MRV Communications Incorporated

Q2 2010 Earnings Call

August 9, 2010 5:08 pm

Executives

Anne-Marie - Frisch Investor Relations

Dilip Singh - Chief Executive Officer

Chris King - Chief Financial Officer

Near Margalit - Co-President; Chief Executive Officer of Source Photonics,

Analysts

Sarti - B. Riley & Company

Tim Quinlisk – Mayo Capital

Cobb Sadler - Catamount Advisors

Operator

Good afternoon, ladies and gentleman. Thank you so much for standing by. Welcome to the MRV Communications Second Quarter 2010 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions). As a reminder, the conference is being recorded, today, on Monday, the 9th of August, 2010. I would now like to turn the conference over to Ms Anne-Marie Frisch of Investor Relations. Please go ahead, ma'am.

Anne-Marie Frisch

Thank you, operator. Good afternoon everyone, and thank you for joining today's conference call to discuss MRV's second quarter 2010 financial results. I am joined today by Dilip Singh, MRV's new CEO; Near Margalit, CEO of Source Photonics; and Chris King, our CFO. This call is being webcast live on the investor section of the company's website at www.mrv.com. A replay of the webcast will be available on the company's website for approximately 90 days. Additionally, this call is being recorded and a reply of this call can be accessed by phone and will be available approximately two hours after the conclusion of this call. The phone replay will be available for one week.

Earlier this afternoon, the company issued a press release reporting its financial results for the second quarter ended June 30, 2010. This release may be found on the company's website at www.mrv.com or on the Form 8-K we filed today with the SEC. Additionally, there is a presentation on the investor section of the website that corresponds with today's call.

During the course of today's call, MRV's management may make forward-looking statements about financial and business guidance, product introduction, customer development and the plans and objectives of management for future operations and the company's future economic performance.

These statements, which can be identified when they are in the context of word such as, may, will, could, expect, intend, plan, believe, target, estimate, forecast and variations of these words or use of words with similar import reflect management's current judgment on those issues. As these statements deal with future events, they are subject to risks and uncertainties that could cause the actual results to differ materially.

In addition to the factors that may be discussed during this call, and those contained in the press release issued earlier today, important factors that could actual results to differ materially are contained in the company's annual report on Form 10-K/A for the year ended December 31, 2009, filed with the SEC and available on our website.

Any future product feature or related specification that may be reference in today's call are for informational purposes only and are not commitments to deliver any technology or enhancements. MRV reserves the right to modify future product plans at any time. Additional risks not known to us may also impair our business or results of operations and may prevent us from realizing our current expectations. By discussing the current perception of our markets and making these forward-looking statements, we are not undertaking an obligation to provide updates in the future.

I would now like to turn the call over to Dilip Singh, MRV's CEO.

Dilip Singh

Thank you, Anne-Marie. Good afternoon everyone. Six weeks into my tenure as the new CEO of MRV, it's a real pleasure to have the opportunity to share my impressions with all of you. I'm impressed with the dedication of our employees and the quality of our technology portfolio in this competitive optical communication solutions marketplace.

MRV's commitment to innovation has driven its road thus far, but the growth has not always translated into profitability. We are now focusing our efforts and resources to continue to drive innovation and deliver sustainable growth, profitability, and shareholder value. I'll further discuss our opportunities and challenges at hand and our goals moving forward after Near and Chris provide a preview of the second quarter.

With that, I'll turn the call over to Near for his review of our Optical Components Group.

Near Margalit

Thank you, Dilip. Revenue for the quarter came in at $64 million, a 30% increase from the prior quarter and a 28% increase from the same period last year. Gross margin came in at 24% inline with previous quarter and significantly above the 13.3% reported in the second quarter of the prior year. In addition, we had operating income of $3.9 million which includes a reserve of $1.4 million related to litigation with Finisar.

During the quarter, we continued to have significantly increase demand for our products. I'm happy to say that we were successful and implementing the plans and improvements in our supply chain and several key aspects of our operations as we discussed in last quarter.

These investments paid off and helped to enable us to meet this demand as well as catch up on the orders that we were pushed from Q1 to Q2. As a result, Source Photonics achieved its best quarterly operating result to-date. First our Opto-Electronics or OE factory in Taiwan for lasers and detector assemblies significantly increase its throughput compared to historical levels. This allowed for better utilization of our Chengdu, China, factory which helped with record level of production.

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