Innovex: Fiscal 4Q08 Financial Results

Innovex, Inc. reported revenue for the fiscal 2008 fourth quarter ending September 27, 2008 of $20.8 million compared to $16.2 million for the fiscal 2008 third quarter, representing a 28.4% increase quarter to quarter and a 4.6% decrease as compared to the fiscal 2007 fourth quarter which ended September 29, 2007.

Revenue for fiscal year 2008 was $71.0 million compared to $87.8 million for fiscal year 2007, a 19.1% decrease year to year. Revenue excluding pass through material for the fiscal 2008 fourth quarter was $15.7 million compared to $10.3 million for the fiscal 2008 third quarter, representing a 52.4% increase quarter to quarter and a 35.3% increase as compared to the fiscal 2007 fourth quarter. Revenue excluding pass through material for fiscal year 2008 was $45.7 million compared to $46.4 million for fiscal year 2007, a 1.5% decrease year to year.

“The revenue and revenue excluding pass through material performance for the second half of fiscal year 2008 reflects the significant growth in the base flex business that occurred in that period replacing the high pass through content FSA product which went end of life in the second quarter of fiscal 2008,” said Terry Dauenhauer, Innovex’s President and Chief Executive Officer. “Fiscal year 2008 has been very challenging but we have been able to come through it with significant improvements in several areas. Between fiscal 2007 fourth quarter and fiscal 2008 fourth quarter we have essentially replaced the revenue of a high volume product that went end of life by adding a significant new customer, growing established customers as well as expanding our customer and market base. We have been able to improve our business terms with our customers and suppliers and restructure our debt with our banking partners to provide additional working capital. The current world economic slow down just represents another challenge that the Innovex team is ready to face and turn into an opportunity.”

The Company also reported a fourth quarter of fiscal 2008 net loss of $6.5 million, or $0.33 per diluted share, as compared to a net loss of $4.5 million, or $0.23 per diluted share, in the third quarter of fiscal 2008 and a net loss of $10.2 million, or $0.52 per diluted share, in the fourth quarter of fiscal 2007. The fiscal year 2008 net loss was $28.0 million, or $1.44 per diluted share, as compared to a net loss of $32.1 million, or $1.66 per diluted share in fiscal year 2007. The $6.5 million net loss in the fourth quarter of fiscal 2008 included a one-time non-cash charge of $1.5 million, which was largely related to the write-down of excess and obsolete inventory. The Company’s fiscal 2008 fourth quarter net loss included restructuring charges of $388,000, or $0.02 per diluted share, resulting in a net loss, excluding restructuring charges, of $6.1 million, or $0.31 per diluted share. This compares to the Company’s fiscal 2008 third quarter net loss which included restructuring charges of $470,000, or $0.02 per diluted share, resulting in a net loss, excluding restructuring charges, of $4.0 million, or $0.21 per share and the fiscal 2007 fourth quarter net loss which included restructuring and goodwill impairment charges of $4.0 million resulting in a net loss, excluding restructuring and goodwill impairment charges, of $6.2 million, or $0.32 per diluted share. The fiscal year 2008 net loss includes restructuring charges of $3.8 million, or $0.20 per diluted share, resulting in a net loss excluding the restructuring charges, of $24.2 million, or $1.24 per diluted share. The Company’s fiscal year 2007 net loss was $22.3 million, or $1.15 per diluted share, excluding restructuring and goodwill impairment charges of $9.9 million.

Flat Panel Display (FPD) product revenue constituted 52% of the Company’s net sales for the fiscal 2008 fourth quarter, Actuator Flex Circuit (AFC) revenue was 43% and integrated circuit packaging application, network system and other application revenue was 5%. In fiscal year 2008, FPD product revenue constituted 44% of the Company’s net sales, AFC revenue was 38%, Flex Suspension Assembly (FSA) product revenue was 12%, and integrated circuit packaging application, network system and other application revenue was 6%.

The $4.6 million increase in revenue in the fiscal 2008 fourth quarter, as compared to the fiscal 2008 third quarter, was driven by growth in the Company’s AFC and FPD business. AFC growth was related to increased production for the Company’s newest AFC customer which entered high volume production in June. FPD growth resulted from additional programs entering production and volume increases for several programs already in production at the Company’s major FPD customer.

Fiscal 2008 fourth quarter revenue was $1.0 million lower than fiscal 2007 fourth quarter but increases in AFC and FPD revenue have nearly replaced the $8.7 million of FSA revenue that was included in the fiscal 2007 fourth quarter prior to the FSA product reaching its end of life in the second quarter of fiscal 2008. While gross margins improved by 1.4 percentage points in the fourth quarter of fiscal 2008 as compared to the third quarter of fiscal 2008 as a result of the increased revenue, the improvement did not meet internal expectations and gross margins continue to be negative.

The Company expects operational execution improvement for fiscal year 2009 with corresponding gross margin improvement dependant on overall demand providing additional capacity utilization rate increases.

"We are encouraged by the new business growth experienced during the fourth quarter of fiscal 2008, a second consecutive quarter of greater than 25% growth," commented Terry Dauenhauer, Innovex’s President and Chief Executive Officer. "We also entered the current quarter optimistic about additional growth, however recent weakness in demand from our major customers as a result of the difficult world economic situation has made a third consecutive quarter with quarter to quarter growth unlikely. We are continuing to aggressively pursue releasing additional new customers into production to offset the potential risk of further softening of demand from our major customers." “While we are excited by the higher level of revenue, we struggled to achieve targeted operating results with the significant increase in new products entering production during the quarter. Lower yields on the new products prevented us from seeing the expected improvement in our gross margin corresponding to the increased revenue. Our inability to ramp efficiently was disappointing, but yields have continued to improve and as long as capacity utilization does not degrade, are expected to provide improved operational performance in the current quarter,” stated Mr. Dauenhauer.

Cash provided by operating activities was $5.4 million in the fourth quarter of fiscal 2008. Fiscal year 2008 cash used in operating activities was $8.9 million. The Company’s liquidity on September 27, 2008 was $9.0 million, which was comprised of $6.5 million of cash on hand and $2.5 million of availability under the Company’s existing credit facilities. The Company’s liquidity position on September 27, 2008 improved by $3.1 million as compared to June 28, 2008 mainly because of the improvement in the Company’s Days Sales Outstanding (DSO) from 75 days in the third quarter of fiscal 2008 to 62 days in the fourth quarter of fiscal 2008. In addition, the Company also worked with major suppliers to realign payment terms more consistent with the Customer payment terms.

Capital expenditures for fiscal year 2008 were $3.3 million. Capital expenditures for fiscal year 2009 are expected to be approximately $3 million. The improved liquidity position will help support the Company’s revenue growth anticipated over the next fiscal year.

“We continue to be pleased with the support of our Thai banking partners, our customers and suppliers in working with us to improve our cash flow,” stated Randy Acres, Innovex’s Chief Financial Officer. “With our improved customer and supplier terms, the continued support of our Thai banking partners, improvements to our manufacturing operation efficiency which we are beginning to experience and additional growth in our AFC and FPD business, we expect to have adequate cash resources to meet our growth and operational cash needs for fiscal year 2009."