to enable edge node AI and ML in their local sensor processing algorithms. either for performance or latency, bandwidth, power consumption, security or cost reasons. With the launch of our new fully integrated SoCs in the 54 series for short range and in the 91 series for long range, we are very well positioned to benefit from the increased compute requirements in these products and applications. Truly looking forward to it. On that note, I'll leave the microphone to Paul to take you through the numbers.

Thank you, Vegard. Nordic drove as we see a very solid end to 2024. Before I give further commentary on this, I will update on reporting structure going forward. To get more focus on the different technologies during 2024, Nordic reorganized its operations into four business units. Short range, long range, Wi-Fi and PMIC power management. While the technology development in Wi-Fi and PMIC is progressing as planned, these business units are still an early commercial phase. In 2025, the company will shift to reporting revenues for short-range, including proprietary and Bluetooth, long-range and other, with the latter including both Wi-Fi and PMIC, with separate reporting on the two business units once they start generating meaningful revenue. Of course, we will give regular basis data points so that meaningful evaluation of the technologies can be made. We believe that this change will more align to how we manage our business. The change will take effect from Q1 2025. I'll come back to later that we're also planning to make changes to the markets we report under. Revenue amounted to $150 million in the fourth quarter of 2024, an increase of 39% from the same quarter last year. The revenue increase reflects a gradual demand recovery among both key customers and the broad market. Compared to the fourth quarter of 2023, Nordic experienced improvement year-over-year across both short-range and long-range wireless components, and in all end-user markets. The decline of 5% from last quarter is driven by lower seasonal revenue in a few markets, offset by strong demand in other. The year-on-year increase is mainly driven by Bluetooth. Bluetooth revenue amounted to 132 million in Q4, an increase of 46% year-over-year and down 8% from the previous quarter. The Bluetooth revenue development reflects improving demand from both larger key customers and smaller customers in the broad market. Proprietary revenue amounted to 8.3 million in Q4, a decrease of 15% year-on-year and down 31% from the previous quarter. Proprietary share of total revenue was 6% in Q4 and 7% for the full year. Proprietary is the market with highest seasonal effects, therefore important to also look at full year numbers. Proprietary revenue for the full year 2024 increased by 9% to close to $38 million, reflecting a demand recovery for PC accessories and home office equipment. However, we have long communicated that we expect a gradual technology transition from proprietary to Bluetooth. The development for the two technologies should be seen in combination, which is why we are now moving to reporting short-range Bluetooth revenue and proprietary revenue as one unit, with effect from Q1 2025. Long-range or cellular IoT revenue amounted to 7 million in Q4. This was an increase of 16% year-on-year, reflecting improving demand from customers in the industrial asset-tracking market. Revenue increased by 181% from the previous quarter. However, last quarter was impacted by distributor inventory adjustments. Nordic sees increasing interest and demand for its new NRF 9151 system package, which was launched during the third quarter. The NRF 9151 is 24% smaller, more energy efficient and more cost effective than existing NRF 9161 long-range products. Turning to end-user markets. Given the overall strength in our business, we see year-on-year growth in all markets. Consumer amounted to 94 million in Q4 and remained by far the largest end user market with 63% of total revenues in Q4 and 66% for the full year 2024. Revenue in the fourth quarter increased by 40% year over year while declining by 13% sequentially. The year-on-year increase reflects a broad-based improvement across consumer electronics, with PC accessories and gaming continuing to lead the market recovery. Industrial revenue amounted to 25 million in Q4, accounting for 17% of total revenue and 18% for the full year. Revenue increased by 35% from Q4 and showed a 4% revenue decline quarter-on-quarter. Although the year-over-year increase is strong, remember that last year was very weak as this industry had the largest inventory adjustments during late 2023 and early 2024. Demand from the industrial market remained particularly slow in Europe during the last periods. Healthcare revenues amounted to 26 million in Q4, accounting for 17% of total revenue in Q4 and 13% for the full year. This was an increase of 38% from Q4 and up 23% from Q3 this year. As discussed in the previous quarterly reports, revenue in the healthcare era remains dependent on a relatively small number of customers and is exposed to relatively wide variations from quarter to quarter. To avoid speculation about the performance of individual customers and protect the integrity of our customers and customer relationship, Nordic has decided to change the reporting of its end user markets with effect from the first quarter 2025. Industrial and healthcare will be combined into one reporting unit, which in 2024 would have had revenue of 158 million and accounted for 31% of total revenue. Turning to gross margins, there's not much to say about gross margins. We delivered a gross margin at 49%, so just below our target of 50%. So it was in line with the guidance, and as always, the variations mainly reflect changes in customer and product mix in the quarter. It's important to emphasize that we maintain our long-term ambition to keep gross margins above 50%. As communicated on the capital markets day, our operating model is set up with an ambition to move towards EBITDA margins of around 25% over the next five years. However, our organization and operating model is obviously geared towards a significantly higher revenue level than what we've seen during the last year. However, we see a significant improvement compared to last year, even though we're not satisfied with 8% adjusted EBITDA levels. It is the second quarter in a row with improvements and shows that higher revenue combined with cost focus leads us towards returning to profitability. Despite improving revenues, we're still spending more than 26% of revenue on R&D compared with the model target of 15 to 20%, and 15% on SG&A compared to the model target of less than 10%. To achieve our long-term EBITDA margin targets, we're working along three axes, grow our revenues, support our gross margins, and contain costs to benefit from operational leverage as our revenue grows. We are going to deliver on all these accounts over the years to come. Now turning to the cost discussion, Nordic has a sharp focus on returning to operating profitability as I just mentioned, requiring strict cost control while at the same time delivering on all key projects. We have been working to align the new business unit organization that was implemented in 2024. And during Q4, we carried out the resource realignment including global workforce reduction of approximately 8% of the company's total workforce. The full effect of the reduction in force will not be visible until Q1. Total expenses of $3 million related to this was accounted for in Q4 numbers. Originally estimated cost of $5 million. However, the lower figure reflects that some of the costs will go partly into 2025 also. We did a similar restructuring in 2023 and in 2023 numbers includes $5 million in restructuring expenses. The number of employees was reduced by 9% year-over-year to 1,363 employees and is down 20% from the peak at 1543 in late 2023. Despite this, we saw the payroll increase by 5% year-over-year. This is partly explained by higher salary increases in 2024 after salary freeze in 2023. The 2024 numbers also include higher accrual for variable pay compared to 2020, and as already mentioned, $3 million in restructuring expenses. Going forward, we have communicated that we target a flat OPEX in 2025, and we will continue to focus on adjusting our spending level to support margins also going forward. CapEx continues to be pretty low. CapEx in the quarter was $3.5 million or 2% of revenue. This was down from $4.7 million a year ago and compared to $3 million last quarter. The low CapEx reflects that we are still utilizing the high investments in test capacity that was made during COVID. Current CapEx is mainly driven to IT equipment and R&D investments. Finally, I'll turn to our cash flow. You can see that we generated a total cash flow of approximately $27 million during Q4. Operating cash flow was a very strong $49 million during the quarter. This compares to outflow of $9 million in Q4. The reason for this strong cash flow that we had strong operating or reduction of net working capital as well as operating profits in the quarter. The reason for the reduction in net working capital is high customer payments during the quarter. Customer payments was a record high during the quarter and as such customers base outstanding is record low. Inventories decreased 10 million in the Q4 to 171 million dollars, but was up 8 million versus the end of last year. We commented earlier that we expected a decline in inventories during the year. However, we continue to strategically source materials that have capacity for future growth. The value of inventory at quarter end will fluctuate some due to lagging timeline of arrival of wafers and customer shipments. With that, I'll leave the mic back to Vegard for his closing remarks.

Thanks, Paul. I'll get straight on our outlook for the quarter before opening for questions. Forecasting in today's geopolitical environment is somewhat more challenging. And as always, should materially new information arrive during the quarter that changes our guidance, we'll naturally inform about this. We do see and expect our underlying revenue recovery to be continuing in the first quarter. And given that we saw significant inventory adjustment in the first quarter last year, we will see quite a strong year-on-year revenue growth from our revenue of only $74 million in the first quarter last year. guiding range of 140 to 160 million dollars in the first quarter this year, hence corresponds to approximately a year-on-year doubling of revenue in Q1 2025 versus 24. We would normally expect to see a seasonal decline from our fourth quarter to the first quarter, And this time around, we see orders from individual customers offsetting the seasonal trend, with the guiding range corresponding to between plus minus 7% compared with the fourth quarter. With that, I believe it's time to open for questions and over to you, Stil.

Thank you, Vegard. At this time, we are opening the floor for questions through the Q&A dial-in features. For details, again, refer to the earnings call invitation posted on our investor relations site under the Stock Exchange Notice. To ensure we can address as many questions as possible before the market opens, we kindly request that participants restrict themselves to one question and one follow-up. With that, I will now turn it over to our operator to start the Q&A section.

Thank you, Steele. If you do wish to ask a question, please press five star on your telephone keypad. To withdraw it, you may do so by pressing five star again. Our first question will be from the line of Harry Blakelock from UBS. Please go ahead. Your line will now be unmuted.

Good morning. Thanks for taking my questions. First, it's just on the 2025 outlook. I notice you're no longer saying that you expect modest growth in short range. It seems like inventories are kind of starting to get to a healthier position in terms of customer inventories and demand is returning solidly, albeit kind of still some weakness in industrial and other pockets. Would it be fair to assume typical seasonal trends now through 2025, or is there any other colour that you could provide beyond Q1?

Yeah, it's a good question, and I think you summarized quite a bit of it there, Harry, so thank you. I think we do see demand gradually continuing to recover for us, as we do see in Q4, Q1, with some additional ordering from some individual customers, as we are commenting on. Other than that, we are not obviously guiding beyond the current quarter, so we're not commenting further on 2025. We are... currently seeing in in in at least the main part of the consumer market market a underlying seasonality but we also see some revenue volatility with individual customers that may offset these patterns for in individual quarters But as I said, our guiding principles remain clear and we provide guidance of revenue and gross margin for the upcoming quarter. And as such, would not provide any more specific details for 2025. Got it.

Thanks, Meghad. And then just one other question around the market share dynamics. You know, I... I understand the color that you provided there. It's quite a meaningful drop considering you typically always stayed around 40%. And obviously it hasn't been gradual. I was just wondering whether you could give any color around why has that shift away from low volume applications come through kind of so meaningfully in Q4 and just what your assessment of that is.

Yes, it's a great question and obviously we are and have been analysing that in depth. It is, as I said, two main reasons as we see it. One and firstly, the fact that there is a There is a changing degree of which type of designs are being certified and this time there is a slightly higher portion of the low-end, low-cost type products where Nordic hasn't been participating up until now. Having said that, there is also a slight element in that of of China, somewhat more designs registered in China, where our share is somewhat lower. But we believe that, as I said, the second and main effect of this is the transitioning from our main runners today, the 52 and 53 series transitioning to 54 series. And as I said, currently, there are no 54 series designs certified and registered in those numbers.

Got it. That's super helpful. Thanks, Eger.

Thank you. Thank you, Herod. The next question will be from the line of Olivia Honeychurch from Jefferies. Your line will be unmuted.

A couple things from my side. I just want to go back to the Q1 guidance. Can you give us a little bit of color on where exactly the strength is coming from that's offsetting your typical seasonality? And I guess Extrapolating that for the whole year, has that Q1 strength changed your expectations for 2025 revenue growth, which you laid out at the Capital Market Day last year, i.e. to be below 17% or so for the whole year?

Thanks, Olivia. We appreciate and understand your question. At our capital markets day in September, we commented on the 2025 outlook of our short-range business only in the context of our ambitious long-term targets, which we set at that point in time. So with that, we are not going to provide any more specific details for 2025. If we look into Q1, we believe we see an underlying gradual demand recovery, which is mainly happening with healthy demand in consumer and healthcare. still being slow in industrial and relatively slow in Europe, though we do see some pockets of improvements and the broader part at least of inventory corrections also being behind us such that we have, let's say, more normalised, stabilised type markets as we see it.

Great. Thank you. And my follow-up was actually just around the European industrial that you mentioned just there. Obviously, that was still a week in the quarter. Are you seeing signs of improvement in that specific pocket? Or I guess put another way, when exactly would you expect that segment to see more of a recovery? Because it feels like it's really now the last shoe to drop in terms of your end markets returning. Thank you.

Yes, I think we do see, as you see, some fluctuations in industrial, which is a positive on a year-over-year, if you compare Q4 to Q4. But it did remain particularly slow for us in Europe, as we said. And if you look at 2024 as a full year, industrial revenue still declined 20%. And it's clear for us that it is Europe there that is lagging and our... overseas revenues are are slightly better on on that segment but in the overall picture consumer and healthcare are are more positive and driving more positively for us at the moment i think it's fair to say that we also see good design activity with 54h especially in the industrial market and and also in europe which which is good for the future for the company

Absolutely.

It's really helpful. Thanks.

Thanks, Olivia. Thank you, Olivia. The next question will be from the line of Christopher from DNB. Your line will be unmuted.

Yes. Hi. Thank you. Thank you for taking my question. So first of all, on the frequency analysis, you know in your remarks that there is something going on in Q1 with particular uh customers and and then also there's a little chapter in the market about how they could fare some future tariffs is there you're kind of trying to say that we should mostly expect q3 to be really stronger which i think i don't know how should we think about this

It was a bit difficult to hear all of your questions, Christopher, but I think we got most of it, so we'll be trying. I think it's fair to say that as of today, and we obviously may not have the absolute full picture of this, we do not see a major pull-in effect related to tariffs, but There may be some of that happening. We don't necessarily see all and have the visibility to all of that picture.

that's probably what to be said on That's it.

Obviously, we do have certain lead times on our manufacturing and shipments. So these changes we do see within a quarter are obviously orders from some time back. I don't know if that answered your question, Kristoffer, because it was a bit difficult to hear you.

I think that was correct.

Is there any reason why we shouldn't explain and expect typical seasonality in the coming quarters, like Q2, Q3 are typically larger quarters and Q1 is the smallest quarter, so is there any reason why we shouldn't expect this pattern to pan out in the coming quarters?

I think it's fair to say that we currently see Do you see... the previous or the same underlying system. with individual customers that might offer these patterns. in the individual quarters. I have to to that our guiding principles are clear we are not talking

about anything on q1 at the moment sorry thank you then my quick follow-up on the post space so you said you you talked about in 25 versus 24, but, you know, you're both now panning out nicely and some of your peers have guided for that you will go from there in this list. You kind of now feel that you have more room to potentially accelerate finding an investment in talent and roles in 25 potentially, or why should we expect you to still go from there? Okay.

You asked about About OPEX, it was a little bit difficult to hear.

Correct, Kristoffer? we we the basis for OPEX now in the latter part of 2020. the same object. going into 2021 of course there is some inflation that we are a lot of very exciting products. 25 will be some OPEX

driven by that but but i think it's we've also reduced the number of employees compared to going into 2024 so we're pretty confident that we're going to be able to to keep opex flat year over year despite higher investments within some areas

Yeah, I think we can see that our rebalancing our resources on the R&D side is working actually very well. And we are extremely proud about the Nordic teams execution on the engineering side at the moment. And as you will see, we have a lot of very exciting