Nordic Semiconductor — Investor Presentation 2017

Oct 17, 2017

Quarterly Presentation Q3 2017

October 17th2017, Oslo, Norway

Today's presentation

Svenn-Tore Larsen

CEO

Pål ElstadCFO

Business update Financials Business outlook

Thomas Embla BonnerudDirector of Strategy and IR

Business updateSvenn-Tore Larsen, CEO

Financial summary – Q3 2017

R e e n e v u	R e e n e v u l h B t t e o o u	R e e n e v u P i t r o p r e a r y	G i r o s s m a r g n	d d A j * t u s e E B I T
M U S D 6 5 7	M U S D 4 5 7	M U S D 1 6 8	4 7 8 %	M U S D 5 9
2 % 1 1. 9 % 5 5 + + o- q- o- q y- y	4 6 8 % 2 6 % 7 + + o- q- o- q y- y	1 0 % 1 8 % 5 7 - - o- q- o- q y- y	1. 6 1. 1 + + p p p p o- q- o- q y- y	2 % 2 4 % 5 3 3 + + o- q- o- q y- y

4* Adjusted for MUSD 1.0 write-off of receivable

Strong Bluetooth sales driving growth

5* Adjusted for MUSD 1.0 write-off of receivable

Continued revenue shift to Bluetooth

Revenue by technology

Split and growth by technology

Q3 2017

Continued customer growth and diversification

*) Definition of "Active" Customer: An end customer which has purchased 10.000 units or more during prior six months (i.e., a customer actively selling product to end customers or preparing a high volume prototype)

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New Nordic powered products

Revenue by market

C o n s u m e r l i E t e c r o n c s	b l W e a r a e s	l d B i i n g u / i l R t e a	l h H t e a c a r e	h O t e r s
M U S D 2 6 1	M U S D 1 0 6	M U S D 1 5 7	M U S D 4 6	M U S D 5 5
3 1 % 1 0 4 % + + y- o- y q- o- q	4 2 % 2 2 4 % + - y- o- y q- o- q	1 0 8 4 % 6 1 % + - y- o- y q- o- q	3 2 5 % 8 5 7 % + + y- o- y q- o- q	5 6 0 % 5 0 % + + y- o- y q- o- q

The rise of short-range low power IoT

Riding the IoT megatrend

• Bluetooth low energy is the driving short-range low power IoT technology
• Nordic leading in Bluetooth low energy and mirroring the market
• Growth in number of customers
• Emergence of non-consumer

Transforming our revenue base

• Robustness
• Growth potential

* Consumer is sum of Wearable and Consumer Electronics, non-consumer is sum of Building/Retail, Healthcare and Other.

Operating model performance

		Q 2 0 3 1 7	Q 2 0 6 3 1
	h Re t ve nu e g ro w y- o- y	2 5. 5 % + ( M U S D 6 5. 7 )	-3 0 % ( M U S D 5 2. 3 )	( 2 8. 6p ) lu h dr ive h, B to t t + p e o n g ro w l ly h ig h se as on a re ve nu e
	G in ro ss m ar g	4 7. 8 %	4 6. 2 %	( 1. 6p ) G M in io + p ro ss ar g ex p an s n
	R & D ho t- s r ra ng e	1 4. 0 %	1 3. 8 %	d fo ( 0. 2p ) Co in in t tm t + p n ue ve s en r lea de h fa ke ip i io in in t t g t rs p os n s ro w g m ar
	& l lu la R D Io T ce r	6 % 7.	6 % 7.	( 0. 0p ) In in bu i l d lea d in t to ± p ve s g a g i in fa in ke to t g t p os n a ne s ro g m ar w w
	S G & A	1 1. 9 %	1 1. 5 %	( 0. 4p ) Co in d l in f he t t + p n ue sc g o a iza io h t to t or g an n m an ag e g ro w
	d j d A te us E B I T D A in m ar g	1 4. 3 %	1 3. 3 %	( 0p ) Co in d im fro Ce l lu la 1. t t Io T + p n ue p ac m r in tm t ve s en

Trailing average R&D and SG&A spending

Trailing 12-months adjusted OPEX(% of revenue)

		35,7%	35,7%
23,3%	23,1%	22,8%	22,8%
13,1%	12,7%	12,8%	12,9%
			Q317
	Q416	Q1 17	Q2 17 $\leftarrow$ Total (%) $\leftarrow$ R&D (%) $\leftarrow$ SG&A (%)

22.8% of revenue on R&D

• Industry average R&D spend close to 20%
• Nordic trailing higher due to Cellular IoTinvestment
• Ratio to decrease with revenue growth on Cellular IoT

12.9% of revenue on SG&A

• Industry average SG&A spend 12-15%
• Nordic on the lower end due to distribution model
• Underlying growth to secure and build positions in fast growing markets

Gross Margin

Gross Margin expansion year-over-year

• Gross Margin 47.8% +1.6pp y-o-y
• Continued positive contribution from cost improvements
• Compared to last quarter underlying gross margins +0.3pp improvement
• Quarter to quarter fluctuation due to product and customer mix

Maintaining 50% target for 2018

• Continued efforts on cost reductions
• Continued diversification of customer base and volume ramp of higher-end nRF52

Cash Operating Expenses*)

Cash Opex MUSD / % of revenue

Q3 Opex*

• Q3 cash operating expenses increased 27% y-o-y
• Adjusted for FX increase is 21.8% y-o-y
• The increase is driven by headcount growth of 12.9% from 521 in Q3 2016 to 588 in Q3 2017
• Q3 2017 Opex broadly in-line with Q3 2016 in percentage of revenue

Q3 Opex* year to date

• Q3 YTD increased 16.7%
• In percentage of revenue OPEX is slightly down

*) Operating expenses, excl. capitalized R&D, depreciation and amort. and option expenses, excluding write-off of receivables

Bridge Opex Q2 2017 vs. Q3 2017

• FX driven increase in Q3
• Salary increase to attract and retain key talent
• Capitalization in-line with previous quarters

Salaries Other OPEX

• Write-off of receivable limited risk in customer base
• Other Opex will mainly vary with development phases

Growth in profitability

EBITDA* of MUSD 9.4

• +36.2% y-o-y growth
• Driven by revenue growth in Bluetooth

Underlying EBITDA* of MUSD 14.4

• Excluding OPEX R&D Cellular IoT
• +32.1% y-o-y growth
• Revenue growth combined with Gross Margins

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Positive cash flow

Cash flow Q3 2017

* EBITDA Adjusted for Capitalized Development Costs

Seasonal increase in accounts receivable

• Net cash flow of MUSD 2.8
• NWC increased by MUSD 1.5, but increased revenue reduces NWC/LTM from 34.1% of to 32.7%
• Continued improved cash collection in % of revenue

Disciplined cash strategy

• Tight cash management and optimized cash generating ability
• Financial headroom of MUSD 56.1 including undrawn facilities of MUSD 30

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Business outlook

Thomas Embla Bonnerud, Director of Strategy and IR

Short-term outlook - comments

Q3 2017

• Bluetooth ahead of anticipated range for Q3
• Proprietary on the lower end of anticipated range for Q3 due to change in product mix and transition to Bluetooth low energy
• Solid, Bluetooth dominated backlog

M U S D	1 9 1 % +	0 2 % +
6 5 4	y- o- y	q- o- q

Length of backlog extending both y-o-y and q-o-q

Q4 2017

• Proprietary revenue stabilizing, single digit percentage down for full year
• Continued growth in Bluetooth, however lower y-o-y growth rate vs. Q3 2017
• Gross margin range to account for fluctuation in customer and product mix

Adjusting guidance on Bluetooth growth

R e v e n u e	S M U D 2 0 0 1 1 3 -	B d i i b i l i i i f H 2 t t t t a s e o n o u r c u r r e n v s y, w e a n c p a e r e v e n u e o r 2 0 1 7 b i h f M U S D 1 2 0 1 3 0 t t t o e n e r a n g e o o
l h B t t e o o u h t g r o w	3 5 4 5 % –	l h b h h d f W B i i H 2 2 0 t t t t t t e e x p e c u e o o o e e m a n g r o w r v e r o r h d b d h T i i 3 5 % 4 5 % t t e r e v e n u e g u a n c e r a n g e s a s e o n o g r o w l h B t t u e o o r e v e n u e.
G r o s s i m a r g n s	4 6 4 8 % –	i b i h f 4 6 4 8 % f W t t t e e x p e c g r o s s m a r g n s o e n e r a n g e o o r – 2 2 0 1 b d l i l i i h h i h l f b b l H 7, t t t r o a y n n e w e p r e v o u s a y e a r, u e o w f 0 % t t 5 o u r a r g e o

We expect Bluetooth to be the main growth driver for H2 2017. The revenue guidance range is based on 35% to 45% growth in

Design win momentum with nRF52810

Solid Bluetooth momentum entering 2018

Bluetooth low energy end-product certifications*

*Source: DNB Markets

Nordic's low power IoT market opportunity

Remaining on track with cellular IoT

Small sizeVery high level of integration

Ultra low power& high performance

Ease-of-use

Complete and flexible solution

On-track for sampling H2 2017

• Limited set of lead customers
• Executing on our US and LTE-M first strategy
• Strong interest and positive feedback on our solution

Certification testing in parallel

• Infrastructure interoperability
• Carrier certification

Our goals moving forward

Growth and expansion in low power short-range IoT

• Building on our leading position in Bluetooth low energy
• Selected and strategic expansion
• Value add to our customers
• Expanding our addressable market

Build a leading position in low power cellular IoT

• Leverage our strategic investment since 2015
• Leverage synergies with short range – technology and market
• Establish a second growth vehicle

Continue with value add integration and solutions

• SoC, software and tools
• Short-range and cellular IOT
• Increase our value offering per design socket
• Competitive differentiation

Expansion in low power short-range IoT

802.15.4 support Other wireless technologies

*Source: Nordic management and industry reports

Expanding our addressable market

• Thread and other 802.15.4 based technologies
• Advanced mesh for Smart Home and industrial

• 250MU in 2020*

Competitive edge and value-add

• Multi-protocol for legacy support and/or heterogynous ecosystem
• Higher-end SoCs and advanced software

Summary

Q3 2017

• Bluetooth and ASIC revenue ahead of anticipated range for Q3
• Proprietary in the lower end of the anticipated range Q3 due to change in product mix and shift to Bluetooth
• Remaining on track with our product roadmap

Outlook

• Adjusting H2 2017 guidance range on Bluetooth growth with +5pp
• Maintaining H2 2017 guidance on total revenue and gross margin
• Momentum with Bluetooth entering 2018
• Continued investments for leadership position in low power IoT – short range and cellular

Upcoming events

Investor briefingon cellular IoT

• Time and venue to be announced shortly following lead customer sampling
• Additional information on our cellular IoT solution

Guidance for H1 2018

February 15, 2018

Q4 2017 presentations

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This presentation was prepared for the interim results presentation for the third quarter, held on October 17, 2017. 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.

Quarterly Presentation Q3 2017

October 17th2017, Oslo, Norway