Spectra7 Announces Fourth Quarter and Annual Financial Results for the Year Ended December 31, 2020

A leading provider of high-performance analog semiconductor products for broadband connectivity markets, today announced its financial results for the year ended December 31, 2020. A copy of the audited consolidated financial statements for the year ended December 31, 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.

2020 Financial and Operational Summary

Revenue for the year ended December 31, 2020 was $1.032 million as compared to $4.645 million in the previous year, representing a 78% decrease due to the COVID-19 pandemic3 and resulting significant staffing issues, customer disruptions, factory shutdowns and supply chain challenges. Over-all revenue in 2020 was severely constrained by working capital and product supply.

Gross margin1 as a percentage of revenue for the year ended December 31, 2020 was 51%, a decrease of 4% from the previous year driven by lower absorption of operational costs over a reduced revenue base.

Non-IFRS operating expenses for the year ended December 31, 2020 were $5.1 million, representing a decrease of $5.2 million or approximately 50% from the previous year. In response to the COVID-19 pandemic, the Company implemented strong spending reductions.

EBITDA2 loss of approximately $3.6 million for the year ended December 31, 2020 compared to a loss of approximately $6.4 million in 2019, or an improvement of 44%.

Q4 2020 Financial Summary

Revenue for Q4 2020 was approximately $377K, representing a sequential increase of approximately 34% over the prior quarter and a decline of approximately 59% over the same period in the prior year.

Gross margin1 as a percentage of revenue for Q4 2020 was 44%, representing a decrease of approximately 11% sequentially and 7% from the same period in the prior year primarily due to a one-time inventory adjustment. Gross margin is expected to return to historical levels going forward.

Non-IFRS operating expenses in Q4 2020 were $986K, a sequential decrease of $88K and down approximately 60% from the same period in the prior year.

EBITDA2 loss of approximately $675K compared to a loss of approximately $718K in the prior quarter, and down over $1 million compared to the same period in the prior year or an improvement of 59%.

CEO COMMENTARY

"Looking back on 2020, it was a challenging year for Spectra7 on multiple fronts," said Spectra7 CEO Raouf Halim. "We responded to the unprecedented COVID-19 pandemic by implementing material spending reductions while remaining focused on our growth strategy. Despite the difficult circumstances in 2020, we accomplished significant design-ins with hyperscalers worldwide, introduced multiple new products in our strategic Data Center market, and secured orders driving growing backlog every quarter. At this time, we have record backlog on our books driven by strong orders for our Data Center Active Copper Cable solutions, and we expect to grow revenues strongly and achieve profitability in the second half of this year."

Update on Data Center Market Traction

The Company continues to experience strong market traction with its data center solutions and announced 11 new customer design-ins in 2020, for a total of 84 to date representing a 15% increase in 2020.

More than 90% of the Company's pipeline of data center design-ins have yet to reach full production status, suggesting the potential to accelerate revenue growth in future quarters.

Tencent announced its plans to expand the use of Spectra7 technology to a much larger second program using the Company's latest PAM4 technology. Chip orders for the second program are starting to ramp now with data center deployment expected to start in Q3 2021.

Molex achieved production ready status in the fourth quarter of 2020 with Spectra7 enabled 400Gbps Active Copper Cables and began to ship qualification orders to major North American hyperscalers.

In October 2020, the Company announced its next generation 112G per lane GaugeChanger product for 800G Data Center Interconnects. Simultaneously, Molex, Foxconn and Luxshare announced their intent to adopt the new product.

China's largest hyperscalers, Alibaba and Tencent, promoted the advantages of Spectra7 Active Copper Cable technology at the ODCC conference in Beijing in September 2020.

Spectra7 announced its entry into the 5G infrastructure market for applications like AT&T's Distributed, Disaggregated Chassis (DDC), which relies on many cables for creating large edge and core switches.

In the fourth quarter, the Company announced three new products to serve the rapidly growing 25/50/100/200/400Gbps interconnect markets for 5G infrastructure and hyperscaler data centers.

Update on Financing

The Company is finalizing the roadshow for its private placement, brokered by Cormark Securities Inc., that was previously announced on April 12, 2021. The Company is experiencing strong interest in its offering, and anticipates providing an update shortly. The Company intends to use the net proceeds as working capital to enable the Company to satisfy its strong order backlog and increase revenues in the second half of 2021.

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 projections for a profitable second half of 2021, the Company's projection that gross margin will return to historical levels, the acceleration of revenue growth in future quarters, the timeline for datacenter deployment of the Company's latest PAM4 technology, the use of proceeds from the brokered private placement and 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 MD&A for the year ended December 31, 2020. 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.

For more information, please contact:                                            

Spectra7 Microsystems Inc.

Justin Leighton

Investor Relations

647-578-7996

ir@spectra7.com

Spectra7 Microsystems Inc.

David Mier

Chief Financial Officer

925-858-7011

pr@spectra7.com

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, 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 annual MD&A for the year ended December 31, 2020 for more details on the impact of the COVID-19 on the Company's operations.

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