SPECTRA7
Q3 2021 Financial Highlights
Revenue was $1.57 million for Q3 2021, an increase of approximately 114% sequentially from Q2 2021, and an increase of approximately 456% from the third quarter of 2020.
Gross margin1 as a percentage of revenue for Q3 2021 was 57%, a decrease of approximately 1% sequentially, and an increase of 2% over the third quarter of 2020.
Non-IFRS operating expenses2 in Q3 2021 were $2.04 million, up approximately $0.25 million from the prior quarter, and up $0.97 million over the same quarter a year ago. The increase was due primarily to increased costs related to production ramp to meet rapidly growing data center customer demand.
EBITDA3 loss was approximately $0.94 million, compared with a loss of $1.15 million in the prior quarter and $0.72 million in the same quarter a year ago.
CEO Q3 COMMENTARY
"Our revenue continued its positive momentum in the third quarter, supported by increased customer volumes, record order backlog which has continued to grow and several new design-ins for our Active Copper Cable technology," said Spectra7 CEO Raouf Halim. "To support the rapid increase in orders, we raised approximately CDN $14.8 million in an expanded and oversubscribed private placement transaction during October. A portion of these proceeds have already been deployed for additional foundry allocations and inventory as we scale our business. In Q4 we expect to roughly double our revenue sequentially and forecast reaching EBITDA profitability. Looking further out, I am confident our growth trajectory will continue through fiscal 2022."4
BUSINESS HIGHLIGHTS
Began production shipments in Q3 to a major China-based hyperscaler for Spectra7-based 200G PAM4 Active Copper Cable (ACC) interconnects.
Demonstrated Spectra7's new GC1122 product for 112Gbps PAM4 based 800Gbps ACC interconnects at both DesignCon in August and CIOE in September.
Added three new customer design-ins for Spectra7 ACC data center solutions in Q3 2021, for a total of 95.
Q4 2021 Financial Outlook4
Led by strong data center order backlog and increased supply availability, Spectra7 currently estimates total revenue in the fourth quarter of 2021 will be between $2.5 million and $3.5 million, a sequential increase of approximately 91% at the midpoint. Operating expenses are anticipated to be in the range of $1.6 to $2.0 million in support of the anticipated rapid revenue growth4. The Company anticipates that it will achieve EBITDA3 profitability in Q4 20214.
Option and RSU Grants
As a part of its annual compensation review, Spectra7's board of directors has approved the grant of an aggregate of 770,000 restricted share units ("RSUs") to the Company's executive officers and 41,826 RSUs to certain directors. In addition, the Company has cancelled 24,000 RSUs previously granted to Darrow Associates Texas, Inc., a firm which provides investor relations services to the Company and, in its place, granted options to purchase up to 80,000 common shares, exercisable at CDN$1.90. The options vest quarterly over 12 months and are exercisable until November 29, 2026.
Early Warning5
As a result of the grant of RSUs, Ron Pasek acquired 20,335 RSUs (the "Grant"), representing approximately 0.06% of the issued and outstanding common shares6 of the Company (the "Common Shares"). As a result of the Grant, Mr. Pasek has beneficial ownership of, or control or direction over, an aggregate of 2,155,831 Common Shares and other securities exercisable into Common Shares, representing approximately 6.56% of the issued and outstanding Common Shares. Immediately prior to the Grant, Mr. Pasek had beneficial ownership of, or control or direction over, an aggregate of 2,135,496 Common Shares and other securities exercisable into Common Shares, representing approximately 6.50% of the issued and outstanding Common Shares. Prior to the Grant, Mr. Pasek's security holding percentage decreased below 10% of the issued and outstanding Common Shares as a result of Spectra7's treasury issuances.
NOTES:
1 Gross margin is a non-GAAP measure. Refer to "Revenue and Gross Margin" in the Company's interim MD&A for the three and nine months ended September 30, 2021, for reconciliation to measures reported in the Company's financial statements.
2 Non-IFRS 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 Company's interim MD&A for the three and nine months ended September 30, 2021, for reconciliation to measures reported in the Company's financial statements.
3 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. Refer to "Non-GAAP Measures" in the Company's interim MD&A for the three and nine months ended September 30, 2021, for reconciliation to measures reported in the Company's financial statements.
4 This is forward-looking information and is based on a number of assumptions which includes the current customer purchase orders received, supply outlook and anticipated operational expenditures. See "Cautionary Notes".
5 The disclosure under the heading "Early Warning" is being included pursuant to National Instrument 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues. A copy of the early warning report relating to the Grant will be available on www.SEDAR.com or may be obtained by contacting Mr. Pasek or the Company by telephone at 408-770-2915 or at their offices at 181 Bay Street, Suite 1800, Toronto, Ontario M5J 2T9.
6 All references to the number of issued and outstanding Common Shares under the heading "Early Warning" are calculated on a partially diluted basis.
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