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Spectra7 Announces Third Quarter Financial Results

V.SEV | November 30, 2020

Company Reports Almost $2 Million in Orders for the Fourth Quarter, the Highest in 3 Years

(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 September 30, 2020. A copy of the unaudited consolidated financial statements for the three and nine months ended September 30, 2020 prepared in accordance with International Financial Reporting Standards and the corresponding management’s discussion and analysis (“MD&A”) are available under the Company’s profile on www.sedar.com . All amounts are in US dollars unless otherwise noted.

Q3 2020 Financial Summary

Revenue for Q3 2020 was approximately $282K, representing an increase of approximately 10% over the prior quarter. Q3 revenue was constrained by working capital and supply availability.

Gross margin 1 as a percentage of revenue for Q3 2020 was 55%, representing a decrease of approximately 1% from the prior quarter.

Non-IFRS operating expenses in Q3 2020 were $1,074K, down approximately $653K or 30% from the prior quarter, reflecting strong cost containment measures undertaken by management.

EBITDA 2 loss of approximately $718K compared to a loss of $1,284K in the prior quarter, representing a sequential improvement of 44%, and the lowest level of losses on record.

CEO COMMENTARY

“The third quarter was challenging as our revenue was constrained by both working capital and supply availability. However, we experienced very strong orders and are currently in qualification with a major US based mobile operator for 5G infrastructure upgrade”, said Spectra7 CEO Raouf Halim. “We expect our first 400Gbps data center production revenue from the US in the first half of 2021. At the same time, by taking additional steps to control costs we are reducing our losses significantly in these challenging times.”

Data Center Highlights

Spectra7 continued to experience strong traction with its data center solutions and announced two new customer design-ins in the third quarter of 2020 for a total of 79 to date, 63% of which are for North American operators. Six of the 79 design-ins have now completed production qualification with three producing significant revenue. This leaves a large pipeline of design-ins expected to drive revenue growth in coming quarters.

Alibaba and Tencent highlighted Spectra7 Active Copper Cable (ACC) technology in a recent Data Center White Paper describing their future technology plans.

Tencent continued volume deployment in the third quarter of Spectra7 based 25G ACC interconnects and began trial with 100G and 200G interconnects for future deployments.

Molex recently entered production ready status with Spectra7 enabled 400Gbps PAM4 Active Copper Cables.

A major US mobile operator continued qualification of Spectra7 based 400Gbps PAM4 ACC cables for 5G infrastructure deployment. Qualification is expected to be complete in the fourth quarter with deployment in the first half of 2021.

Spectra7 recently announced its next generation solution for 800Gbps deployments as well as design starts with Molex, Foxconn and Luxshare.

Spectra7 recently announced a new ACC solution with extended temperature range, targeted specifically at the 5G Mobile infrastructure connectivity market.

Spectra7 recently announced a new longer reach ACC solution targeted specifically at the next generation of high-performance artificial intelligence (AI) and machine learning (ML) servers.

Financing Update

The Company completed the second and final tranche of its previously announced $1,000,000 non-brokered private placement of up to 40,000,000 units (“ Units ”) on September 25, 2020. The second tranche of the private placement consisted of the issuance of 16,677,920 Units for gross proceeds of $416,948.00 CAD.

Outlook

The Company has entered the fourth quarter with record order over-all order backlog and expects significant sequential revenue growth in it’s fourth quarter.

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 September 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.

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 .

Neither the TSX Venture Exchange nor its regulation services provided (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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.