ADVA Optical Networking reports audited 2009 IFRS financial results above guidance for Q4

Q4 2009 revenues at EUR 59.6 million,
IFRS pro forma operating income of EUR 3.1 million (5.2% of revenues)

FY 2009 revenues at EUR 232.8 million,
IFRS pro forma operating income of EUR 6.1 million (2.6% of revenues)

Q1 2010 revenues expected to range
between EUR 57 million and EUR 62 million with
IFRS pro forma operating income between 0% and 4% of revenues

March 3, 2010.

ADVA Optical Networking announces Q4 and audited full-year 2009 financial results for the period ended December 31, 2009, and prepared in accordance with International Financial Reporting Standards (IFRS).

Q4 2009 IFRS FINANCIAL RESULTS
Revenues in Q4 2009 totaled EUR 59.6 million after EUR 56.8 million in Q4 2008 and EUR 58.1 million in Q3 2009, slightly above guidance of between EUR 54 million and EUR 59 million. IFRS pro forma operating income, excluding stock-based compensation and amortization & impairment of goodwill & acquisition-related intangible assets, amounted to EUR 3.1 million in Q4 2009 or 5.2% of revenues, also above guidance of between -1% and +4% of revenues. This compares to a Q4 2008 IFRS pro forma operating income of EUR 0.1 million or 0.1% of revenues, and to Q3 2009 IFRS pro forma operating income of EUR 2.0 million or 3.4% of revenues. To a large degree, the year-over-year improvement of pro forma operating income is due to revenue growth and higher gross margins.

The IFRS operating income in Q4 2009 was EUR 2.1 million, after an operating loss of EUR 0.5 million in Q4 2008. The key driver for this development is the above-mentioned increase in pro forma operating income, offset in part by stock compensation expenses of EUR 0.4 million in Q4 2009 after EUR -0.1 million in Q4 2008.

The IFRS net income in Q4 2009 amounted to EUR 1.4 million, after a net loss of EUR 2.2 million in Q4 2008. This significant improvement was largely driven by the factors impacting the development of the operating result described above, as well as net foreign currency exchange gains of EUR 0.8 million in Q4 2009 after a loss of EUR 0.2 million in Q4 2008. Basic and diluted IFRS net earnings per share were EUR 0.03 each in Q4 2009 after EUR -0.05 each in Q4 2008.

FULL-YEAR 2009 IFRS FINANCIAL RESULTS
Driven by improved Ethernet access and carrier infrastructure business, revenues came in at EUR 232.8 million in 2009, 7.0% higher than the EUR 217.7 million reported in 2008. IFRS pro forma operating income at EUR 6.1 million in 2009 or 2.6% of revenues was significantly higher than the pro forma operating loss of EUR 0.7 million or negative 0.3% of revenues in 2008. This improvement is largely due to higher revenues.

The IFRS operating income in 2009 was EUR 2.3 million, after an operating loss of EUR 7.0 million in 2008. The major reasons for this positive development are the above-mentioned increase in pro forma operating income as well as significantly lower amortization of intangible assets from acquisitions of EUR 2.4 million in 2009 after EUR 4.6 million in 2008.

Finally, ADVA Optical Networking’s IFRS net income amounted to EUR 1.3 million in 2009, after a net loss of EUR 8.9 million in 2008. Beyond the development of the operating income mentioned above, the increase in the net result was impacted by net foreign currency exchange gains of EUR 0.5 million in 2009 after a loss of EUR 1.1 million in 2008. Basic and diluted IFRS net earnings per share were EUR 0.03 each in 2009, after EUR -0.19 each in 2008.

“We are very pleased with our Q4 2009 revenues of EUR 59.6 million. This result slightly exceeds guidance and is up 2.6% vs. the previous quarter and up 4.8% vs. Q4 2008. Our pro forma gross margin increased from 41.8% in Q3 2009 to 45.4% in Q4 2009, principally due to variability of our customer and product mix. In line with strong revenue development, pro forma operating income in Q4 2009 is at 5.2% of revenues, also exceeding guidance. Further working capital improvements resulted in record levels of cash & cash equivalents and net liquidity of EUR 50.9 million and EUR 22.5 million, respectively, at the end of Q4 2009, up EUR 2.8 million and EUR 3.5 million, respectively, vs. the end of the previous quarter. In respect of net liquidity, this represents the sixth consecutive all-time high and demonstrates our commitment to managing our cash flows and balance sheet,” commented Jaswir Singh, chief financial officer & chief operating officer of ADVA Optical Networking.

CONFERENCE CALL
In conjunction with the release of its full-year 2009 audited IFRS financial results on March 3, 2010, ADVA Optical Networking will host a conference call for analysts and investors at 3:00 p.m. CET / 9:00 a.m. EST. 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.

Q1 2010 OUTLOOK
The macro-economic environment continues to recover slowly and with significant volatility. ADVA Optical Networking therefore remains cautious about revenue development in 2010. In Q1 2010, the Company expects revenues to range between EUR 57 million and EUR 62 million, and anticipates pro forma operating income of between 0% and 4% of revenues. Further, ADVA Optical Networking notes that it will continue to perform detailed quarterly reviews of the expected business development in respect of all intangible assets, including capitalized research and development expenses. These reviews may result in non-cash impairment charges in Q1 2010 and beyond. The pro forma operating income guidance provided above excludes any such potential impairment charges. ADVA Optical Networking will publish its Q1 2010 financial results on April 29, 2010.

“Despite the financial crisis and a depressed macro-economic environment, 2009 was a very successful year for ADVA Optical Networking: We returned to profitable growth, increased our financial strength, further improved our operational efficiency, ramped up our direct relationships with customers and maintained a market-leading position. Most importantly, we drove innovation, an element crucial to our long-term success. As for 2010, we face a telecommunications industry that is growing incredibly dynamically and is critical for most applications and industries. Bandwidth-hungry Internet applications require massive investments in carrier infrastructure, and the increase in mobile devices as the primary platform for the future delivery of broadband services will create a significant need for high-capacity backhaul networks. These trends will be highly beneficial to our success. The combination of cost-effective innovation, short development and delivery times, a broad and growing customer base and a well-balanced distribution model differentiates ADVA Optical Networking from its peers. This will further fuel our sustainable business model and support our strategic focus to be the trusted partner for innovative Optical+Ethernet transport solutions,” stated Brian Protiva, chief executive officer of ADVA Optical Networking.

IFRS CONSOLIDATED INCOME STATEMENT

(in thousands of EUR, except earnings per share)	Q4 2009	Q4 2008	FY 2009	FY 2008
Revenues	59,600	56,849	232,808	217,672
Pro forma cost of goods sold	-32,550	-32,746	-132,851	-125,802
Pro forma gross profit	27,050	24,103	99,957	91,870
Pro forma selling and marketing expenses	-9,390	-9,157	-36,725	-34,087
Pro forma general and administrative expenses	-6,029	-6,746	-23,280	-26,298
Pro forma research and development expenses	-10,449	-10,010	-40,714	-40,682
Income from capitalization of development expenses, net of amortization for capitalized development projects	991	1,501	5,214	9,004
Restructuring expenses	0	0	0	-2,251
Other operating income (expenses), net	931	388	1,650	1,736
Pro forma operating income	3,104	79	6,102	-708
Amortization of intangible assets from acquisitions	-591	-747	-2,443	-4,574
Stock compensation expenses	-428	121	-1,378	-1,761
Operating income (loss)	2,085	-547	2,281	-7,043
Interest income (expense), net	-301	-262	-1,215	-1,005
Other income (expense), net	842	-171	543	-1,103
Income (loss) before tax	2,626	-980	1,609	-9,151
Income tax benefit (expense), net	-1,217	-1,198	-289	275
Net income (loss)	1,409	-2,178	1,320	-8,876
Earnings per share in EUR
basic	0.03	-0.05	0.03	-0.19
diluted	0.03	-0.05	0.03	-0.19

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