ADVA Optical Networking Reports Q3 2013 Financial Results In Line with Guidance

Q3 2013 revenues at EUR 79.1 million

Q3 2013 IFRS pro forma operating income of

EUR 4.0 million (5.0% of revenues)

Q4 2013 revenues expected to range
between EUR 71 million and EUR 76 million with
IFRS pro forma operating income between 1% and 5% of revenues

Martinsried/Munich, Germany. October 24, 2013. ADVA Optical Networking (FSE: ADV) announced Q3 2013 financial results for the quarter ended September 30, 2013, and prepared in accordance with International Financial Reporting Standards (IFRS).

Q3 2013 IFRS FINANCIAL RESULTS

Revenues totaled EUR 79.1 million in Q3 2013 and were in line with guidance of between EUR 76 million and EUR 81 million. This is down 3.9% vs. Q3 2012 at EUR 82.3 million and up 0.9% vs. EUR 78.4 million in Q2 2013. IFRS pro forma operating income, excluding stock-based compensation and amortization & impairment of goodwill & acquisition-related intangible assets, amounted to EUR 4.0 million or 5.0% of revenues in Q3 2013, at the upper end of guidance of between 1% and 5% of revenues. This compares to EUR 5.6 million or 6.8% of revenues in Q3 2012 and EUR 1.5 million or 2.0% of revenues in Q2 2013. The quarter-on-quarter increase of pro forma operating income is largely due to higher revenues and lower operational expenses, while the year-on-year decrease is largely due to lower revenues in a weaker demand environment.

The IFRS operating income amounted to EUR 3.5 million in Q3 2013, after EUR 5.1 million in Q3 2012 and EUR 1.2 million in Q2 2013. The key driver for the unfavorable year-on-year development is the above-mentioned decrease of pro forma operating income, while the favorable quarter-on-quarter development is largely due to the increase in pro forma operating income.

The IFRS net income amounted to EUR 2.3 million in Q3 2013, down from EUR 3.5 million in Q3 2012. This reduction was largely driven by the development of the operating result described above, and was partially offset by lower Q3 2013 income tax expenses of EUR 0.8 million vs. the EUR 1.3 million seen in Q3 2012. Basic and diluted IFRS net earnings per share in Q3 2013 were EUR 0.05 after EUR 0.07 in Q3 2012.

“At EUR 79.1 million, our Q3 2013 revenues are in line with guidance and up 0.9% vs. the previous quarter. Pro forma operating margin came in at 5.0%, at the upper end of guidance, largely driven by the stronger revenue development and tight management of operational costs. Furthermore, cash and cash equivalents reached a record high of

EUR 80.6 million, and net liquidity increased to EUR 41.4 million at the end of Q3 2013, up EUR 0.8 million vs. the end of the previous quarter, demonstrating our commitment to managing cash 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 Q3 2013 financial results on October 24, 2013, ADVA Optical Networking will host a conference call for analysts and investors at 3:00 p.m. CEST / 9:00 a.m. EDT. ADVA Optical Networking’s chief executive officer, Brian Protiva, and chief financial officer & chief operating officer, Jaswir Singh, will participate in the call. Interested parties may dial in at +49 69 201744 210 or +1 877 423 0830, pin code 992 170#, and download the corresponding presentation, located on the “financial results” page under “conference calls” in the investor relations section of ADVA Optical Networking’s website at www.advaoptical.com.

Q4 2013 OUTLOOK

ADVA Optical Networking continues to adapt to an unpredictable economic environment by adjusting its operational costs to keep in line with revenue and gross margin development. With the macro-economic environment continuing to send mixed signals, we are guiding Q4 2013 revenues of between EUR 71 million and EUR 76 million. Furthermore, we anticipate Q4 2013 pro forma operating income to range between 1% and 5% 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 research and development expenses. In case of highly adverse business prospects, these reviews may result in non-cash impairment charges in Q4 2013 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 2013 financial results on February 20, 2014.

While our market in H2 2013 so far has been developing disappointingly, ADVA Optical Networking continues to be a leader in innovation with a broad and deep customer base. ADVA Optical Networking’s pipeline is expanding, and there are clear signs that we will return to significant growth in our market for Optical+Ethernet solutions. Although operators have been delaying project rollouts in wireline activities, the evolution of their network strategies to cope with the explosive bandwidth growth is inevitable. Operators are shifting their attention to the next network bottleneck, the transport links connecting the mobile base stations to core networks. Further, operators are accelerating plans to evaluate the deployment of Software-Defined Networking (SDN) technology, seeking operational efficiency, agility and a more dynamic service offering. As an industry first SDN solution, in September ADVA Optical Networking successfully demonstrated a virtualized optical transmission network using OpenFlow-based control, developed in partnership with IBM and Marist College. Finally, ADVA Optical Networking’s 100G metro solutions are increasingly gaining traction and are expected to be deployed in large-scale by service providers over the coming quarters,” stated Brian Protiva, chief executive officer of ADVA Optical Networking.

NINE-MONTH IFRS CONSOLIDATED INCOME STATEMENT

(in thousands of EUR,
except earnings per share)

Q3
2013

Q3
2012

9M
2013

9M
2012

Revenues

79,064

82,267

234,465

249,801

Pro forma cost of goods sold

-47,985

-49,942

-142,322

-150,109

Pro forma gross profit

31,079

32,325

92,143

99,692

Pro forma selling and marketing expenses

-11,531

-10,712

-35,823

-33,264

Pro forma
general and administrative expenses

-5,958

-6,123

-19,505

-19,611

Pro forma
research and development expenses

-15,868

-16,151

-49,472

-49,540

Income from capitalization

of development expenses

5,959

5,966

17,540

18,465

Other operating income and expenses, net

294

324

1,433

1,219

Pro forma operating income

3,975

5,629

6,316

16,961

Amortization of intangible assets
from acquisitions

-171

-160

-512

-1,475

Stock compensation expenses

-275

-335

-740

-940

Operating income

3,529

5,134

5,064

14,546

Interest income and expenses, net

-427

-234

-841

-865

Other financial gains and losses, net

-75

-36

-1,010

972

Income before tax

3,027

4,864

3,213

14,653

Income tax benefit (expense), net

-771

-1,386

-73

-2,032

Net income

2,256

3,478

3,140

12,621

Earnings per share in EUR

Basic

0.05

0.07

0.07

0.27

Diluted

0.05

0.07

0.07

0.26

About ADVA Optical Networking

ADVA Optical Networking is a global provider of intelligent telecommunications infrastructure solutions. With software-automated Optical+Ethernet transmission technology, the Company builds the foundation for high-speed, next-generation networks. The Company’s FSP product family adds scalability and intelligence to customers’ networks while removing complexity and cost. With a flexible and fast-moving organization, ADVA Optical Networking forges close partnerships with its customers to meet the growing demand for data, storage, voice and video services. Thanks to reliable performance for two decades, the Company has become a trusted partner for more than 250 carriers and 10,000 enterprises across the globe. For more information, please visit us at www.advaoptical.com.