Spectra7 Announces Third Quarter 2019 Financial Results

Record Quarterly Data Center Shipments

SAN JOSE, Calif.–(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 unaudited financial results for the three and nine month periods ended September 30, 2019. A copy of the unaudited consolidated financial statements prepared in accordance with International Financial Reporting Standards and the corresponding management’s discussion and analysis (“MD&A”) for the three and nine month periods ended September 30, 2019, can be found under the Company’s profile at www.sedar.com. Unless otherwise indicated, all amounts in this release are expressed in US dollars.

Q3 2019 Financial Summary

• Revenue of approximately $1.4 million, representing increases of approximately 40% sequentially and 27% from the same period in the prior year. The revenue increase in the third quarter of 2019 was primarily driven by record shipments of the Company’s data center solutions;

• Gross margin¹ as a percentage of revenue was approximately 59%, representing increases of approximately 4% from the prior quarter and approximately 9% from the same period in the prior year;

• Non-IFRS operating expenses were $2.5 million, approximately flat from the prior quarter and the same period in the prior year. Non-IFRS operating expenses have remained flat due to strict expense controls while the Company has continued to invest in the data center product line; and

• EBITDA² loss of approximately $1.4 million during the quarter compared to a loss of approximately $1.6 million in the prior quarter and a $0.3 million improvement from the same period in the prior year.

CEO COMMENTARY

“I am pleased with the progress of our pivot into the data center market, as evidenced by our record data center revenues in the third quarter,” said Raouf Halim, Spectra7’s CEO. “The deployment of 400G network equipment has now started and we expect it will represent an inflection point in the adoption of our active copper cable data center technology in 2020 in North America. We have been working very closely with our Tier One cable partners and are pleased that their products are now ready for the market.”

Data Center Update

On October 28, 2019, Spectra7 announced broad availability of 400G Active Copper Interconnects from Tier One Cable Partners with North American Hyperscalers leading in the roll-out of 400G QSFP-DD Interconnects. “Customers continue to demand copper as they move to next-generation 12.8 Tbps and 400G switching solutions,” said Alan Weckel, Founder and Technology Analyst with 650 Group. “We see the 400G and above Ethernet switch market growing at over 150% CAGR over the next 5 years to $17 billion. Hyperscalers like Amazon Web Services, Google, and Microsoft will lead in this infrastructure investment and Spectra7 is sure to benefit from this CAPEX spending growth.”

Quarterly Highlights

• Record shipments of data center solutions in Q3;

• Continued robust data center customer engagements during the quarter, including seven new design-ins with target operators, six of which are located in North America and one of which is located in Asia. Of the 71 total design-ins to date, 47 target operators are located in North America and the remaining 24 target operators are located in Asia;

• 100G QSFP Demonstration in September with Luxshare at ODCC in Beijing;

• 25G SFP Demonstration in September with Leoni at CIOE in Shenzhen; and

• Closed CDN $7.9M private placement and prospectus offering on August 21, 2019.

Financing Update

The Company continues to make progress towards the monetization of its patent portfolio and is evaluating its options for complementary near-term patent financing strategies.

Outlook

While the Company expects continued strength in the data center market, it also anticipates softness in its tethered VR business 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, adoption and deployment of the Company’s technology by its customers, timing and success of the Company’s capital raising activities, future strength of the data center market and weakness in the tethered VR business, and the Company’s 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 and the Company’s short form prospectus dated August 9, 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-IFRS 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-IFRS measure. EBITDA excludes share-based compensation, amortization, depreciation, interest, and tax expenses.

Contacts

For more information, please contact:

Spectra7 Microsystems Inc.

Sean Peasgood

Investor Relations

647-503-1034

ir@spectra7.com

Spectra7 Microsystems Inc.

Darren Ma

Chief Financial Officer

669-284-3170

pr@spectra7.com