SCIENCE

Q3 2011 revenues at EUR 79.3 million

Q3 2011 IFRS pro forma operating income of EUR 5.5 million (6.9% of revenues)

 Q4 2011 revenues expected to range between EUR 79 million and EUR 84 million with IFRS pro forma operating income between 6% and 9% of revenues

ADVA Optical Networking announced Q3 2011 financial results for the quarter ended September 30, 2011, and prepared in accordance with International Financial Reporting Standards (IFRS).

Q3 2011 IFRS FINANCIAL RESULTS

Revenues totaled EUR 79.3 million in Q3 2011 and came in slightly above guidance of between EUR 73 million and EUR 78 million. This compares to EUR 80.5 million in Q3 2010 and is up 1.9% vs. Q2 2011 at EUR 77.8 million. IFRS pro forma operating income, excluding stock-based compensation and amortization & impairment of goodwill & acquisition-related intangible assets, amounted to EUR 5.5 million or 6.9% of revenues, also above guidance of between 2% and 5% of revenues. This compares to EUR 4.4 million or 5.5% of revenues in Q3 2010 and EUR 3.5 million or 4.5% of revenues in Q2 2011. The increase in pro forma operating income is largely related to higher revenues vs. Q2 2011 and to higher gross margins vs. Q3 2010.

IFRS operating income rose to EUR 4.4 million in Q3 2011, after EUR 3.3 million in Q3 2010. The key driver for this improvement is the above-mentioned increase in pro forma operating income.

In Q3 2011, IFRS net income amounted to EUR 9.7 million, up significantly from EUR 2.4 million in Q3 2010. Beyond the improvement of the operating income, net foreign currency exchange gains of EUR 3.0 million in Q3 2011 after EUR 0.5 million in Q3 2010 drove this development. Further, ADVA Optical Networking reported income tax benefits of EUR 2.7 million in Q3 2011 after income tax expenses of EUR 1.0 million in Q3 2010. The Q3 2011 income tax benefit is due to initial recognition of deferred taxes in ADVA Optical Networking’s U.S. entity. Basic and diluted IFRS net earnings per share were EUR 0.21 and EUR 0.20, after EUR 0.05 each in Q3 2010.

“We are extremely pleased with our Q3 2011 revenues of EUR 79.3 million, which slightly exceed guidance and are up 1.9% vs. the previous quarter. For the most part, this development is driven by increased Ethernet access business, largely due to initial significant carrier investments for mobile backhaul solutions. Our pro forma gross margin increased from 43.0% in Q2 2011 and 40.0% in Q3 2010 to 43.5% in Q3 2011. With tight management of operating expenses, our pro forma operating income came in at 6.9% of revenues. Furthermore, net foreign currency exchange gains of EUR 3.0 million in Q3 2011 after EUR 0.5 million in Q3 2010 and income tax benefits of EUR 2.7 million in Q3 2011 after income tax expenses of EUR 1.0 million in Q3 2010 supported a record level net income of EUR 9.7 million, representing 12.3% of revenues. In addition, cash and cash equivalents were at EUR 56.0 million at the end of Q3 2011, up from EUR 55.4 million at the end of the previous quarter. Net liquidity increased from EUR 27.3 million to a quarter-end all-time high of EUR 28.0 million. This development is due to further 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 Q3 2011 financial results on October 20, 2011, 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 405 991#, and download the corresponding presentation from ADVA Optical Networking's website, http://www.advaoptical.com/, located in the “About Us / Investor Relations” section on the “Financial Results” page under “Conference Calls”.

Q4 2011 OUTLOOK

ADVA Optical Networking has the potential to continue significantly growing revenues while aggressively driving innovation and cost efficiencies into its product platforms. While the fragile global economy demands a cautious sentiment, the company expects Q4 2011 revenues of between EUR 79 million and EUR 84 million. Further, ADVA Optical Networking anticipates Q4 2011 pro forma operating income to range between 6% and 9% 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 Q4 2011 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 2011 financial results on February 23, 2012.

“ADVA Optical Networking was able to successfully establish footprint with several backhaul operators in 2011, each serving multiple mobile operators. Beyond the metro WDM and Ethernet access solutions we have been successfully developing and marketing for many years, the new FSP 3000 Agile Core and FSP 150EG-X platforms, introduced earlier this year, have opened the doors to expand our addressable market into the multi-billion EUR WDM long-haul and mobile backhauling opportunities. Due to our deep and longstanding industry know-how, our focus on the latest technology, exceptional personnel, and a diverse mix of customers, we have been able to grow our business even in the current volatile global macro-economic environment. The majority of our business is not driven directly by these developments, but by the increase in overall bandwidth demand and substitution of incumbent technologies,” stated Brian Protiva, chief executive officer of ADVA Optical Networking.