ADVA Optical Networking reports audited 2008 IFRS financial results with Q4 revenues exceeding guidance

Q4 2008 revenues at EUR 56.8 million, IFRS pro forma operating income of EUR 0.1 million(0.1% of revenues)

FY 2008 revenues at EUR 217.7 million, IFRS pro forma operating income, excluding restructuring charges, of EUR 1.5 million (0.7% of revenues)

Q1 2009 revenues expected to range between EUR 50 million and EUR 55 million with IFRS pro forma operating income between -4% and +1% of revenues

ADVA Optical Networking announces Q4 and audited full-year 2008 financial results for the period ended December 31, 2008, and prepared in accordance with International Financial Reporting Standards (IFRS).

Q4 2008 IFRS FINANCIAL RESULTS
Revenues in Q4 2008 totaled EUR 56.8 million after EUR 53.8 million in Q4 2007 and EUR 54.1 million in Q3 2008, above guidance of between EUR 50 million and EUR 55 million. IFRS pro forma operating income, excluding stock-based compensation and amortization & impairment of goodwill & acquisition-related intangible assets, amounted to EUR 0.1 million in Q4 2008 or 0.1% of revenues, in line with guidance of between -3% and +2% of revenues. This compares to a Q4 2007 IFRS pro forma operating loss of EUR 12.1 million or 22.5% of revenues, and to a Q3 2008 IFRS pro forma operating income of EUR 1.3 million or 2.4% of revenues. The year-over-year recovery of pro forma operating income to the largest extent is due to Q4 2007 one-off non-cash charges related to the write-down of outdated inventory items and to the impairment of capitalized research and development expenses.

The IFRS operating loss in Q4 2008 was EUR 0.5 million, after an operating loss of EUR 23.2 million in Q4 2007. Key drivers for this development are the above-mentioned non-cash charges, as well as extraordinary high amortization of intangible assets from acquisitions of EUR 10.4 million in Q4 2007, related to one-off impairments of goodwill, purchased technology and in-process R&D projects. This compares to Q4 2008 amortization of intangible assets from acquisitions of EUR 0.7 million.

The IFRS net loss in Q4 2008 amounted to EUR 2.2 million, after a net loss of EUR 27.7 million in Q4 2007. This reduction of net loss was largely driven by the factors impacting the development of the operating result described above. Basic and diluted IFRS net earnings per share were EUR -0.05 each in Q4 2008 after EUR -0.60 each in Q4 2007.

FULL-YEAR 2008 IFRS FINANCIAL RESULTS
Revenues came in at EUR 217.7 million in 2008, down from EUR 251.5 million in 2007. This development was mainly due to lower channel partner business, specifically with one major distribution channel in the U.S. since H2 2007. IFRS pro forma operating income at EUR -0.7 million in 2008 was slightly negative, after a positive EUR 1.8 million in 2007. Significantly higher revenues in 2007 were mostly set off by the one-off charges described in the Q4 2007 analysis. Excluding one-off restructuring charges of EUR 2.3 million incurred in H1 2008, 2008 IFRS pro forma operating income would have been positive at EUR 1.5 million.

The IFRS operating loss in 2008 was EUR 7.0 million, after an operating loss of EUR 18.7 million in 2007. The major driver for the operating loss reduction is the extraordinary high amortization of intangible assets from acquisitions in Q4 2007, as described in the Q4 2007 analysis.

Also, ADVA Optical Networking reported an IFRS net loss in 2008 amounting to EUR 8.9 million, after a net loss of EUR 29.5 million in 2007. Beyond the development of the operating loss, the reduction in net loss was impacted by a high income tax charge of EUR 8.2 million in 2007, mainly driven by changes in deferred tax assets and liabilities related to a German tax audit and the impairment of intangible assets. This compares to an income tax benefit of EUR 0.3 million in 2008. Basic and diluted IFRS net earnings per share were EUR -0.19 each in 2008, after EUR -0.64 each in 2007.

“We are very pleased with our Q4 2008 revenues, which came in at EUR 56.8 million and are up 5.1% vs. the previous quarter and up 5.6% vs. Q4 2007. Beyond exceeding guidance, our quarterly revenue development is in contrast to the trend of most of our competitors in the current economic crisis. At EUR 0.1 million or 0.1% of revenues, pro forma operating income in Q4 2008 was within guidance of between -3% and +2% of revenues. Due to variations in regional revenue distribution and in product and customer mix, gross margins were somewhat below original expectations and prevented us from achieving a higher pro forma operating income margin. Well worth mentioning at current is the ongoing improvement of our working capital management in Q4 2008, which resulted in all-time high quarter-end values for cash and cash equivalents of EUR 46.5 million, up EUR 4.8 million vs. the end of the previous quarter,” commented Jaswir Singh, chief financial officer of ADVA Optical Networking.

CONFERENCE CALL AND WEBCAST
In conjunction with the release of its full-year 2008 audited IFRS financial results on March 10, 2009, ADVA Optical Networking will host a conference call for analysts and investors at 3:00 p.m. CET/10:00 a.m. EDT. Participating in the call will be ADVA Optical Networking’s chief executive officer, Brian Protiva, and chief financial officer, Jaswir Singh. Interested parties may dial in at +49 69 4035 9611 or +1 866 306 3455, and listen live via webcast on ADVA Optical Networking’s website, located on the ”financial results” page in the investor relations section of ADVA Optical Networking’s website at www.advaoptical.com.

CHANGE TO MANAGEMENT BOARD
ADVA Optical Networking will cut the number of members of its Management Board from six to five, reducing the complexity of the organization. Until the end of Q1 2009, the current Chief Operations Officer (COO) Jürgen Hansjosten will hand over his COO responsibilities to Jaswir Singh, who has been serving as Chief Financial Officer (CFO) since Q4 2007. Jaswir Singh now assumes joint CFO and COO responsibility.

Q1 2009 OUTLOOK
In light of the ongoing economic crisis, ADVA Optical Networking expects Q1 2009 revenues to range between EUR 50 million and EUR 55 million. We anticipate pro forma operating income of between -4% and +1% of revenues in Q1 2009. 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 2009 and beyond. The pro forma operating income guidance provided above excludes any such potential impairment charges. ADVA Optical Networking will publish its Q1 2009 financial results on May 5, 2009.

“Despite the economic slowdown, we are confident that telecommunications equipment will be one of the more stable industries in 2009, based on the small amount of excess capacity in deployed networks and increased usage of high-bandwidth video services in high-income countries. With our strong focus on cost-effective innovation and short development and delivery times, we believe that we have the capacity to continue outgrowing competition in 2009, as demonstrated by our strong Q4 2008. Nevertheless, we will watch our cost base extremely carefully in 2009 and make necessary adjustments, dependent on the development of our revenues. A major contributor to a more efficient and less complex organization is the reduction in the number of members of the Management Board from six to five, with our current COO Jürgen Hansjosten leaving the Company. Jürgen Hansjosten was instrumental in shaping and growing our large customer base and in increasing the efficiency of our operations. I personally thank him for his excellent contributions to ADVA Optical Networking over the last nine years,” stated Brian Protiva, chief executive officer of ADVA Optical Networking.