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Press Release -- October 21st, 2010
Source: Adva Optical Networking
Tags: Earnings, Ethernet, Exchange, Expansion, Low Latency, Wavelength

ADVA Optical Networking reports Q3 2010 financial results with revenues exceeding guidance

Q3 2010 revenues at EUR 80.5 million

Q3 2010 IFRS pro forma operating income of
EUR 4.4 million (5.5% of revenues)

Q4 2010 revenues expected to range
between EUR 76 million and EUR 81 million with
IFRS pro forma operating income between 2% and 6% of revenues

October 21, 2010.

ADVA Optical Networking announced Q3 2010 financial results for the quarter ended September 30, 2010, and prepared in accordance with International Financial Reporting Standards (IFRS).

Q3 2010 IFRS FINANCIAL RESULTS

Revenues in Q3 2010 at EUR 80.5 million were slightly above guidance of between EUR 75 million and EUR 80 million, up a significant 38.6% vs. Q3 2009 at EUR 58.1 million and up 17.4% vs. EUR 68.6 million reported in Q2 2010. IFRS pro forma operating income, excluding stock-based compensation and amortization & impairment of goodwill & acquisition-related intangible assets, amounted to EUR 4.4 million or 5.5% of revenues in Q3 2010, at the upper end of guidance of between 2% and 6% of revenues. This compares to EUR 2.0 million or 3.4% of revenues in Q3 2009 and EUR 1.9 million or 2.8% of revenues in Q2 2010. Both the year-on-year and the quarter-on-quarter increases of pro forma operating income are largely related to higher revenues.

IFRS operating income rose to EUR 3.3 million in Q3 2010, after EUR 1.0 million in Q3 2009. The key driver for this improvement is the above-mentioned increase of pro forma operating income.

In Q3 2010, IFRS net income amounted to EUR 2.4 million, up from nil in Q3 2009. Beyond the improvement of the operating income, net foreign currency exchange gains of EUR 0.5 million in Q3 2010 after respective losses of EUR 0.9 million in Q3 2009 supported this rise in net income. These effects were subdued by income tax expenses of EUR 1.0 million in Q3 2010 after an income tax benefit of EUR 0.2 million in Q3 2009. Basic and diluted IFRS net earnings per share were EUR 0.05 each, after being at nil each in Q3 2009.

“We are extremely pleased with our Q3 2010 revenues of EUR 80.5 million, which slightly exceed guidance and are up strongly, 17.4% vs. the previous quarter and a significant 38.6% vs. Q3 2009. The quarter-on-quarter development is driven by higher sales in the enterprise business, specifically in the North American region, and the year-on-year progress also by a pick-up in our Ethernet access and carrier infrastructure businesses. Q3 2010 pro forma gross margin at 40.0% of revenues came in below the 41.0% seen in the previous quarter. This reduction is largely due to the strategic investments in new customers and market segments with lingering impact on our foreign exchange exposure. We expect our pro forma gross margin to strengthen in the coming periods, driven by further product cost improvements, cost-effective platform redesign activities and product innovation. With tight management of operational expenses, our pro forma operating income came in at 5.5% of revenues. Related to the strong financials over the last couple of quarters, on September 20, 2010 ADVA Optical Networking was re-included in Germany’s top technology stock index, the TecDAX. We expect significant value from our membership in the TecDAX index with an increased interest from the financial community, paving the way for further increases in the stock’s liquidity and shareholder value,” commented Jaswir Singh, chief financial officer & chief operating officer of ADVA Optical Networking.

CONFERENCE CALL

In conjunction with the release of its Q3 2010 IFRS financial results on October 21, 2010, ADVA Optical Networking will host a conference call for analysts and investors at 3:00 p.m. CEST / 9:00 a.m. EDT. Participating in the call will be ADVA Optical Networking’s chief executive officer, Brian Protiva and chief financial officer & chief operating officer, Jaswir Singh. Interested parties may dial in at +49 69 4035 9611 or +1 866 306 3455, and download the corresponding presentation from ADVA Optical Networking’s website, located on the “financial results” page under “conference calls” in the investor relations section of ADVA Optical Networking’s website at www.advaoptical.com.

Q4 2010 OUTLOOK

ADVA Optical Networking has the potential to continue to significantly grow revenues while aggressively driving innovation and cost efficiencies into its product platforms. In light of the ongoing macro-economic uncertainty, paired with sound order intake, the company expects Q4 2010 revenues of between EUR 76 million and EUR 81 million. Further, ADVA Optical Networking anticipates Q4 2010 pro forma operating income to range between 2% and 6% of revenues. ADVA Optical Networking notes that it will continue to perform detailed quarterly reviews of the expected business development with respect to all intangible assets, including capitalized research and development expenses. These reviews may result in non-cash impairment charges in Q4 2010 and beyond. The pro forma operating income guidance provided above excludes any such potential impairment charges. ADVA Optical Networking will publish its Q4 and full-year 2010 financial results on February 24, 2011.

“Quarter-on-quarter, ADVA Optical Networking’s revenues developed extremely well in Q3 2010, due to significantly increased enterprise business, driven by replacement investments as well as demand for next-generation deployments such as cloud-based storage solutions and low latency connections for high-frequency trading. Infonetics Research has confirmed the expansion of ADVA Optical Networking’s market share. We now rank as one of the top two leading metro Wavelength Division Multiplexing (WDM) suppliers in both the North American and EMEA markets. Also, we continue to rank first worldwide in Ethernet access devices. Our strategic investments in new customers and market segments will significantly contribute to sustained profitability,” stated Brian Protiva, chief executive officer of ADVA Optical Networking.

NINE-MONTH IFRS CONSOLIDATED INCOME STATEMENT

(in thousands of EUR,
except earnings per share)
Q3
2010
Q3
2009
9M
2010
9M
2009



Revenues 80,549 58,112 212,322 173,208
Pro forma cost of goods sold -48,358 -33,815 -124,845 -100,301
Pro forma gross profit 32,191 24,297 87,477 72,907
Pro forma selling and marketing expenses -10,285 -8,784 -30,643 -27,335
Pro forma
general and administrative expenses
-5,892 -5,524 -17,345 -17,251
Pro forma
research and development expenses
-12,731 -9,401 -36,826 -30,265
Income from capitalization of development expenses, net of amortization for capitalized development projects 945 1,256 3,237 4,223
Other operating income, net 176 127 3,094 719
Pro forma operating income 4,404 1,971 8,994 2,998
Amortization of intangible assets from acquisitions -657 -603 -1,503 -1,852
Stock compensation expenses -474 -372 -1,297 -950
Operating income (loss) 3,273 996 6,194 196
Interest expense, net -338 -325 -992 -914
Other income, net 451 -915 2,302 -299
Income (loss) before tax 3,386 -244 7,504 -1,017
Income tax benefit (expense), net -957 244 -2,120 928
Net income (loss) 2,429 0 5,384 -89


Earnings per share in EUR


basic 0.05 0.00 0.12 0.00
diluted 0.05 0.00 0.11 0.00

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