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Press Release -- August 2nd, 2017
Source: MRV Communications
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MRV Reports Second-Quarter Results

CHATSWORTH, California, Aug. 2, 2017 /PRNewswire/ –MRV Communications (NASDAQ: MRVC), a provider of innovative network solutions for service providers, data center operators and enterprises, reported financial results for the three- and six-months ended June 30, 2017.

Financial Reporting

The Company uses certain non-GAAP financial measures and a reconciliation of the non-GAAP measures to GAAP measures is provided in the attached table.

Second Quarter 2017 Results

  • Revenue was $19.7 million, compared to $21.6 million in Q2’16 and $21.2 million in Q1’17, reflecting lower European and North American product revenue slightly offset by increased service revenue.
  • GAAP gross margin was 51.5%, compared to 46.7% in Q2’16 and 50.6% in Q1’17.  Non-GAAP gross margin was 51.6%, compared to 48.3% in Q2’16 and 50.6% in Q1’17. The increase was primarily due to greater service revenue at higher margins as well as the impact of geographic and product mix.
  • GAAP operating expenses were $12.1 million, compared to $12.1 million in Q2’16 and $11.5 million in Q1’17.  Non-GAAP operating expenses were $10.5 million, compared to $11.8 million in Q2’16 and $10.9 million in Q1’17.
  • GAAP operating loss was $1.9 million, compared to $2.1 million in Q2’16 and $0.8 million in Q1’17.  Non-GAAP operating loss was to $0.3 million, compared to $1.3 million in Q2’16 and $0.2 million in Q1’17.
  • GAAP net loss increased to $2.1 million, or $0.31 per share, compared to $2.0 million, or $0.29 per share, in Q2’16 and $1.0 million, or $0.15 per share, in Q1’17.
  • Non-GAAP net loss was $0.4 million, or $0.07 per share, compared to $1.3 million, or $0.19 per share, in Q2’16 and $0.5 million, or $0.08 per share, in Q1’17.

Six-months Ended June 30, 2017 Results as compared to Six-months Ended June 30, 2016 Results

  • Revenue was $40.9 million, compared to $40.5 million.
  • GAAP gross margin was 51.0%, compared to 49.1%.  Non-GAAP gross margin was 51.1%, compared to 50.1%.
  • GAAP net loss was $3.1 million, or $0.46 per share, compared to $5.9 million, or $0.84 per share.
  • Non-GAAP net loss improved to $1.0 million, or $0.14 per share, from $4.8 million, or $0.68 per share.

Due to the pending merger, management will not conduct a conference call.

The Offer and Merger

On July 2, 2017, MRV Communications entered into an Agreement and Plan of Merger (as it may be amended or supplemented from time to time, the “Merger Agreement”), among MRV, ADVA NA Holdings, Inc., a Delaware corporation (“Parent”), and Golden Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides that Merger Sub commence a cash tender offer (the “Offer”) to purchase all of the issued and outstanding shares of MRV common stock at a price per share equal to $10.00. Following completion of the Offer, Merger Sub will merge with and into the Company (the “Merger”), with MRV continuing as the surviving corporation and as a wholly owned subsidiary of Parent.

On July 17, 2017, pursuant to the Merger Agreement, the Offer was commenced and is scheduled to expire at midnight on August 11, 2017, unless extended. The completion of the Offer is conditional upon, among other things, the tender of at least a majority of the MRV’s common stock then outstanding. Additional information regarding the Offer and the Merger, including the conditions to their consummation, may be found in the Schedule 14D-9 (as amended) filed on July 17, 2017 by the Company with the U.S. Securities and Exchange Commission (the “SEC”) and the Schedule TO (as amended) filed on July 17, 2017 with the SEC by ADVA Optical Networking SE, Parent and Merger Sub.

About MRV Communications

MRV Communications (NASDAQ: MRVC) enables service providers, data center operators and enterprises to make their networks smarter, faster and easier to operate.  MRV’s end-to-end portfolio includes innovative packet, optical and software platforms designed for flexibility and reliability. To learn more about MRV visit www.mrv.com and follow us on Twitter @MRVC.

Non-GAAP Measures

The company uses certain non-GAAP financial measures in this press release to supplement its consolidated financial statements, which are presented in accordance with GAAP. These non-GAAP measures include non-GAAP operating loss, non-GAAP net loss and non-GAAP basic and diluted loss per share. The company’s non-GAAP financial measures exclude the impact of stock-based compensation expense, litigation costs, severance and related transition costs, transaction costs and costs related to the sale of Tecnonet S.p.A., which the company believes are not indicative of its core operating results. The company used these non-GAAP measures when evaluating its financial results as well as for internal resource management, planning and forecasting purposes. These non-GAAP measures should not be viewed in isolation from or as a substitute for the company’s financial results in accordance with GAAP. A reconciliation of GAAP to non-GAAP measures is attached to this press release.

Forward Looking Statements

This press release may contain statements, including statements related to the transactions contemplated by the Merger Agreement, 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 “will likely result,” “are expected to,” ” is anticipated,” “appear,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “outlook,” “plan,” “project,” “contemplate,” “target,” “foresee,” “goal,” “likely,” “will,” and “would” or 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 units 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.

With respect to the transactions contemplated by the Merger Agreement, there is no assurance that the transactions will be consummated. Potential risks and uncertainties related to such transactions include, among others, the impact of the announcement of the pending transactions on the Company’s business, its financial and operating results and its employees, suppliers and customers; factors affecting the feasibility and timing of the consummation of the transactions, including, without limitation, the ability to satisfy the conditions to closing contained in the Merger Agreement and Offer; and risks related to realization of the expected benefits of these transactions to the Company and its stockholders.

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 annual report on Form 10-K for the year ended December 31, 2016 and its quarterly report on Form 10-Q for the quarter ended March 31, 2017, 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 2, 2017 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
June 30,
Six Months Ended
June 30,
2017 2016 2017 2016
Revenue:
Product revenue $ 16,283 $ 18,658 $ 34,408 $ 34,665
Service revenue 3,442 2,926 6,492 5,801
Total revenue 19,725 21,584 40,900 40,466
Cost of Revenue:
Cost of product 8,666 10,285 17,935 17,880
Cost of services 902 1,228 2,104 2,712
Total cost of revenue 9,568 11,513 20,039 20,592
Gross profit 10,157 10,071 20,861 19,874
Operating expenses:
Product development and engineering 4,610 5,125 9,338 10,469
Selling, general and administrative 7,455 7,007 14,223 15,024
Total operating expenses 12,065 12,132 23,561 25,493
Operating loss (1,908) (2,061) (2,700) (5,619)
Other income (expense), net (155) 74 (358) (203)
Loss before provision for income taxes (2,063) (1,987) (3,058) (5,822)
Provision for income taxes 34 36 80 97
Net loss $ (2,097) $ (2,023) $ (3,138) $ (5,919)
Net loss per share — basic $ (0.31) $ (0.29) $ (0.46) $ (0.84)
Net loss per share — diluted $ (0.31) $ (0.29) $ (0.46) $ (0.84)
Weighted average number of shares:
Basic 6,786 7,092 6,784 7,042
Diluted 6,786 7,092 6,784 7,042
MRV Communications, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par values)
(unaudited)
June 30,
2017
December 31,
2016
Assets
Current assets:
Cash and cash equivalents $ 24,333 $ 25,116
Restricted cash and time deposits 4,918 272
Accounts receivable, net 16,926 14,295
Inventories 9,374 9,657
Other current assets 2,177 2,378
Total current assets 57,728 51,718
Property and equipment, net 2,985 3,130
Intangible assets, net 893 1,064
Other assets 264 348
Total assets $ 61,870 $ 56,260
Liabilities and stockholders’ equity
Current liabilities:
Deferred consideration payable $ 233 $ 233
Accounts payable 9,296 8,353
Accrued liabilities 9,974 9,195
Deferred revenue 7,223 6,146
Other current liabilities 4,778 156
Total current liabilities 31,504 24,083
Other long-term liabilities 3,968 3,478
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 — 8,435 shares in 2017 and 8,425 shares in 2016
Outstanding — 6,812 shares in 2017 and 6,802 shares in 2016 270 270
Additional paid-in capital 1,288,135 1,287,336
Accumulated deficit (1,242,501) (1,239,308)
Treasury stock — 1,623 shares in 2017 and 2016 (18,098) (18,098)
Accumulated other comprehensive loss (1,408) (1,501)
Total stockholders’ equity 26,398 28,699
Total liabilities and stockholders’ equity $ 61,870 $ 56,260
MRV Communications, Inc.
Consolidated Non-GAAP reconciliation
(Unaudited, in thousands except per share data)
Three Months
Ended June 30,
Six Months Ended
June 30,
Three
Months
Ended
March 31,
2017 2016 2017 2016 2017
Revenue:
  GAAP revenue $ 19,725 $ 21,584 $ 40,900 $ 40,466 $ 21,175
Cost of revenue
GAAP cost of revenue 9,568 11,513 20,039 20,592 10,471
Stock-based charges (21) (28) (36) (70) (15)
Severance and transition costs (325) (325)
Non-GAAP adjusted cost of revenue 9,547 11,160 20,003 20,197 10,456
Gross profit:
GAAP gross profit 10,157 10,071 20,861 19,874 10,704
Stock-based charges 21 28 36 70 15
Severance and transition costs 325 325
Non-GAAP adjusted gross profit 10,178 10,424 20,897 20,269 10,719
Non-GAAP Gross Margin % 51.6 % 48.3 % 51.1 % 50.1 % 50.6 %
Operating expenses:
  GAAP Product development and engineering 4,610 5,125 9,338 10,469 4,728
Stock-based charges (39) (63) (98) (139) (59)
    Non-GAAP Product development and engineering 4,571 5,062 9,240 10,330 4,669
GAAP Selling, general & administrative: 7,455 7,007 14,223 15,024 6,768
Stock-based charges (329) (259) (670) (488) (341)
Severance and transition costs (167) (186) (19)
Litigation costs 126 (56) (8) (91) (134)
Divestiture costs (5) (68) (5)
Merger costs (1,174) (1,174)
Non-GAAP Selling, general & administrative 5,911 6,692 12,180 14,377 6,269
GAAP operating expenses: 12,065 12,132 23,561 25,493 11,496
Stock-based charges (368) (322) (768) (627) (400)
Severance and transition costs (167) (186) (19)
Litigation costs 126 (56) (8) (91) (134)
Divestiture costs (5) (68) (5)
Merger costs (1,174) (1,174)
Non-GAAP operating expenses $ 10,482 $ 11,754 $ 21,420 $ 24,707 $ 10,938
MRV Communications, Inc.
Consolidated Non-GAAP reconciliation
(continued)
(Unaudited, in thousands except per share data)
Three Months
Ended June 30,
Six Months Ended
June 30,
Three Months Ended March 31,
2017 2016 2017 2016 2017
GAAP operating loss: $ (1,908) $ (2,061) $ (2,700) $ (5,619) $ (792)
Stock-based charges 389 350 804 697 415
Severance and transition costs 167 325 186 325 19
Litigation costs (126) 56 8 91 134
Divestiture costs 5 68 5
Merger costs 1,174 1,174
Non-GAAP operating loss (304) (1,330) (523) (4,438) (219)
Net loss:
GAAP net loss (2,097) (2,023) (3,138) (5,919) (1,041)
Stock-based charges 389 350 804 697 415
Severance and transition costs 167 325 186 325 19
Litigation costs (126) 56 8 91 134
Divestiture costs 5 68 5
Income tax impact 50 (22) (3) (36) (54)
Merger costs 1,174 1,174
Non-GAAP adjusted net loss $ (443) $ (1,314) $ (964) $ (4,774) $ (522)
Weighted average number of shares – Basic and Diluted 6,786 7,092 6,784 7,042 6,802
GAAP EPS – Basic and Diluted $ (0.31) $ (0.29) $ (0.46) $ (0.84) $ (0.15)
Non-GAAP EPS – Basic and Diluted $ (0.07) $ (0.19) $ (0.14) $ (0.68) $ (0.08)

IR Contact:
Cathy Mattison/Kirsten Chapman
LHA Investor Relations
(415) 433-3777
ir@mrv.com

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SOURCE MRV Communications LTD.

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