MRVC Mrv Communications, Inc. (MM)

- Packet and Optical Revenue Increases 19% Sequentially Driving Total Revenue to $21.6 Million -

MRV Communications, Inc. (NASDAQ:MRVC), a global provider of innovative packet and optical solutions for service providers, data center operators and enterprises, reported financial results for the three- and six-months ended June 30, 2016.

“Second quarter 2016 packet and optical revenue grew 19% sequentially, demonstrating our strong progress executing our go-to-market strategy,” stated MRV President and CEO Mark Bonney. “We remain focused exclusively on solutions for the Metro, expanding our relationships with Tier 1 customers while targeting new regional service providers and carrier neutral providers in the data center market that are not as well served by larger competitors. As a result, we are gaining momentum across our strategic product portfolio. Our bookings increased for the third consecutive quarter in the Americas, and total bookings reached their highest levels since late 2013 for both our Carrier Ethernet and optical transport solutions globally. Also, orders for our 100G products for the first half of 2016 have already equaled those from all of 2015. Furthering our transition to our next generation solutions, we introduced OptiDriver® and OptiSwitch® product line extensions this quarter. Combined, these factors fuel our confidence as we look forward.”

Second Quarter 2016 Financial Results as compared to Second Quarter 2015

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.

• Revenue was $21.6 million, compared to $24.5 million. The reduction reflects the impact of certain significant network project installations completed in the second quarter of 2015 as well as a reduction of sales of our legacy infrastructure management products. Sequentially, revenue grew 14% from $18.9 million in the first quarter of 2016, driven by 19% growth in packet and optical products.
• Gross margin was 46.7%, compared to 48.8%. The decline reflects the impact of product mix including the reduced contribution from our legacy infrastructure management products and the impact of increased revenue of 100G products that have higher average costs in current quantities. Gross margin was also negatively impacted by $325,000 of one-time costs associated with the company’s contract manufacturing consolidation.
• Operating expenses were $12.1 million, compared to $12.7 million, reflecting lower commission expense due to the lower revenue and careful management of all operating expenses.
• GAAP net loss from continuing operations was $2.0 million, or $0.29 per share, compared to $1.1 million, or $0.16 per share.
• Non-GAAP net loss from continuing operations was $1.3 million, or $0.19 per share, compared to $0.8 million, or $0.11 per share.
• Total GAAP net loss, including discontinued operations, was $2.0 million, or $0.29 per share, compared to $0.3 million, or $0.04 per share.

Year-to-date June 30, 2016 Financial Results as compared to Year-to-date 2015

• Total revenue amounted to $40.5 million, compared to $46.7 million, primarily due to reduced sales of legacy infrastructure management products and fewer network expansion projects in the first half of 2016.
• Year-to-date, total gross margin was 49.1%, compared to 50.3%.
• GAAP net loss from continuing operations was $5.9 million, or $0.84 per share, compared to $2.4 million, or $0.34 per share.
• Non-GAAP net loss from continuing operations was $4.8 million, or $0.69 per share, compared $1.7 million, or $0.24 per share.
• Total GAAP net loss, including discontinued operations, was $5.9 million, or $0.84 per share, compared to $1.3 million, or $0.19 per share.

Balance Sheet Highlights

At June 30, 2016, the company remained debt free with cash and investments totaling $30.0 million. This compared to $31.4 million at December 31, 2015. In March 2016, the company initiated a $10 million share buyback program. During the second quarter, the company used $1.8 million to repurchase approximately 183,000 shares, bringing the year-to-date total to $1.9 million for approximately 189,000 shares. Lower working capital requirements in the period partially offset the use of cash for the share repurchase program.

Conference Call Information:

MRV Communication's second quarter 2016 financial results conference call is scheduled to take place on August 4, 2016 at 5:00 p.m. ET. To access the call in the U.S. please dial 888-438-5524, and for international calls dial 719-325-2448 approximately 10 minutes prior to the start of the conference. The conference ID is 4545354. The conference call will also be broadcast live at MRV Communications investor website, where it will be available for replay for 90 days. In addition, a replay will be available via telephone for one business day, beginning two hours after the call. To listen to the replay, in the U.S. please dial 877-870-5176, and internationally dial 858-384-5517. The access code is 4545354.

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 cost of revenue, non-GAAP gross profit, non-GAAP product development and engineering, non-GAAP selling, general and administrative, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP net income (loss) and non-GAAP basic and diluted income (loss) per share. The company's non-GAAP financial measures exclude the impact of stock-based compensation expense, severance and related transition costs, costs related to the sale of Tecnonet S.p.A. and other non-recurring expenses, 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 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 "anticipate," "appear," "believe," “could,” "estimate," "expect," "intend," "may," "should," "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 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 annual report on Form 10-K for the year ended December 31, 2015, 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 4, 2016 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, 2016     2015 2016     2015 Revenue: Product revenue $ 18,658 $ 21,495 $ 34,665 $ 40,963 Service revenue 2,926   3,024   5,801   5,741  

Total revenue

21,584   24,519   40,466   46,704   Cost of Revenue: Cost of product 10,285 11,632 17,880 21,249 Cost of services 1,228   928   2,712   1,952   Total cost of revenue 11,513   12,560   20,592   23,201   Gross profit 10,071   11,959   19,874   23,503   Operating expenses: Product development and engineering 5,125 5,310 10,469 10,435 Selling, general and administrative 7,007   7,379   15,024   15,115   Total operating expenses 12,132   12,689   25,493   25,550   Operating loss (2,061 ) (730 ) (5,619 ) (2,047 ) Interest expense — (22 ) — (36 ) Other income (expense), net 74   (296 ) (203 ) (215 ) Loss from continuing operations before provision for income taxes (1,987 ) (1,048 ) (5,822 ) (2,298 ) Provision for income taxes 36   77   97   127   Loss from continuing operations (2,023 ) (1,125 ) (5,919 ) (2,425 ) Income from discontinued operations, net of income taxes of $675 and $813 in 2015 —   844   —   1,076   Net loss $ (2,023 ) $ (281 ) $ (5,919 ) $ (1,349 )   Net income (loss) per share — basic From continuing operations $ (0.29 ) $ (0.16 ) $ (0.84 ) $ (0.34 ) From discontinued operations —   0.12   —   0.15   Net loss per share — basic $ (0.29 ) $ (0.04 ) $ (0.84 ) $ (0.19 )   Net income (loss) per share — diluted From continuing operations $ (0.29 ) $ (0.16 ) $ (0.84 ) $ (0.34 ) From discontinued operations —   0.12   —   0.15   Net loss per share — diluted $ (0.29 ) $ (0.04 ) $ (0.84 ) $ (0.19 )   Weighted average number of shares: Basic 7,092 6,988 7,042 7,059 Diluted 7,092 6,988 7,042 7,059             MRV Communications, Inc. Condensed Consolidated Balance Sheets (In thousands, except par values) (unaudited)   June 30, December 31, 2016 2015 Assets Current assets: Cash and cash equivalents $ 24,810 $ 26,169 Restricted time deposits 5,168 5,190 Accounts receivable, net 15,928 14,837 Inventories, net 8,407 10,226 Other current assets 1,983   6,851   Total current assets 56,296 63,273 Property and equipment, net 3,593 4,050 Intangible asset, net 1,031 1,153 Other assets 478   608   Total assets $ 61,398   $ 69,084     Liabilities and stockholders' equity Current liabilities: Deferred consideration payable $ 233 $ 233 Accounts payable 5,959 5,749 Accrued liabilities 9,398 9,972 Deferred revenue 7,086 7,642 Other current liabilities 378   196   Total current liabilities 23,054 23,792 Other long-term liabilities 3,964 3,846 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 2016 and 8,341 shares in 2015 Outstanding — 6,887 shares in 2016 and 6,982 in 2015 270 270 Additional paid-in capital 1,286,475 1,285,787 Accumulated deficit (1,233,590 ) (1,227,671 ) Treasury stock — 1,547 shares in 2016 and 1,359 shares in 2015 (17,227 ) (15,355 ) Accumulated other comprehensive loss (1,548 ) (1,585 ) Total stockholders' equity 34,380   41,446   Total liabilities and stockholders' equity $ 61,398   $ 69,084               MRV Communications, Inc. Consolidated Non-GAAP reconciliation (Unaudited, in thousands except per share data)   Three Months ended Six Months ended June 30 June 30 2016     2015 2016     2015 Revenue:         GAAP revenue $ 21,584   $ 24,519   $ 40,466   $ 46,704   Cost of revenue GAAP cost of revenue 11,513 12,560 20,592 23,201 Stock-based charges (28 ) (25 ) (70 ) (55 ) Severance & transition costs (325 ) —   (325 ) —   Non-GAAP adjusted cost of revenue 11,160   12,535   20,197   23,146     Gross profit: GAAP gross profit 10,071 11,959 19,874 23,503 Stock-based charges 28 25 70 55 Severance & transition costs 325   —   325   —   Non-GAAP adjusted gross profit 10,424   11,984   20,269   23,558   Gross Margin % 48.3 % 48.9 % 50.1 % 50.4 %   Operating expenses: GAAP Product development and engineering 5,125 5,310 10,469 10,435 Stock-based charges (63 ) (44 ) (139 ) (93 ) Non-GAAP Product development and engineering 5,062   5,266   10,330   10,342     GAAP Selling, general & administrative: 7,007 7,379 15,024 15,115 Stock-based charges (259 ) (167 ) (488 ) (294 ) Severance — (130 ) — (286 ) Divestiture costs —   —   (68 ) —   Non-GAAP Selling, general & administrative 6,748   7,082   14,468   14,535     GAAP operating expenses: 12,132 12,689 25,493 25,550 Stock-based charges (322 ) (211 ) (627 ) (387 ) Severance — (130 ) — (286 ) Divestiture costs —   —   (68 ) —   Non-GAAP operating expenses $ 11,810   $ 12,348   $ 24,798   $ 24,877               MRV Communications, Inc. Consolidated Non-GAAP reconciliation (continued) (Unaudited, in thousands except per share data)   Three Months ended

Six Months ended

June 30

June 30

2016     2015 2016     2015         GAAP operating loss: $ (2,061 ) $ (730 ) $ (5,619 ) $ (2,047 ) Stock-based charges 350 236 697 442 Severance & transition costs 325 130 325 286 Divestiture costs —   —   68   —   Non-GAAP operating loss (1,386 ) (364 ) (4,529 ) (1,319 )   Net loss: GAAP net loss (2,023 ) (1,125 ) (5,919 ) (2,425 ) Stock-based charges 350 236 697 442 Severance & transition costs 325 130 325 286 Divestiture costs —   —   68   —   Non-GAAP adjusted net loss (1,348 ) (759 ) (4,829 ) (1,697 )   Tecnonet discontinued operations — 844 — 1,076         Non-GAAP adjusted net income (loss) including Tecnonet Discontinued operations $ (1,348 ) $ 85   $ (4,829 ) $ (621 )   Weighted average number of shares - Basic 7,092 6,988 7,042 7,059 GAAP EPS - Continuing operations $ (0.29 ) $ (0.16 ) $ (0.84 ) $ (0.34 ) Non-GAAP EPS - Continuing operations $ (0.19 ) $ (0.11 ) $ (0.69 ) $ (0.24 )   Weighted average number of shares - Diluted 7,092 6,988 7,042 7,059 GAAP EPS - Discontinued operations $ — $ 0.12 $ — $ 0.15 Non-GAAP EPS - Discontinued operations $ — $ 0.12 $ — $ 0.15

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MRV Communications, Inc.IR Contact:LHA Investor RelationsKirsten Chapman/Cathy Mattison, 415-433-3777ir@mrv.com