GOVERNMENT

• Q2 2014 revenues at EUR 87.2 million
• Q2 2014 IFRS pro forma operating income of  EUR 0.4 million (0.5% of revenues)
• Q3 2014 revenues expected to range between EUR 82 million and EUR 87 million with IFRS pro forma operating income between 0% and 4% of revenues 

ADVA Optical Networking has announced Q2 2014 financial results for the quarter ended on June 30, 2014, and prepared in accordance with International Financial Reporting Standards (IFRS).

Q2 2014 IFRS FINANCIAL RESULTS

Including the operations of recently acquired Oscilloquartz SA since April 4, 2014, in Q2 2014 revenues rose to a record high of EUR 87.2 million, up 11.2% vs. Q2 2013 at EUR 78.4 million and up 11.6% vs. EUR 78.1 million achieved in Q1 2014. This result is in the upper half of guidance of between EUR 84 million and EUR 89 million. IFRS pro forma operating income, excluding stock-based compensation and amortization & impairment of goodwill & acquisition-related intangible assets, amounted to EUR 0.4 million or 0.5% of revenues in Q2 2014, also in the upper half of guidance of between -2% and +2% of revenues. This compares to EUR 1.5 million or 2.0% of revenues in Q2 2013 and EUR 0.4 million or 0.5% of revenues in Q1 2014. The year-on-year pro forma operating income reduction is largely due to initially lower margin Oscilloquartz operations, expansion of our customer base into new verticals, and one-time certification costs for next-gen technology at one of our largest customers.

The IFRS operating income amounted to rounded nil in Q2 2014 after EUR 1.2 million in Q2 2013, and after EUR 0.1 million in Q1 2014. The key driver for the unfavorable year-on-year development is the above-mentioned decrease of pro forma operating income.

The IFRS net income amounted to rounded nil in Q2 2014, down from EUR 0.1 million in Q2 2013. This reduction was largely driven by the development of the operating result described above. These effects were partly compensated by net foreign currency exchange gains of EUR 0.3 million, after losses of EUR 0.2 million in Q2 2013 and by lower tax expenses of EUR 0.1 million in Q2 2014 after EUR 0.6 million in Q2 2013. Basic and diluted IFRS net earnings per share in Q2 2014 were nil each after nil respectively in Q2 2013.

“We are pleased with the development of our Q2 2014 revenues, reaching an all-time high of EUR 87.2 million, and at the upper half of guidance. The quarter-on-quarter increase of 11.6% is driven largely by investments in enterprise solutions, reflecting the continued network traffic growth due to the increasing adoption of cloud based services, coupled with rising demand for innovative enterprise network technology in a broad range of verticals. Year-on-year, the increase of 11.2% is primarily due to higher demand for carrier infrastructure solutions offering scalability and ease-of-use. Our pro forma gross margin decreased from 35.4% in Q1 2014 to 32.8% in Q2 2014. This reduction is largely related to the expansion into new verticals and one-time certification costs for next-gen technology. Prior to amortization of capitalized development projects, pro forma gross margin decreased from 42.7% in Q1 2014 to 38.9% in Q2 2014. Our pro forma operating margin came in at 0.5%, in the upper half of guidance, and also reflects the integration costs of our Oscilloquartz acquisition. We expect a sustainable improvement of our IFRS pro forma operating income and gross margins in Q3 2014. In addition, cash and cash equivalents were at an impressive high of EUR 79.1 million at the end of Q2 2014, up from EUR 77.1 million at the end of the previous quarter. Net liquidity increased to EUR 40.5 million, up EUR 2.0 million or 5% vs. the end of the previous quarter, demonstrating our commitment to managing our working capital and strengthening our balance sheet,” commented Jaswir Singh, chief financial officer & chief operating officer of ADVA Optical Networking.

CONFERENCE CALL

In conjunction with the release of its Q2 2014 financial results on July 24, 2014, 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 792 887#, 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.

Q3 2014 OUTLOOK

In Q3 2014, ADVA Optical Networking expects revenues to range between EUR 82 million and EUR 87 million, and anticipates pro forma operating income of between 0% and 4% of revenues. As a matter of caution, 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 development expenses. In case of highly adverse business prospects, these reviews may result in non-cash impairment charges in Q3 2014 and beyond. The pro forma operating income guidance provided above excludes any such potential impairment charges. ADVA Optical Networking will publish its Q3 2014 financial results on October 23, 2014.

“Our record high revenue in Q2 2014 coupled with a strong pipeline and improved Q3 2014 pro forma operating income guidance indicates continued growth with a strong focus on strengthening our profitability. In the short-term, we did sacrifice margin growth by securing new business and acquiring Swiss-based Oscilloquartz. Both were strategic decisions to expand our solid foundation for future growth. ADVA Optical Networking is very well positioned to capitalize on the two dominant mega trends in the IT industry: cloud and mobility. The rapid rise and adoption of cloud-based IT-solutions drives enormous data center growth, fueling the demand for fiber-optic connectivity solutions. Our Big-Data-Transport offering provides high-performance connectivity with unparalleled security features – a value proposition that resonates well in the industry. And the growth of mobile services and devices continues to drive carrier infrastructure investment. More mobile broadband means not only more and better radio interfaces, it also means more fiber, more optical transmission solutions and more accurate timing; all things that we do exceptionally well. ADVA Optical Networking continues to reignite growth with game changing innovation and differentiating solutions serving as catalysts for investments in cloud and mobile infrastructure. While we remain committed to optimizing our costs, we are adding flexibility to our operations capacity and investing appropriately in revenue-generating activities. These are the key ingredients for renewed profitability. These efforts will increase our pro forma operating margin in the second half of 2014. Differentiating ourselves with innovation will create further value for shareholders,” stated Brian Protiva, chief executive officer of ADVA Optical Networking.