Data Center Demand Ramps even as COVID-19 Impacts the Company

April 30, 2020
SAN JOSE, CA - (Business Wire) --(TSX:SEV) Spectra7 Microsystems Inc. (“Spectra7” or the “Company”), a leading provider of high-performance analog semiconductor products for broadband connectivity markets, today announced its audited financial results for the year ended December 31, 2019. A copy of the audited consolidated financial statements for the 12 months ended December 31, 2019 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.

2019 FINANCIAL AND OPERATIONAL SUMMARY

• Revenue for the year ended December 31, 2019 was $4.6 million as compared to $4.2 million in the previous year, representing a 10% increase driven primarily by Data Center shipments offset by weakness in the VR market.
• Gross margin¹ as a percentage of revenue for the year ended December 31, 2019 was 55%, an increase of 2% from the previous year driven by higher shipments of data center products.
• Non-IFRS operating expenses for the year ended December 31, 2019 were $10.3 million, representing a decrease of $0.9 million or 8% from the previous year.
• EBITDA² loss of approximately $6.4 million for the year ended December 31, 2019 compared to a loss of approximately $7.7 million in 2018, or an improvement of 17%

Q4 2019 FINANCIAL SUMMARY

• Revenue for Q4 2019 was approximately $0.9 million, representing a decrease of approximately 36% over the prior quarter and approximately 36% over the same period in the prior year primarily driven by weakness in the consumer and VR markets.
• Gross margin¹ as a percentage of revenue for Q4 2019 was 51%, representing decreases of approximately 8% sequentially and 2% from the same period in the prior year.
• Non-IFRS operating expenses in Q4 2019 was $2.5 million, flat sequentially and down $0.1 million from the same period in the prior year.
• EBITDA² loss of approximately $1.7 million compared to a loss of approximately $1.4 million in the prior quarter, and down $0.2 million compared to the same period in the prior year.

Q4 2019 FINANCIAL SUMMARY

• The Company continues to experience strong traction with its data center solutions and announced 28 new customer design-ins in 2019, for a total of 73 to date.
• In October 2019, the Company announced broad availability of 400G Active Copper Interconnects from tier one cable partners including Molex, Foxconn Interconnect Technologies, Luxshare-ICT and Leoni.
• The Company showcased 400G Hyperscale Interconnects with Molex at SuperComputing 2019 in November.
• Tencent and Spectra7 launched the CRX Consortium in June to accelerate the adoption of Active Copper cable technology.
• The Company demonstrated interoperability of its technology with leading switch and silicon makers Cisco, Arista, Juniper and Intel at the Optical Fiber Conference and Exhibition (OFC) in March 2019.

Q1’20 REVENUE PRE-ANNOUNCEMENT AND OUTLOOK

Preliminary revenue for Q1 2020 was $0.1 million as the Company’s financial results were significantly reduced by effects of the coronavirus pandemic. In response to the material near-term revenue impact, the Company has significantly reduced operating expenses, including employee furloughs. The Company’s customer demand and supply chain were adversely impacted by COVID-19³. While the future impact of COVID-19 remains uncertain, the Company has also received record order backlog for its Data Center solutions in Q2 2020 and expects significant sequential revenue growth.

CEO COMMENTARY

“Looking back on 2019, it was a pivotal year for Spectra7 in which we continued to consolidate our position in the burgeoning market opportunity for Active Copper Cable interconnects for Data Centers”, said Spectra7 CEO Raouf Halim. “Spectra7 is currently experiencing significant staffing issues, customer disruptions, and supply chain challenges caused by the spread of COVID-19 and associated shut downs that are impacting overall revenues in the near term. However, we are encouraged by record order backlog for Data Center solutions as we expect to start recovering from the global COVID-19 pandemic.”

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 design centers in Cork, Ireland and Little Rock, Arkansas.

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.

¹ Gross margin is a non-GAAP measure. Refer to “Revenue and Gross Margin” in the Company’s annual MD&A for the year ended December 31, 2019 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 annual MD&A and Annual Information Form for the year ended December 31, 2019 more details on the impact of the COVID-19 on the Company’s operations.

For more information, please contact:

Spectra7 Microsystems Inc.
James Bergeron
Investor Relations
289-512-0541
ir@spectra7.com

Spectra7 Microsystems Inc.
Darren Ma
Chief Financial Officer
669-284-3170
pr@spectra7.com