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Technology Stocks : MRV Communications (MRVC) opinions? -- Ignore unavailable to you. Want to Upgrade?

To: Greg h2o who wrote (41371)	7/29/2003 9:09:17 AM
From: mahler_one	Respond to of 42804

Interesting....but, Noam has not yet indicated Q3 would be better Greg, and indeed, stated that Q3 is their slowest quarter historically...do you think CIBC is setting the stage already for an upgrade based upon "something" that is developing either in the industry, or with MRV? m1

To: Greg h2o who wrote (41371)	7/29/2003 9:14:00 AM
From: mahler_one	Read Replies (1) \| Respond to of 42804

04:39pm EDT 28-Jul-03 CIBC World Markets Corp. (Shaul Eyal) MRVC MRVC: Better Than Expected 2Q03 Results; Aligning 3Q Estimat... ( Part 1 of 2 ) July 28, 2003 Shaul Eyal Ittai Kidron 1 (212) 667-8411 1 (212) 667-6292 Shaul.Eyal@us.cibc.com Ittai.Kidron@us.cibc.com Earnings Update Sector Underperformer (Speculative) Market Weight MRV Communications Inc. Better Than Expected 2Q03 Results; Aligning 3Q Estimates With Mgmt's Guidance Israeli Technology Companies MRVC-OTC (7/28/03) $2.38 Key Indices: NASDAQ, Russ 2000 3-5-Yr. EPS Gr. Rate (E) NM 52-week Range $2.67 - $0.60 Shares Outstanding 101.4M Float 80.0M Avg. Daily Trading Vol. NA Market Capitalization $241.3M Dividend / Yield $0.00 / 0.0% Fiscal Year End December Book Value $1.41 per Shr 2003 ROE NM LT Debt $0.3M Preferred Nil Common Equity $143.00M Convertible Available Yes Company Description MRV is a manufacturer and provider of optical components and network infrastructure equipment. Earnings per Share P/E 2002 ($5.25A) 2002 NM 2003 ($0.33E) ($0.30E) 2003 NM NM 2004 ($0.16E) ($0.08E) 2004 NM NM - MRV reported 2Q03 revenue of $62.0 million and loss per share (LPS) of $0.10 that were better than our estimates of $57.7 million and $0.12. Better than expected margins, and strong performance in Europe (75% of total revenue) were the main drivers behind the encouraging results. - Despite better than expected results, management provided guidance for a sequentially and YOY down quarter in light of traditionally slow summer sales in Europe- a region where MRV generates more than 70% of total revenue. - For FY03, we have lowered our revenue estimate to $232.6 million from $236.5 and improved our LPS to $0.30 from $0.33. For FY04, we have also lowered our revenue estimate to $251.7 from $256.3 million and again improved our LPS estimate to $0.08 from $0.16. - MRV continues to cut costs and improve liquidity. Our Sector Underperformer (Spec.) rating is maintained considering the weak capital spending environment. Despite mgmt's sequential lower guidance, we could revisit our rating upon better than expected 3Q performance. 2 Q 0 3 E a r n i n g s I n L i n e MRV's 2Q03 revenue of $62.0 million was above our $57.7 million estimate, up sequentially 21% from $51.1 million, and up year over year (YOY) for the first time since 2Q01 at 0.5%. The primary contributor to the revenue increase was a large order consummated with a major European carrier during 2Q03. MRV did not release the name of the customer, but the deal consisted mostly of systems integration work that required very little, if any, MRV products. The contract contributed over $8 million dollars in revenue (~13%) in 2Q03 and is not expected to generate any significant sales in the coming quarters other than maintenance. Despite the increase in revenue, loss per share increased sequentially to $0.10 from $0.06, besting our estimate of $0.12. Included in MRV's net loss was a $5.4 million one time charge (or $.05 per share), resulting from the retirement of the company's 1998 convertible note, which we discuss below. Gross margins improved from 29% to 32%, a sequential increase of 12% and slightly better than our 30% estimate. We expect gross margins to trend toward the lower 30%'s as the company introduces new networking products carrying higher margins. In 2Q03, Europe contributed 75% of MRV's total sales, and was up from 69% in 1Q03 due to the contract with the major European carrier mentioned above. The U.S. contributed 19% of total sales (25% in 1Q03); Asia 5% (similar to 1Q03, which was 6%); and ROW was unchanged at 1%. B a l a n c e S h e e t U p d a t e MRV's balance sheet continued to see much activity during 2Q03, with the company completing the quarter with a cash balance of $91.8 million. MRV's net cash decreased by $10.9 million, down from $12.5 million in 1Q03. MRV retired $26.0 million in outstanding convertible notes (not including the $650,000 in accrued interest) by issuing 4.2 million shares of MRV common stock. In 2Q03, the company also issued 5-year convertible notes, generating gross proceeds of $23 million. The notes have a 5% annual interest rate and are convertible at $2.32 per share. DSOs decreased to 75 days from 88 days in 1Q03 and we continue to feel comfortable with this level. M o d e l R e v i s i o n Given management's 3Q03 guidance of revenue in the range of $54 million to 59 million and LPS of $0.07 to $0.09, we have lowered our revenue estimate for FY03 to $232.6 million from $236.5 million and improved our loss per share to $0.30 from $0.33. For FY04, we have also lowered our revenue estimate to $251.7 million from $256.3 million and improved our loss per share estimate to $0.08 from $0.16, due primarily to our opinion that the company will continue with its aggressive cost cutting strategy. C o n c l u s i o n The company continues to be aggressive on cutting costs and focusing on a return to profitability. We believe further action is necessary and trust management will continue with its reorganization plan. Before becoming more aggressive on MRV, we would like to see more quarters of sequential revenue growth and a much lower quarterly cash burn rate, which would address our continuing liquidity concerns. We could be reconsidering our rating upon solid 3Q03 results and 4Q03 guidance. Our Sector Underperformer Speculative rating is maintained due to the continuing weak economic and telecom capital spending environments, as well as MRV's limited revenue visibility.