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PLX Technology, Inc. (PLXT)

Q4 2009 Earnings Call

January 25, 2010

Executives

Arthur Whipple – Chief Financial Officer

Ralph Schmitt – President, Chief Executive Officer

Analysts

Blake Harper – Signal Hill

Richard Shannon – Northland Securities

[Hank Bannister – Maxon Research]

Presentation

Operator

Welcome to the PLX Technology, Inc. fourth quarter 2009 earnings release conference call. (Operator Instructions) At this time I would like to turn the call over to Arthur Whipple, CFO of PLX Technology.

Arthur Whipple

Good afternoon and thank you for joining us today. I’ll start the session with a review of our fourth quarter 2009 and year end 2009 financial performance and Ralph Schmitt; our CEO will provide more information on our business. I will then provide some 2010 financial estimates. There will be an opportunity for your questions after our prepared remarks.

As we begin I’d like to point out that certain statements made in the course of this call regarding our expectations and associated projection will be forward-looking statements. These statements will include comments relating to the introduction and adoption of new products, the projection of financial results, the development of next generation technologies and other areas and will be made both in 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 January 25, 2010 and in our various SEC filings including our reports on Form 10-Q for the quarters ended March 31, June 30 and December 30, 2009 and on Form 10-K for the year ended December 31, 2008.

Our press release issued earlier today includes financial statements and other information related to our performance this quarter and full year. Let’s take a look at some highlights of that information.

Net revenues for the fourth quarter were $26.6 million, up 24% from $21.6 million last quarter and up 88% from $14.2 million for the same quarter a year ago. The fourth quarter revenue is a record for PLX beating the previous record of $23.4 million in the second quarter of 2008.

The increase in revenues this quarter was led by PCI Express which grew 54% quarter over quarter to $11.9 million. This number is a record for PCI Express which slightly exceeded the previous peak in the June quarter of 2008.

Connectivity revenues also showed healthy growth with a 28% increase quarter over quarter. Storage revenues were down 22% reflecting seasonal weakness in consumer storage.

PCI Express revenues, storage revenues and connectivity revenues were 45%, 17% and 38% of revenues respectively.

For the full year revenues were $82.8 million, up 2% from 2008. PCI Express revenues were $31.8 million down 16% from $38.1 million in 2008. It should be noted that our distribution inventory grew by $2.5 million during the quarter, but stayed flat at 37 days due to higher consumer by end customers.

In the fourth quarter gross margin was 59.1% and was higher than expected. Gross margin for the year was 56.7%.

Operating expenses for the fourth quarter were $13.4 million including $938,000 of stock compensation and amortization of acquired intangibles. Quarter on quarter R&D and SG&A costs net of stock compensation charges were both down slightly.

We had a credit provision for income tax of $194,000 for 2009. We continue to maintain a full valuation allowance on our deferred tax assets.

We are reporting net income of almost $2.6 million for the quarter. This is the second highest quarterly net income for PLX since we’ve been issuing public financial statements. The record for the company was $3.4 million reported for the first quarter of 2000 at the height of the dot com bubble.

On the balance sheet, cash and investments increased by $1.5 million in the current quarter to $40 million. Accounts receivable was $9.2 million for DSO of 32 days. The particularly lower DSO reflects unusually strong shipments early in the quarter.

We had $9.6 million or 81 days of inventory on hand at the end of the quarter. Also at the end of the quarter we had 197 full time and five part time employees. This compares to 216 full time employees and five part time employees at the end of March 2009 after the dust had settled on the Oxford acquisition.

Now Ralph has comments on the business.

Ralph Schmitt

I must first state that it is with great pleasure that I congratulate the PLX team on an outstanding quarter. Top line revenue, gross margin and metrics exceeded expectations and even our internal plans.

Two quarters ago I announced that we’ll be GAAP profitable by the end of the year and our employees delivered on that promise, and it is their commitment and dedication that makes this such an outstanding team. It is not a situation where the rising tide lifts all boats. We’ve made progress in customer design wins allowing us to grow more rapidly than the industry.

Our enterprise business PCI Express products led the way with a record quarter as Art mentioned. A baseline to this growth, we’re seeing a rebound in IT spending driven by data center needs and expansion.

We also continue to see the proliferation of this technology as we saw some new application such as mother boards and industrial systems emerge while communications and enterprise storage continue to expand.

Read the rest of this transcript for free on seekingalpha.com