Pivotal : Q2 Appendix 4C and Quarterly Activities Report

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ASX / Media Release

Pivotal Systems Corporation June 2022 Quarterly Activities Report

Fremont, California and Sydney, Australia; 29 July 2022 - Pivotal Systems Corporation ("Pivotal" or the "Company") (ASX: PVS), a leading provider of innovative gas flow control (GFC) solutions to the semiconductor industry, is pleased to release a Quarterly update and Appendix 4C Report for the quarter ending 30 June 2022 ("Q2 2022").1

Key Highlights

• Unaudited Q2 revenue of US$5.5 million was up 56% sequentially over the last quarter (Q1 2022: US$3.5 million) and down 25% on the prior corresponding period (pcp) (Q2 2021: US$7.3 million)
• Industry downstream supply chain volatility continues to cause delays in process equipment deliveries to Integrated Device Manufacturers (IDMs), this environment is expected to continue into the 2H 2022
• Pivotal continues to effectively manage its upstream supply chain to meet demand to date, and continues to achieve 100% on time delivery, while maintaining industry leading lead times
• Advanced Atomic Layer Deposition (ALD) product development project continues test and evaluation with a leading Japanese Original Equipment Manufacturer (OEM)
• Strong demand continues for the new High Temperature GFC platform - Q2 shipments (US$173k) grew 35% over Q1 (US$128k), and a major OEM has expanded into new applications using the platform
• Unaudited Q2 2022 gross margins of -7.3% down from 37.9% in the pcp and down from -4.6% in Q1 2022, driven primarily by decreased product shipments, expedite fees to obtain semi-components necessary for production, and non-cash inventory charges
• Backlog (confirmed orders not yet shipped) at 30 June 2022 was US$5.8 million versus US$5.9 million in Q1 2022
• Net cash flows from operations of -US$4.3 million versus -US$0.5 million in the pcp
• Cash balance at 30 June 2022 was US$6.2 million

Quarter Cash Flow Summary

The Company's cash position at 30 June 2022 was US$6.2 million, compared to US$10.6 million in Q1 2022. The decrease in cash is largely related to lower than anticipated sales and a reduction in gross margins to - 7.3% during the quarter. The negative gross margin is a result of lower than anticipated overhead absorption, unfavourable supply chain impacts as well as non-cash charges during the quarter. These one-time,non-cash charges resulted in a US$1.25 million negative impact on COGS, or approximately 22.8% reduction in gross margin resulting from non-cash inventory charges.

Cash receipts from customers for the period were US$4.9 million, a 24% decrease from US$6.5 million in Q1 2022. Cash payments for Product Manufacturing were US$6.0 million, up from US$5.2 million in Q1 2022. The decrease in receipts from customers reflects lower Q1 revenues. The increase in payments for product manufacturing reflects ongoing investment to meet expected higher revenue in Q3/Q4 2022.

1 All numbers unless otherwise indicated are reported using U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), consistent with ASX announcement dated 23 December 2021.

Pivotal Systems Corporation

ARBN 626 346 325

48389 Fremont Blvd. Suite 100, Fremont, CA, 94538

Phone [phone], Fax [phone]

Web /https://www.pivotalsys.com

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Pivotal continued to invest in product development with US$0.8 million in costs incurred during the quarter, down 42% from US$1.4 million in Q1 2022.

During the quarter, the Company made salary and payments of US$0.2 million to related parties and their associates including executive director's salary payments, non-executive director fees, and fees for consulting services provided by a director-related entity.

Consistent with the transition from IFRS to U.S. GAAP reporting from Q4 2021, from a cashflow reporting perspective, development costs are not capitalized and are reported as operating cash flows not investing cash flows, as was the case in the Company's Appendix 4C reporting in Q1-Q3 2021.

Product Update

The new GFC for advanced ALD applications continues forward with on-tool OEM testing. Results of the testing indicate solid process results and show continued momentum with the highly sophisticated and innovative gas flow solutions across the spectrum of advanced deposition processes. Of particular interest is Pivotal's unique ability to customize gas flow profiles, allowing for the digital device to enhance process tuning and on-wafer results, productivity, and wafer processing cost.

Pivotal's High Temperature GFC platform continues to roll out with two major OEMs serving the largest foundries in Taiwan and the USA. This platform, launched in late 2021, provides capabilities up to 70C without the use of remoted electronics, by utilizing advanced high temperature piezo electric actuators and superior electronics. Q2 shipments grew 35% over Q1, and a major OEM has expanded into new applications using the platform.

Operations Update

Q2 2022 full-time headcount was 45 employees, unchanged from Q1 2022.

Revenue grew significantly over Q1, during a highly dynamic first half with continued gas panel integrator demand instability tied to further downstream supply chain volatility at OEM and IDM levels.

The Company's China and Korea based Contract Manufacturers (CMs) continue to operate to a capacity of 4,000 units per month based on a 5-day, 2 shift production.

Gross Margin performance for Q2 2022 of -7.3% was driven by lower volumes in the quarter, reduced overhead absorption, supply chain inflation, and non-cash charges. Inflationary pressure continues to impact COGS, with cost increases affecting semi-grade metal as well as sub-systems such as pressure transducers and piezo assemblies. Markup on semiconductor chip components remain the most impactful element of the pressure on Gross Margin, particularly with isolator chips which are also commonly used within automotive electronics. Unaudited Q2 gross margin was negatively affected by non-cash inventory charges.

Industry leading lead times have begun to open up opportunities for market share gain as both OEMs and IDMs are seeing revenue delays (deferred revenue) due to process tool or gas panel shortages. Pivotal's industry leading lead times offer a potential solution to both OEMs and IDMs in this regard.

Pivotal Systems Corporation

ARBN 626 346 325

48389 Fremont Blvd. Suite 100, Fremont, CA, 94538

Phone [phone], Fax [phone]

Web /https://www.pivotalsys.com

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Supply Chain

The company successfully managed upstream supply challenges in Q2, particularly attributable to the global shortage of semiconductor chips utilized in the manufacture of printed circuit board assemblies used in Pivotal GFCs. We remain cautious and vigilant regarding future expected challenges procuring these types of components throughout 2022; currently pandemic issues are still impacting the industry generally in East Asia.

Pivotal continues to take steps to manage the impacts of the dynamic supply chain crisis to preserve product availability, so that we can provide our customers with lead times at the pre-pandemic level. Upstream alignment remains rigorous to ensure metal, PCBA, and critical parts are staged and available to fulfill demand.

During Q2, qualification efforts continued for a second source of most critical IC components. Pivotal has managed this industry wide challenge to date and we continue to make every effort to maintain viable supply channels with second source subsystem assembly in Thailand, Malaysia, Singapore, Taiwan, and China.

Industry Update

The industry wide volatility is amplified upstream at Pivotal, as the entire Wafer Fabrication Equipment (WFE) supply chain continues to synchronize components, subsystems, systems, and system installation. This environment is expected to continue into the second half of 2022. Pivotal continues to believe the robust secular market environment for equipment sales remains strong, driven by device 3D geometry implementation and increasing layers of wafer complexity, as confirmed by SEMI in July.

On 12 July 2022, SEMI forecast global sales of the WFE segment, which includes wafer processing, fab facilities, and mask/reticle equipment, is projected to expand 15.4% to a new industry record of US$101 billion in 2022, followed by a 3.2% increase to US$104.3 billion in 2023, driven by secular trends across a diverse range of markets, coupled with strong investments in digital infrastructure.2

Source: SEMI

2 Source: SEMI

Pivotal Systems Corporation

ARBN 626 346 325

48389 Fremont Blvd. Suite 100, Fremont, CA, 94538

Phone [phone], Fax [phone]

Web /https://www.pivotalsys.com

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SEMI has forecast demand for both leading-edge and mature process nodes, the foundry and logic segments are expected to increase 20.6% year-over-year to US$55.2 billion in 2022 and another 7.9%, to US$59.5 billion, in 2023. The DRAM equipment segment is leading the memory expansion in 2022 with expected growth of 8% to US$17.1 billion. The NAND equipment market is projected to grow 6.8% to US$21.1 billion in 2022.

Pivotal is well-positioned to capitalize on these industry macro trends because the GFC accuracy and reliability is an enabler for advanced technology, and the self-calibrating device design is an enabler for cost and productivity gains at the IDM.

Outlook

The strong secular trends for the semiconductor industry are driving the equipment market structurally higher for Pivotal's global customers over the long term.

As a result of the ongoing downstream supply chain issues driving order deferrals by Pivotal's customers, Pivotal is in the process of reviewing its outlook for the 2022 year and expects to be in a position to provide further clarity on the full year outlook later this quarter.

Investor Conference Call

The Company will host an investor conference call today at 9.00am AEST (4.00pm PDT on Thursday, 28 July) with Mr. Kevin Hill CEO and Mr. Ron Warrington, CFO.

Details of the call are set out below.

In order to pre-register for the conference call and avoid a queue when calling, please follow the link below. You will be given a unique pin number to enter when you call which will bypass the operator and give you immediate access to the event. Investors are advised to register for the conference in advance by using the Diamond Pass link to avoid delays in joining the call directly through the operator:

Pivotal Systems Corporation

ARBN 626 346 325

48389 Fremont Blvd. Suite 100, Fremont, CA, 94538

Phone [phone], Fax [phone]

Web /https://www.pivotalsys.com

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https://s1.c-conf.com/diamondpass/10023165-shdy6c.html

Alternatively, you may dial in with the following details, approximately ten minutes before the scheduled start time and provide the Conference ID to an operator.

Conference ID: 10023165

Participant Dial-in Numbers:

Australia Toll Free: 1800 908299

Australia Local: [phone]

New Zealand: 0800 452 795

Canada/USA: 1855 624 0077

Hong Kong: 800 968 273

Japan: 006 633 868 000

China: 108 001 401 776

Singapore: 800 101 2702

United Kingdom: 0800 0511 453

THIS RELEASE DATED 29 JULY 2022 HAS BEEN AUTHORISED FOR LODGEMENT TO ASX BY THE BOARD OF DIRECTORS OF PIVOTAL SYSTEMS.

- ENDS -

For further information, interview and photos:
Investor Relations & Media (Australia):	Investor Contact (US):
Dr Thomas Duthy	Leanne Sievers
Nemean Group	Shelton Group
[e-mail]	[e-mail]
[phone]	[phone]
ASX Representative:
Danny Davies
Company Matters Pty Ltd
[e-mail]

If investors wish to subscribe to Pivotal Systems' email alert service for ASX Announcements, please follow this link.

Safe Harbor Statement

This press release and the accompanying Appendix 4C contains forward-looking statements, which address a variety of subjects including, for example, our statements regarding expected growth rates, expected product offerings, product development, marketing position and technical advances. Statements that are not historical facts, including statements about our beliefs, plans and expectations, are forward-looking statements. Such statements are based on our current expectations and information currently available to management and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. The Company's management

Pivotal Systems Corporation

ARBN 626 346 325

48389 Fremont Blvd. Suite 100, Fremont, CA, 94538

Phone [phone], Fax [phone]

Web /https://www.pivotalsys.com

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