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ADVA Revenues Edge Up in Q1

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MARTINSRIED/MUNICH, Germany -- ADVA Optical Networking (FSE: ADV) announced Q1 2014 financial results for the quarter ended on March 31, 2014, and prepared in accordance with International Financial Reporting Standards (IFRS).

Q1 2014 IFRS FINANCIAL RESULTS
Revenues totaled EUR 78.1 million in Q1 2014 and were at the upper end of guidance of between EUR 74 million and EUR 79 million. This is up 1.4% vs. Q1 2013 at EUR 77.0 million and up 2.5% vs. EUR 76.2 million in Q4 2013. 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, and was in line with guidance of between -2% and +2% of revenues. This compares to EUR 0.8 million or 1.0% of revenues in Q1 2013 and EUR 2.3 million or 3.0% of revenues in Q4 2013. These developments are largely due to lower gross margins adversely impacted by product and customer mix, higher amortization charges for capitalized development projects and reduced income from capitalization of development expenses.

IFRS operating income amounted to EUR 0.1 million in Q1 2014, after EUR 0.4 million in Q1 2013. The key driver for this unfavorable development is the above-mentioned decrease of pro forma operating income. The decline in part is offset by lower stock compensation expenses, which amounted to EUR 0.1 million in Q1 2014 after EUR 0.3 million in Q1 2013.

Q1 2014 IFRS net loss amounted to EUR 0.4 million, after a net income of EUR 0.8 million in Q1 2013. The reduction was largely driven by the development of the operating result described above, as well as higher interest expenses of EUR 0.4 million after EUR 0.2 million in Q1 2013.

Basic and diluted IFRS net earnings per share were EUR -0.01 each in Q1 2014 after EUR 0.02 each in Q1 2013.

"Q1 2014 revenue at EUR 78.1 million was at the upper end of guidance. This is an increase of 1.4% vs. Q1 2013 and an increase of 2.5% vs. Q4 2013. The increase in revenue mainly relates to stronger enterprise business in the Americas and EMEA regions. Our pro forma gross margin decreased from 39.3% in Q4 2013 to 35.4% in Q1 2014, due to variations in product and customer mix and higher quarter-on-quarter amortization of capitalized development projects. Prior to amortization of capitalized development projects, pro forma gross margin decreased from 45.9% in Q4 2013 to 42.7% in Q1 2014. Our pro forma operating margin came in at 0.5%, also in line with guidance, and demonstrates our focus on managing operational costs. Also, operating cash flow at EUR 4.8 million in Q1 2014 remained positive, and our high quarter-end cash & cash equivalents and net liquidity of EUR 77.1 million and EUR 38.5 million, respectively, demonstrate ongoing financial strength," commented Jaswir Singh, chief financial officer & chief operating officer of ADVA Optical Networking.

Q2 2014 OUTLOOK
In Q2 2014, ADVA Optical Networking expects revenues to range between EUR 84 million and EUR 89 million, and anticipates pro forma operating income of between -2% and +2% 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 Q2 2014 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 June 5, 2014, in Meiningen, Germany, and will publish its Q2 2014 financial results on July 24, 2014.

"Although, we are seeing signs of the telecommunications industry slowly returning to growth in Europe, the broader sentiment remains cautious as the shift to software-centric networks and architectural changes is deferring service provider investment decisions in the short-term. In order to support the exponential increase of high-capacity data and video applications, the drive toward Long Term Evolution-Advanced (LTE-A) networks and small cells is creating pressure on both mobile network operators and backhaul service providers, and thus both are continuing to evolve their networks to packet-based solutions. Precise timing and synchronization is critical for this development. The acquisition of Oscilloquartz is a strategic milestone for us and provides ADVA Optical Networking with a complete end-to-end solution for the delivery and, most importantly, assurance of highly accurate timing - a first within the industry; thereby allowing our rapid expansion into the synchronization business for next-generation networks. The next few years will clearly highlight the strategic vision of this acquisition, heightening our revenue growth potential, margin opportunity, and increasing shareholder value," stated Brian Protiva, chief executive officer of ADVA Optical Networking.

ADVA Optical Networking (Frankfurt: ADV)

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