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MRV Reports Second-Quarter 2014 Results

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MRV Communications (NASDAQ:MRVC) , a global provider of converged packet
and optical solutions that empower the optical edge and network
integration services for communications service providers, reported
financial results for the three- and six- months ended June 30, 2014.

“The transformation of MRV continues and we believe we are now much
better positioned to capitalize on the significant growth opportunities
in packet and optical networking,” said David Stehlin, MRV’s chief
executive officer. “As we announced separately today, Mark Bonney has
joined the MRV management team as Executive Vice President and Chief
Financial Officer, and brings a wealth of talent to help us improve
operations and execute on our strategic growth initiatives.”

Mr. Stehlin continued, “We understand that this press release and the
conference call scheduled for tomorrow, as described in more detail
below, are occurring later than we would have wanted and later than our
shareholders expect from us. We would like to affirm our commitment to
investor transparency, and reassure our investors that we intend to make
future quarterly financial disclosures on a timely basis.”

Mr. Stehlin continued further, “While MRV continues to navigate through
short term challenges, we believe we have significant opportunities to
grow and drive increasing shareholder value. During the quarter, we
successfully realigned our North American sales team to improve the
marketing of our sophisticated, next generation optical communication
products, which we believe to be the driver of MRV’s future revenue
growth. Our new optical transport platform, OptiDriverTM, increased its
market presence, as we added ten new customers, notably half of whom are
new to MRV. Additionally, in June, we introduced OptiPacketTM (OP-X), our
ground breaking metro service edge packet optical solution, which
unlocks new and exciting market opportunities for MRV. We believe that
our broader product line, which is being increasingly adopted by our
customers, presents very attractive long term growth opportunities for
MRV.”

Second Quarter 2014 Results as compared to Second Quarter 2013

  • Total revenue amounted to $43.1 million, up 13% from $38.2 million.

    • Network Equipment revenue was $21.8 million, up 3%,
      reflecting increases in carrier Ethernet access, optical transport
      and infrastructure management product sales partially offset by
      decrease in services revenue.
    • Network Integration revenue was $21.4 million, up 25%
      primarily due to growth in product sales attributable to increased
      market share.
  • Consolidated gross margin was 34.3%, compared to 35.0%. The decrease
    reflects a greater revenue contribution from the lower margin Network
    Integration business and a decline in Network Equipment gross margins.

    • Network Equipment gross margin was 51.2%, compared to 53.0%
      primarily due to a shift in product mix.
    • Network Integration gross margin was 16.8%, increasing from
      12.8%, reflecting an improvement in product revenue gross margins
      over the prior year.
  • Total operating expenses were $15.9 million, or 37% of total revenue,
    compared to $13.9 million, or 36% of total revenue. The increase
    reflects continued investment in the development of more complex
    product solutions and investments in sales and marketing, partially
    offset by cost control initiatives. When comparing to the second
    quarter of 2013, it is important to note that in June 2013, the
    company benefited from a $1.0 million insurance recovery for legal
    fees, previously incurred during the derivative litigation.

    • Network Equipment operating expenses were $12.7 million,
      compared to $11.5 million primarily due to investing in ongoing
      product development and sales.
    • Network Integration operating expenses were $1.9 million,
      compared to $1.5 million, primarily due to increased sales costs
      to support revenue growth.
    • Corporate expenses were $1.3 million, compared to $0.9
      million, which included the $1.0 million insurance recovery.
  • Total operating loss was $1.1 million, compared to an operating loss
    of $0.5 million, which included the $1.0 million insurance recovery.
  • During the quarter we resolved an outstanding tax audit issue in
    Italy. The result, which is detailed more fully in our report on Form
    10-Q for the three months ended June 30, 2014 filed on August 18,
    2014, increased other expense by $0.2 million and income tax expense
    by $0.3 million.
  • Total net loss was $2.3 million or $0.31 per diluted share, compared
    to a net loss of $0.9 million, or $0.13 per diluted share, which
    included the $1.0 million insurance recovery.

Out-of-period Accounting Adjustments

During the second quarter, the company recorded an immaterial
out-of-period accounting adjustment to defer previously recognized
revenue of $2.0 million in the Network Integration segment that resulted
in an increase to after-tax net loss of $0.1 million for the three and
six months ended June 30, 2014. Greater detail can be found in the
company’s quarterly report on Form 10-Q for the three months ended June
30, 2014.

Year-to-date June 30, 2014 Results as compared to Year-to-date June
30, 2013

Total revenue amounted to $85.4 million, up 11% from $77.1 million.
Network Equipment revenue was $44.2 million, up 5%. Network Integration
revenue was $41.4 million, up 18%. Total net loss was $6.5 million, or
$0.89 per diluted share, compared to a net loss of $5.4 million, or
$0.72 per diluted share.

Stehlin added, “The optical edge or metro segment of the network is
entering a phase of significant change and projected dramatic growth.
Our product development strategy is well aligned to capitalize on the
need for greater capacity, flexibility and intelligence. We are
encouraged by the initial responses to OP-X and the steadily growing
customer adoption of OptiDriver. Our new OP-X and OptiDriver combined
with our OptiSwitch(R) carrier Ethernet switches and
ProVision(R) management system form a powerful solution set and the
foundation for our growth as they target the fast expanding market
segments that make up the optical edge.”

Conference Call Information:

MRV Communication’s second quarter 2014 financial results conference
call is scheduled to take place on August 26, 2014 at 5:00 p.m. ET.
David Stehlin, CEO, and Mark Bonney, EVP and CFO, will host the call and
will be available for questions after the prepared remarks. The live
audio webcast will be accessible at www.mrv-corporate.com
in the Investor Relations section. For access via telephone, please dial
877-359-9508, and for international calls dial 224-357-2393
approximately 10 minutes prior to the start of the conference. The
conference ID is 75579998#. The conference call will also be broadcast
live at www.mrv.com
where it will be available for replay for 90 days. In addition, a replay
will be available via telephone for three business days, beginning three
hours after the call. To listen to the replay, in the U.S. please dial
855-859-2056, and internationally dial 404-537-3406. The access code is
75579998#.

About MRV Communications

MRV Communications is a global provider of converged packet and optical
solutions that empower the optical edge and network integration services
for leading communications service providers. For more than two decades,
the most demanding service providers, Fortune 1000 companies and
governments worldwide have trusted MRV to provide best-in-class
solutions and services for their mission-critical networks. We help our
customers overcome the challenge of orchestrating the ever-increasing
need for capacity while improving service delivery and lowering network
costs for critical applications such as cloud connectivity,
high-capacity business services, mobile backhaul and data center
connectivity. For more information please visit www.mrv.com.

Forward Looking Statements

This press release may contain statements regarding future financial and
operating results of MRV, management’s assessment of business trends,
and other statements about management’s future expectations, beliefs,
goals, plans or prospects and those of the market segments in which MRV
is engaged that are based on management’s current expectations,
estimates, forecasts and projections about MRV and its consolidated
businesses and the respective market segments in which MRV’s businesses
operate, in addition to management’s assumptions. Statements in this
press release regarding MRV’s future financial and operating results,
which are not statements of historical facts, constitute forward-looking
statements within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995. Words such as “expects,” “anticipates,” “envisions,”
“estimates,” “targets,” “intends,” “plans,” “believes,” “seeks,”
“should,” “could,” “forecasts,” “projects,” variations of such words and
similar expressions, are intended to identify such forward-looking
statements which are not statements of historical facts. These
forward-looking statements are not guarantees of future performance nor
guarantees that the events anticipated will occur or expected conditions
will remain the same or improve. These statements involve certain risks,
uncertainties and assumptions, the likelihood of which are difficult to
assess and may not occur, including risks that each of its business
segments may not make the expected progress in its respective market, or
that management’s long-term strategy may not achieve the expected
results. Therefore, actual outcomes, performance and results may differ
from what is expressed or forecast in such forward-looking statements,
and such differences may vary materially from current expectations.

For further information regarding risks and uncertainties associated
with MRV’s businesses, please refer to the “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and “Risk
Factors” sections of MRV’s SEC filings, including, but not limited to
its quarterly report on Form 10-Q for the quarter ended June 30, 2013,
its quarterly report on Form 10-Q for the quarter ended March 31, 2014
and its annual report on Form 10-K for the year ended December 31, 2013,
copies of which may be obtained by contacting MRV’s investor relations
department or by visiting MRV’s website at http://www.mrv-corporate.com
or the SEC’s EDGAR website at http://www.sec.gov.

All information in this release is as of August 26, 2014 unless
otherwise stated. MRV undertakes no duty to update any forward-looking
statement to conform the statement to actual results or changes in MRV’s
expectations.

MRV Communications, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013

Revenue:

Product revenue $ 30,671 $ 26,432 $ 62,215 $ 54,504
Service revenue 12,453 11,743 23,227 22,576
Total revenue 43,124 38,175 85,442 77,080
Cost of sales 28,342 24,803 57,409 50,681
Gross profit 14,782 13,372 28,033 26,399
Operating expenses:
Product development and engineering 5,392 4,454 10,970 9,102
Selling, general and administrative 10,516 9,453 22,038 21,845
Total operating expenses 15,908 13,907 33,008 30,947
Operating loss (1,126 ) (535 ) (4,975 ) (4,548 )
Interest expense (40 ) (241 ) (190 ) (373 )
Other income, net (420 ) (102 ) (387 ) (85 )
Loss before provision for income taxes (1,586 ) (878 ) (5,552 ) (5,006 )
Provision for income taxes 681 115 932 421
Net Loss $ (2,267 ) $ (993 ) $ (6,484 ) $ (5,427 )
Net loss per share – basic $ (0.31 ) $ (0.13 ) $ (0.89 ) $ (0.72 )
Net loss per share – diluted $ (0.31 ) $ (0.13 ) $ (0.89 ) $ (0.72 )
Weighted average number of shares:
Basic 7,360 7,585 7,322 7,570
Diluted 7,360 7,585 7,322 7,570

(1) Amounts may not add due to rounding.

MRV Communications, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par values)

June 30, December 31,
2014 2013
Assets
Current assets:
Cash and cash equivalents $ 22,320 $ 27,591
Restricted time deposits 250 249
Accounts receivable, net 49,122 49,990
Other receivables 10,353 8,220
Inventories, net 28,485 22,981
Income tax refunds receivable 814 1,256
Deferred income taxes 1,144 1,219
Other current assets 6,263 5,664
Total current assets 118,751 117,170
Property and equipment, net 5,248 5,555
Deferred income taxes, net of current portion 3,801 3,694
Intangibles, net 762 873
Other assets 577 655
Total assets $ 129,139 $ 127,947
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt $ 6,370 $ 4,320
Deferred consideration payable 233 233
Accounts payable 27,990 23,991
Accrued liabilities 15,541 19,463
Deferred revenue 13,755 10,557
Other current liabilities 371 357
Total current liabilities 64,260 58,921
Other long-term liabilities 5,509 5,236
Commitments and contingencies
Stockholders’ equity:
Preferred Stock, $0.01 par value: Authorized – 1,000 shares; no
shares issued or outstanding
-
Common Stock, $0.0017 par value:
Authorized – 16,000 shares
Issued – 8,222 shares in 2014 and 8,143 shares in 2013
Outstanding – 7,365 shares in 2014 and 7,286 in 2013 270 270
Additional paid-in capital 1,284,113 1,281,883
Accumulated deficit (1,214,821 ) (1,208,337 )
Treasury stock – 856 shares in 2014 and 856 shares in 2013 (10,412 ) (10,412 )
Accumulated other comprehensive income 220 386
Total stockholders’ equity 59,370 63,790
Total liabilities and stockholders’ equity $ 129,139 $ 127,947

MRV Communications, Inc.

Segmented Operating Data

(In thousands)

(unaudited)

Three Months Ended

Six Months Ended
June 30, June 30,
2014 2013 2014 2013
Revenue
Network Equipment $ 21,833 $ 21,100 $ 44,152 $ 42,046
Network Integration 21,355 17,135 41,408 35,117
Before intersegment adjustments 43,188 38,235 85,560 77,163
Intersegment adjustments (64 ) (60 ) (118 ) (83 )
Total $ 43,124 $ 38,175 $ 85,442 $ 77,080
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
Gross profit
Network Equipment $ 11,185 $ 11,183 $ 21,944 $ 21,949
Network Integration 3,598 2,187 6,088 4,444
Before intersegment adjustments 14,783 13,370 28,032 26,393
Intersegment adjustments (1 ) 2 1 6
Total $ 14,782 $ 13,372 $ 28,033 $ 26,399
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
Operating Expenses
Network Equipment $ 12,688 $ 11,480 $ 26,287 $ 23,364
Network Integration 1,894 1,511 3,538 3,078
Before intersegment adjustments 14,582 12,991 29,825 26,442

Corporate unallocated operating
expenses and adjustments

1,326 916 3,183 4,505
Total $ 15,908 $ 13,907 $ 33,008 $ 30,947
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
Operating Income
Network Equipment $ (1,503 ) $ (296 ) $ (4,343 ) $ (1,415 )
Network Integration 1,704 675 2,550 1,366
Before intersegment adjustments 201 379 (1,793 ) (49 )

Corporate unallocated and
adjustments

(1,327 ) (914 ) (3,182 ) (4,499 )
Total $ (1,126 ) $ (535 ) $ (4,975 ) $ (4,548 )

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