MRV Reports Small Q2 Loss
CHATSWORTH, Calif. -- MRV Communications, Inc. (OTCQB: MRVC) ("MRV" or the "Company"), a leading provider of optical communications network infrastructure solutions and equipment as well as integration and managed services, today announced financial results for the second quarter ended June 30, 2013.
MRV reported second quarter 2013 revenue of $38.2 million, a $0.5 million or 1% increase from $37.6 million in the second quarter of 2012. Positively impacting the comparison, Network Equipment product sales to two former subsidiaries that were divested in the fourth quarter of 2012 are now reported as trade sales rather than intercompany sales that were eliminated in consolidation in 2012. These sales amounted to $3.3 million in the second quarter of 2012. Network Equipment revenue for the second quarter of 2013 was $21.1 million compared with $21.5 million in the second quarter of 2012. Network Equipment revenue grew in the Americas and Asia-Pacific regions, which was offset by challenging market conditions in Europe as a result of the regional economic and political environment. In the Americas and Asia-Pacific regions, our mobile backhaul, data center, content provider and business Ethernet sectors performed well in the second quarter of 2013. Network Integration revenue was $17.1 million in the second quarter of 2013, a 12% decrease from the second quarter of 2012, reflecting continued macroeconomic and political conditions in Italy.
Gross profit as a percent of revenue ("gross margin") for the second quarter of 2013 was 35.0%, compared with 35.4% in the second quarter of 2012. Network Equipment gross margin increased to 53.0%, a 660 basis point improvement from 46.4% in the second quarter of 2012. The improvement was due to a favorable shift in product mix toward higher gross margin products and lower inventory write offs as we push forward with the improvements on the materials management side of the business. Network Integration gross margin was 12.8% in the second quarter of 2013, compared with 16.2% in the second quarter of 2012, which was primarily driven by competitive pressure in the Italian markets, partially offset by a higher proportion of service revenue in the sales mix of Network Integration revenue.
Operating expenses in the second quarter of 2013 were $13.9 million, or 36% of revenue, compared with $14.6 million, or 39% of revenue, in the second quarter of 2012. In the second quarter of 2013, we incurred lower operating expenses of $2.4 million related to cost reduction initiatives and litigation settlement costs, including reduced labor, general support and consulting costs of $1.1 million and gains on settlement of litigation of $1.3 million. Partially offsetting these gains and savings, in alignment with our strategic plan to make targeted investments in the Network Equipment business, our engineering and product development costs increased by $1.1 million and we incurred planned implementation costs of $0.5 million for a new our ERP system to drive further efficiency in our back office. In addition to these planned costs, legal support costs increased by $0.1 million in the second quarter of 2013. While we do not anticipate to incur gains on settlement of litigation and Oracle implementations costs at the same level in the future, we do expect that we will continue to benefit from the cost savings initiatives.
In the second quarter of 2013, we incurred an operating loss of $0.5 million, compared with an operating loss of $1.2 million in the second quarter of 2012. The operating loss included share-based compensation expense of $0.1 million in the second quarter of 2013 and $0.2 million in the second quarter of 2012. The operating loss for MRV's Network Equipment segment was $0.3 million in the second quarter of 2013, compared with a loss of $0.3 million in the second quarter of 2012, which included $0.5 million in new ERP implementation costs in 2013. The Company has made and expects to continue to make investments that should continue to improve our competitiveness in the market, drive cost efficiency and improve overall profitability when the full impact of these investments is realized beginning in 2014. Operating income for MRV's Network Integration segment was $0.7 million in the second quarter of 2013, compared with operating income of $1.6 million in the second quarter of 2012. This decline in operating income is primarily the result of lower product sales and gross margin discussed above. In the second quarter of 2013, MRV was reimbursed $1.0 million from its insurance provider for litigation costs/expense, realized a $0.3 million gain on the valuation of warrants related to the shareholder derivatives settlement, and had $0.3 million in lower unallocated Corporate expenses. These are reflected in MRV's financial statements under Selling, General and Administrative expense.
MRV Communications Inc.