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PLX Technology, Inc. (PLXT)

Q1 2013 Earnings Conference Call

April 22, 2013 5:00 pm ET

Executives

Arthur O. Whipple - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance and Secretary

David K. Raun - Chief Executive Officer, President and Director

Analysts

Christian D. Schwab - Craig-Hallum Capital Group LLC, Research Division

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Presentation

Operator

Thank you for joining the PLX Technology First Quarter 2013 Financial Conference Call. [Operator Instructions] Mr. Arthur Whipple, CFO of PLX, will lead off. Mr. Whipple, please proceed.

Arthur O. Whipple

Good afternoon, and thank you for joining us today. I will start this session with a review of our first quarter financial performance, and David Raun, our CEO, will provide more information on our business and recent events.

As we begin, I'd like to point out that certain statements made in the course of this call regarding our expectations and associated projections will be forward-looking statements. These statements will include comments related -- relating to the introduction and adoption of new products, financial guidance, possible strategic relationships, the development of next-generation technologies and other areas, and will be made in both our prepared remarks and in the subsequent Q&A session. Our forward-looking statements deal with future events and are subject to risks and uncertainties, and our actual results could differ materially from our current expectations. Some of the factors that could cause such differences are described in our press release dated April 22, 2013, and in our various SEC filings, including our report on Form 10-K for the year ended December 31, 2012.

Let's discuss the results of operation. Net revenues for the first quarter were $26.2 million, up 12% from $23.4 million last quarter. PCI Express revenues increased by 14.8% to $18.6 million, a new record. Connectivity revenues increased by 6% to $7.6 million. This increase was primarily due to some last-time buy shipments for several devices within this product line.

In the first quarter, gross margin was 59.2%. This compares with 58.4% in the prior quarter. The strong margin reflects unusual product and customer mix, and is expected to return to the 58% level in the second quarter.

Excluding stock comp, R&D and SG&A spending came in at $5.7 million and $5.9 million, respectively. SG&A costs were slightly higher in this quarter, reflecting start-of-the-year expenses including payroll taxes and audit fees. Both numbers were lower than we had expected when we provided our business outlook in January.

Some of our planned hiring took place later than expected and costs associated with consultants were also delayed. Shortly after the IDT transaction was announced, we began the process of divesting our 10 Gigabit Ethernet business. Spending for severance and other costs associated with discontinued operations was largely completed in the fourth quarter. Costs in the first quarter for discontinued operations were $57,000.

We expected to return to profitability early this year. The combination of strong revenues, strong margins and lower OpEx yielded a GAAP profit of $2.6 million. This quarterly profit is the best result we have had since the March quarter of 2000, when we reported a GAAP profit of $3.4 million.

We also present non-GAAP measures in our press release that we believe are helpful to investors. Excluding such things as discontinued operations, acquisition and restructuring costs, amortization of intangibles and stock comp, our non-GAAP P&L shows net income in the past 3 years and the most recent quarter. Our non-GAAP P&L this quarter, $3.8 million, is the highest value we have ever reported.

On the balance sheet, cash and investments declined by $3.1 million in the current quarter to $13.6 million. This was the result of $6 million of liability -- in liabilities that we paid down during the quarter, offset by cash generated by operations. We recently expanded our line of credit with Silicon Valley Bank, from $10 million to $15 million.

Inventory declined by $1 million to $9.6 million, as we shipped PCI Express products to meet strong customer demand. Accounts receivable was $13 million compared with $10.6 million last quarter. The increase reflects a less linear shipping pattern in the first quarter, with about 50% of revenue in the last month of the quarter. DSO stood at 45 days for last quarter, collections remain excellent.

Now David Raun will provide further comments on the business.

David K. Raun

Thank you, Art. As communicated during our last earnings call, our objectives going into 2013 were to execute to a new plan and demonstrate to our shareholders that we can be a growing, profitable company.

We said we would bring down spending, avoid further acquisitions, become profitable, and produce revenue growth from PCI Express. To that end, we are starting to show some results. With virtually all the costs associated with the discontinued operations behind us, PLX's reported financials are a reflection of a growing, profitable PCI Express business.

With 12% growth, record PCI Express revenues, tight cost controls and improved margins, we saw a dramatic improvement in profitability compared to recent history. A majority of our enterprise data center customers increased demand for PCI Express products in the quarter. PCI Express Gen 3 switch revenue almost doubled over Q4, as customers rolled out new products based on this latest technology.

We also saw increases from key customers in the embedded market, with our older Gen 1 and Gen 2 products. In terms of our product and technology roadmap, all of our 12- to 48-lane Gen 3 switches are now in production. Our 64- to 96-lane devices are sampling with production planned for Q3. Our PCI Express Gen 3 solutions dominate the market with 18 announced products.

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