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PLX Technology, Inc. (PLXT)

Q2 2008 Earnings Call Transcript

July 28, 2008 5:00 pm ET


Arthur Whipple – CFO

Mike Salameh – CEO


Christian Schwab – Craig-Hallum

Richard Shannon – Northland Securities

Sandy Harrison – Signal Hill

Michael McCormick – Gilder Gagnon Howe

Simon Michael – Balch Hill Capital



Good afternoon, ladies and gentlemen, and welcome to the PLX Technology, Inc. second quarter 2008 earnings results conference call. Today's call is being recorded. We will open the conference up for question-and-answers after the presentation.

At this time, I would like to turn the call over to Mr. Arthur Whipple, CFO of PLX Technology. Please go ahead, sir.

Arthur Whipple

I will start this session with a review of our financial performance, then Mike Salameh our CEO will provide more information on our business, and I will provide third quarter 2008 financial estimates. There will be an opportunity for your questions after our prepared remarks.

As we begin, I would like to point out that certain statements made in the course of this conference call regarding our expectations and our associated projections will be forward-looking statements. These statements will include comments relating to the introduction and adoption of new products, the projection of financial results, our future growth, the development of next generation technologies, and other areas, and will be made in both our prepared remarks and 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 July 28, 2008, and in our SEC filings including our reports on Form 10Q for the quarter-ended March 31, 2008 and on Form 10-K for the year-ended December 31, 2007.

Now let's take a look at this quarter's financial results. Net revenues for the second quarter ended June 30th 2008 were $23.4 million. Revenues were up 18% from $19.8 million for the same quarter a year ago, and up 3% from $22.8 million last quarter. Net revenues for the six months ended June 30th 2008 were $46.1 million, up 20% year-on-year.

PCI Express product revenues grew sequentially in the second quarter by 12% to $11.9 million. PCI Express revenues increased 85% from $6.4 million in the same quarter a year ago. PCI Express revenues represented 51% of total revenues for the current quarter, up from 46% last quarter and 33% in the same quarter a year ago. For the year-ended June 30th 2008, net revenues for PCI Express and legacy businesses were 22.4 and $23.7 million respectively.

Gross margin was 59.3% down from 60.8% in the prior quarter and up slightly from 58.9% in the same quarter a year ago. Our PCI Express gross margins continue to improve as cost improvements have outpaced declines in selling prices. Gross margin decline in the second quarter was a result of customer and product mix changes and our legacy product sales. Our gross margin for the six months ended June 30th 2008 was 60.1% unchanged from last year.

Operating expenses for the second quarter were $14.1 million, a sequential increase of $864,000, or 7% from $13.2 million in the prior quarter. As expected, R&D costs increased $1.3 million as we accelerated the introduction of new Gen 2 PCI Express products.

SG&A spending was down by $390,000 this quarter primarily associated with lower accounting and legal fees associated with year-end, seasonally lower wage expense and lower head count. Head count remains steady with approximately 160 employees worldwide.

Compared to the same quarter a year ago, operating expenses were up $1.5 million. Research and development expenses were up $1.6 million as a result of increased NRE and IP purchases, software design tools and compensation costs. SG&A expenses were unchanged from the prior year. Share base compensation and amortization of acquired intangibles were lower by $155,000.

Interest income, expense and other, net for the second quarter was $376,000, down from $488,000 in the previous quarter as a result of lower cash and investment balances as a result of share purchases and lower interest rates.

Our projected annual tax rate for the first quarter was 17%. This rate was based on our annual internal operating estimates and our assessments of the order of utilization of certain tax credits. During the first quarter, we also had $117,000 benefit that was incremental to the effective annual rate.

Our income tax for the second quarter was $253,000 on pre-tax income of $178,000. We calculated a new 34% annual rate which was calculated based on lower operating estimates which changed the impact of the utilization of tax credits. About $200,000 of the current quarter's tax accrual relates to catching up the tax rate for the first quarter. Our annual effective GAAP tax rate is now expected to be 34% as of the end of the second quarter. Now, our GAAP net loss for the quarter ended June 30th 2007 was $75,000 or zero cents per diluted share. This compared to a net loss of $82,000 or zero cents per diluted share in the same quarter a year ago and with net income of $1.1 million or $0.04 per diluted share last quarter.

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