Innovex: Fiscal 1Q09 Financial Results

Innovex,Inc. reported revenue for the fiscal 2009 first quarter ending January 3, 2009 of $13.7 million compared to $20.8 million for the fiscal 2008 fourth quarter, representing a 34.1% decrease quarter on quarter. Revenue, excluding pass through material, for the fiscal 2009 first quarter was $10.6 million compared to $15.7 million for the fiscal 2008 fourth quarter, representing a 32.5% decrease quarter on quarter.

The Company reported a net loss of $4.7 million, or $0.24 per diluted share, in the fiscal 2009 first quarter, as compared to a net loss of $6.5 million, or $0.33 per diluted share, in the fiscal 2008 fourth quarter. The net loss reported in the fiscal 2009 first quarter included restructuring charges of $612,000, or $0.03 per diluted share. Excluding restructuring charges, the net loss in the fiscal 2009 first quarter was $4.1 million, or $0.21 per diluted share. Of the $612,000 restructuring charges recorded in the fiscal 2009 first quarter, $295,000 pertained to a one-time provision made in relation to the remaining lease expenses for Eastlake property. The net loss reported in the Company’s fiscal 2008 fourth quarter included restructuring charges of $388,000, or $0.02 per diluted share. Excluding restructuring charges, the net loss in the fiscal 2008 fourth quarter was $6.1 million, or $0.31 per diluted share.

Flat Panel Display (FPD) product revenue constituted 50% of the Company’s net sales for the fiscal 2009 first quarter, Actuator Flex Circuit (AFC) revenue was 44% and integrated circuit packaging application, network system and other application revenue was 6%.

The fiscal 2009 first quarter decrease in revenue as compared to the fiscal 2008 fourth quarter was mainly driven by the softer demand for AFC and FPD products during the quarter, which decreased by 32% and 36%, respectively, over prior fiscal quarter. The soft demand was a direct result of the overall economic uncertainty experienced during the quarter as well as customer shutdowns during the holiday season. The Company’s short term demand in the fiscal 2009 first quarter was also partly impacted by the political situation in Thailand in November 2008, which had created delivery problems and short term concerns from its customers.

“Although the first quarter started out with revenue fairly close to plan for the month of October, the worldwide economic slowdown resulted in customer demand decreasing week by week starting in November with December demand being almost non existent as our customers burned off inventory and shut down their operations for the holidays.” said Terry Dauenhauer, President and Chief Executive Officer. “The demand pull back was the most severe and broad based I have seen in my 33 years in the electronics industry.”

As a result of lower revenue and low capacity utilization, gross margins for the fiscal 2009 first quarter dropped by 3.3 percentage points when compared to the fiscal 2008 fourth quarter. Operational efficiency improvement and cost reduction continues to be the Company’s focus. The fiscal 2009 first quarter total selling and engineering expenses decreased by 28.9% compared to the fiscal 2008 fourth quarter.

“We were pleased with the progress made early in the quarter to increase yields and productivity, but the very low capacity utilization the second half of the quarter made it impossible to improve margins as we originally expected”, added Dauenhauer.

Cash used by operating activities was $2.3 million in the fiscal 2009 first quarter. The Company’s liquidity on January 3, 2009 was $4.0 million, which was comprised of $2.9 million of cash on hand and $1.1 million available under our short-term packing credit and working capital facilities. Utilization of our packing credit facility is dependent on presenting qualifying customer purchase orders to the banks for draw down. The Company’s liquidity position decreased by $5.0 million when compared to September 27, 2008 mainly because of the pay down in accounts payables and liabilities and partly offset by the reduction in inventory levels and improvement in the Company’s Days Sales Outstanding (DSO) from 62 days in the fiscal 2008 fourth quarter to 59 days in the fiscal 2009 first quarter. Capital expenditures for the fiscal 2009 first quarter were $865,000.

As a result of market uncertainty and lower demand, the Company believes that its liquidity position will be greatly tightened, starting in the fiscal 2009 second quarter. Accordingly, the Company continues to work closely with its Thai banking partners to explore additional restructuring of the existing debt as well as consideration of an additional working capital facility.