Mr. Raouf Halim reports

SPECTRA7 ANNOUNCES 107% REVENUE GROWTH FOR 2022, PRE-ANNOUNCES Q1 2023 AND OUTLOOK FOR Q2 2023

Spectra7 Microsystems Inc. has released its financial results and a business update for the three months and full year ended Dec. 31, 2022, preliminary first quarter 2023 results, and its initial outlook for second quarter 2023. A copy of the audited consolidated financial statements for the year ended Dec. 31, 2022, and the corresponding management's discussion and analysis, will be available under the company's profile on SEDAR. Unless otherwise indicated, all dollar amounts in this press release are expressed in U.S. dollars.

"We had a strong 2022 despite supply constraints, more than doubling revenue year over year to $11.3-million. Volumes ramped in our AR/VR product line with a market-leading game console manufacturer, and hyperscale data centre activity continued to progress with key data centre partners and customers," said Raouf Halim, chief executive officer.

"Data centre customers are increasingly engaged in test and qualification activities, specifically around [artificial intelligence] and infrastructure applications, on the rapidly advancing new switches that require 800 giga and 1.6 terabyte data rate interconnects. These switches are to support the high data throughput and reduced power consumption requirements for efficient operation. We believe that active copper cable (ACC) is the most power and cost-efficient solution to meet these requirements for top-of-the-rack and short-run connectivity, an estimated $1-billion market by 2026 (1). We have a growing list of customers seeking to incorporate our ACC solutions for their needs. We expect to receive orders from key data centre customers in North America and Europe in the second half of 2023 (2).

"We started 2023 with a strong order backlog and anticipate supply availability to improve steadily throughout 2023, which would enable us to meet our goal of [earnings before interest, taxes, depreciation and amortization] (3) profitability by the end of the year (2)," said Mr. Halim.

Fourth quarter and full-year 2022 financial highlights:

• Fourth quarter 2022 revenue was $3.0-million, up approximately 15 per cent year over year, and full-year 2022 revenue was $11.3-million, an increase of approximately 107 per cent compared with $5.5-million in the previous year.
• Preliminary fourth quarter gross margin (4) as a percentage of revenue in the fourth quarter increased to approximately 59 per cent. Full-year gross margin was 50 per cent.
• Non-international financial reporting standard operating expenses (5) were $2.0-million in the fourth quarter, up approximately 5 per cent year over year, while the company continues to control its spending. Full-year non-IFRS operating expenses were $8.8-million.
• Basic and diluted loss per share for the fourth quarter was (four cents), compared with a basic and diluted loss per share of (three cents) in the same period a year ago.
• EBITDA (3) loss in the fourth quarter was $38,000, compared with an EBITDA (3) loss of $147,000 in the same period a year ago.
• The company strengthened its balance sheet with gross proceeds of a $6.0-million (Canadian) private placement in March, 2023.

Preliminary first quarter 2023 revenue results (2)

The company expects to report revenue of approximately $3.1-million for the first quarter of 2023, compared with $2.1-million in the first quarter of 2022. This would represent an increase of approximately 43 per cent from the prior-year quarter.

Q2 2023 outlook (2)

The company anticipates revenue for second quarter of 2023 to be in the range of $3.1-million to $3.3-million.

Restricted share unit grants

The company's board of directors has approved the grant of an aggregate of 568,090 restricted share units to the company's executive officers and directors pursuant to the company's restricted share unit plan. The restricted share units shall vest on the one-year anniversary of the grant date.

Notes

(1) Spectra7 internally generated model based on 650Group silicon chip sets for Ethernet optical transceivers and active cable alternatives posted June 3, 2022.

(2) This is forward-looking information and is based on a number of assumptions, which include the current and anticipated customer purchase orders received, supply outlook and anticipated operational expenditures.

(3) EBITDA or earnings before interest, tax, depreciation and amortization is a non-generally accepted accounting principle measure. EBITDA excludes share-based compensation, amortization, depreciation, interest and tax expenses. Refer to "Non-GAAP Measures" in management's discussion and analysis for a reconciliation to measures reported in the company's annual financial statements.

(4) Gross margin is a non-GAAP measure, which is computed as revenue less cost of sales divided by revenue. Refer to "Revenue and Gross Margin" in the MD&A for a reconciliation to measures reported in the company's financial statements.

(5) Non-international financial reporting standard operating expenses is a non-GAAP measure, which includes research and development, sales and marketing, general and administrative expenses, and depreciation and amortization for capital equipment and right-of-use assets, and excludes share-based compensation expense, non-recurring termination costs, interest and related financing costs, change in fair value of warrant liabilities, foreign exchange gain/loss, and gain/loss from property and equipment disposal. Refer to "Non-GAAP Measures" in the MD&A for a reconciliation to measures reported in the company's financial statements.

About Spectra7 Microsystems Inc.

Spectra7 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 centres and other connectivity markets. Spectra7 is based in San Jose, Calif., with a design centre in Cork, Ireland, and a technical support location in Dongguan, China.

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