Dr. Suresh Venkatesan reports

POET TECHNOLOGIES REPORTS THIRD QUARTER 2022 FINANCIAL RESULTS

Poet Technologies Inc. has released its unaudited condensed consolidated financial results for the third quarter ended Sept. 30, 2022. The company's financial results, as well as management's discussion and analysis, have been filed on SEDAR. All financial figures are in U.S. dollars unless otherwise indicated.

Recent business highlights

The company made significant progress during the three months ended Sept. 30, 2022:

• Collaborated with Lumentum Holdings Inc., a market-leading designer and manufacturer of innovative optical and photonic products, which led to the recent signing of an agreement to supply its breakthrough 100G directly modulated lasers (DMLs) for Poet's 400G FR4 transmit optical engine chiplets for applications in 400/800/1.6T data communications solutions; this represents the industry's first implementation of flip-chip high-speed DMLs into optical engines at these data rates, resulting in unparalleled integration and easily meeting the form factor requirements of today's transceiver modules;
• Announced the sampling of its 200G FR4 transmit (Tx) and receive (Rx) optical engines, both based on the Poet optical interposer platform and incorporating the industry's only monolithically integrated multiplexers and demutiplexers in its proprietary waveguide structures, avoiding the need for a separate demultiplexer component, while providing superior transceiver performance and efficient use of installed fibre assets in data centres;
• Conducted a well-attended virtual annual and special meeting of shareholders, which resulted in all proposed measures being passed by shareholders and the election of Theresa Lan Ende and Dr. Michal Lipson to the Poet board of directors by an overwhelming approval of shareholders.

The industry-leading 400G Tx chiplet achieves maximum integration and minimum size compared with any competing Tx device. The 400G Tx chiplet integrates laser drivers, high-speed DMLs, monitor photodiodes and an optical multiplexer into a highly power-efficient 4.4-millimetre-by-10.5-millimetre form factor. Poet's 800G Rx chiplet integrates an eight-channel Octal TIA, high-speed photodiodes and an optical demultiplexer into a space-efficient 5.1-millimetre-by-14.7-millimetre form factor. By combining multiple 400G Tx and Rx chiplets into a single module for 800G and 1.6T pluggable transceivers, Poet provides unparalleled flexibility and cost savings in network design for hyperscale data centres.

As part of its third quarter business commentary, the company reiterated two key milestone objectives for the balance of 2022: (1) the development of a 400G FR4 multiplexed transmit engine that will be combined with the existing 400G receive engine to create a full transmit and receive subassembly for a 400G FR4 transceiver module; and (2) the delivery of samples of a packaged light source assembly for Celestial AI, a lead customer in the emerging growth market for artificial intelligence/machine learning (AI-ML) accelerator chips.

Management comments

Dr. Suresh Venkatesan, chairman and chief executive officer, commented: "We are making great progress toward the two key objectives we outlined at the end of last quarter. First, we completed the design of our 400G FR4 DML laser-powered chiplet and secured a supply of breakthrough DMLs from Lumentum, one of the world's leading laser suppliers. This exciting development serves as both a foundation and a distinct competitive advantage as we scale our platform technology to address 800G and 1.6T pluggable transceivers. Additionally, we advanced our second objective with the recognition of $200,000 of revenue from Celestial AI, which reaffirmed its commitment to use Poet's Lightbar packaged light source. We expect to deliver alpha samples to Celestial AI within just a few weeks consistent with our road map. We also demonstrated an Optical interposer-powered thin-film lithium-niobate-modulator-based 400G Tx solution and expect to demonstrate further improvements in the design of such modulators at the CIOE in December. Having developed and established the base capabilities of the Optical interposer using 100G/200G components, Poet is quickly ratcheting up its capabilities to serve the high end of the market with 800G/1.6T solutions.

"As discussed at our annual meeting of shareholders, we are confident that we will achieve a key step toward commercialization of several products by year-end and be in full commercial production in 2023. We are targeting production release of four products by the end of this year and another four in the first half of next year. In the coming months, we expect to expand sampling of our portfolio of 100G, 200G and 400G transmit and receive optical engines in support of growing our pipeline of design wins, together with advancing our ongoing development efforts on next-generation optical engines with strategic customers to enable 800G and 1.6T pluggable transceivers for hyperscale data centres."

Based on published research from leading market research firms, Poet has calculated that its served market for transceiver modules will expand from approximately $4-billion in 2023 to approximately $7-billion in 2027. Poet estimates that the market for its packaged light source products, in which it believes it has a material competitive advantage, will begin to emerge in 2024 and will grow rapidly to over $5-billion in 2027, vastly exceeding the transceiver market in volume and value in subsequent years.

Non-international financial reporting standard summary

The company reported non-recurring engineering revenue (NRE) of $233,000 in the third quarter of 2022 compared with nil for the same period in 2021 and $120,000 in the second quarter of 2022. The company provided services under an NRE contract to one customer throughout 2021. In 2022, the company is now providing similar services to multiple customers, one of which continued to contract services from last year. The revenue relates to unique projects that are being addressed utilizing the capabilities of the Poet optical interposer.

The company reported a net loss of $4.0-million, or 11 cents per share, in the third quarter of 2022 compared with a net loss of $3.5-million, or 10 cents per share, for the same period in 2021 and a net loss of $5.3-million, or 15 cents per share, in the second quarter of 2022. The net loss in the third quarter of 2022 included research and development costs of $1.9-million compared with $1.2-million for the same period in 2021 and $1.8-million in the second quarter of 2022. Fluctuations in R&D for a company of this size and this stage of growth are expected on a period-over-period basis as the company transitions from technology development to product development.

Non-cash expenses in the third quarter of 2022 included stock-based compensation of $900,000 and depreciation and amortization of $300,000. Non-cash stock-based compensation and depreciation and amortization in the same period of 2021 were $1.3-million and $300,000, respectively. Second quarter 2022 stock-based compensation and depreciation and amortization were $1.0-million and $300,000, respectively. The company had finance costs of $12,000 in the third quarter of 2022 compared with $20,000 in the third quarter of 2021 and $13,000 in the second quarter of 2022. All of the finance costs recognized in the third quarter of 2022 were non-cash compared with $49,000 during the same period in 2021. The finance costs in the second quarter of 2022 were also non-cash. The company recognized other income, including interest of $57,000 in the third quarter of 2022 compared with $208,000 in the same period in 2021 and $40,000 in the second quarter of 2022.

Non-cash impact of joint venture in the third quarter of 2022 was $100,000 compared with $400,000 in the same period of 2021 and $700,000 in the second quarter of 2022. The company's share of loss is approximately 87.9 per cent of the loss of Super Photonics, the company's joint venture with Sanan. The company's current share of the operating loss is a result of the high value of the company's initial contribution. The non-cash impact of joint venture in the third quarter of 2022 consisted of a gain on the company's investment in the joint venture of $500,000 netted against a loss on the joint venture operations of $400,000. The gain in the period of 2021 was $1.4-million and was netted against a loss from operations of $1.0-million. There was no gain in the second quarter of 2022.

Cash flow from operating activities in the third quarter of 2022 was $2.5-million compared with $2.8-million in the third quarter of 2021 and $3.3-million in the second quarter of 2022.

Grant of options to directors, officers and employees

As part of the company's stock option program, on Nov. 11, 2022, the board of directors granted a total of 1,395,144 options to purchase common shares to directors, officers and employees of the company. The total included 268,894 options to non-management directors, 450,000 to officers and 676,250 to other employees. The options granted to directors and officers have an exercise price of $4 (Canadian), which is higher than the current market price, and are exercisable for 10 years following the grant. Twenty-five per cent of the director options vest upon grant, and the balance vests quarterly until Aug. 11, 2023. The grant to the directors represents the option portion of directors fees for the 12-month period beginning Aug. 1, 2022. The options granted to other employees are exercisable for 10 years at a price of $3.54 (Canadian). All options granted to officers and other employees shall vest quarterly in arrears over 16 quarters, with the first vesting date being Feb. 11, 2023, with equal amounts vesting at the end of each three-month period thereafter. All of the options expire on Nov. 11, 2032.

About Poet Technologies Inc.

Poet is a design and development company offering integration solutions based on the Poet optical interposer, a novel platform that allows the seamless integration of electronic and photonic devices into a single multichip module using advanced wafer-level semiconductor manufacturing techniques and packaging methods. Poet's optical interposer eliminates costly components and labour-intensive assembly, alignment, burn-in and testing methods employed in conventional photonics. The cost-efficient integration scheme and scalability of the Poet optical interposer bring value to any device or system that integrates electronics and photonics, including some of the highest-growth areas of computing, such as artificial intelligence (AI), the Internet of things (IoT), autonomous vehicles and high-speed networking for cloud service providers and data centres. Poet is headquartered in Toronto, with operations in Allentown, Pa., Shenzhen, China, and Singapore.

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