ADVA Optical Networking
Analyst Presentation
Q1 2016
Disclaimer
FORWARD-LOOKING STATEMENTS
This presentation contains forward-looking statements with words such as “believes”, “anticipates” and
“expects” to describe expected revenues and earnings, anticipated demand for optical networking solutions,
internal estimates and liquidity. These forward-looking statements involve a number of unknown risks,
uncertainties and other factors that could cause actual results to differ materially. Unknown risks, uncertainties
and other factors are discussed in the ‘risk report’ section of ADVA Optical Networking’s annual report 2015.
CONSOLIDATED PRO FORMA FINANCIAL RESULTS
ADVA Optical Networking provides consolidated pro forma financial results in this presentation solely as
supplemental financial information to help investors and the financial community make meaningful comparisons
of ADVA Optical Networking’s operating results from one financial period to another. ADVA Optical Networking
believes that these pro forma consolidated financial results are helpful because they exclude non-cash charges
related to stock compensation programs and amortization and impairment of goodwill and acquisition-related
intangible assets, which are not reflective of the Group’s operating results for the period presented. This pro
forma information is not prepared in accordance with IFRS and should not be considered a substitute for
historical information presented in accordance with IFRS.
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Business Update and Outlook
Brian Protiva
Chief Executive Officer
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Q1 2016 in Review
• Q1 revenues rose by 27.6% vs. the previous year to EUR 122 million. This result is in
line with the guidance provided on February 25, 2016 of between EUR 117 million and
EUR 127 million
• Q1 pro forma operating income* was EUR 2.0 million or 1.6% of revenues, also in line
with guidance between 1% and 4% of revenues
• Ninth consecutive quarter with year-on-year growth; Revenue and profitability
guidance met or exceeded consistently, quarter on quarter
• Continued financial strength with cash and cash equivalents as well as net liquidity at
EUR 73.4 million and EUR 9.4 million respectively
• Our investments in open connectivity and networking solutions, which support the two
mega trends cloud and mobility are driving rapid growth for ADVA Optical Networking
• The acquisition of Overture strengthens our portfolio for cloud access solutions and
network virtualization; while the acquisition reduces net liquidity and EBIT in 1H
2016, we expect a positive impact in 2H 2016
* Pro forma operating income is calculated prior to non-cash charges related to the stock option programs and amortization
and impairment of goodwill and acquisition-related intangible assets.
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Prospects for Q2 2016
• Q2 revenue forecast for more than 30% growth YoY; mid-point of guidance
is at EUR 150 million vs. the previous year of EUR 112 million; the last four
weeks have led us to believe that we can maintain aggressive growth rates
• Cloud continues to drive demand for open connectivity solutions
• Good opportunities for further revenue growth across all segments and
most regions, driven by accelerating adoption of metro 100G and DCI
applications
• Focus on innovation remains a major driver for growth across all segments
making us more competitive than ever; we are finalizing the upgrade of
our entire portfolio over the coming months including our FSP 3000
CloudConnect™, Ensemble software architecture and strategic parts of the
FSP 150 portfolio
• Strong market, strong execution and tight control of operational expenses
will result in increasing profitability in H2
ICP: Internet Content Provider
* Source: Ovum, Opportunities for Optical Data Center Interconnect. Market landscape, sales forecast, and competitive analysis, May 2015.
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
The Nature of Connectivity Has Changed
Cloud
Data centers (DCs) define networking demand
 Distributed DC architectures emerge  Hyper-scale, macro and micro DCs
 Demand becomes unpredictable  Networks must be more agile
Open
Programmable
 Over-the-Top (OTT) services challenge existing network services
 New operational models  Closer integration with compute & storage (SDN)
 Faster service creation and delivery  Programmable services (NFV)
Mobility
Cloud service adoption drives mobile broadband demand
Synchronized
Secure
 Better spectrum utilization  Radio head densification (small cells, C-RAN)
 RAN virtualization  Edge DC with low-latency optical connectivity + NFV
 LTE-A and 5G  Network-based frequency and phase synchronization
Spectrum
utilization
drivesare
mobile
invest
Cloud
and
mobility
transforming
the network, driving new business models
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Our Solutions
Cloud Extension
Cloud & OTT
services
Service delivery
and assurance
Metro/Core
Distribution and hosting
Business
continuity
Synchronization delivery
and assurance
Cloud access
Connecting, extending and assuring the cloud
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Cloud interconnect
Data Center Interconnect
& Carrier Infrastructure
ICP
TAM: $0.9 billion1
CAGR: >12%
Cloud & OTT
services
Revenue contribution
CSP
Metro/Core
Distribution and hosting
TAM: $1.3 billion1
CAGR: 9%
Revenue contribution*
*)Total
CSP WDM revenues, incl. non DCI
Business
continuity
Enterprise
TAM: $0.3 billion1
CAGR: 10%
Cloud interconnect
Revenue contribution
Cloud services drive bandwidth demand and investment in optical capacity
1)Ovum:
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Opportunities for Optical Data Center Interconnect, May 2015.
© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Cloud Interconnect: Enterprise Update
What we said:
- Security matters
Enterprise
TAM: $0.3 billion1
CAGR: 10%
Cloud interconnect
Revenue contribution
Encryption technology becomes mandatory in private enterprise networks
1)Ovum:
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Opportunities for Optical Data Center Interconnect, May 2015.
© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Cloud Interconnect: CSP Update
Revenue contribution
CSP
Metro/Core
Distribution & Hosting
TAM: $1.3 billion1
CAGR: 9%
Revenue contribution*
What we said:
- 100G comes to the metro
- Europe has to catch up
*)Total
Cloud Interconnect
CSP WDM revenues, incl. non DCI
Leveraging our strength in Europe and metro 100G
1)Ovum:
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Opportunities for Optical Data Center Interconnect, May 2015.
© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Cloud Interconnect: ICP Update
ICP
TAM: $0.9 billion1
CAGR: >12%
Cloud & OTT
Services
Revenue contribution
What we said:
- ICP space is heating up
- “Open” matters
Source: FibreSystems
http://www.fibre-systems.com/news/story/microsoft-shakes-data-centre-interconnect-market
Cloud Interconnect
Momentum continues to build – FSP 3000 CloudConnect ramps 2H 2016
1)Ovum:
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Opportunities for Optical Data Center Interconnect, May 2015.
© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Cloud Access and Synchronization
Ethernet Access Devices
TAM: $1 billion1
CAGR: 7%
Revenue contribution
What we said:
- NFV disrupts
cloud service delivery
- Network synchronization
strategic for 5G
Synchronization & Timing
Service delivery
and assurance
Cloud Access
TAM: ~ $300 million2
CAGR: 5%
Revenue contribution
L2 and L3 converging, allowing us to tap into $4 billion L3 access market
1) Infonetics Research: Ethernet Access Devices Biannual Market Share, Size and Forecasts, 2nd Edition, September 2015; 2) Internal estimates
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Ensemble: Cloud Software
Cloud Extension
Cloud Software
“We believe NFV software will
comprise over 80 percent of the $11.6
billion total NFV revenue in 2019”
Cloud Access
Michael Howard, senior research director
for carrier networks at IHS.
With Ensemble, you can use the cloud to deliver the cloud!
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Financial Performance
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Quarterly IFRS Revenues and Pro Forma Profitability
Revenues and Pro Forma Gross Profit
+29%
+22%
95.6
34.6
36.2%
Q1 2015
112.3
38.7
34.4%
Q2 2015
Pro Forma Operating Income*
+40%
+29%
122.3
111.8
41.8
42.4
37.4%
34.6%
Q3 2015
Q4 2015
9.6
9.0
7.7
3.7
122.0
40.4
33.1%
Q1 2016
2.0
3.9%
6.8%
7.8%
8.1%
1.6%
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
(in millions of EUR, in % of revenues)
Growth Y-o-Y
* Pro forma operating income is calculated prior to non-cash charges related to the stock option programs and amortization
and impairment of goodwill and acquisition-related intangible assets.
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+28%
© 2016 ADVA Optical Networking. All rights reserved. Confidential.
IFRS Profitability
2015
EUR Million
Q1
Pro Forma Operating Income
3.7
(3.9%)
Operating Income
3.3
(3.5%)
Net Income
4.3
Diluted EPS in EUR
Q2
7.7
(6.8%)
7.4
(6.6%)
5.1
2016
Q3
9.6
(7.8%)
8.5
(6.9%)
8.6
Q4
9.0
(8.1%)
7.5
(6.7%)
8.9
Q1
2.0
(1.6%)
1.0
(0.8%)
-5.2
(4.5%)
(4.6%)
(7.0%)
(7.9%)
(-4.2%)
0.09
0.11
0.18
0.18
-0.10
Margins, in % of Revenues
1.6%
0.8%
-4.2%
Q1 2015
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Q2 2015
Q3 2015
Q4 2015
© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Q1 2016
Quarterly Revenues Per Region
112.3
6%
95.6
5%
122.0
5%
+27%
32%
42%
+44%
+17%
122.3
12%
111.8
8%
30%
31%
64%
57%
59%
53%
Q2 2015
Q3 2015
Q4 2015
Q1 2016
37%
58%
Q1 2015
EMEA
Americas
Asia-Pacific
(in millions of EUR, in % of revenues)
Growth Y-o-Y
Note: Potential differences due to rounding
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
IFRS Balance Sheet
Dec. 31
2015
Mar. 31
2016
Equity & liabilities
Dec. 31
2015
Mar. 31
2016
Cash & cash equivalents
93.9
73.4
Accounts payable
43.7
57.8
Accounts receivable
70.4
92.8
Financial liabilities
42.7
64.0
Inventories
73.0
75.9
Other liabilities
89.2
96.9
Other assets
154.2
184.1
Equity
215.9
207.5
Total
391.5
426.2
Total
391.5
426.2
51.2
9.4
Assets
Net Liquidity
120
70
4.4
20
61
56
-30
-80
Q1
2015
(in millions of EUR)
Net Working Capital
Q1
2016
Q1
2015
Healthy working capital metrics DPOs > DSOs
Days Sales Outstanding (DSOs)
Days Payable Outstanding (DPOs)
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Inventory Turns
Q1
2016
IFRS Consolidated Cash Flow Statement
2015
EUR million
2016
Q1
Q2
Q3
Q4
Q1
Net cash provided by operating activities
-1.5
18.1
12.0
10.7
2.0
Net cash used for investing activities
-9.0
-11.5
-10.1
-10.8
-42.9
Net cash provided by (used for) financing activities
-2.4
-1.0
-1.3
14.5
21.0
Net effect of foreign currency translation
2.4
-0.1
-0.2
0.2
-0.6
Net change in cash and cash equivalents
-10.5
5.4
0.5
14.6
-20.4
at beginning of period
83.9
73.4
78.8
79.3
93.9
at end of period
73.4
78.8
79.3
93.9
73.4
-3.1
15.1
10.4
8.1
-0.1
Cash and cash equivalents
Free cash flow*
* Free cash flow = Net cash provided by operating activities
./. capital expenditures for property, plant and equipment, finance leases and intangible assets not related to development activities.
Note: Potential differences due to rounding
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Guidance Q2 2016
•
Revenues between EUR 145 million and EUR 155 million
•
Pro forma operating margin between 1% and 4% of revenues*
•
ADVA Optical Networking will continue to perform detailed quarterly
reviews of the expected business development in respect of all intangible
assets, including capitalized research and development expenses; in case
of highly adverse business prospects, these reviews may result in noncash impairment charges
*
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Excluding any potential impairment charges.
© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Solution Overview
Cloud Extension
Cloud & OTT
services
Service delivery
and assurance
Metro/Core
Distribution and hosting
Business
continuity
Synchronization delivery
and assurance
Cloud access
Connecting, extending and assuring the cloud
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© 2016 ADVA Optical Networking. All rights reserved. Confidential.
Cloud interconnect
Thank You
IMPORTANT NOTICE
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The information in this presentation may not be accurate, complete or up to date, and is provided without warranties or representations of any kind, either express or
implied. ADVA Optical Networking shall not be responsible for and disclaims any liability for any loss or damages, including without limitation, direct, indirect, incidental,
consequential and special damages, alleged to have been caused by or in connection with using and/or relying on the information contained in this presentation.
Copyright © for the entire content of this presentation: ADVA Optical Networking.