Spectra7 Announces Second Quarter Financial Results

(TSX-V:SEV) Spectra7 Microsystems Inc. (“Spectra7” or the “Company”), a leading provider of high-performance analog semiconductor products for broadband connectivity markets, today announced its financial results for the three month period ended June 30, 2020. A copy of the unaudited interim consolidated financial statements for the three and six months ended June 30, 2020, prepared in accordance with International Financial Reporting Standards and the corresponding management’s discussion and analysis (“MD&A”) will be available under the Company’s profile on www.sedar.com. All amounts are in US dollars unless otherwise noted.

Q2 2020 Financial Summary

• Revenue for Q2 2020 was approximately $257K, representing an increase of approximately 121% over the prior quarter. Demand for the second quarter was more than twice the actual Q2 revenue, which was constrained by supply availability.

• Gross margin1 as a percentage of revenue for Q2 2020 was 56%, representing an increase of approximately 2% over the prior quarter.

• Non-IFRS operating expenses in Q2 2020 were $1,727K, up approximately $405k from the prior quarter.

• EBITDA2 loss of approximately $1,284K compared to a loss of $942K in the prior quarter.

CEO COMMENTARY

“The second quarter was challenging as our revenue was constrained by both supply and working capital as well as continued business difficulties related to COVID-193. However, we experienced very strong orders and we saw continued broad engagement and interest in Spectra7 Active Copper Cable technology from US hyperscalers for the upgrade cycle to 400Gbps Data Center Interconnects”, said Spectra7 CEO Raouf Halim. “We entered qualification in the second quarter with a major US-based mobile operator for 5G infrastructure deployment and expect our first 400Gbps data center production revenue later this year. We expect strong revenue growth recovery in the second half of this year while at the same time we are taking additional steps to control costs and hold expenses to a minimum.”

Quarterly Highlights

• On June 3, 2020, the Company announced that cable assembly customers have ordered over $1.0 million in Spectra7 products in the second quarter to support ramping demand from Hyperscaler Data Center Operators both in China and the US.

• A major China based Hyperscaler began large volume deployment in Q2 of Spectra7-based 25G ACC interconnects.

• A major US Mobile Operator has begun qualification of Spectra7-based 400Gbps ACC cables for 5G Infrastructure deployment in the second half of the year.

• Spectra7 continued to experience strong traction with its data center solutions and announced three new customer design-ins in Q2 2020, for a total of 77 to date, 64% of which are for North American operators.

Financing Update

The Company expects to complete the second and final tranche of its previously announced $1,000,000 non-brokered private placement (the “Private Placement”) of up to 40,000,000 units (“Units”) on or before September 25, 2020. The first tranche of the Private Placement closed on July 15 and consisted of the issuance of 21,046,904 Units for gross proceeds of $526,173.

As previously announced, the Company has engaged Ocean Tomo, the Intellectual Capital Merchant Banc™ firm with a rich history of providing technology rich companies with financial services and financing needs. Ocean Tomo is engaged with a number of asset based lenders (ABLs) to complete the recapitalization of Spectra7.

Outlook

While the Company’s customer demand and supply chain continue to be adversely impacted by COVID-19, the Company has entered the third quarter with record order backlog for its Data Center products and expects significant sequential revenue growth in the second half of the year.

NOTES:

1 Gross margin is a non-GAAP measure. Refer to “Revenue and Gross Margin” in the Company’s interim MD&A for the three months ended June 30, 2020 for reconciliation to measures reported in the Company’s financial statements.
2 EBITDA or earnings before interest, tax, depreciation, and amortization is a non-GAAP measure. EBITDA excludes share-based compensation, amortization, depreciation, interest, and tax expenses.
3 Refer to the Company’s interim MD&A for the three months ended June 30, 2020 for more details on the impact of the COVID-19 on the Company’s operations.

ABOUT SPECTRA7 MICROSYSTEMS INC.

Spectra7 Microsystems Inc. is a high performance analog semiconductor company delivering unprecedented bandwidth, speed and resolution to enable disruptive industrial design for leading electronics manufacturers in virtual reality, augmented reality, mixed reality, data centers and other connectivity markets. Spectra7 is based in San Jose, California with a design center in Cork, Ireland and technical support location in Dongguan, China. For more information, please visit www.spectra7.com.

CAUTIONARY NOTES

Certain statements contained in this press release constitute "forward-looking statements". All statements other than statements of historical fact contained in this press release, including, without limitation, those regarding the Company's future financial position and results of operations, outlook, strategy, proposed acquisitions, plans, objectives, goals and targets, and any statements preceded by, followed by or that include the words "believe", "expect", "aim", "intend", "plan", "continue", "will", "may", "would", "anticipate", "estimate", "forecast", "predict", "project", "seek", "should" or similar expressions or the negative thereof, are forward-looking statements. These statements are not historical facts but instead represent only the Company's expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to the risk factors discussed in the Company's Annual Information Form and annual MD&A for the year ended December 31, 2019. Management provides forward-looking statements because it believes they provide useful information to investors when considering their investment objectives and cautions investors not to place undue reliance on forward-looking information. Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. These forward-looking statements are made as of the date of this press release and the Company assumes no obligation to update or revise them to reflect subsequent information, events or circumstances or otherwise, except as required by law.

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