FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)
Innovex, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INVX)") else Response.Write("(Nasdaq: INVX)") end if %>
1313 Fifth Street South
Hopkins, MN 55343-9904
(612) 938-4155
http://www.innovexinc.com

UNION CITY, Ca., January 19, 1997/FOOLWIRE/ --- Innovex released results for their first quarter 1997 last Wednesday. The company reported $0.42 earnings per share, up 130% over last year's Q1. They had a 124% improvement in the revenue line as well. Net income was $6,338,000 on revenues of $29,312,000. Net income increased 130% from $2,751,000 for the first quarter of last year. Net income per share was $0.42 for the first quarter of fiscal 1997, compared with $0.19 per share for the same period one year ago. First quarter revenues increased 124% compared with revenues of $13,112,000 for the first three months of fiscal 1996.

REASONS FOR GROWTH. They think a number of things are self explanatory in terms of talking about the increased demand for the MR lead wires as well as the overall large demand in the industry along with the fact that the Litchfield Precision Components Division was not included in their last year's numbers and the fact that their medical division is doing much better than they anticipated.

LIQUIDITY. The company is sitting at around $23 million in cash right now. Their inventory is at $6.2 million and turns quite a few times during the year. The biggest use of capital over the past quarter has been the buildup in accounts receivables because of the tremendous increase in sales. That has accounted for almost $5 million in terms of their balance sheet.

CONTINUED SEQUENTIAL GROWTH. They, to borrow a phrase from Intel, "clicked on all cylinders in the quarter." What is normally the slower quarter for them during the course of the year became a record quarter. They still intend to show sequential growth in revenues and earnings during the quarter, but they will be less than normal simply because the first quarter was a blockbuster.

Litchfield Precision Components accounted for just under $4 million in the quarter, fairly similar to where they were last quarter. So, the real big jump in revenues was clearly all in the lead wire business.

PRODUCTION. As far as product mix, they were in the range of 10 million wires per week in terms of wire production. Comparing that to fourth quarter, they were at about 8 million wires per week. When they talk about wires per week it sometimes doesn't talk in terms of units that customers receive because some assemblies consist of two wires in a pair. In terms of units to customers, that means grows from about 6.5 million to about 7.5 million units per week where a unit is whatever is needed for a head. The mix between MR and inductive has made it difficult to report some of the historical numbers the way they have been. In terms of mix, WAT was about 10% of their units, MR and inductive split the rest pretty evenly.

WAT BUSINESS. At this particular point, they have reached 1 million per week in WAT production. At this time they are satisfying the demand they have from their primary WAT customer. In Q2, they expect WAT is going to remain at about 10% of their overall shipments on a weekly basis or quarterly basis. They believe that their current customer and their customers will provide them with additional prorams in Q3. They are looking at working with several different people at this time on additional WAT configurations. They also have additional WAT configurations they are talking to with their primary WAT customer. At this particular time, they haven't got a volume program on top of the two programs that are running at this point. They are happy with where they are at with WAT and happy that the growth isn't much faster than it is at this particular time. The overall demand in the industry is really requiring that they devote more of their capacity to the standard MR segment. They expect over the next 4-5 years to see MR yields approach the same yields they currently see in the inductive world -- 70-80%. Some of the customers are getting close to that right now, others have a lot of work to do. They expect that growth in overall demand for heads is going to compensate and is going to exceed the improvements in yield over the next several years.

PRODUCTION CAPACITY AND EXPANSION. As far as capacity, they have been bumping against capacity and have increased capacity as quickly as they could during Q1. They have plans for additional capacity increases in Q2. They have systems coming on in each of the next four months on top of system improvements that will also yield them some additional capacity. They think in Q2 the wire number is going to jump from 10 to over 12 million per week. Already in early January they are pushing past that number. Assemblies to the customer will be in the neighborhood of 8.5 million per week and they are going to have the capacity to do that.

PRICING AND MARKET CONDITIONS. They have not seen any pricing pressure. It is a demand market right now. As far as ASPs, in the inductive area there is a high end and a low end inductive product, but averaging it out ASPs come in around $0.12-$0.14. Standard MR also has a high and low end, but an average is somewhere in the $0.24-$0.27 range. For their WAT product, they are looking for $0.55-$0.60 on an ASP going forward. They have an industry where there a small number of players and a smaller number of major players. They have 5 or 6 customers that make up 95% of their business and are, in no particular order: CE, Quantum, Yamaha, Applied Magnetics, Read-Rite -- and they are all at least 10% customers for Innovex in terms of percent of revenue. There may be some market share increase but they think that the overall demand in the marketplace is up significatnly at this time. They think there are some dislocations between the inductive and the MR that are throwing the numbers out of synch a little bit. There are some things that aren't pure demand that are influencing the numbers, but they think it is basically demand-side. They think they are producing what they can produce and their competitors can't produce some of the assemblies that Innovex does, but they are probably maxed out too on some of the lower inductive products. Innovex could have more inductive business if they could handle it. They have been selective in what they have taken and it has really been because they can do some of the MR configurations that they haven't chosen to do some of the inductive. Their prime motive has been to insure that they don't cause any shortages in any of their customers. They aren't sure they've been totally successful at that, but have managed as good as possible.

WEATHER IMPACT. The nasty weather has impacted them to a degree. They have had a heroic effort from their people out in Montevideo. This past week they had 100 people in hotel rooms and were shoveling them across 3 shifts 7 days a week. It did hurt them some, but they are really pleased with the effort they have gotten out of their people. The final assembly site isn't impacted. They just have to keep that flow of materials going to the warmer climates.

FIDELITY MAGELLAN/JEFF VINIK. The company was asked to comment on Fidelity Magellan/Jeff Vinik's interest in the company. They responded that they have a number of fairly large holders in the company and some of them have been long-time holders. Mr. Vinik makes a lot of headlines and deservedly so. He has bought into Innovex several times, sold some of it at various times. Most of that is a matter of public record. The most recent number they have is that he holds approximately 6.6%-7% of the stock.

MEDICAL DEVICES DIVISION PLANS. The company was asked about the outlook for the medical devices end of their business. They responded that their primary goal in the short term for the medical products device is to get it to at least a break-even. One of the things they are pleased to report is that they are doing a good job down there. They have some new management in place. The division, which last year averaged losses of about $150,000 per month, is getting much better. They have stated publicly that they believe that by the end of the fiscal year they will have at least one quarter in the black in that division. Going forward, they have some proprietary products which they have developed as an offshoot of their fine wire technology within the disk drive industry that they believe could make a genuine impact on the medical implantation of pacemaker leads. They intend to develop them. They have some that are very close to animal tests going on right now. But, their gameplan is to grow this division sufficiently to allow it to pay for the further development of those products which they believe would have an impact. In terms of the overall strategy of the company, the fine wire technology that they are so good at in the lead wire area they think has applications in the medical field and they tend to go ahead and exploit them. In the meantime, they don't like red ink and the goal short-term is to make sure it's not bleeding dollars.

MEDICAL DEVICES POTENTIAL. They believe that if they are totally successful with the concepts they are working on in the medical area, that it would have a major impact. The market is large, the products that they are trying to develop are revolutuionary in terms of the size and the ability to implant. They can produce a lead wire, they believe, at a point in time that might be a tenth of the size of the smallest thing that is available in the market now. The medical products are probably 4-5 years away in terms of being an impact. There are animal tests, clinical tests, and human tests, etc.

SOFTWARE DIVISION OUTLOOK AND DISCUSSION. They believe the Indexicon software product, proprietary indexing and abstracting software for the Internet's World Wide Web and professional writers, made by the company's Iconovex division, is an excellent product. The reviews back it up. The number of people who download it back it up. They don't have a great deal of expertise in the software business. They are discussing, with a number of people at the present time, joint ventures on both marketing and, if necessary, the ultimate sale of this product to an entity which has the infrastructure, staff, sales, and know-how to make it work. It's a product they believe someday should be incorporated into every piece of software that goes into a computer because it does make some sense out of the Internet. And, they think it might have a better chance of doing that in connection with someone else, either through a joint marketing effort or a sales product.

* 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.