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Press Release -- April 24th, 2012
Source: Adva Optical Networking
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ADVA Optical Networking Reports Q1 2012 Financial Results with Profitability Above Guidance

ADVA Optical Networking announced Q1 2012 financial results for the quarter ended on March 31, 2012, and prepared in accordance with International Financial Reporting Standards (IFRS).

April 24, 2012

  • Q1 2012 revenues at EUR 81.7 million
  • Q1 2012 IFRS pro forma operating income of EUR 4.5 million (5.5% of revenues)
  • Q2 2012 revenues expected to range between EUR 81 million and EUR 86 million with IFRS pro forma operating income between 3% and 7% of revenues

Q1 2012 IFRS Financial Results

Revenues totaled EUR 81.7 million in Q1 2012 and came in within guidance of between EUR 79 million and EUR 83 million. This is up 16.1% vs. Q1 2011 at EUR 70.4 million and is down slightly vs. EUR 83.4 million in Q4 2011. IFRS pro forma operating income, excluding stock-based compensation and amortization & impairment of goodwill & acquisition-related intangible assets, amounted to EUR 4.5 million or 5.5% of revenues, above guidance of between 2% and 5% of revenues. This compares to EUR 0.9 million or 1.3% of revenues in Q1 2011 and EUR 7.4 million or 8.9% of revenues in Q4 2011. The year-on-year increase in pro forma operating income is largely related to higher revenues and stronger gross margins, while the quarter-on-quarter decline in pro forma operating income is mostly due to lower revenues and reduced income from the capitalization of development expenses.

IFRS operating income rose to EUR 3.5 million in Q1 2012, after a loss of EUR 0.3 million in Q1 2011. The key driver for this improvement is the above-mentioned increase in pro forma operating income.

In Q1 2012, IFRS net income amounted to EUR 4.0 million, up significantly from a loss of EUR 2.3 million in Q1 2011. Beyond the improvement of the operating income, ADVA Optical Networking reported income tax benefits of EUR 1.8 million in Q1 2012 after income tax expenses of EUR 0.1 million in Q1 2011. The Q1 2012 income tax benefit is due to the recognition of deferred tax benefits on tax losses in ADVA Optical Networking’s U.S. entity. Further, reduced net foreign currency exchange losses of EUR 0.8 million in Q1 2012 after EUR 1.6 million in Q1 2011 supported the increase in net income. Basic and diluted IFRS net earnings per share were positive EUR 0.09 and EUR 0.08, after negative EUR 0.05 each in Q1 2011.

“We are very pleased with our Q1 2012 revenues of EUR 81.7 million which are at the upper end of guidance. This is up 16% vs. Q1 2011 and only slightly below the record revenues achieved in Q4 2011. The year-on-year development is driven by increased Ethernet access and carrier infrastructure business. Despite lower quarter-on-quarter capitalization of development expenses, pro forma operating income came in at 5.5% of revenues. In line with IFRS best practices and upon the recommendation of leading IFRS experts, for the first time in Q1 2012, we reclassified amortization of capitalized development expenses from R&D expenses to cost of goods sold, while continuing to report capitalization of development expenses in R&D costs. The effect of this reclassification is to decrease our Q1 2012 pro forma gross margin from 43.6% to 39.5%, which is neutralized by a same-amount reduction of our R&D expenses. The post-reclassification pro forma gross margin of 39.5% is stable vs. the adjusted 40.0% achieved in Q4 2011, and is up vs. the adjusted 36.2% seen in Q1 2011. Net income came in at EUR 4.0 million or 5.0% of revenues in Q1 2012, with net foreign currency exchange losses of EUR 0.8 million in Q1 2012 after gains of EUR 1.9 million in the previous quarter and income tax benefits of EUR 1.8 million in Q1 2012 after benefits of EUR 0.5 million in Q4 2011. In addition, cash and cash equivalents were at EUR 64.0 million at the end of Q1 2012, up from EUR 59.1 million at year-end 2011. Net liquidity increased from EUR 31.2 million to EUR 34.7 million, representing the fourth consecutive quarter-end all-time high. This development is due to working capital improvements and demonstrates our commitment to focus on 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 Q1 2012 financial results on April 24, 2012, 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 201744 210 or +1 877 423 0830, pin code 914 308#, and download the corresponding presentation from ADVA Optical Networking's website, www.advaoptical.com, located in the “About Us / Investor Relations” section on the “Financial Results” page under “Conference Calls”.

Q2 2012 Outlook

ADVA Optical Networking has the potential to continue growing revenues while aggressively driving innovation and cost efficiencies into its product platforms. While the fragile global economy still demands a cautious sentiment, the company expects Q2 2012 revenues of between EUR 81 million and EUR 86 million. Further, ADVA Optical Networking anticipates Q2 2012 pro forma operating income to range between 3% and 7% of revenues. ADVA Optical Networking notes that it will continue to perform 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 Q2 2012 and beyond. The pro forma operating income guidance provided above excludes any such potential impairment charges. ADVA Optical Networking will hold its annual shareholders’ meeting on May 24, 2012, in Meiningen, Germany, and will publish its Q2 2012 financial results on July 19, 2012.

“ADVA Optical Networking expects significant growth in each of the three market areas we cover, carrier infrastructure, Ethernet access and enterprise networks. Carrier infrastructure investments in metro and long-haul WDM equipment will continue to be driven by ongoing strong growth in bandwidth demand, in particular based on video streaming. We will also see major incremental demand for Ethernet access solutions, due to the heavy deployment of Ethernet-based broadband mobile backhauling solutions. Finally, there should be strong spending for enterprise networks based on the need to store and access business-critical data quickly, reliably and securely. With our innovative Optical+Ethernet solutions portfolio including state-of-the art Ethernet access synchronization and monitoring features, 100G transmission technology with coherent detection for long-haul and non-coherent direct detection for metro networks, as well as a strong innovation pipeline, ADVA Optical Networking is best-positioned to benefit from these market trends,” stated Brian Protiva, chief executive officer of ADVA Optical Networking.

Three-Month IFRS Consolidated Income Statement

* Research and development expenses include income from capitalization of development expenses. From 2012, amortization for capitalized development projects is presented as cost of goods sold. Prior period information has been adjusted accordingly, by reclassification of amortization from research and development expenses to cost of goods sold. The effect on cost of goods sold amounted to EUR 3,320 thousand and EUR 3,523 thousand in Q1 2012 and Q1 2011, respectively.

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