AP NEWS

Spectra7 Announces Third Quarter 2018 Financial Results

November 14, 2018

SAN JOSE, Calif.--(BUSINESS WIRE)--Nov 14, 2018--(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 unaudited financial results for the three and nine months ended September 30, 2018. All dollar amounts in this release are expressed in US dollars unless otherwise stated. A copy of the unaudited interim consolidated financial statements for the three and nine month periods ended September 30, 2018 and corresponding management’s discussion and analysis will be available under the Company’s profile on www.sedar.com.

Q3 2018 Financial Results

Revenue for the quarter ended September 30, 2018 was approximately $1.1 million, representing an increase of approximately 30% from the prior quarter. Data Center prototype revenue nearly doubled in the third quarter of 2018 as compared to the prior quarter, while Spectra7 continues to enjoy a strong position in the virtual reality (“VR”) and mixed reality (“MR”) markets. Gross margin 1 as a percentage of revenue was approximately 50%, a decrease from 55% the prior quarter driven by a higher mix of lower margin parts for older generation VR programs. Non-IFRS expenses 2 were approximately $2.5 million, representing a decrease of approximately 11% from the prior quarter, while IFRS operating expenses were approximately $3.5 million, representing a decrease of approximately 3% from the prior quarter. The continued sequential decline in Non-IFRS expenses is due primarily to continued cost reductions and expense management. Adjusted EBITDA 3 loss was $1.7 million, which was a 19% improvement from the $2.1 million EBITDA loss in the prior quarter.

CEO COMMENTARY

“Our investment in Active Copper Cable solutions for the burgeoning Data Center Interconnect market is starting to pay off as we expect significant revenue growth in this current quarter,” said Spectra7 CEO Raouf Halim. “Additionally, we are seeing seasonal recovery in our core VR business as we maintain our strong position in that market.”

Quarterly Highlights

On July 6, 2018, the Company closed an oversubscribed private placement consisting of 28,336,290 units at a price of CDN $0.105 per unit for gross proceeds of approximately $2.3 million. The Company experienced continued strong customer engagement including 9 new Data Center design-ins in the third quarter of 2018 for a total of 36 Data Center design-ins to date. The Company received multiple orders from cable partners for its first Data Center deployments in China. The Company announced a major Data Center partner, Zhaolong Interconnect Technology Co., who is now offering data center cable assemblies featuring Spectra7’s embedded GaugeChanger TM chips. The Company announced a new HDMI 2.1 device to support Active Copper Cables for connecting to enhanced 4K and emerging 8K displays.

Highlights Subsequent to Quarter End

On October 30, 2018, the Company closed an oversubscribed, non-brokered private placement consisting of 32,412,228 units at a price of CDN $0.15 per unit for gross proceeds of approximately CDN $4.9 million. On November 8, 2108, the Company announced a key partnership with Molex, a major Data Center Interconnect supplier.

Outlook

The Company has entered the fourth quarter of 2018 with its highest starting backlog of 2018 and expects sequential revenue growth in the fourth quarter of 2018. Currently, the Company has record Data Center order backlog on the books to be shipped in the fourth quarter.

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, revenue growth in the fourth quarter of 2018, 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, 2017. 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 Additional GAAP Measure – Gross margin is presented in this press release consistent with information presented in the Company’s financial statements. Gross margin has been calculated by deducting manufacturing cost of sales, and provision for inventory write-downs from revenue. Management of the Company believes that providing this information allows investors to better understand the Company’s historical and future financial performance.

2 Non-IFRS expenses excludes stock-based compensation, restructuring expenses, impairment expenses and other one-time expenses.

3 Non-GAAP Financial Measure - Adjusted EBITDA does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted EBITDA is defined as net earnings before interest, taxes, other expense (income), net, depreciation and amortization, including amortization of intangibles, stock-based compensation, and acquisition and strategic activities related costs. Management believes adjusted EBITDA and the other non-GAAP and non-IFRS financial measures are important indicators of the ongoing operations of Spectra7’s business, provide an additional metric for comparability between reporting periods and provide an additional baseline for analyzing trends in Spectra7’s operations. Management believes these financial measures provide a view of the Company’s operations that excludes items that management believes are not reflective of the Company’s operating performance, such as items traditionally removed from net earnings in the calculation of adjusted EBITDA as well as other expense (income), net. As a result, these non-GAAP measures are provided to supplement investors’ overall understanding of, and an enhanced level of transparency into, Spectra7’s financial performance. Adjusted EBITDA is not a calculation based on GAAP, and, in measuring the Company’s performance, should not be considered as an alternative to net income/(loss), which is the most directly comparable GAAP financial measure.

View source version on businesswire.com:https://www.businesswire.com/news/home/20181114005254/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 CONSUMER ELECTRONICS DATA MANAGEMENT HARDWARE AUDIO/VIDEO SEMICONDUCTOR

SOURCE: Spectra7 Microsystems Inc.

Copyright Business Wire 2018.

PUB: 11/14/2018 05:00 PM/DISC: 11/14/2018 05:00 PM

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