Nordic Semiconductor ASA

OSE:NOD

Earnings Call Transcript 2020-Q1

[Svenn-Tore Larsen]

Welcome to Nordic Semiconductor. It's a time for Q1 2020 presentation of our financial numbers. As you see here, we are in an extraordinary situation now. So we're doing our presentation from the office on webcast only. But the picture in front here is not extraordinary. I think it's very common today. And Nordic has also moved most of our people back home, and I will come back to that later on.We delivered a solid Q1. It was in the high end of our revenue and even gross margins were above. Our revenue came in at $70.2 million. It's up 33.5% year-on-year. Our gross margin also increased 0.9% year-on-year, up to 51.9%. Strong gross margin. Bluetooth revenue ended at $51.2 million, up 37.1%. Proprietary revenue at $15.4 million, up 23.4%, driven very much by all the home offices that was created through last quarter. For the first time, we got a meaningful revenue from Cellular IoT, $1.1 million it ended at. And the gross margin was mainly driven by cost reduction and also because of the mix of components. We sold more of the high-end Bluetooth parts than we've ever done. It also underlines the fact that the applications that are generated today and were generated throughout last year needs strong CPU, needs memory. This is exactly the parts that Nordic has been building over the last years. And now we get payback for that strategy.Our backlog increased. It ended at $123 million. It's up 39% compared to Q1 '19 and 16% above exiting backlog of '19. We see that some customers are placing early orders to secure supply. And I'll come back to supply later on.Nordic has adapted very swiftly to COVID-19. As there is an extraordinary situation, we really care about our employees' health, has always been a top priority since this crisis broke out. And we have been in full compliance with rules and recommendation from both local and national authorities. At the moment, we are approximately 90% working from home. What we see is also the effectiveness of people at home are close to 90%. So we are delivering, as I'm going to show you later on in this presentation. We have done severe travel restrictions or there is not possible to get from Oslo to anywhere. So basically, we are staying at home. We are working mainly on webcast. We are doing all kind of conference calls and travel much less. We do few physical meetings. We have basically a no-visitor policy. And we have strict sanitation standards. I think that's been part of the reason why there has been no outbreak in Nordic, and we really work hard to ensure it's going to last, no outbreak through this horrible crisis.We embrace our social responsibility. And we really were very happy when Avnet and Hackster.io together with UNDP introduced the new product -- or new project. And we are obviously participating and contributing with design kits and try to make this activity keep going to prevent the spread of the virus in all countries basically.And it has given the result. We see currently that we are into more than 20 relevant design to prevent, to monitor or to track the outbreak of corona. And Healthcare is a segment we've been discussing for a long time. Finally, we see the pickup in usage of connected Healthcare. What we see is that the first deployments is based on repurposing existing products like activity monitors. You go in and you make additional software connection to this product, and they can have purposes to track and to limit the spread of disease. What we're going to see now and what we saw actually end of the quarter is a second wave to be used to monitoring patients outside hospital. Obviously, when you do that and you take a patient out of the room, he has to be connected wirelessly. Nordic has the solutions today. You see most of these applications are Bluetooth to your handset, but not very long from now, you're going to see the patient connected straight to the base station through LTE from Nordic. And this is a result of a long-term strategy to get the old analog medical equipment to become digital.Let's go to supply chain. We've been managing the supply chain disruptions in Q1. And most of the fabs in Asia were closed for longer than normal end of January until February. But what we saw, and last time I spoke on the presentation, I said we had a good January, we didn't have as good February as most of the fabs were closed, but we had a strong recovery through March and is totaled to $70.2 million. So this was a very good quarter. What we see now is that most fabs are close to normal operation. And there's still -- despite, there is still supply chain risk because we don't know what's going to happen tomorrow or next week. But if all parameters are alike, we are pretty optimistic about the quarter we're in. We also need to do some action to reduce risk. We have increased buffers for critical devices. We have excess capacity for variable demands. And we are qualifying multiple sources so that we can ship from destination B if destination A can't provide.Demand growth is an important thing. It doesn't help to have parts if we don't have demand. And we see that most of our distributors have normal operation. And we also see an accelerated sell-through through March, which leads that the distributors are having moderate levels on the inventory. So we're exiting the quarter with moderate level or, I would say, lower level on this inventory than we entered the quarter.But obviously, Nordic, like any other business in the current extraordinary situation, we have lower visibility on future user demand. There is 3 main uncertainty, and we don't know the length and the magnitude of this situation. And we really hope to see if we can help the communities to get rid of the virus and minimize the effect, but we don't know when it's going to end. The depth and the length of the expected setback in economy growth and consumer spending, we just have to wait and see. We don't have an opinion on that, but we see that the backlog is strong. But there is not only negative things when it comes to a connectivity company like Nordic. I think you're going to see a radical shift in technology adoption, and several verticals of which we are working on will generate upsides. We see that already now, and I will discuss some of them later in the presentation.Nordic, we have good liquidity, we are solid and flexible. We have increased our cash position. Cash at hand was $124 million, and we are asset-light model. We outsource most of our production and distribution. Its people and IP are the most important factor for Nordic. And currently, we still are recruiting because we have some commitment to Tier 1 customers, which we really need to fulfill. So we are always looking for good software engineers -- actually, we are looking for the best software engineers. Our equity position and equity ratio is 67%. And it really also shows that we are flexible to adapt to different market scenarios. We feel very strong at the moment, both on design win, both on supply chain and also on the financial position of the company.So we maintain our long-term strategy and targets. Our strategic pillars: lead on connectivity, excite developers, customer engagement, scalability, investing early. I think some might have been a little bit more with me talking about Healthcare and connected patient for so many quarters, but now it finally pays off. And obviously, all this investment is linked to our financial ambitions. We have high financial ambitions.We are in a solid position. I will show that later also. Market leader in Bluetooth Low Energy. We have strong ties to vertical Tier 1s and platform ecosystems, and we are well positioned for market leadership in IoT. This quarter, we showed $1.1 million revenue on our new products. There is multiple designs behind that, but we see some particular customer starting to do full production now.We had a Capital Markets Day end of last year. We showed some ambitious targets. We have a target to becoming a $1 billion U.S. company within the next 5 years. And we have ambition to be at 20% EBITDA margin when this happens. And nothing has changed on that ambition.I talked about market share. This quarter, Nordic had 49% market share on Bluetooth SIG's registration page. This brings us up to an annual market share of 46%. It's mainly driven by high-end products where people need -- where customers, not people, customers need MCUs, powerful MCUs that need much memory and that use multiple protocols. And Nordic has products that fit into this category. And we get honored by 49% market share due to our product mix and excellent people selling our products.As usual, we show some products that launched during this quarter. Panasonic made a module with 52840. For those who are not familiar with products, 52840 is the System-on-Chip I talked about, the advanced System-on-Chip from Nordic. Accent is a bracelet that is basically repurposed to use towards COVID-19 tracking. It was an ordinary sports band up until -- I understood you can use this for a different use case. Smart Lock from SimpliSafe. We also see 2 9160 designs here, secure asset tracker from IoTeX, Signetik through a full module that is precertified using a Nordic chip. So yes, there is good launches both in BLE side and in the cellular modem side.But we all -- what we've seen pushed most for is health care use cases. We have a customer called Masimo, which are doing, among other products, oximeters. And what we see is that the need for this and the speed of adoption had Nordic -- made Nordic do extraordinary work to ensure supply to these verticals. Kinsa Health is doing thermometers. The same, they have got incredible demand for products, and we are working as hard as possible to be able to support them with their connectivity needs.But besides these extraordinary things, things are quite ordinary. We continue to crunch. We continue to deliver. We launched over 52820, was a -- is also a component in the 52 families for budget-constrained applications, but it has not budget features. It's a full-speed USB 2, Bluetooth 5, Mesh, Thread, ZigBee. Look at the specification here and the fact that this is going into budget-constrained application. It is great, and it also support 105 degrees. Why do we write it? Because there is verticals where they need more than commercial temperature grade, and the 52820 will address those applications.So we spend tremendous time, tremendous money on cellular products. Finally, we see revenue. Q1 contributed $1.1 million, and we are gaining quite a bit of traction with new designs. We released a new software package, and now it's seamless between Bluetooth and LTE. You can use exactly the same software. And we are obviously a little bit hindered by travel restrictions, but we continue to do certification work and test around the globe. We've been taking some of our field application engineer group to perform the tests that our test group used to do when they can't be able to travel.Before I leave to Pål, I also would like to say that we, for years, have been focusing on ESG, and it's important for Nordic because I think IoT is a key to enhance sustainability, and we are doing whatever we can to support this trend. It's important. We have committed as a signatory to the UN Global Compact, and we are supporting the UN Sustainable Development Goals. And we've been publishing just now an ESG report, and you will find the link just below the picture there. So if you would like to see what we do, what we're going to do and how we do it, it's all available in that document.So then I hand you over to Pål.

[Pål Elstad, Chief Financial Officer]

Thank you, Svenn-Tore. Before I start on the financials, I want to remind you that when -- after the presentations are done, we're going to have a Q&A session. If you have any questions, you can send a mail to [e-mail] for the financials. As Svenn-Tore mentioned, we did have a strong revenue growth of 33.5% this quarter. So despite the COVID-19 situation, we ended within our guided range. Compared to last quarter, we had a reduction of 18.4%, which is normal for a seasonal, since Q4 last year was very strong also. The growth came in both Bluetooth and in proprietary business where the Bluetooth showed 37.1% growth driven from applications in most markets. Proprietary had a 23.4 percentage growth and is back to levels we saw a few years ago. The reason for this strong growth is the mix. In Q1 last year, there were some strong inventory corrections in the distribution channels. And in addition, the proprietary PC sales is strong during this quarter. Cellular IoT, first time above $1 million. Main reason for that is that for the first quarter, we actually see sales to end customers not just sale of the Thingy:91 and development kits. However, the Cellular revenue will continue to have volatility going forward.And now I'll jump to the market analysis. With an overall growth of 33.5%, all markets show a strong growth. However, I want to highlight some of the key areas. The 16% growth in Consumer Electronics came mainly as part of the strong proprietary business where we saw a big pull for home office applications now that people are working at home. The second big area is Wearables. We actually had a 48.5% increase. The main driver in this area is the high-end wearables market, especially in China, where we see that we have a very strong traction in the high-end markets. Building and Retail had a growth of 63%. Main driver for this is the city bikes. If you remember, a few years ago, we had a very big pull for city bikes. Now that people prefer biking instead of taking public transportation, we see a rebound in the city bike market. Finally, Healthcare, Svenn-Tore has talked a lot about Healthcare and the big opportunities we have within monitoring and tracking diseases. This will happen in the quarters to come. In Q1, we mainly had a strong pull for the new products with our existing customers within Healthcare.Gross margin at 51.9%, which is above our indicated guidance level, mainly driven by a positive product and customer mix. Gross margins are expected to be around 50% in Q2. However, we want to reiterate the medium-term gross margin range of 48% to 50% for the short-range business. The reason is that we do see and we do expect a change in both the product and customer mix.Briefly on the operating model, of course, a 33.5% revenue increase, combined with an improved gross margin, really gave a strong push on our gross profits, which increased by 0.9 percentage points or a 36% growth. The strong growth in gross profit is reinvested in growing the company. So although the R&D spending as a percentage of revenue is down from 34% last year to 27% this year, the underlying cost increases from around $18 million to $19 million. We do see a small reduction in the short-range business, although we are continuing to invest to capture growth opportunities here. The largest growth comes from the Cellular IoT business where we do see high activity during the commercialization stage. SG&A is where we have the largest increase. We have been talking about this before that we are building the sales and marketing and the direct customer focus business in order to capture the growth that we're working on currently. Due to the strong revenue growth, EBITDA increased from minus 1.4% last year to 7.5% this year.I will now turn to cash operating expenses. So these numbers are excluding the effects of capitalized R&D and equity-based compensation. So Nordic is capitalizing some R&D. So this year -- or this quarter, we capitalized 2.7%. That's more or less the same amount as we capitalized a year ago. Most of this, around $2 million, is related to the short-range business, the rest related to the long-range business, which is, as I said, now in -- more in the commercialization phase. Total cash OpEx was $33.5 million, more or less the same as we had last quarter, with an increase of 12.7% compared to last year. So we do show a continued disciplined growth execution. We do have a favorable FX development due to the significant weakening of the Norwegian kroner. However, it's important to mention that this will most like -- most take effect into Q2 as the big depreciation of the NOK happened towards the end of Q1. So underlying, we have added employees, and we have invested more into the business. We increased the number of employees by 14.5% compared to last year, so we're now 799 employees. So it's growth in both customer-facing teams and also in R&D and then sales. Other OpEx really varies with product introductions. I talked about before the tape-outs of new products is the main cost driver in this area. But we are, of course, with reduced travel, reduced activity, seeing that these costs are contained.I will now go focus on the EBITDA. So we do see a good EBITDA improvement. If you look at the left side of the chart, it's quarter-over-quarter. So last year we had 1.4% minus in EBITDA. A more operational leverage this year with higher revenue gives us a 7.5% EBITDA margin. If we exclude Cellular IoT, which still has only marginal revenue, the EBITDA margin for the company is 17%. We also like to focus on the last 12 months' revenue capturing the high revenue quarters. So this year, we have 12.7% over the last 12 months. If you exclude Cellular IoT, the rate is -- EBITDA margin is 21.3%. So for the second quarter in a row, we're above our 20% target.CapEx in the quarter was $3.8 million or 5.4% of revenue. We did have high investments towards the end of last year where we were building up the lab in Trondheim, the test and verification lab. These investments are now reduced. So in -- compared to revenue, this quarter, we invested $5.4 million. We do expect that the absolute level of investments in Q2 will be around the same, giving a less percentage compared to revenue. Main focus has now moved from building up labs to focusing more on the supply chain part of our business.Finally, I'm going to talk about our cash position. During the quarter, we increased our cash balance by $33.7 to $124.3 million. However, excluding finance activities, we had a negative cash flow of $8.5 million, slightly more negative than last year where we had $5.3 million negative. The operating cash flow was $1.5 million positive despite a buildup of inventories. The reason we build up inventories is to -- in order to have a better buffer in the current situation. The increase in inventories resulted in a slightly increase in net working capital compared to revenue. Total investments, including capitalized R&D, was $6.5 million. Nordic has 75 -- or had $75 million in credit available. When the COVID lockdown happened, we decided, for precautionary reasons, to draw $40 million on the RCF. This was done to serve -- to secure liquidity in the current position and also to have available funds to continue the growth that we're seeing coming.Svenn-Tore, I'll now hand over to you, and you can go through the outlook for Q2.

[Svenn-Tore Larsen]

So as Pål has described and I've said, we had a solid Q1. And obviously, there is uncertainties in this situation. But if you look at our backlog, it really supports our guidance range. We are guiding revenue in the range of $75 million to $85 million. It's a little bit wider range than we've done previously. But also we are in a situation I've never been in and I think none of -- nobody else has been in. So we have to take measurements that match the situation. We still know that there will be contribution from new Tier 1 applications coming in the next quarter. Hence, we are guiding the margins to be around 50%. Yes, there is some supply chain risk, but we discussed it earlier. We think we have taken measurement to avoid the worst hits if things happen. We have no knowledge of end-user demand. Most probably you listening to me have more knowledge about it, but we are doing what we can to ensure supporting new verticals that's going to combat this virus and, hopefully, be back on track as early as possible. But the most important thing is that we have seen through this quarter that there is radical shift in technology adoption. And we've been foreseeing that patients would be connected for quite some time, but now we don't foresee it. Now we see it and experience it. And I will say all the long-term drivers in place is there and is going to support our strategy and going to make us achieve our financial ambitions.So despite all the horror around us, if you look isolated to Nordic, I will say that we've gone through this Q1 in a great way. And I would like, at the end of the quarter presentation, to give thanks to our IT department that have facilitated so well. Now we have workers, engineers around the globe, and it's been working flawless, and engineers sitting home are doing school for their kids, they're doing work for Nordic and our efficiency rate at 90%. I'm extremely proud of the guys working in Nordic. I'm sure we're going to get stronger out of this situation we have now and hope to meet you guys in person for the next quarterly presentation.Now we open for questions. I have to go to Ståle and see what kind of questions he got in. Could you join me, Pål, to try to answer?

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Yes, we have a few questions and then we have split it up in topics. We start with backlog questions. And from Christoffer, DNB, what is the customer concentration in backlog?

[Svenn-Tore Larsen]

Yes. We did analyze the backlog here obviously by end of the quarter, and we see there is more customer contributing. So we will have more customers up to the mid metric of $1 million amount monthly. So it's more spread.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Yes. Then we have...

[Svenn-Tore Larsen]

We're still awaiting some of the Tier 1 customers who will contribute to that, change it a bit in the coming quarters.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Then we have a question from Arctic, Henriette. Can you give any color on the length of the backlog? Last quarter, you said that the backlog is spread between Q1 and Q3 so -- Q2. What is the length of the backlog?

[Svenn-Tore Larsen]

It's exactly the same spread, but it has come in earlier in the quarter. So I will say it's still soft for Q4, strong for Q2 and 3.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Petter Kongslie from Sparebank. What type of chip dominates the backlog? Has that changed over the last quarter?

[Svenn-Tore Larsen]

It's changing as we speak. The higher end has been the 832. What we see now is the 840. The most complex part is #2 of backlog contribution. And that's what we see. We're getting into new verticals that need, I say it again, more compute power, more memory, more multiple protocols, and Nordic have those parts.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Okay. Then we go over to guidance, questions on the guidance. From Christoffer, DNB, what negative effects on consumer demand have you baked into lower end of the Q2 guidance range? Has the whole guidance range been revised down to reflect recession COVID-19 or just the lower end of the right range?

[Svenn-Tore Larsen]

This is obviously a guidance based on current situation. And it's -- we're not guiding on the guidance. So this is the guidance. We've been calculating, working on this, and $75 million to $85 million is the best guidance we can give currently. There could be stops in logistics. There could happen things that we can't control. But basically, we feel pretty comfortable with this range.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Thank you. Then we have questions from Henriette, Arctic. One, on your Q2 guidance, could you give some more color on the split between Bluetooth Smart and proprietary?

[Svenn-Tore Larsen]

We can see both verticals are strong, and we continue to see that proprietary is doing increasingly well. And I've just read a report this morning that even a PC manufacturer in Taiwan is seeing pickup. So there will still be home office to be furbished over this quarter. So we think we're going to get a strong proprietary Q2. Obviously, we're getting -- if we meet the guidance, going to get a strong Q2, and it will be contributed from both product lines.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Thank you. We go over to Cellular questions, questions about Cellular, Christoffer, DNB. Can you say anything more about the revenue growth in Cellular IoT? What segments, for example?

[Svenn-Tore Larsen]

We have seen -- we have been talking about logistics for a length. We have had customers doing application with logistics. We also have seen some automotive vertical designs. Unfortunately, automotive is not the one that has the higher speed at the moment. So that might be pushed out a bit in length. But we also showed today and we have showed on our website new designs like the [ home box ]. And there is consumer application with LTE. And we are excited about all the design activity we have, and we don't know exact date when we're going to see a pickup, but we see a continuous stream of customer going into production.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Thank you. And we have a question from Henriette, Arctic. The cellular test and certification processes are pushed out due to COVID-19. Can you give any color here on when you expect the inflection point? When it's going to get...

[Svenn-Tore Larsen]

Unfortunately, we cannot -- I mean it's all dependent on the environment around us. But we know that we are intensifying our effort to get [ fruit ] by using local resources that can do the testing that will normally be done with the Finnish team. But I can't give any timing, but we expect to see certifications even this quarter under these circumstances, new certifications.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Let me see, Aksel from ABG, can you say something about the size of the pipeline in Cellular and also how long have tests and certification been pushed out in time given that they have been delayed?

[Svenn-Tore Larsen]

I think, basically, I answered for your second already. The size of Cellular, we are not splitting our backlog either on proprietary Bluetooth or cellular. So guidance is $75 million to $85 million. And Cellular is a new product family entering into production, and we are not going to split up backlog even going forward.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Okay. And then we have some others. So we just start to take questions here. This is to Pål. This is from Petter Kongslie, Sparebank. Can you give some color on the underlying cost increase with higher cost in U.S. dollars when the NOK has depreciated significantly? Where are you increasing costs?

[Pål Elstad, Chief Financial Officer]

So as I mentioned, the FX impact wasn't that strong in Q1 because the main depreciation of the NOK happened on the 15th of March, and then we paid the salaries earlier in the month. So the impact will happen, firstly, in April and for Q2. So normally, in the quarter, if the FX rate goes from 9% to 10% versus the U.S. dollar, you will save around $1 million in total. So for this quarter, the number will be much less than that. But for Q2, with -- if the FX rate keeps as it is today, we will see underlying savings also on OpEx.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Okay. We get some questions about this FX effects. One more from Henriette. Gross margin driven by product mix and cost savings, can you give any details on the savings split here? And also how much you estimate FX effects impacted your cost base in Q1?

[Pål Elstad, Chief Financial Officer]

Was that a question on gross margins? Sorry.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Yes.

[Pål Elstad, Chief Financial Officer]

So gross margin, it's a mix between customer and products. I think it's difficult to give an exact answer.

[Svenn-Tore Larsen]

I think we can talk about the underlying reason for why we are saving costs is that we invested heavily in application lab -- failure analysis lab. We can do failure tests. We can do optimization at a much earlier point, and we get into the market earlier with higher yield.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Yes. Then we have Aksel from ABG. How much of the Cellular growth quarter-to-quarter was driven by production orders versus, for instance, the kits shipped?

[Svenn-Tore Larsen]

I agree, if you look back 1 quarter, I think we reported $500,000 revenue in Cellular, was mainly kit. We sold more or less the same amount of kits, so around $500,000 of this -- $600,000, I have to be correct, of this revenue was driven by modules into preproduction and production.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Then we have from Aksel again from ABG. Moved inventory is up quarter-to-quarter to USD 57 million from USD 53 million. Can you split this on finished goods, goods in progress? And should we expect $57 million to go down or to be flat over the next quarter or continue to go up?

[Svenn-Tore Larsen]

Inventory will follow revenue. As revenue goes up, the ideal situation is that we can maintain the same ratio of inventory. There could be some challenges, if it happens, things that we don't have control, negative things that we can't control of. So we have tried to build in a buffer. And I'm not sure if it's going to be visible end of Q2. I think it will most probably be at the same level. But I don't think you should be concerned about whether it's product that's on wafer or finished product because the process from wafer to finished product is a process we're working hard on, and it's less than 7 days to convert a wafer to a finished goods product. So important thing for us is to ensure wafers. Rest of the process we should handle.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Same from Aksel, ABG. How is the road map for increasing the workforce for the rest of the year? Is this affected by COVID-19?

[Svenn-Tore Larsen]

Yes, it's affected by COVID-19. We see quite a bit of start-up companies backed with venture capital, which are laying off people. Important thing for Nordic is that we are searching for the best engineers available in any region. So some regions, we've seen that there will be more layoff than others, and we are more active in those regions. And we don't have a number of engineers we are seeking. We are basically focusing our recruitment on like capacity and knowledge.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Okay. Then we have from Danske Bank, Hans. Growing in end markets due to home office demand in proprietary products, city bikes and health care, this sounds like a positive driver from COVID-19. When you expect reduced end market demand near term? Which market is primary?

[Svenn-Tore Larsen]

As we saw on the numbers we just showed, we have growth in all verticals. And until we see the weakness, we can't comment it. So far, it looks good, and the guiding indicates also that this looks good.

[Pål Elstad, Chief Financial Officer]

I have -- I had a question on the RCF drawdown of $40 million. So we -- excluding RCF drawdown, we have a strong $84 million in cash. I think as a company, when we get into the situation, you have available funds. I think most companies' Boards would like to secure liquidity for the strong growth opportunities that we have. So that's the reason for drawing down on the RCF.

[Svenn-Tore Larsen]

I must excuse the rest of guys questioning us because we have a general assembly just after this, so we have to -- okay, Ståle, one more question, we'll take it.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Yes. This is from Aksel, ABG Sundal. Can you talk about the opportunities with the 52820, which includes USB? What opportunities do you see? Will it drive further conversion of proprietary? Will it impact gross margin, et cetera?

[Svenn-Tore Larsen]

It will not impact gross margin because margin is a function of cost and selling price. So we are not bringing new components to the market to drag down margins. And the important thing here is that we've been supporting these proprietary parts for years. And we have reached a floor of cost. We also reached a floor of selling price. So what we're going to do now is to most probably replace some of the proprietary USB dongles with parts like the 820. Gaming is also another segment you're going to see picking up using that part.But now we have to close because we have all our shareholders awaiting the general assembly. So thank you for everyone that basically asked online. And if there is further questions, pick up the phone and call Pål and Ståle. Thank you all.

[Pål Elstad, Chief Financial Officer]

Thank you.

[Ståle Ytterdal, Director of Investor Relation & Strategic Sales]

Thank you.