Nordic Semiconductor

Quarterly Report • Apr 21, 2020

Quarterly Presentation Q1 2020

April 21, 2020

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Important factors may lead to actual profits, results and developments deviating substantially from what has been expressed or implied in such statements. Although The Company believes that its expectations and the presentation are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the presentation.

The Company is making no representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the presentation, and neither The Company nor any of its directors, officers or employees will have any liability to you or any other persons resulting from your use.

This presentation was prepared in connection with the Q1 results released on April 21, 2020. Information contained herein will not be updated. The following slides should also be read and considered in connection with the information given orally during the presentation.

Solid Q1

Revenue in high end of guidance – gross margin above

Revenue		Gross margin
USDm 70.2		51.9%
+33.5% y-o-y	-15.6% q-o-q	+0.9%p y-o-y	+0.3%p q-o-q

• Bluetooth revenue USD 51.2m (+37.1%)
• Proprietary revenue USD 15.4m (+23.4%)
• Cellular IoT revenue of USD 1.1m
• Gross margin of 51.9%, driven by cost reductions and product mix

Increased order backlog

• Order backlog of USD 123m, +39% compared to Q1 2019 and 16% above YE'19
• Supported by customers placing early orders to secure supply

Organization adapting swiftly to COVID-19

• Employee health has been top priority no COVID-19 cases registered so far
• Full compliance with rules and recommendations from local and national authorities:
  • Extensive remote work (~90%)
  • Severe travel restrictions
  • Limited physical meetings
  • Stricter sanitation standards

Embracing our social responsibilities

Joined UN initiative to prevent virus spread in developing countries

Nordic inside 20+ relevant designs

Prevent Monitor Track

• Healthcare set to drive demand for connectivity
  • First deployments largely based on repurposing of existing products
  • Second wave to be used for outpatient monitoring
  • Long-term market move towards the real "connected patient"

Manageable supply chain disruptions in Q1

Nordic's value chain, illustrative

Taking action to reduce risk:

• Increasing buffers of critical devices
• Excess capacity for variable demand
• Qualifying multiple sourcing options
• Industry supply chains affected by plant closures in Asia for parts of January and February
• Longer pause than normal around Chinese New Year, gradual recovery through March
• Currently close to normal operation for Nordic's main suppliers
• Continued supply chain risks due to COVID-19

Demand growth continued throughout Q1

Nordic's value chain, illustrative

• Nordic's distributors maintaining normal operations, with customer deliveries continuing on growth trajectory through March
• Distributor inventories remaining at moderate levels

Low visibility on future end-user demand

Based on McKinsey & Co: "An instant economic crisis: How deep and how long?" (April 2020)

• Higher uncertainty and lower visibility due to the coronavirus measures and knock-on effects
• Three main uncertainties affecting end-user demand for remainder of 2020:
  • Length and magnitude of extraordinary measures to limit the spread of the virus
  • Depth and length of the expected setback in economic growth and consumer spending
  • Radical shift in technology adoption in several verticals represents upside potential

Liquidity, solidity and flexibility

• Asset light model, with outsourced production and distribution
• People and IP the main input factors all hands required to meet our current development and delivery plans
• Flexibility to adapt to different market scenarios

Maintaining long-term strategy and targets

Strong strategic pillars

Lead on connectivity

• Excite developers
• Customer engagement
• Scalability
• Investing early
• High financial ambitions

Solid position

• Market leader in Bluetooth Low Energy
• Strong ties to vertical tier 1s and platform ecosystems
• Positioned for market leadership in cellular IoT

Ambitious targets

• Target of becoming a USD 1 billion company within the next five years
• Long-term ambition for an EBITDA margin of 20%

Q1 Business Update

Strengthening certification market share

End-product certifications, Nordic Q1 20 142 49% mkt share +4% y-o-y +1% q-o-q 178 258 412 459 521 608 34% 33% 41% 42% 39% 46% 0 200 400 600 800 1,000 1,200 1,400 1,600 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Nordic TI Dialog Qualcomm Infineon SiLabs Other Mkt share

Bluetooth Low Energy end-product certifications, LTM*

New product launches in Q1

Many new healthcare user cases coming up

Masimo Safety NetTM

• Cloud-based patient management solution
• Helping clinicians care for patients remotely in hospital settings
• Tested at University clinics in Ohio, Pennsylvania and New Jersey
• Wearable single-patient-use monitoring sensor for blood oxygen, respiration rate, pulse rate, etc.
• Using Nordics high-end Bluetooth SoC.

Kinsa Health Smart thermometers

Continuing to launch new products

• Launching nRF52820 to support the lower-end of the nRF52 Series for budget-constrained applications
• Full-speed USB 2.0
• Bluetooth 5.2, Mesh, Thread, ZigBee
• 64MHz M4F with 256kB Flash and 128kB RAM
• Supports up to 105°C

Cellular IoT moving forward

Regulatory certifications overview

• Q1 revenue of USD 1.1m and gaining traction with new designs
• New software makes customer migration to cellular IoT easier
  • New nRF Connect SDK release unifies the software platform for all Nordic products
  • Bluetooth Low Energy and cellular IoT development in one SDK and toolchain
• Continuing work on carrier certifications in several new markets
  • Significant pipeline tests and certification processes pushed-out by COVID-19

Further integrating ESG into our strategy

• IoT holds unique position to enhance sustainability
• We commit as a signatory to UN Global Compact and support UN Sustainable Development Goals (SDGs)

¹⁹ www.nordicsemi.com/ESGreport

Financials Pål Elstad, CFO

Revenue in high end of guidance range

Quarterly revenue (USDm)

YoY revenue growth of 33.5%

• Growth in all areas, from relatively weak level in Q1'19
• Bluetooth accounting for 73% and proprietary for 22% of total revenue
• Continued strong revenue contribution from tier-1 customers
• Cellular IoT revenue of USD 1.1m in Q1, continue to expect volatile quarterly revenue

Year-on-year revenue growth in all markets

Group	Consumer Electronics	Wearables	Building/ Retail	Healthcare	Others
USDm	USDm	USDm	USDm	USDm	USDm
70.2	24.5	11.4	13.2	5.5	12.1
+33.5%	+16.0%	+48.5%	+63.7%	+28.3%	+38.2%
-15.6%	-27.5%	-29.5%	-20.8%	+10.1%	+16.5%
y-o-y	y-o-y	y-o-y	y-o-y	y-o-y	y-o-y
q-o-q	q-o-q	q-o-q	q-o-q	q-o-q	q-o-q

• Healthcare improving from low levels in both Q1'19 and Q4'19
• Continued strength in both wearables and building/retail
• Consumer electronics growth in both proprietary and Bluetooth Low Energy

Gross margin remaining solid

Gross margin (%)

Gross margin 51.9%, above indicated guidance, mainly driven by

• Favorable product mix, with a higher share of more complex high value SoCs
• Gross margin expected at ~50% in Q2 2020
• Reiterating medium-term gross margin range of 48%-50% for the short-range business

R&D cellular IoT 10.0%

Operating model performance Q1 2020

Gross margin 51.9%		Q1 2020	Q1 2019
R&D short range	Revenue	USD 70.2m	USD 52.6m	+33.5%	Revenue in high end of guidance range
17.3%	Gross margin	51.9% USD 36.4	51.0% USD 26.8	+0.9pp	Favorable product mix in the quarter
R&D cellular IoT 9.6%	R&D short range	17.3% USD 12.1m	24.2% USD 12.7m	-6.9pp	Continued investments to capture growth opportunities
SG&A	R&D cellular IoT	9.6% USD 6.8m	9.9% USD 5.2m	-0.3pp	High activity during commercialization stage
17.5%	SG&A	17.5% USD 12.3m	18.2% USD 9.6m	-0.7pp	Continued cost focus, strengthened S&M to capture growth opportunities
EBITDA 7.5%	EBITDA	7.5% USD 5.2m	-1.4% USD -0.7m	+8.9pp	Higher revenue and positive operating leverage

Cash operating expenses

• YoY cash cost increase of 12.7 % shows Cash Opex* (USDm) continued disciplined growth execution
• Continued favorable FX development

Salary:

• Number of employees increased by 14.5 % to 799 over the past last 12 months
• Growth in customer facing teams, both within R&D and Sales

Other Opex:

• Varies with pace of product introductions
• Sharpened focus on cost containment

* Operating expenses, excl. capitalized R&D, depreciation and amort. and option expenses

Year-on-year EBITDA improvement

Capex development

Capex (USDm)

• Capex of USD 3.8m, slightly below guidance
• Q2 2020 guidance at similar level

Strengthened cash position

Cash Flow Q1 2020 (USDm)

Increased cash position

• USD 33.7m cash inflow during Q1 2020
• Drawn USD 40m on RCF to safeguard liquidity position
• NWC/LTM revenue at 25.2% (24.2% at year-end 2019)

Continued disciplined cash strategy

Tight cash management and optimized cash generating ability

Summary and Q&A Svenn-Tore Larsen, CEO

Solid Q1 - continued uncertainty in Q2 and beyond

Q2 2020 guidance

	Revenue	Gross margin
USDm 75-85		~50%
6% - 21% y-o-y	7% - 21% q-o-q	-1.2%p y-o-y	-1.9%p q-o-q

• Q1 revenue in high end of guidance, gross margin above, and disciplined operational execution
• Backlog supporting Q2
• Continued high uncertainty
  • Supply chain risk
  • End-user demand depending on depth and length of macroeconomic setback
  • • Radical shift in technology adoption in several verticals
• Longer-term drivers in place to support strategy and financial ambitions