Nordic Semiconductor — Investor Presentation 2018

Jul 12, 2018

Quarterly Presentation Q2 2018 July 12th 2018, Oslo, Norway

Today's presentation

Business update

Financials

Business outlook

Svenn-Tore Larsen CEO

Pål Elstad CFO

Svenn-Tore Larsen CEO

Business update Svenn-Tore Larsen, CEO

Record quarter

Total revenue of MUSD

712

New all-time-high with $+21.3\%$ y-o-y growth

• $\bullet$ +45.2% y-o-y growth in Bluetooth
• -18.1% y-o-y decline in proprietary
• Strong quarter on both consumer and nonconsumer markets
• Continued solid growth in number of customers

Continued improvement in Profitability

On track to meet our objective for improved profitability for full year 2018

• MUSD 10.0 EBITDA +25.2% y-o-y, +0.4pp EBITDA margin y-o-y.
• Gross margin of 49.0% due to cost reductions, favorable customer and product mix
• Continued to build organizational strength while maintaining cost discipline; OPEX -0.4% q-o-q

Financial summary - Q2 2018

Revenue	Revenue Bluetooth	Revenue Proprietary	Gross margin	EBITDA
MUSD 71.2	MUSD 52.3	MUSD 17.0	49.0%	MUSD 1()()
	+21.3% +18.3% +45.2% +36.4% -18.1% -15.0% +2.3pp +0.1pp +25.2% +126.3% y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q

Met our guidance for H1 2018

Revenue	MUSD 131.3	Upper end of the MUSD 123 to 133 guidance due to continued strong growth in Bluetooth.
Bluetooth growth	50.2%	Exceeding the 40 to 50% guidance range due to robust Bluetooth sales in consumer and non-consumer markets.
Gross margins	$49.0\%$	Upper end of the 47 to 49% guidance due to positive contribution from cost reductions and favorable customer and product mix

Bluetooth driven growth

Revenue by technology 2015 - 2018 (MUSD)

Bluetooth revenue diversification

Customer base growth and diversification

Continued growth in number of Active Customers* on Bluetooth

*) 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)

Diversified Bluetooth revenue across consumer and non-consumer*

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

Revenue by market

Consumer Electronics	Wearables	Building /Retail	Healthcare	Others
MUSD 28.2	MUSD 11.9	MUSD 13.8	MUSD 5.3	MUSD 1()
	$+19.6\%$ $+19.6\%$ $+36.6\%$ $+16.3\%$ $-17.8\%$ $+12.6\%$ $+115.1\%$ $+14.0\%$ $+92.6\%$ $+32.9\%$ $y$ -o-y q-o-q $\begin{bmatrix} 1 \ 1 \end{bmatrix}$ y-o-y q-o-q $\begin{bmatrix} 1 \ 1 \end{bmatrix}$ y-o-y q-o-q $\begin{bmatrix} 1 \ 1 \end{bmatrix}$		v-o-y q-o-q i i	$V$ -O-V $Q-O-Q$

New Nordic powered products

Dexatek $\Sigma$ CASA router	Shenzhen DO ID115plus Color HR	Sikom Smart Thermostat	MMT SWISSCONNECT Smart Watch platform	Samsung SDS Smart Door lock
Smart Home	Wearables	Smart Home	Wearables	Smart Home
nRF52	nRF52	nRF52	nRF51	nRF52

Launched nRF Connect for Cloud

Out of the box cloud connectivity For Nordic development kits Evaluation, test, prototyping and development of IoT applications Complements nRF Connect for desktop and mobile

Hosted cloud service and gateway App

Hosted on Amazon Web Services nRF Gateway App for iOS and Android

Upcoming support for nRF91

Out of the box and direct cloud connectivity Enabling innovation by lowering barriers of adoption

Putting the private placement to work

Three key initiative started now in Q2 2018

Expanded test facility in Norway and Finland

• Characterization and production test development
• Shorten time to high volume production

In-house Failure Analysis (FA) lab and capability

• Meet new tier-1 requirements on quality and reliability
• Shorten time to high volume production

Expanded in-house Cellular test labs

• Accelerate cellular compliance and certification approvals
• Time to market and faster regional roll-out
• Ensure robust and reliable cellular connectivity

Financials Pål Elstad, CFO

Operating model performance Q2 2018

Gross Margin 49.0 %		Q22018	G2 2017
R&D short- range 15.3% R&D cellular IoT	Revenue growth $V$ -O-V	$+21.3\%$ (MUSD 71.2)		+11.3% (+10.0pp) Bluetooth driven growth with (MUSD 58.7) robust contribution from non-consumer
	Gross margin	49.0%	46.7%	(+2.3pp) Continued positive contribution from cost improvements and favorable customer and product mix
4.8% SG&A 14.9%	R&D short-range	15.3%	12.3%	(+3.0pp) Expansion in low power short- range loT
	R&D cellular IoT	-4.8%	7.7%	(-2.9pp) Started capitalization ahead of first production release
EBITDA 14.0 %	SG&A	14.9%	13.1%	(+1.8pp) Organizational scaling to manage and fuel growth in 2018
	EBITDA margin	14.O%	13.6%	(+0.4pp) Revenue growth drives improved EBITDA margins

.......................................

• ▪
• ▪

• ▪

• ▪

• ▪

Gross margin expansion

55.0% 50.0% 45.0 % 40.0% 35.0% 30.0 % $Q_4$ Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018

Gross margin 2014 - 2018

Gross margin $49.0\%$ +2.3pp y-o-y

• Continued positive contribution from cost $\mathcal{L}_{\rm{max}}$ improvements and stable yield on nRF52
• Continued favorable customer and product mix $\blacksquare$ effect during Q2 2018
• Anticipate continued quarter to quarter $\overline{\phantom{a}}$ fluctuation due to product and customer mix

Maintaining 50% target within 2018

• Continued efforts on cost reductions $\blacksquare$
• Continued diversification of customer base and ٠ expanding product offering

Cash Operating Expenses*)

Cash Opex MUSD / % of revenue

Q2 Opex*

• Q2 cash operating expenses increased 34.5% y-o-y $\overline{\phantom{a}}$
• The increase is driven by new product releases and $\blacksquare$ headcount growth of 11.5% from 564 in Q2 2017 to 629 in Q2 2018
• Continued cost discipline during the quarter $\blacksquare$
• Investments to continue in order to capture future $\blacksquare$ growth

³ Operating expenses, excl. capitalized R&D, depreciation and amort. and option expenses

Cash flow

Cash flow Q2 2018

* EBITDA Adjusted for Capitalized Development Costs

Strengthened financial position

• Net cash flow (ex. financing) of MUSD -4.1
• NWC increased by MUSD 4.0. NWC/LTM revenue increased slightly from 26.5% to 26.7%
• Capex of MUSD 5.1 test equipment for production releases on nRF52 high-end and nRF91

Capital Increase

• Net proceeds of NOK 790 million, or MUSD 98.9
• Excess cash is held in USD to avoid currency fluctuations

Continued disciplined cash strategy

Tight cash management and optimized cash generating ability

Business outlook Svenn-Tore Larsen, CEO

Guidance for H2 2018

Revenue	MUSD $150 - 160$	Based on current visibility, we anticipate revenue for H2 2018 to be in the range of MUSD 150 to 160, representing a full year 2018 growth of 21% at the mid point.
Bluetooth growth	$30 - 40\%$	We expect Bluetooth to continue to be the growth driver for 2018. The revenue guidance range is based on 30% to 40% y-o-y growth in Bluetooth revenue.
Gross margins	$48 - 50\%$	We expect gross margins to be in the upper range of 48 - 50%, our long term target for short-range IoT, and hitting our 50% target in a quarter during H2 2018.

Comments on short term outlook

Backlog

Solid backlog coverage for guidance

MUSD.	$+22.7%$	$-1.1\%$
80.1	$V$ -O-V	$Q-O-O$

• Healthy distribution over Q3 and Q4 2018
• Backlog indicates a favorable product and customer mix for Q3 2018

H₂ 2018

Bluetooth driven growth

• Maintaining or continue to capture market shares in Bluetooth
• Growth contribution from nRF52840 and Thread
• Growth contribution from both consumer and non-consumer markets

New all time high kit shipments in H1 2018

New record first half + 49% y-o-y for H1 2018 Significant contribution from nRF52840 kits

Leading indicator of market growth Continued strong diversification

Leading indicator of our position Attractive and competitive solutions

Leading and broad position in Bluetooth

Bluetooth low energy end-product certifications*

Solid progress with cellular IoT

Production silicon in house

Feature complete, power and performance optimized Testing, characterization and certification in progress

First NB-IoT trials completed

Several networks in Europe Getting ready for deliveries to lead customers

Speeding ahead of competition

Features and readiness for deployments Unchallenged on level of integration, power and ease of use

Expanded nRF91 customer sampling

Diversified set of customers Mix of BIG and FAST

$>$ 30 new lead customers in $Q2$

Diversified set of customers Objective is more than 100 for the full year Demand for first production quantities end-2018

First design win secured

European customers in asset tracking - FAST Switched from a competing solution

Start of general availability Q4 2018

Priority is to secure design wins with lead customers Secure volume ramp

First nRF91 cellular IoT design win

Significant milestone

Less that 4 years after project start Lays the foundation for the upcoming volume ramp

Demonstrates our ability to compete

Power, performance, level of integration and ease of use Customer reach and trust

Continued momentum into H2 2018

Strong pipeline of opportunities for more design wins On track with our objectives for cellular IoT

Strategic cooperation with Q-Free

Q-Free smart parking Reduce time-to-park in urban areas Traffic, pollution, quality of life

Strategic cooperation on cellular IoT

Nordic nRF91 based NB-IoT solution for parking sensor Q-Free selected Nordic for continuation of smart parking project Ultra low power, performance and features

Objective is first deployments end-2019

On-going pilots with license free solution Strong interest and support from operators on cellular solution

On track for a strong 2018

H1 2018

Met and exceeded the provided guidance ranges

• Revenue up $+23.9\%$ y-o-y driven by $+50.2\%$ y-o-y growth in Bluetooth
• +0.6pp EBITDA margin y-o-y with +31.1% growth in EBITDA y-o-y due to gross margin expansion of +2.3pp y-o-y and cost discipline.

Full year outlook for

Continued growth and on track to meet our objectives

• Implied full year revenue growth of $+21\%$ y-o-y at guidance mid-point
• On track to meet profitability improvement
• Expanded nRF91 lead customer sampling program with visibility on volume demand end-2018
• Continued design win momentum on Bluetooth and design wins on cellular IoT

Disclaimer

The following presentation is being made only to, and is only directed at, persons to whom such presentation may lawfully be communicated ("relevant persons"). Any person who is not a relevant person should not act or rely on this presentation or any of its contents.

This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in Nordic Semiconductor ASA (The Company). The release, publication or distribution of this presentation in certain jurisdictions may be restricted by law, and therefore persons in such jurisdictions into which this presentation is released, published or distributed should inform themselves about, and observe, such restrictions.

This presentation includes and is based, inter alia, on forward-looking information and contains statements regarding the future in connection with The Company's growth initiatives, profit figures, outlook, strategies and objectives. All forward-looking information and statements in this presentation are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for The Company. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions.

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 for the interim results presentation for the seconf quarter, held on July 12, 2018. 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 Q2 2018 July 12th 2018, Oslo, Norway