FOOL CONFERENCE CALL SYNOPSIS*
By Dale Wettlaufer (MF Raleigh)

INNOVEX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INVX)") else Response.Write("(NASDAQ: INVX)") end if %>
1313 Fifth St. South
Hopkins, MN 55343-9904
612-938-4155

ALEXANDRIA, Va., Nov. 11,1996 /FOOLWIRE/ -- Innovex, Inc. reported on November 6 record revenues of $69,570,000 for the fiscal year ended September 30, 1996, a 39 percent increase from $50,194,000 in fiscal 1995. Net income for fiscal 1996 was $13,121,000, or $1.81 per share, after a $.05 per share charge against earnings reflecting the write-off of intangible assets at the InnoMedica Division. Net income increased 31 percent over $10,029,000, or $1.40 per share reported in fiscal 1995.

Fourth quarter revenues were $22,529,000, an increase of 55 percent over $14,500,000 reported a year ago. Net income for the fourth quarter of fiscal 1996 was $3,851,000, or $.53 per share, after a $.05 per share charge against earnings, representing an increase of 15 percent over $3,335,000, or $.46 per share reported a year ago.

CEO COMMENTS

Revenue growth reflected continued strength in the computer disk drive market and increased shipments of lead wire assemblies for magneto resistive (MR) disk drives, including the new Wire Alignment Tab (WAT) product introduced late in the third quarter. "The demand for our WAT product is very strong," noted Thomas W. Haley, Innovex's Chairman and Chief Executive Officer. "We were shipping over 600,000 WAT units per week at the end of September and expect to be shipping 1,200,000 WAT units per week early next year."

Earnings were enhanced by the inclusion of a full quarter of operations from the newly acquired Litchfield Precision Components and increased shipments of lead wires for both inductive and MR disk drive heads. Litchfield Precision Components continues to exceed both top and bottom line expectations due to strong customer demand and more efficient manufacturing operations.

Based upon the disk drive industry's projections of strong demand for both inductive and MR heads in 1997, Innovex expects that its percentage sales increases in fiscal 1997 will parallel those of 1996. While the growth in inductive heads is expected to moderate, growth in MR heads is projected to exceed 80%. Since MR heads require twice the conductors of inductive heads, Innovex, as the world's largest supplier of conductors, should benefit from the trend toward MR technology.

The software division and the medical products division contributed in the own ways, in that they contributed smaller losses to operations than last year.

Q&A SESSION

Ramping the WAT program in the September quarter caused Innovex to take on significant unforeseen costs, in that meeting a customer's need of 500,00 WAT parts per week was done through "brute force." This ramp affected gross margin by about three percentage points in the quarter. Margin on the WAT product was lower than inductive products, but the company expects this product's gross margin, and overall gross margin, to revert to the historical mean of 40%. There was no automation used on the WAT product this quarter but there are plans do so in coming quarters. In ramping the project, the company incurred greater-than-expected engineering costs, spent significantly on training in getting direct labor in Thailand up to speed, moved up direct labor in Thailand from 700 to 1,400 personnel, and incurred tooling transfer costs to that facility.

Losses in the medical division have lessened -- the company is positive on the outlook and expects that division to get into the black in the third quarter. In software, losses should continue at the level reached in 1996. About 8,000 copies of Echo are being downloaded per month and 8 million hits have been made on the Innovex homepage. Internet distribution is not the model for the business -- the company is talking with five major partners to reach a wider audience for the package.

The company is keeping an eye on a number of companies that are developing alternative technologies in signal transmission products. At this particular time, though, WAT is available and is cost-effective. There are no implementation plans for these other technologies that the company believes will impact its position in the near-term.

One customer is running the WATs in two different programs right now. Innovex and that customer plan on achieving production of 1.1 million by the end of Q1 FY 1997. Two other customers are working with WATs on the prototype level at the moment. The company plans on the WAT program accounting for 20% of revenues by the end of 1996, up from 10% at the end of this year.

In the lead-wire business, Innovex believes that it has a 60-70% market share and finished the year at 7.5-8.0 million units per week. Of that unit count, WATs accounted for 600,000 per week at the end of the quarter. At the end of October, unit shipments per week reached 9 million, with WATs at 800,000. At the end of Q3, about 30% of backlog was for MR and at the end of this quarter, MR accounted for 40% of backlog.

The $0.05 per-share charge shows up in the "other income" line of the income statement. The company took the charge because it did not believe that the technology the intangible asset represented would lead to the level of profitability against which the intangible could be properly amortized. There are no other intangible assets on the balance sheet of the InnoMedica Division.

December is normally a down quarter due to holiday seasonality both in the US and in Asia. For the first time in many years, though, the company may achieve a sequential gain in revenues from Q4 to Q1. Demand is very strong. Production has gone to 7 days, 24 hour shifts in the primary processes here in the US. Additional capacity is being added and the company has devised processes that will increase efficiency. The production plan for the quarter will allow unit count to go beyond 9 million per week.

Litchfield is probably growing at a slower rate than the precision products division. In Q1, Litchfield revenues may not experience the growth of precision products and might be down sequentially. For the entire year, Litchfield is expected to grow, but the company believes that its real growth will not come until it makes needed capital expenditures. The company believes that Litchfield can grow as fast or faster than precision products as they have $12-15 million in sales out of a $2.5 billion market. It'll take a few quarters to get things up to speed at Litchfield.

All of the costs associated with getting WAT products to target levels have been incurred already. Increased efficiencies can be realized on the part of labor.

Pricing is not so much the issue at Innovex as capacity is right now.

The charge for WATs was about $500,000 pre-tax.

Litchfield went above 15% of sales during the quarter and the bulk of the rest of sales came from precision products: 70% inductive, 30% MR, including WATs. Going forward, the company is seeing faster growth in MR. The above backlog details refer to units, not dollar backlog. The company is currently working on flex suspension solutions and sees 1998 at the very earliest as the target date for such products. The company believes that it will be a major player in that market if it ever comes to fruition. One customer has told the company that its flex product is the best such solution that it had ever seen.

R&D has been running around 4%, which should not change in the coming year. The WAT is a flexible product and can be configured to cost about $0.30 per unit and under its current configuration, around $0.60 per unit. They are working on a WAT2 which will reduce per-unit cost; working with customer, the aim is to maintain gross margin at target levels.

The company currently has two contracts with Angeion, including a significant portion of Innovex's product development contract manufacturing business. Innovex and Angeion are working on two proprietary products which are probably 4-5 years away from marketability, at least in the US. The goal over the coming 4-5 year period is to make enough money in contract manufacturing and contract development to pay the R&D costs for proprietary products.

The company is comfortable with A/R DSO (accounts receivable days-sales-outstanding) of 40-45 days. With the addition of Litchfield, the number will probably stay above that -- the company feels very comfortable with the financial strength of its customers.

The company expects SG&A (sales, general, and administrative) expenses to remain at this level, at 9% of sales, going forward.

Bringing additional customers on with the WAT product depends upon capacity and the company has not yet arrived at a final design with either of the additional customers. Final designs will probably be ready in March, after the company had dealt with the needs of the two programs currently in production.

Long-term, the company sees the highest-level WAT selling at $0.45. With some applications, they see a $0.30 part. The goal on the program is to supply a cost-effective product that doesn't require substantial re-tooling.

The company does not see the compelling value in trace suspension assemblies at this time as it can deliver a flexture with the WAT at $1.00, whereas the price talk on TSAs has been in the $1.20 range.

The company is operating at full capacity on the WAT and is ramping capacity.

MR has increased 80% year-over-year. The industry is moving faster than expected and there are a number of producers out there with increasing MR capacity and an increasing number of MR head programs taking place.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.