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Spectra7 Announces Fourth Quarter and Annual Financial Results for the Year Ended December 31, 2018

March 18, 2019

SAN JOSE, Calif.--(BUSINESS WIRE)--Mar 18, 2019--(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, 2018. A copy of the audited consolidated financial statements for the 12 months ended December 31, 2018 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.

Q4 2018 Financial Summary

  • Revenue for Q4 2018 was approximately $1.4 million, representing a 37% increase over the prior quarter and 51% decrease over the same period in the prior year.
  • Gross margin 1 as a percentage of revenue for Q4 2018 was 53%, approximately flat sequentially and from the same period in the prior year.
  • Non-IFRS operating expenses in Q4 2018 was $2.6 million, a slight increase from $2.5 million from the prior quarter and down approximately $1.2 million or 32% from the same period in the prior year.
  • EBITDA 2 loss of approximately $1.5 million compared to a loss of approximately $1.7 million in the prior quarter. Despite lower revenue, Q4 2018 EBITDA loss improved by $0.3 million from the same period in the prior year due to strong operating expense management.
  • A $1.9 million non-cash impairment charge was taken predominantly due to the lower than anticipated sales of older mixed reality solutions. The Company continues to maintain its strong position in the virtual reality market.

2018 Financial and Operational Summary

  • Revenue for the year ended December 31, 2018 was $4.2 million as compared to $10.6 million in the previous year, representing a 60% decrease driven primarily by weakness in the VR market during the first half of 2018.
  • Gross margin 1 as a percentage of revenue for the year ended December 31, 2018 was 53%, a decrease of 5% from the previous year driven by shipment of lower margin VR products.
  • Non-IFRS operating expenses for the year ended December 31, 2018 were $11.2 million, representing a decrease of $2.6 million from the previous year.
  • EBITDA 2 loss of approximately $7.7 million for the year ended December 31, 2018 compared to a loss of approximately $6.0 million in 2017.
  • Closed an aggregate of CAD $15.3 million bought deal public offering in January 2018 and CAD $7.9 million in private placement equity financings in July and October 2018.

CEO COMMENTARY

“After a very difficult first half of 2018 driven by VR market softness, the VR markets recovered nicely in the second half of 2018 as revenues in the second half of 2018 increased by approximately 44% compared to revenue in the first half of 2018,” said Spectra7 CEO Raouf Halim. “We are also delighted by our strong momentum in the Data Center market and expect multiple Data Center deployments of our Active Copper Cable solutions in the second half of 2019.”

Quarterly Highlights

  • The Company continues to experience strong traction with its data center solutions and announced nine new customer design-ins in Q4 2018, for a total of 45 to date.
  • The Company announced a key partnership with Molex, a major Data Center Interconnect supplier.
  • The Company achieved Low Latency Error Free Performance with Mellanox ConnectX-5 Network Adapters.
  • The Company has now announced key partnerships with 4 of the top 5 global cable assembly companies.
  • A major China Hyperscaler Data Center Operator has selected Spectra7 Active Copper Cable technology to deploy starting in the second half of 2019.
  • The Company showcased 25/100/200/400 Gbps Data Center Interconnects at DesignCon and OFC in early 2019 including demonstrations with leading system OEMs including: Arista, Cisco, Intel, Juniper and Mellanox.
  • With increased Data Center prototype revenue in the Q4 2018, the Company expects to achieve production revenue ramp in the second half of 2019.

Outlook

Despite seasonal weakness in the first quarter, the Company entered the first quarter of 2019 with its highest starting backlog to date. The Company expects significant annual year over year revenue growth in 2019 driven by the expected ramp of Data Center products coupled with the recovery of the VR market. The Company is currently evaluating various capital raise options, including but not limited to, a loan based on its valuable patent portfolio.

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. 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, expected recovery of the VR market, revenue growth, revenue in the 2019 financial year, 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 MD&A for the year ended December 31, 2018. 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, 2018 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.

View source version on businesswire.com:https://www.businesswire.com/news/home/20190318005730/en/

CONTACT: Spectra7 Microsystems Inc.

Sean Peasgood

Investor Relations

647-503-1034

ir@spectra7.comSpectra7 Microsystems Inc.

Darren Ma

Chief Financial Officer

669-284-3170

pr@spectra7.com

KEYWORD: UNITED STATES NORTH AMERICA CANADA CALIFORNIA

INDUSTRY KEYWORD: TECHNOLOGY DATA MANAGEMENT HARDWARE INTERNET SOFTWARE AUDIO/VIDEO SEMICONDUCTOR MOBILE/WIRELESS

SOURCE: Spectra7 Microsystems Inc.

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PUB: 03/18/2019 05:10 PM/DISC: 03/18/2019 05:10 PM

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