TORONTO, ON and PALO ALTO, CA–(Marketwired – November 10, 2016) – Spectra7 Microsystems Inc. (TSX: SEV) (“Spectra7” or the “Company”) today released its unaudited financial results for the three and nine month periods ended September 30, 2016. A copy of the unaudited condensed interim consolidated financial statements for the three and nine month periods ended September 30, 2016 prepared in accordance with International Financial Reporting Standards (the “Financial Statements”) 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 stated.
Q3 2016 Highlights
- Revenue for the three months ended September 30, 2016 was $1.0 million, representing an increase of 11% compared to the $0.9 million for three months ended September 30, 2015.
- Nine month revenues were $6.2 million in FY2016 and $2.7 million in FY2015, representing 131% growth year-over-year;
- Gross margins for the three and nine months ended September 30, 2016 were 55% and 58% respectively. Gross margin in Q3 was impacted by a reserve of $60K taken against an aging receivable.
Subsequent Events in Q4 2016
- The Board of Directors unanimously appointed Raouf Halim as CEO on September 26, 2016. Mr. Halim was the CEO of Mindspeed Technologies for 10 years during which he successfully executed a tripartite strategic transaction in which the wireless small cell system on a chip business was carved out and sold to Intel Corporation, while Mindspeed Technologies was acquired by M/A-COM for a 68% premium.
- The Company closed a C$6.7 million bought deal financing. The net proceeds will be used for research and development relating to the Company’s virtual reality (VR), augmented reality (AR) and data center products for debt repayment, working capital and general corporate purposes.
CEO Commentary on His First 45 Days with Spectra7
“While third quarter revenues were below what we expected, this was mainly due to a supply chain issue at a VR customer, which caused them to delay their purchase of Spectra7 products,” said Mr. Halim. “We continue to expect that we will grow by approximately 100% year over year in 2016 over 2015. As I look ahead, I’m highly enthusiastic about the valuable opportunity pipeline across multiple vertical end markets.”
“Since accepting the CEO role, I have been meeting with key Tier 1 customers and analysts and reviewing Spectra7’s operations. As we benefit from the ramp in VR and AR, we are also advancing our opportunity in the data center market. This is an untapped opportunity that we believe we can penetrate in calendar year 2017. Regarding our operations, I am confident that we can contain costs while remaining focused on key research and development activities supporting high growth market opportunities. I am pleased with the outcome of our recent financing, which along with these initiatives, puts us in a strong position to execute on our growth strategy,” said Mr. Halim.
Virtual Reality and Augmented Reality Markets
“Over the last several weeks I have had the pleasure of meeting face-to-face with several Tier 1 VR and AR vendors that will shape the industry going forward. I am pleased to say that each of these key vendors is enthusiastic about Spectra7’s patented active cable technology. Another key takeaway from these meetings was that VR and AR headsets are anticipated to remain a tethered solution for at least another five years as these products move to higher resolution 4K and 5K displays,” continued Mr. Halim.
Data Center Products
“A major focus for Spectra7 in the next twelve months is to work to commercialize GaugeChanger™ in the data center market,” continued Mr. Halim. “Early discussions with potential customers have been very promising and these potential customers immediately understand the product’s value proposition. GaugeChanger™ has the potential to reduce both capital and operating expenses for data centers around the world. We expect GaugeChanger™ to be available for early installations in 2017.”
For in-rack connection lengths of up to 1.5m, GaugeChanger™ provides an ultra-thin 3.8mm outside diameter. For intra-rack lengths of 2m to 5m, the Company’s GaugeChanger Plus™ provides longer reach at the same ultra-thin diameter. Passive copper links at this speed are up to 70% bulkier by cross-sectional area and up to 3 times heavier, putting a significant burden on rack spacing, air flow and density. As consumers and businesses continue to move their data to the cloud, the need for larger and more efficient data centers is growing rapidly. According to Canalys, total global data center investment will reach US$152 billion in 2016.
Financial Summary
Revenue for the three months ended September 30, 2016 $1.0 million, representing an increase of 11% over the same period in the previous year. Revenue in the quarter however decreased by 61% from second quarter revenue of $2.6 million, due primarily to a supply chain issue at a leading VR customer, which caused the customer to delay its purchase of Spectra7 solutions. Year-to-date revenue for the nine months ended September 30, 2016 was $6.2 million, representing an increase of 131% over the same period in the previous year. The increase in revenue was due primarily to the rise in the sale of the Company’s embedded products in the growing AR, VR and media interconnect markets.
Research and development expenses for the nine month period ended September 30, 2016 increased by 8% over the same period the previous year. The Company has continued to invest a significant amount of resources in research and development with increases in engineering payroll and higher consumer material expenditures such as test boards, tape-out costs and production of prototypes. The data center operation has continued to progress since it was established in Little Rock, Arkansas in October 2015 and has added to the material and engineering costs. Research and development expenses for the three month period ended September 30, 2016 decreased by 21% over the same period the previous year. Expenses in the three months ended September 30, 2015 were high with the development of the Company’s first generation of VR products. During the three months ended September 30, 2016, the Company initiated cost saving measures to reduce the number of full mask tape-out costs, non-essential travel, the use of outside contractor services and the number part-time staff and hours.
Sales and marketing expenses for the nine month period ended September 30, 2016 increased by 14% over the same period the previous year. Sales and marketing expenses for the three months ended September 30, 2016 decreased by 38% compared to the same period the previous year. The decrease was as a result of the Company’s efforts to manage costs through cuts in the number of part-time hourly staff and hours, by internalizing services previously provided by external contractors and through the reclassification of resources to research and development from sales and marketing.
General and administrative expenses for the three and nine month periods ended September 30, 2016 increased by 13% and 21%, respectively, compared to the same periods the previous year. The increase was as a result of higher payroll costs, which included the appointment of a new Vice President, General Counsel and Corporate Development in December 2015. The increase in general and administrative expenses in the three months ended September 30, 2016 was not as significant due to the one-time cost related to the graduation of the Company to the Toronto Stock Exchange during the same period of the previous year.
Net loss for the three and nine months ended September 30, 2016 was $3.0 million and $8.1 million, respectively, a decrease of 30% and 26%, respectively, from the net loss for the same periods of the previous year. Other comprehensive loss relates to the unrealized foreign currency effect of translating the Company, whose functional currency is Canadian dollars, to US dollars for financial reporting purposes.
For a complete discussion of expenses please refer to the Financial Statements and the MD&A.
ABOUT SPECTRA7 MICROSYSTEMS INC.
Spectra7 Microsystems Inc. is a high performance consumer connectivity company delivering unprecedented bandwidth, speed and resolution to enable disruptive industrial design for leading consumer electronics manufacturers in virtual reality, augmented reality, wearable computing, data centers and ultra-HD 4K/8K displays. Spectra7 is based in Palo Alto, California with design centers in Markham, Ontario and 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, 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, 2015 and the interim MD&A for the nine months ended September 30, 2016. 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.
Sean Peasgood
Investor Relations
416-565-2805
mir@spectra7.com
Spectra7 Microsystems Inc.
Rob Chalmers
Capital Markets
647-402-7552
ir@spectra7.com
Spectra7 Microsystems Inc.
David Mier
Chief Financial Officer
925.858.7011
lpr@spectra7.com