Nordic Semiconductor ASA (NOD) Earnings Call Transcript & Summary

Welcome to Nordic Semiconductor's Q3 2026 presentation. [Operator Instructions] This call is being recorded. I will now hand the call over to Stale Ytterdal, please begin.

Thank you, Geld, and good morning, everyone. Please note that this presentation is being recorded and will be accessible afterwards on our IR website, where you also find earnings press release, quarterly report and presentation materials. With me today, we have our CEO, Vegard Wollan; and our CFO, Pal Elstad. They will share details about our third quarter financial performance and updates on key business developments. Following the presentation, we will move on to the Q&A, as Geld said, during this time, live questions can be submitted through the Q&A dial-in feature for 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 the dial-in is required only if you like to ask questions. As a reminder, this presentation includes forward-looking statements that come with inherent risks and uncertainties. Actual outcome may differ materially from statements expressed or implied. We highly recommend reviewing our detailed Q3 quarterly report and the 2025 annual report for a deeper understanding of the risks and uncertainties that could impact our business operations. With that, I will hand over the microphone to our CEO, Vegard Wollan.

Thank you, Stale, and good morning. As you will see, Q3 was another quarter of solid profitable growth, continued market growth and solid customer demand offer good growth opportunities for us. At the same time, we continue to strengthen our competitive position and expand our addressable markets with new products. And we increased the life cycle value of our products, both for our customers and for Nordic. Financially, we achieved record revenue, both on a quarterly basis and on a rolling 12 months basis. Revenue for the quarter came in at $235 million, this is up 32% from the same quarter last year and 8% above the second quarter. This brings revenue for the last 12 months to $816 million, up 26% year-on-year. And as in the first and second quarter, we saw year-on-year growth, both for the short-range and long-range businesses and for large customers and the broad market and across both the consumer segment and the Industrial and Healthcare segments. We maintained a solid gross margin at 52.8% in the third quarter up from 51.9% in the third quarter last year and slightly below the 53.1% in the previous quarter. Overall, this generated an EBITDA of $40 million when adjusted for noncash cost effects related to the Memfault acquisition. This is up from $18 million in the third quarter last year and from $36 million in the second quarter. Summing up, we saw a continued healthy market and good revenue growth, a solid gross margin and an increase in the adjusted EBITDA margin to 17% and from the 10% in the same quarter last year. Things are moving in the right direction. While we continue to see growth among our top 10 customers, the strongest growth has come in the broad market over the past year. Regaining traction in the broad market has been a key priority for us and the current strong growth reflects higher activity with both existing returning and new customers. I see this strong -- I see this as a strong validation of our position as a clear leader in our target markets. Given the high design activity in the pipeline, we continue to see a positive development, both for large key customers and the broad market. Looking at the end customer, Bluetooth Low Energy certifications, we have a 30% share of the certifications over the last 12 months. And we have about 3x the number of certifications compared to our closest competitors. The signs based on the NRF 54 series now account for more than 25% of our certifications and we expect this to continue to increase in the coming time. As we have repeated many times, this simple design count does not distinguish between high volume and low volume end products. These figures, hence, cannot be translated into volume or revenue market shares. As I started out, we are continuing to strengthen our competitive position and expand our addressable market by further broadening our portfolio. Our most recent announcement in short range is the NRF 54 LC10. Nordic's smallest multiprotocol system on a chip. It's especially well suited for tags and trackers as well as compact smart home sensors. And products like these are over low complexity, but hard to build. They are made in high volumes and every millimeter and every cent counts. That has traditionally meant choosing between size, cost and capability. The E54 LC10 eliminates these compromises. It is small and cost-effective and still delivers Nordic high-performance wireless capabilities and the advanced security these products need. Unlike the rest of the 54 series, this new short-range device is part of our complete solution from chip to cloud. Even the smallest tag or sensor powered by the 54 Lc10 gets access to the same software, easy-to-use tools and cloud life cycle services, enabling customers to reach the market faster and to keep their products secure and up to date, in line with the EU Cyber Resilience Act. Similarly, we are expanding the addressable long-range market. The NRF 93 and 1 smart modem is generally available now. and brings Nordics long-range offering into a more data-intensive applications using LTE CAT 1 bits. These are applications typically using video and audio or payment terminals, metering, health care monitoring applications, et cetera. We are working now with lead customers across many of these applications and markets at the moment. The 93 series smart modem is easy to use. And just like our short-range products, it can easily access NRF Cloud for efficient and compliant life cycle management of devices in the field. I'm often asked which new applications will require edge AI. And the answer to that is all of them. All applications. Edge AI is becoming an essential part of almost every connected product. Most designed in development today among our customers use edge AI technology in some form to become more intelligent, more responsive or to use less power or all of that. And we are delivering right in the middle of this transformation. Our leading integrated AI solutions combined compute performance, memory, low power consumption and compact size. We see strong traction and a growing pipeline for products with the Axon NPU, our AI accelerator, and we see increasing use of Newton, our EDTU software for building ultrasmall AI models using customers' own data. Together, these 2 technologies are unique and add great value to our complete solution. We also see rapid adoption and a fast-growing usage of the AI development tools, which we launched in May this year. This industry first launch from Nordic was primarily for coding assistance, and now it includes expanded capabilities, including hardware debugging assistance and AI-assisted power optimization. Our strategy of supporting all language models and AI coding agents is a success factor for the Nordic solution. Additionally, the tools are reliable because they are built on Nordics, mature documentation, software protocol stacks with the -- which the AI assistants are utilizing. This means more accurate results, faster development cycles and higher quality products for our end customers. Nordic is well recognized as the developer's best friend. And we are committed to be offering best-in-class developer experiences. With these tools, developers get more done in less time with more confidence. Summing up, we are continuing to strengthen our chip to cloud solution across hardware, software and cloud life cycle services, which is unique to Nordic. Over the last 2 years, we have now launched more than 50 new product variants of our hardware. We have advanced our leading software and AI capabilities and we have significantly expanded our cloud services. This has been an effort the Nordic team can truly be proud of, and there is much more to come. With that, I will leave the mic to Pal to take you through the financials.

Thank you, Vegard. Revenue amounted to USD 235 million in the third quarter of 2026, an increase of 32% from the same quarter last year and an 8% increase from the previous quarter. This is the highest quarterly revenue we have ever reported and above the previous high of $290 million last quarter. On a rolling 12 months basis, revenue increased by 26% to $860 million, also an all-time high. All Street Technologies grew year-on-year. Short range is driving our growth with revenue up 30% and to USD 26 million and representing 92% of total revenues in the quarter. The NRF 52 and 53 series still account for the bulk while the NRF 54 series is generating gradually increasing revenue. Long-range revenue grew 70% to USD 17 million, up 14% from the previous quarter, with higher product sales for both cellular and satellite applications, a broader customer portfolio and growing NRF cloud services revenue. Other revenue was $3 million, up from $2.5 million last year and down from $4 million in the previous quarter. Turning to the end-user markets. All areas grew year-over-year. Consumer revenue increased by 31% year-on-year to USD 146 million, up 16% from the previous quarter and now accounts for 62% of total revenue. Consumer growth continues to be broad-based across most verticals we operate in. Industrial and Health care revenue increased by 30% to $81 million and accounts for 35% of total revenue. Revenue was down 6% from the previous quarter. The year-on-year increase reflects a growing customer base, although this area remains dependent on the individual large customers. And as we've said before, quarterly variations should be expected. Other amounted to $8 million, up from $5 million last year and $7 million last quarter. Other revenue mainly reflects online catalog sales, supporting the positive development in the broad market and accounts for 3% of total revenue. Gross profit was USD 124 million in Q3, up from $93 million in the same quarter last year. The gross margin, hence, increased to 52.8% from 51.9% last year and slightly below the 53.1% last quarter. The improvement versus last year reflects changes in customer product mix an increasing share of sales to broad market customers and the positive contribution from cloud services. We expect the gross margin to remain above 50% also in the fourth quarter and reiterate our long-term ambition to keep gross margins above the 50% level. With 32% revenue growth and improving gross margins, gross profit increased by 34%. With higher volumes, we also see the effects of the operational leverage in our business model. Whilst revenue increased 32%, OpEx only increased by 13%. With revenue growth, gross margin improvements, cost management. The adjusted EBITDA margin increased by 6.7 percentage points to 16.9%, and adjusted EBITDA increased by 17% year-on-year to around $40 million. Splitting our cost base, you can see that R&D increase in absolute terms, but decreased in percentage of revenue. We continue to invest in the short-range portfolio, although this area accounts for less than 60% of R&D spending despite accounting for more than 90% of revenue. However, we still invest significant amounts into R&D in long range and our early-stage businesses. And combined, these account for more than 40% of R&D despite accounting for less than 10% of revenue. These are investments for the future, and this revenue growth over time, we expect gradually more balanced R&D to revenue ratios also in these areas. SG&A or OpEx also increased somewhat in absolute terms, although the higher revenue means that SG&A to revenue percentage declined by 1.6 percentage points to just above 13%. Now turning to cash operating expenses. Cash operating expenses were $87 million in Q3, up 17% from $75 million in Q3 2025. Cash payroll expenses increased by around $7 million to USD 59.5 million in Q3 from $53 million in Q3 2025. Of this, approximately $6 million relates to organic growth workforce growth, salary adjustments and accruals for variable pay, while around $1 million is attributable to currency effects from a weaker dollar. If you compare against Q2 2026, cash salaries has increased from 52.6% to [indiscernible]. This increase is explained by holiday pay in Q2, salary increases and more employees. We've added 41 people during the quarter in addition to higher variable pay accruals. The latter is an effect of the strong results. At the end of the quarter, Nordic had 1,506 employees, an increase of 7% compared to last year. Other cash operating expenses amounted to $27.8 million, up from $21.9 million a year ago, driven by higher hardware and software spend, along with increased sales activity. CapEx in the third quarter was $12 million, up from $8 million in the second quarter and the highest level of the past 5 quarters, primarily related to the purchase of additional testers in the supply chain as we continue to invest in manufacturing capacity and continuing to launch many new products. CapEx was 5.2% of revenue in the quarter, above the 3% to 4% range we have typically seen. On cash flow, cash flow fell by -- reduced by -- or cash was reduced by $9.3 million in the quarter from $276 million last quarter to $267 million this quarter. However, the underlying developments matter more than the headline. Cash flow from operations was plus $10 million compared to $20 million last year. EBITDA after capitalized development costs was about $33 million. However, working capital absorbed $73 million during the quarter. The main driver is inventory now at $236 million. This is a deliberate front-end loaded bill to secure supply and capacity. We have race wafer purchases to support the ramp of next-generation products, notably the 54 series and built inventory ahead of additional test capacity coming online in the supply chain. That capacity is also within the CapEx of $12 million this quarter. Accounts receivables also rose to $164 million from $99 million last quarter on higher revenue and the timing of customer payments. Other operating adjustments of $40 million are a positive item. They mainly reflect the higher shipment EBIT provision due to higher sales volumes and price adjustments. Net working capital was $234 million, up from $138 million a year ago. As the share of last 12 months revenue, it's 28.6, up from 21.2 a year ago. Cash and cash equivalents ended at $267 million. In addition, we have an undrawn revolving credit facility of USD 200 million, giving available cash of $467 million. Finally, before handing the word back to Vega, we'll have a look at the Q4 2026 guidance. Based on current customer orders and forecasts, we are guiding for revenue of $215 million to $235 million in the fourth quarter, corresponding to a year-on-year growth between 27% and 39% with the midpoint of 33%, a slight reduction sequentially from Q3. We reported a gross margin of 52.8% in Q3 and expect the gross margin to remain above 50% also in the fourth quarter. With that, I'll leave the floor to Vegard for some closing remarks.

Thank you, Pal. I started out today saying that we have seen continued market growth and solid customer demand. which offer good growth opportunities. Financially, we reported 32% growth to a record high revenue of $235 million for the third quarter. And with improving gross margins and good cost control, this translated into more than a doubling of our EBITDA year-over-year. However, our focus is on executing on our growth plans to benefit from this market development. Operationally, we maintained strong momentum in the short-range market with growth for our NRF 54 series. We also see strong growth and expanding addressable market in long range, and we see rapid adoption and high usage of both our AI-assisted development tools and our AI accelerating hardware. Strategically, we are working closely with key customers to position ourselves for the wave of new products and more intelligent applications we expect to see over the coming years. We have clear ambitions to take more than our fair share in this market development. as we believe we are a leader in edge AI with our current solutions. With that, I want to thank you for your attention, and I believe we should open for questions. Over to you, Stale.

Thank you, Vegard. We will now open the line for questions again for instruction on how to join the Q&A. Please refer to the earnings call limitation posted on our IR website under the stock exchange notice section. To allow as many participants as possible to ask questions we kindly ask you to limit yourself to 1 question and following our initial response, you will be able to ask a follow-up question. With that, I will hand over to the operator to begin the Q&A session.

[Operator Instructions] The first question is from the line of Christopher from DNB Carnegie.

Congrats on the great quarter and guide. So I just wanted to start out with what seems to be an outperformance for you guys related to some of your key peers and maybe if you help us understand what is kind of driving this growth you're seeing strong growth year-over-year in both Q3 and guidance in Q4 despite other companies in the industry are kind of showing science that are struggling with the weakening consumer electronics market in particular, potentially due to memory led the maestro and soon you could. What do you look at to kind of get confident that this is you pull forward or any other kind of temporary tailwinds that might go way into the next year and so on. We can start there.

Yes. Thanks, Christopher. These -- yes, great questions and many questions. So I think what we do see clearly is the growth we are currently experiencing is broad and across thousands of customers. And as I think we commented on, particularly happy with the broad market growth, which has been a lot of focus at that within Nordic. We have lots of new customers coming on board, also existing and returning and even new programs. So that is very positive. I think if you look at the markets and level it up a bit, as I think you asked, we probably participate in a part of the consumer markets with our end products are maybe a bit higher, call it type products where you utilize the best-in-class performances, which you get with Nordic on 1 hand. On the other hand, I think -- and maybe the most important is that relatively few of our end customers are sitting with a larger memory aside us. And we have the memories integrated mostly integrated in our products. And I would say probably in the high 90s, most of our customers are only using the memories they get from Nordic. So that may be the biggest difference on that end.

That's helpful. And my follow-up is kind of on the same line. It just seems like last year or so, you've kind of seen lower seasonal variations in your top line and what has been kind of the norm in the past. Is that kind of a new norm that we should kind of think about going forward? And if yes, are there any kind of structural reasons behind that either internally or externally that driving that for you?

Yes, I appreciate that question, Christopher. But we -- as you know, we only guide for the current quarter. So -- and I think as we have said on this one, which we currently also see some customers are trying to balance out and equalizer production may be a bit more throughout the years, while they obviously still are seasonal effects in the consumer market, which is a major part of our business and a strong part of our business, which we are proud of, while we simultaneously develop and grow industrial health care. So that's probably as much as we can say on that. And on top of that, again, of course, with a fantastic product renewal phase we have been through and still are in the midst of. I think it's also -- the growth is coming a bit linear in the sense that our customers are launching their products, not necessarily equally spread throughout the year. And of course, with all these new products launching, the new products are also starting to contribute more meaningfully to us right now.

The next question is from the line of Sebastien Sztabowicz from Kepler Cheuvreux.

First 1 would be on the short term. How do you see the OpEx trending in the fourth quarter? And -- or should we start modeling '27? Do you have any kind of indication? And how do you see OpEx evolution Q4 in '27?

Yes. So in Q4 and a little bit like in Q2, we see very high activity to capture growth, and then we have been releasing a lot of new products in the last 2 years, and we continue Doing that, we increased the number of employees by 40 in Q3. We don't expect that many new in Q4. So adjusted for the salary effect, salary increase effect and holidays in Q3, pretty underlying flat in Q4. When it comes to 2027, I think it's too early to comment on that. It's based on the current development.

Okay. And coming back to the cost of the input cost evolution today, how do you see the input cost trending for next year? Do you have the initial discussion with your foundry partners on the cost of manufacturing for next year or it is a bit too early and it is something that you are negotiating right now.

Yes, that's -- thanks, good question. And I think, obviously, we cannot share details on that, but I think it's fairly widely known and commonly known that cost increases across the semiconductor value chain is happening. So that's well known. I mean we have the effect of materials, substrate labor and most of our supply chain part of that and also capacity expansions. So Nordic is obviously not immune to this either. So there has been and is still an element of cost changes happening, and I think we are managing this in a very in a good way with our suppliers on the 1 hand and our customers on the other hand.

The next question is from the line of Amelia Banks from Bank of America.

[indiscernible] was wondering [indiscernible] across publication [indiscernible] and how we should think about the sustainability into Q4?

Amelia, it was really hard to hear you. I don't think we captured any of that question. I don't know if you can try to do something on your end with the microphone or try again, please.

Try again.

It was very hard to hear the questions. So please try again if you can hear us.

We'll take the next question, which is from the line of Harry Blaiklock from UBS.

The first is just on pricing. And we're hearing a lot across the industry about how the pipe supply environment is driving semi suppliers to increase pricing? Wondering if that's a dynamic that you expect to benefit from? And what magnitude to price changes you're seeing kind of across the portfolio this year and maybe into next year, if you can give color on that.

Yes. Thanks, Harry. Good question. We -- as I commented on, I think on the inbound side, I think it's well known that the -- there are some cost increases happening across the semiconductor value chain, both on the raw wafer manufacturing part of it, but also on the test and assembly and with the back end part of it. So that is to some of this degree happening. And then I think it's naturally that we are also implementing price adjustments across our portfolio to reflect the higher cost base. And that's something we are doing, and we are managing closely. So we are obviously working closely with both our suppliers and customers to manage this situation as best we can. And I think that's as much as we say on this item. Thank you.

Got it. And then just my follow-up is on the NRF 54 series. I'm wondering whether you can comment on kind of like the makeup of the sales that are coming through there. Are you seeing the majority of NRF 54 sales going to customers that had previously used NRF 52. Or are you seeing the improved performance is kind of driving new use cases? And then as well as that -- would you be able to comment on momentum of the H Series and what type of use cases you're seeing driving sales there?

Yes. Good questions on the 54 series, Harry. I think overall, with the amount of design wins we have and the pipeline we have on the 54 series, which is quite large at the moment. I think it's obviously a mix of everything. So it's a mix of people transitioning from the 52 series. It's a mix of new products, new designs for existing customers, but also new customers. And so as you have all permutations of that, as you can expect, but I think I'm indicating that it is a fairly large pipeline. And of course, with that, it's probably fair to say that also in the statistical spread of the time line our customers need to enter production. It's probably fair to say that a lot of the 54 series is starting with what we -- on the customer split, we report on is more so on the broad market side at the moment. So that's coloring a bit how 54 series is starting. On the 54 age 20, which is our highest performance device in the 54 series built for the most demanding applications. We still are in the pipeline with solid key customer design wins on that, which is being progressed. It is a very complex product. We are also mitigating not launching this to the broad market with the 54 LM20 which is a fantastic product, also with Axon NPUs in its B variant also with 2 megabytes of memory and it's also competing very well for us in the broad market. So that's still the situation there, Harry. And until more happens, that's the situation, and there is more to come.