© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and welcome to our presentation of Q1 2022. My name is Svenn-Tore Larsen and with me, as always, I have my CFO, Pal Elstad. I will start by summing up some highlights for the quarter. We delivered 28% revenue growth in the quarter, even though delivery capacity continues to be severely impacted by wafer constraints. Gross margin was high at 60%. Pal will discuss this in his part of the presentation. Actually generated a 52% increase in our gross profit, and we ended at $109 million. With this operational leverage we have, this led to more than doubling of EBITDA and we ended at $55 million and EBIT margin of 30% for the quarter. We expect continued solid performance in the second quarter despite the continued supply challenges, and this is based upon our capacity support plan from our vendors. We expect our revenue and guide for $190 million to $210 million, and our gross margin would be above 54%. And I will reiterate that our long-term outlook stands firm. The situation now is that the demand is significantly higher than supply. Given the persistent supply chain constraints, we are actively working with our end customers, and this is to adjust order volumes to better match the delivery capacity. The current order backlog is much higher than our delivery capabilities, and reduction of the order backlog during the first quarters reflects Nordic's initiatives and not demand. We needed to take some of the larger customers, and we were allocating them and not everyone got 100%. And also, some customers didn't get more than maybe 40%, 50%. We had laser focus to keep customers running their production. And until the wafer supply situation is resolved, you should expect that we have to continue at the moment, and it's very correct to do. If you look at the situation backwards a bit, we used to have around 2 quarters of backlog when supply were unconstrained. And in that, I will say, situation, the order backlog act as a kind of leading indicator for the revenue the following 6 months, 2 quarters. However, the backlog started to increase towards the end of 2020, and when the wafer shortage started to take effect early in '21, the combination of extreme demand and constrained supply really extended our backlog significantly. And we are -- we have been working with our suppliers to increase our support, and now we are in a situation where we more or less know what we're going to get for second half. And we have stated or will state later in the presentation that second half supply are above first half of 2022. The ratio of order backlog to current revenue went from 2x to 10x, if you look at the slide here, and now we had to take these active measures to start bringing the order backlog more in line with the capacity. So our revenue is currently decided by supply and not demand. And I see also from other semiconductor companies that have been giving result is the same message. As the order backlog is not a good indicator of revenue demand, as I had talked about, we still keep the backlog as an alternative performance measure for consistency. But it's nothing to basically look and analyze to determine what will be the revenue for next quarter. That's basically supply only, and we've been guiding $190 million to $210 million for next quarter. We've also been getting some questions from investors and analysts about pipeline filling and inventories lately. And likely, this is because more uncertainty, economic outlook in face of reduced consumer spending. All we can say, is that there is no signs of any inventory buildup for Nordic, not in our own product line, not at the distribution level and certainly, not at our end customers. We spend almost every night and morning to discuss with customers how to allocate to keep our customers' production floating. So if you see here, there is some inventory, but that's basically [ ours ], so were not able to be shipped out from this end of the quarter, and works in progress from Nordic, and wafers are under way to go from raw wafers to packed ICs. If you look into our markets, it's the first time we report for end-user market, it's consumer, industrial, health care and others. Consumer accounts still for 2/3 of the last 12 months revenue. Given the supply chain constraints, this reflect our production allocation, not the demand to the different markets. That's an important thing. We need to allocate to customers that are loyal and have a long activity on the products and also who are in the right verticals. Well, if you look at the growth and analyze the industrial, it actually has the strongest growth in the past 3 years. And also when I come to the slide with the design wins, we show that last quarter, there was 50-50 design wins among consumer and non-consumer products. And we have been highlighting medical for -- vertical for a long time, and we see high upsides for the professional healthcare markets, in disease monitoring and drug delivery. In Pal's presentation, we will go deeper into these numbers by segments. As said, we have steady and high certification market share. The important thing is that at Nordic, we see significantly higher value per design. Again, we do have new product launch here. If you look at announced products in the first quarter, we continue to see new products in both Bluetooth and in cellular IoT, as well as product combining the 2 technologies, which is very exciting. I think also that's part of why we're driving more designs on Bluetooth on non-consumer, because we see PCBs with -- containing both Bluetooth technology and LTE technology. As usual, it's a big spend or a big variety of application from smart door locks to smart watches to asset trackers and theft protection to utility meters, which is LTE. And we also see quite a few customers developing new modules with Nordic LTE chips. Basically, cellular IoT, we need partners to accelerate our products or our customers' products to the market. We had a difficult quarter when it comes to cellular. There was a shortage of a filter, a [ $0.04 ] filter, which basically prohibit us to produce as much as we could. And we expect this to be fixed before end of June, which means that second half of the year, we're going to see increased revenue in cellular. And to make cellular easy, to further fuel demand with partners. I mean, in the first quarter, we added AV systems in Ignion, which is a virtual antenna technology and also Memfault platform is available with Nordic LTE. We also work with Nokia over the last year and a half, and during the quarter, we made license agreement with Nokia. It really means that, all customers making application based on cellular technology, need access to standard essential patents. In this way, we are making license available to our customer at the end device. This joint effort with Nokia, is an industry first, adding transparency, predictability early in the design process for new cellular IoT products. It's an important milestone. We also have attended both Mobile World Conference and CES, and I just want to show you before I leave to the numbers, to Pal, that audio was really well perceived in those 2 shows, and we showed the 5340 sound technology with codec from Cirrus. And I can also say that, we are extremely happy to see that our BLE audio technology has been chosen by world-leading Sennheiser for a new broadcasting product. So now audio is starting to appear in revenue. With this, I would like to hand over to Pal to go through the financials in more details.
Thank you, Svenn-Tore. I'll now jump to Q1 financials. So Nordic continues the strong product growth as achieved in the previous quarters, although we are still heavily capped by supplies. So demand is higher than what we actually are able to deliver. We came in at $183 million, as I said, which is in the top end or a little bit above the middle of the guided range of $170 million to $190 million, showing that we continue to deliver on our guided ranges. The increase from last year was 28% in Q1 in 2021. We had $143 million. Compared to last quarter, we had a growth of 7%. This growth is mainly driven by the full quarter effect of the price increases that we had in Q4 on all products in our portfolio. We see a very strong Bluetooth growth of 26%. So we're really continuing to deliver on the long-term aspirations for this product line. We also see continued good proprietary numbers, where the proprietary was driven by very good sales in our PC accessory business. For cellular IoT, we are seeing strong design activity and several projects are now beginning to gain commercial traction. However, we -- as Svenn-Tore mentioned, do have shortages of our products, mainly some components to the module. So actual delivery is significantly less than what we see as demand. As a result, cellular revenue was $7 million in the quarter, slightly up from last quarter, but a 400% increase compared to last year. I'll now go to revenue per market. As Svenn-Tore mentioned, in Q1, we have changed how we report or which markets we put our verticals in. The main reason we do this is that we want to align our reporting to how we focus our sales and efforts out in the market. We now differentiate more between who's the end purchaser of the products. Is it a consumer or is it a business-to-business market? Another change is that we actually now have included cellular IoT also in the numbers. We're not currently going to split out cellular IoT in more detail. But at occasions, we will, of course, shed light on where we see traction in cellular IoT. We'll also include an explanation in more detail on our webpage, so that analysts and investors can make a bridge between the old and the new reporting structure. When you look at the various markets, it's important to emphasize that growth patterns reflect product allocations more than the underlying demand. Several of our large prioritized customers are actually in the consumer market. Therefore, we see a very strong growth in this area. Just as for overall revenue, individual markets show a strong growth compared to last year and relatively flat compared to last quarter. Consumer electronics is by far our largest market with 67% of the total, representing a 28% growth compared to last year. Consumer market is now larger than under the previous method of splitting our revenue. The main reason for that is there is some consumer-related tracking solutions. There's a lot of wearables products now in consumer, and also smart home solutions purchased by consumers is also included in consumer. Many of these were earlier in the Building and Retail segment. Healthcare had a growth of 54% compared to last year and 40% compared to last quarter. We see continued strong traction in this area. The cellular IoT products are mainly sold into the industrial, and we also have a fair chunk in the others, which is the module business. This slide shows the breakdown of the different markets we now have split our verticals into. So as you can see, there is some significant changes, mainly to the consumer business. I'm not going to go into detail, but you'll find this on our webpage. Gross profits increased by 50% to $109 million in Q1, up from $72 million in Q1 2021, with a gross margin of very close to 60%. This is compared to 50% in the last quarter -- in the first quarter last year. Last quarter, we had 58.9%. For Q1 2022, we guided for 53% to 54%. The significantly higher gross margin comes as a result of higher-than-anticipated effect of the depletion of materials purchased prior to the supply price increase we had in late 2021. So this is an effect that's going to be more or less reduced in Q2. Adjusted for these inventory effects, the gross margin is still higher than the indicated 52% to 54%. The main reason for this is that we see product allocations on the constrained supply and more positive effects of changes in product and customer mix. With the current visibility, we see this continue also during the rest of the year. So yes, we do have a higher-than-anticipated gross margin in Q1, but also the underlying number is better than we have seen previously. I'll now turn to the operating model. The numbers on this slide reflects the reported numbers. First of all, the strong reported revenue in the quarter have resulted in improved performance, all over the line. Although the underlying absolute spending, of course, has, as we have talked about before, increased. We're investing in line with what was communicated during the Capital Markets Day, although volume growth currently is being capped, we see significant margin expansion in the model. So total operating -- reported R&D spending was just above 20%, down from 22.6%. We have some lower spending in some areas, I'll come back to that in the cash OpEx later. We also capitalized $1.7 million in this quarter, more or less the same as last year, slightly up from last quarter. We have some more products now coming into the commercialization phase, some of our adjacent technologies like WiFi, for example. In absolute numbers, R&D investments increased from $32 million to $37 million. So we do continue to invest, to capture the growth opportunities we see ahead of us. I think on the SG&A cost, it's below 10%. It was a little bit higher earlier quarters. In Q4, we had a very strong catch-up from earlier in 2021, due to the COVID lockdown. It was a little bit lower in Q1, but we see activity picking up going forward. Overall, EBITDA of $54.7 million or very close to -- 30%. Of course, historically, we've been also showing the short-range EBITDA, adjusting for cellular and the WiFi business. This will now, of course, because of the strong gross margin in this quarter, be close to 40%. Total cash operating expenses amounted to $54.7 million in the quarter. This is when we're adding back capitalized development expenses and deducting depreciation and equity-based compensation. This compares to $47.7 million in the same period last year, representing an increase of 15%, which then is, of course, well below the revenue growth of 28%, improving operational leverage. But as I just mentioned, costs in Q1 were normally high, and then we do see increased activity going forward. $40 million of cash operating expenses related to payroll compared to $30 million last year, representing a growth of 11%. At the same time, a number of employees have increased by 22% to 1,257 employees at the end of the quarter. The reason the salary increase is less than employees, is that we had some, what you can say, reduced expenses related to taxes on equity compensation, and also related to bonus adjustments from last year. Other costs, cash operating expenses were $15 million in the quarter compared to $12 million last year. CapEx was in Q1, $4 million, down from $6 million last quarter. We are continuing to invest in additional test capacity, to be ready when we get more wafers available. However, due to higher lead times for recruitment, CapEx in this quarter was a little bit lower than planned. But we do see that CapEx intensity for the year as a total, will be around the 4%, that we had last year. Finally, cash flow; we continue the positive cash generating ability, as we've seen in the previous quarter. During Q1, we added $25 million to our cash balance, which ended at $304 million. Operating cash flow was $32 million and is, of course, a result of a strong EBITDA, but we also see a slight increase in working capital during the quarter, mainly driven by higher accounts receivables. However, net working capital continues to stay below the 20% target, although it's a small increase from last quarter. Svenn-Tore, I'll hand over to you for the guiding and outlook.
Thank you, Pal. As I said earlier, we -- in the beginning, we expect a solid Q2, despite the supply challenges. We see revenue in the range of $190 million to $210 million for next quarter, which will correspond to around 30% to 40% growth from the second quarter last year, and 4% to 15% above Q1 '22. This forecast or this guiding is based on the wafer allocation we see for the second quarter. And we have said -- earlier stated that we expect higher wafer supply in the second half of the year. Seller IoT is expected to affect by component shortage also in Q2, although this matter is expected to be resolved and it's going to be full production for second half of the year. Gross margin is expected to remain at high levels, and this is due to favorable product mix, and also the fact that there is this demand supply imbalance. So we are looking forward to sort of -- do the allocations, help our customers to keep them floating, even through Q2 of this year. And there is multiple ways of easing the situation. I mean, one of them is that, our competitors' customer get weaker demand, it doesn't look so. But if so, Nordic could get more wafers. But important thing is, what can Nordic do ourself, and we are actively working to expand capacity through multi-sourcing. Obviously, we do more. We're also designing the features that IoT requires in the future to be the customer choice of Bluetooth chip, when they do the design wins. So what we're going to see, is that the first short-range product should ramp up end of next year, and this new product line will be the key enabler for our growth beyond 2023. So we are optimistic about all the new products we are putting to the market. As we said, we've been expecting to ship WiFi over the end of this year, and LTE situation with production will be fixed second half. So we have good reasons to believe in our growth for '24 and onwards, towards '26. So that's why our outlook stands firm. We are on track to reach our $1 billion target next year. We aim to more than double the revenue from '23 to '26. And as I said, the accelerated traction in cellular IoT, the early traction in WiFi, and also combined with our adjacent component, is going to take us towards this goal. So now I'm thanking for listening to me and opening for questions.
Perfect. This is Stale. I'm the Head of IR. We have got some questions. I'll split them up in different topics. So we start with revenue. This is from Christoffer Bjørnsen, DNB. The last quarter -- the last couple of quarters, you have guided for USD 20 million sequential improvement in revenue every quarter despite limited improvements in wafer allocations. Now you are indicating better wafer allocation in second half. Should we interpret this as an indication of sequential revenue improvement to be higher than $20 million per quarter from Q2 and onwards?
Unfortunately or fortunate, we only guide quarter-by-quarter. And we know the capacity support plan for the rest of '22, but we are working every day for upsides. So this is -- this are possible to change depending on how much we will get from our suppliers, but we are not able to talk more or indicate more than for next quarter.
Thank you. Then we have a question regarding demand. It's also from Christoffer Bjørnsen, DNB. Svenn-Tore, we have already seen some of your customers coming out with profit warnings, with revenues coming down post the 2021 boom. And now your backlog is declining sequentially. Can you give us some color on where your confidence in demand is coming from?
It's coming from the design wins we have had in new verticals. We have -- every week, we have requests for our customers to put multiple dollars on the order backlog. We are not able to confirm delivery at the date our customer wants. We have to reduce -- actively reduce these orders to meet what we have of supply. So for me, it's much -- the challenge is more to allocate to keep customer floating than seeing any, I would say, cancellation from customers. I mean the backlog is impacted that we have discussed with customers. Instead of giving them a confirmation of 100% of the need, we may take it down to 60%, 70%. But the important thing is that, as many as possible, our customers keep floating through this difficult time.
Thank you. Then we have a question regarding supply capacity. And this is from Rob Sanders, Deutsche Bank. In terms of foundry wafer capacity availability, has it become harder to access nodes between 40 to 65 nano, given auto OEMs have escalated their supply issues to a governmental level?
It's been difficult throughout, I think, 2 years now, and we don't see any immediate sort of inflection point where this eases up. But we do have a very good communication with our suppliers, and we know what kind of capacity Nordic has secured. And we hope that there is other verticals in automotive that could ease up, and we could achieve higher deliveries than what we have already. But I want to state that existing capacity support plan is taking us towards the $1 billion goal in '23.
Thank you. That was clear. Øystein Lodgaard, ABG. Do you think wafer supply could be an obstacle to ramping up PMICs?
All product line is affected by the shortage, so it's correct.
Thank you. Then we go over to backlog. Henriette Trondsen, Arctic, has 2 questions. Is the lead time similar to last quarter? And how much of the backlog is beyond 12 months?
As we've been actively working to reduce the volume at customers to match or at least align more to the supply. We are not very keen on receiving orders [ below ] or after 52 weeks. So that backlog that stretches more than 52 weeks is more or less [ unchanged for ].
And the lead time is similar.
We don't talk about lead time because basically here, it's a matter of allocation and it's a matter of vertical that is the customers in. Do we believe in the verticals? We also have a social responsibility. It's the product, something that we think is good for the globe. We support it. So it's the customer having a product, that is a long activity, it's a long-life product. There's a lot of factors that decides how big portion of the orders we are confirming and shipping.
Thank you. Then we have Johannes Ries. He has a question regarding price effect on the backlog. Higher prices only -- is it higher prices only for new orders or upward adjustments for the whole backlog?
Basically, the cost is for the whole backlog, so the price impact on the whole...
But the adjustment of price was done in Q4. There's no pricing adjustment from backlog [ this quarter ].
So there is -- I mean it was done end of December.
Thank you. Then we have a question regarding cellular from Rob Sanders, Deutsche Bank. Are you still confident to get cellular IoT sales above $100 million by 2024?
Yes. Answer is yes.
WiFi, can you give an update on WiFi progress in second half 2022?
We are going to ship over -- we have secured allocation for wafers for end of this year where the WiFi project runs. So we will get some start of WiFi revenue end of '22.
Thank you. We have a question for you, Pal, on OpEx from Henriette Trondsen, Arctic. Payroll expenses is somewhat lower than expected. Is the current level a good proxy for the forward figures?
No, I think it's -- as I mentioned, it's a little bit lower in Q1 for various reasons. The adjustments to the share price impacted social security taxes and also bonus accruals. So I think we have to look at the growth in employees, which was 20%. So use that more as an indicator of how it's going.
Thank you. Then we go over to gross margin. Øystein Lodgaard, ABG. How do you -- how long do you expect the positive effect -- mix effect to continue to have a positive impact on your gross margin?
I mentioned at least in 2022. So we commented -- Svenn-Tore commented, I will say above 54% for the full year. So definitely, the rest of this year. But then we were working back to what we said during the Capital Markets Day, also the cellular IoT will have an impact on gross margins. So we're mainly just stating for the rest of this year at this point.
And then we have a question from Christoffer Bjørnsen, DNB. Gross margin guidance for Q2 is 54%. Is this just a temporary blip? Or should we expect this level to continue in second half due to structural shift...
I think we -- Pal answered it, but it's not guided 54%. It's guided above 54%.
Thank you. Then we have a question from Adam from Bank of America. Is cellular gross margin still expected at 30% to 40% over ramp period, given that the short range is now 60%? Is cellular also increasing?
We will -- we are in a different sales phase with cellular, and we are not going to increase margin very much on cellular as well.
Thank you. We have a question regarding PMIC from Øystein at ABG. When do you think we can begin to see meaningful revenue from the PMIC?
We are going to see -- we already see revenue, and I think we're going to see more in '23. It's a matter of how we allocate our wafers. Currently, there is a surging demand for our Bluetooth chips, and we have prioritized to put our products on the wafers on Bluetooth.
Thank you. Design wins, Adam at Bank of America is asking new design wins today, what is the outlook for pricing in these contracts over the next 1 to 2 years? And how flexible is pricing on the upside or downside?
We discuss with individual customers. And the most important thing now, is to get supply, not to get costs down. And we are willing to pay excess on our cost, to ensure that our customers get products out to the market. Demand is really high, and that's the challenge. I mean, it's not that there is 1 or 2 customers that have increased the demand. Most of the new Tier 1 customers we've been discussing over the last year, are growing dramatically compared to '21. So for us, it's a matter of supplying and that's what we're working on. And price and cost is not the main issue at the moment.
I think that was the last question for this time.
Okay. Thanks for calling in and listening to us and looking forward to see you again in summer, when we have the Q2 presentation.
Thank you.