ADVA Optical Networking guides down for 4Q12

After bringing in third-quarter revenues in line with guidance, ADVA Optical Networking (FSE: ADV) lowered the bar for next quarter. The company says that, based on International Financial Reporting Standards (IFRS), it brought in EUR 82.3 million in the three months that ended on September 30, 2012. However, it only expects to record between EUR 77 million and EUR 82 million in the current quarter.

The EUR 82.3 million for 3Q12 represented a 3.7% year-on-year from EUR 79.3 million in the same quarter of 2011. Despite being within its guidance range of between EUR 82 million and EUR 87 million, the figure represented a sequential decline of 4.2% from EUR 85.9 million.

IFRS pro forma operating income in the third quarter, excluding stock-based compensation and amortization and impairment of goodwill and acquisition-related intangible assets, was EUR 5.6 million or 6.8% of revenues, at the upper half of guidance of between 4% and 8% of revenues. This number also represented a sequential shrinkage versus the previous quarter, when ADVA earned EUR 6.8 million or 8.0% of revenues.

The IFRS operating income rose to EUR 5.1 million in 3Q12 versus EUR 4.4 million in the same quarter of 2011. Management pointed to a decrease in amortization of intangible assets from acquisitions as a major reason for the improvement.

IFRS net income for the most recent quarter was EUR 3.5 million, compared to EUR 9.7 million in 3Q11.

“Quarter-on-quarter, the 4% revenue decline is due to temporarily weaker demand in the Americas and the Asia-Pacific regions,” explained Jaswir Singh, chief financial officer and chief operating officer of ADVA Optical Networking. “Cash and cash equivalents were at EUR 70.3 million at the end of Q3 2012, up 1% from EUR 69.9 million at the end of the previous quarter and up 26% from EUR 56.0 million at the end of Q3 2011. Correspondingly, net liquidity increased to EUR 41.3 million, up 2% versus the end of the previous quarter and up 47% versus the end of Q3 2011. With this, cash and net liquidity levels at the end of Q3 2012 both reached quarter-end all-time highs, demonstrating our commitment to managing our working capital and strengthening our balance sheet.”

Explaining the downward guidance, the company cited “an unpredictable economic environment” and the fact that carriers are focusing more on their wireless rollouts than investing in wireline infrastructure.

“Albeit a weaker demand environment in H2 2012 than anticipated, ADVA Optical Networking has neither lost customers nor market share with existing customers,” asserts Brian Protiva, ADVA’s CEO. “We continue to be a leader in innovation and have a broad and deep customer base. ADVA Optical Networking won several new customers over the last months which we believed would lead to stronger short-term growth.

“In review, operators’ business models remain challenged due to intense competition and regulation,” he continued. “In order to pave the way to generating new revenue streams, major mobile broadband upgrades, especially LTE rollouts, are absorbing much of the available capital and are fundamental to sustaining a profitable business model. Thus, network providers are currently under-investing and delaying project roll-outs in wireline activities based on capital market pressures. Nonetheless, due to further broadband growth, a rebound in wireline capital spending is inevitable. ADVA Optical Networking continues to weather the spending slowdown due to our increasing exposure to mobile backhauling wins, while many of our peers are experiencing a significant top-line squeeze.”

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