MAHWAH, N.J., MARTINSRIED, Germany and MUNICH, Germany -- ADVA Optical Networking today announced preliminary Q2 2007 financial results for the quarter ended June 30, 2007, and prepared in accordance with International Financial Reporting Standards (IFRS).

Q2 2007 PRELIMINARY IFRS FINANCIAL RESULTS
Revenues in Q2 2007 totaled EUR 67.5 million, up 64% when compared to EUR 41.2 million in Q2 2006. IFRS pro forma operating income, excluding stock-based compensation and amortization and impairment of goodwill and acquisition-related intangible assets, was at EUR 3.0 million in Q2 2007 after EUR 3.5 million in Q2 2006, driven primarily by lower gross margins and increased research & development expenses. IFRS pro forma quarterly net profit was at EUR 1.4 million in Q2 2007 after EUR 2.2 million in Q2 2006, with diluted pro forma net earnings per share of EUR 0.03 and EUR 0.06 in Q2 2007 and in Q2 2006, respectively.

After an IFRS actual net profit of EUR 1.4 million in Q2 2006, ADVA Optical Networking experienced an IFRS actual net loss of EUR 2.0 million in Q2 2007, due to the factors described above, as well as increased amortization of acquisition-related intangible assets excluding goodwill related to the acquisition of Movaz in July 2006. Diluted net earnings per share were EUR -0.04 in Q2 2007 and EUR 0.04 in Q2 2006.

During the preparation of the IFRS six-month 2007 Group financial statements ADVA Optical Networking found that for select revenues in Q1 2007 cost of goods sold amounting to at least EUR 1.6 million had not been recognized in Q1, but only in Q2 2007. Therefore, cost of goods sold, gross profit, operating income (loss), income before tax and net income (loss) reported for Q2 are preliminary only. ADVA Optical Networking is currently completing an analysis of costs of goods sold and will provide corrected Q1 and Q2 2007 financial statements in due course. The financial results for the full six-month period to June 30, 2007 are not affected.

Andreas Rutsch, ADVA Optical Networking’s Chief Financial Officer, commented: “H1 2007 pro forma gross margin at 40.9% of revenues and with it also our pro forma operating income overall came in below guidance. This development in particular was driven by lower product margins than anticipated. Our Q2 2007 pro forma gross margin at 38.1% of revenues in addition was impacted by the fact that for select revenues in Q1 2007, cost of goods sold amounting to at least EUR 1.6 million were not recognized in Q1, but rather in Q2 2007. Had these expenses been accrued, our gross margin would have been at most at 41.2% in Q1 2007 (instead of 43.6% as reported) and at least at 40.5% in Q2 2007. Immediately, we took actions to avoid such period mismatches going forward, as for example strict compliance with defined process steps in the execution of customer and production orders, additional monthly plausibility checks, and the provision of Group-wide standardized systems support with the introduction of SAP from Q4 2007.

In addition, we advanced in two key areas in Q2 2007: Our guided revenue target was clearly overachieved, in spite of the announced decline of revenues with one major U.S. distribution channel. Also, we were able to significantly improve net liquidity by EUR 10.6 million to EUR 1.5 million on June 30, 2007, after EUR –9.1 million at the end of March 2007, driven by reduced levels of inventories and accounts receivable.”

ADVA Optical Networking