Innovex: Fiscal 1Q09 Financial Results

Innovex, Inc. reported revenue for the fiscal 2009 second quarter ending April 4, 2009 of $8.9 million compared to $13.7 million for the fiscal 2009 first quarter, representing a 35.0% decrease quarter on quarter. Revenue, excluding pass through material, for the fiscal 2009 second quarter was $7.2 million compared to $10.6 million for the fiscal 2009 first quarter, representing a 32.1% decrease quarter on quarter.

The Company reported a net loss of $6.5 million, or $0.33 per diluted share, in the fiscal 2009 second quarter, as compared to a net loss of $4.7 million, or $0.24 per diluted share, in the fiscal 2009 first quarter. The net loss reported in the fiscal 2009 second quarter included an asset impairment charge of $700,000 based on a potential cancellation of the sales contract of the Litchfield facility. Excluding the asset impairment charges, the net loss in the fiscal 2009 second quarter was $5.8 million, or $0.30 per diluted share. The net loss reported in the Company’s 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.

Flat Panel Display (FPD) product revenue constituted 55% of the Company’s net sales for the fiscal 2009 second quarter, Actuator Flex Circuit (AFC) revenue was 39% and integrated circuit packaging application, network system and other application revenue was 6%.

The fiscal 2009 second quarter decrease in revenue as compared to the fiscal 2009 first quarter was primarily driven by lower revenue in AFC and FPD products, which decreased by 43% and 28%, respectively. The decrease in revenue was mainly due to low demand early in the quarter and through the Chinese New Year holidays, as well as materials shortage experienced during the month of March 2009 which resulted in delays in delivery to our customers. Customer orders increased late in the quarter, and the Company ended the fiscal 2009 second quarter with a backlog of orders of approximately $10 million, comprised of $3.8 million of orders that were requested to be delivered in the fiscal 2009 second quarter and $6.5 million of orders with delivery requested within the fiscal 2009 third quarter.

"The slow down that started in November carried through into the second quarter with January and February demand still low. The demand returned later in the quarter, and with better performance in our operations we could have realized additional revenue during the quarter," said Terry Dauenhauer, President and Chief Executive Officer. "Lower inventory levels and some tightened supplier terms contributed to the difficulty of the situation as we tried to minimize cash usage during the ramp." Gross margins for the fiscal 2009 second quarter were impacted by the lower than expected revenue and low capacity utilization. The Company continues to focus on growing revenue and improving operational efficiency and cost in the future fiscal quarters.

Cash used by operating activities was $628,000 in the fiscal 2009 second quarter. The Company’s liquidity on April 4, 2009 was $2.2 million, which was comprised of $1.3 million of cash on hand and $893,000 available under our short-term packing credit and working capital facilities. Utilization of the Company’s packing credit facility is dependent on presenting qualifying customer purchase orders to the banks for draw down. The Company’s liquidity position decreased by $1.8 million when compared to January 3, 2009 mainly because of the pay down in accounts payables and bank loans and partly offset by the reduction in inventory levels and improvement in the Company’s Days Sales Outstanding (DSO) from 59 days in the fiscal 2009 first quarter to 43 days in the fiscal 2009 second quarter. Capital expenditures for the fiscal 2009 second quarter were $90,000.

During the months of February, March and April, the Company received verbal extensions from its Thai banking partners with respect to scheduled payments of approximately $16.1 million during such months under its agreements with the Thai banks. While the Company has not received any formal written extension from the Thai banks, the Company believes the Thai banks will not demand immediate payment of the obligations under the bank facilities, so long as the Company is working with the Thai banking partners to restructure the existing bank debt and to obtain an additional short term working capital facility to help resolve immediate requirements that are critical in providing assurance of supply to the Company’s customers. As the Company is focusing its efforts on restructuring the bank debt and obtaining working capital, the Company anticipates that it may require additional extensions with respect to payments which otherwise become due and are not paid pending resolution of the restructuring discussions. There is no assurance that the Company’s debt will be restructured on terms acceptable to the Company or at all.

"We continue to work with our Thai banking partners to restructure all our debt. Although the banks’ Board of Directors’ written approval has not yet been obtained and is not committed or guaranteed, the structure for the debt restructuring proposal, which includes a formal extension of all amounts otherwise due to the banks, has been verbally agreed upon between Innovex and the bank executives for submission to the Banks’ respective boards," stated Randy Acres, Chief Financial Officer.