Innovex: Fiscal 3Q09 Financial Results

Innovex, Inc. reported revenue for the fiscal 2009 third quarter ending July 4, 2009 of $10.7 million compared to $8.9 million for the fiscal 2009 second quarter, representing a 20.0% increase quarter on quarter. Revenue, excluding pass through material, for the fiscal 2009 third quarter was $7.4 million compared to $7.2 million for the fiscal 2009 second quarter, representing a 2.8% increase quarter on quarter.

The Company reported a net loss of $8.7 million, or $0.45 per diluted share, in the fiscal 2009 third quarter, as compared to a net loss of $6.5 million, or $0.33 per diluted share, in the fiscal 2009 second quarter. The net loss reported in the fiscal 2009 second quarter included an asset impairment charge of $0.7 million 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.

Flat Panel Display (FPD) product revenue constituted 76% of the Company’s net sales for the fiscal 2009 third quarter, Actuator Flex Circuit (AFC) revenue was 20% and integrated circuit packaging application, network system and other application revenue was 4%.

The fiscal 2009 third quarter increase in revenue as compared to the fiscal 2009 second quarter was primarily driven by higher FPD products shipments, which grew by 65% quarter over quarter. The growth in FPD products was partly offset by lower revenue recorded for AFC products, which decreased by 37% when compared to the fiscal 2009 second quarter. The Company ended the fiscal 2009 third quarter with a backlog of orders of approximately $6.0 million, comprised of $1.8 million of orders that were requested to be delivered in the fiscal 2009 third quarter and $4.2 million of orders with delivery requested within the fiscal 2009 fourth quarter.

“Although we were able to make marginal improvement in the operating profit on essentially flat quarter to quarter revenue excluding pass through material, leaving $1.8 million of shippable revenue on the backlog at the end of the quarter was a disappointment. Limited working capital as well as operating inefficiencies contributed to this shortfall,” said Terry Dauenhauer, President and Chief Executive Officer. “We also had a significant revenue opportunity from our AFC customers which we were not able to take advantage of during the quarter due to limited working capital resulting from restrictive payment terms from a few of our suppliers. The good news is that the demand is improving and is still available to Innovex. Our customers continue to express their support for Innovex and we are working diligently to maximize our cash utilization short term and to complete our debt and working capital restructuring so we can maximize these opportunities. Actions are also being taken to position ourselves to be able to execute quickly and efficiently when this happens.”

Gross margins for the fiscal 2009 third quarter improved slightly by 6 percentage points when compared to the fiscal 2009 second quarter, but were still negatively 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 structure in the future fiscal quarters.

Cash used by operating activities was $1.3 million in the fiscal 2009 third quarter. The Company’s liquidity on July 4, 2009 was $2.5 million, which was comprised of $1.5 million of cash on hand and $1.0 million under the Company’s short-term packing credit and working capital facilities which were not utilized. 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 increased by $0.3 million when compared to April 4, 2009 mainly because of reduction in inventory levels, increase in accounts payables and improvement in the Company’s Days Sales Outstanding (DSO) from 43 days in the fiscal 2009 second quarter to 24 days in the fiscal 2009 third quarter. Capital expenditures for the fiscal 2009 third quarter were $0.2 million.

As announced in June 2009, the Company is currently working with the appointed financial advisor, PricewaterhouseCoopers FAS Limited, to provide assistance in restructuring the Company’s existing debt and to explore additional capital structure alternatives.

The Company continues to work diligently to grow its business, enhance the organization and management team to improve efficiency and continues to pursue new customers in the smartcards, ePC and healthcare industries.