FOOL CONFERENCE CALL SYNOPSIS*
By Jeff Fischer (TMF Jeff)

Innovex, Inc.
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1313 5th Street S.
Hopkins, Minnesota 55343
(612) 938 - 4155
http://www.innovexinc.com

ALEXANDRIA, Va., (July 16, 1997)/FOOLWIRE/ -- On July 14th, 1997, Innovex released record third quarter 1997 results. Earnings per share climbed 188% to $0.72, on revenues of $41.96 million, up 118%. Gross margins slipped two percentage points to 43.8% as management predicted last quarter. The company aims to lead gross margins closer to 40%.

Innovex doesn't expect the fourth quarter to be sequentially higher than the third. The company currently expects the quarter to slip slightly in both revenue and earnings -- the result of additional market erosion and lower summer volume, especially in July and August.

Innovex was shipping large quantities of its high-end MR product and when volume recently slowed, the inability of customers to request additional inductive wire business in the near-term created a slow July. However, current bookings for September are above the June level.

At this point the company opened the call for Questions and Answers.

Question: What are current lead-wire volume numbers, and any projections going forward?

Answer: The company produced over 12 million lead-wire units per week in Q3, up from 10.5 million in Q2. The mix between MR and inductive continued to move in the direction of the high-end MR. For the quarter 67% of volume was MR products.

Meanwhile, the new HIF technology is still in pre-production phase. Innovex intends to have capacity of over two million units by January 1st, 1998. Plans call for shipping to begin in the December quarter, but Innovex can't know if the estimated volume number will slip or come to fruition in that quarter or the March quarter. Innovex's capacity, however, is on schedule. Ignoring the HIF products in terms of capacity, the production numbers are still in the same ranges spoken of last quarter. Capacity is 14 million units per week, and currently Innovex does not believe that this will be enough capacity in 1998. Talks with largest customers suggest that more capacity will be needed.

Question: The company is experiencing current weakness here in July, but are you seeing an increase in orders for the near-term future?

Answer: Backlog -- real orders -- improved considerably for August, and September is currently booked above what June accomplished. There was some softening in the month of June -- the second half, and into July -- as order volume slowed with the industry "slow-down." Many of the order cuts and push-outs were on the high-end, MR products. Again, though, August and September are already seeing increased orders, and the company projects that the December quarter will be higher than the current quarter.

Question: Can you give us a longer-term outlook?

Answer: The outlook is very positive. Management just returned from Asia where it had made all of the major drive makers in the world aware of Innovex's new HIF product, and there is strong interest in the product for two primary reasons: 1. Price. Innovex has significant price advantages, and, 2. Technological advances. As data transfer speeds increase, double-sided circuits will be needed, which Innovex can do very inexpensively; while companies are also looking to put chips out on suspensions, which Innovex can also do well. "Throughout the disk drive industry, there is tremendous interest in our product," the company stated.

Question: Can you go over your lead-wire capacities again, and your projections?

Answer: No change. Production is running just to keep in line with demand, while the company is in a position that it could produce 18 million lead-wires per week on fairly short notice. The company is looking at numbers for next year based on meetings with its largest customers, and the current numbers call for more capacity than Innovex currently has -- which is 14 million per week.

Question: Can you give us a customer break-down for the quarter, and your estimated world market-share?

Answer: The company believes that its market-share remains at 60 to 70% of the worldwide market, while in regards to the customer breakdown: Innovex discusses this in terms of its top ten customers. The biggest three, in no particular order, are still Seagate, Read-Rite, and Yamaha. Second-tier customers include AMC and Quantam. The top three customers accounted for about 50% of revenues for the quarter, about the same as in the past.

Question: Did MR demand slow only at Seagate or among other customers, too?

Answer: July was hit a little harder than other months as far as MR demand is concerned -- high-end demand slowed at more companies than just Seagate. Plus, Innovex gets hit a little more than others because it ships almost 70% MR wires, while the industry production of the wires is only about 45% of total wires.

Question: Regarding Innovex's new HIF technology, what is the time-frame for ramp-up and production in 1998?

Answer: Innovex is in pre-production mode, with much prototyping, as companies are not certain if, or when, to move to the new technology. Substantial volume will probably begin two quarters into the next fiscal year, and perhaps a large ramp-up will follow. Current capacity of HIF is 750,000 units per week, and capacity will jump to over 8 million and probably closer to 10 million by January 1st, 1998. Innovex is ramping up to production while working on technical issues on the customer side; there aren't many technical issues on Innovex's side. Future HIF volume is impossible to predict. Some customers are interested in both HIF and inductive wire product, while testing HIF. One customer has committed to HIF, but is initially using traditional wires as well in case HIF production problems arise -- in which case the company can switch quickly to all inductive wire product. Innovex believes that talks with several customers are leaning towards HIF orders. Prototypes are out being tested.

Question: Can you discuss your medical and software units, and their revenue numbers?

Answer: Innovex signed a letter of intent with a software company regarding a joint venture with its software division, Iconovex. If that goes forward, it will be completed in September. The software division is still losing money. The medical division had been profitable, but lost money in the latest quarter mainly due to an order delay from a major customer. Innovex is positive about the medical division -- Innomedica -- due to the large back-log and order build-up and increased interest. The division should be back to profitability soon.

Revenue per quarter was less than half a million, and the two divisions lumped together amounted to a loss of about the same amount. While Litchfield revenues were up a couple percent from Q2.

Question: Regarding the outlook for the current fourth quarter, revenues will be lower by how much, and margins, too?

Answer: Revenues and margins should be slightly below the third quarter, while the December quarter should definitely be higher than the current fourth quarter, for the second year in a row, which is unusual. The primary reason is that July was a slow month as orders from the industry leaders slowed. September will be higher than June, but July and August will be slower than was anticipated.

Question from a private investor: What are the plans for expansion, and will you need to go outside the company to cover any expansion costs? Also, do you foresee any changes in the current dividend policy?

Answer: Capital expenditures from now to the end of the year should be about $7 million, while cash flow in the last quarter equaled roughly $7 million, so there are no intentions to go outside the company for financing. Present management can't speak to the dividend policy as that's decided upon by the Board of Directors, but Innovex is happy to remind that the dividend amount has increased every year since the policy was initiated.

Question: Any acquisitions in the works?

Answer: Innovex doesn't have anything on the table, but it has hired a new Vice President of Corporate Development. Management stated, "We'll be taking a look. Our return on equity amounted to 62% in the current quarter. We certainly didn't make that much on the current $37 million sitting in the bank (laughs)."

Question from a private investor: To what extent does the competition represented by TSA technology play into your planning?

Answer: Litchfield was acquired primarily as a result of such competition. Innovex believes that its flex-circuit technology is the best solution. Management stated, "Our primary goal in life, as we were the first inter-connect company in this business, is to be the last one. We think that the HIF product is going to win the battle technologically and price-wise, in the industry."

Question: What are you going to do with the $37 million in the bank?

Answer: Not going to run out and spend it simply to spend it. There may be some strategic acquisitions in the future for Innovex, as with the recent Litchfield acquisition. Meanwhile, the company believes that its medical products division will be profitable in the coming year, and if Innovex can find the right partner it can make a decision regarding its software division. If not, the software division will probably be chopped off, though management believes in the people and the award-winning products behind the division.

Question: What are Innovex's thoughts about any long-term potential threat from the TSA technology of Hutchinson Tech?

Answer: Quoted, "Obviously Hutchinson has a solution that they believe works. They certainly have some people in the industry that are interested in it. I'll reiterate what I said before: We have shown our technology to virtually every manufacturer in the business. There is a definite interest on their part. We have -- we believe -- what is ultimately a cheaper solution, and we think that we'll prevail. I don't want to say anything negative about their (technology). They have an elegant solution. However, it is inerrantly more expensive than what we have proposed, and our solution provides every single technological advantage that theirs does, and in the disk drive industry, cost is king."

* 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.