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Adept Technology, Inc. (NASDAQ:ADEP)

F3Q10 (Qtr End 03/27/10) Earnings Call Transcript

April 28, 2010 5:00 pm ET

Executives

Lisa Cummins – VP, Finance & CFO

John Dulchinos – President & CEO

Analysts

Chris Thomson – MindShare Capital

Operator

Good day, ladies and gentlemen; thank you for standing by. Welcome to the Adept Technology third quarter fiscal year 2010 conference call. During today’s presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Wednesday, April 28, 2010.

I'd now like to turn the conference over to Chief Financial Officer, Ms. Lisa Cummins. Please go ahead ma'am.

Lisa Cummins

Good afternoon everyone and thank you for joining us. As we begin today’s call, let me remind you that during the course of this conference call, we may make certain remarks regarding Adept's expectations as to future events and future financial and operational performance, plans and prospects of the company, all of which are based on the company’s position as of today, April 28, 2010.

Any such forward-looking statements involve a number of risks and uncertainties, and the company’s actual results could differ materially from those expressed in any of these forward-looking statements for a variety of reasons, including the risks described in our press release and in our Annual Report on 10-K for the fiscal year ended June 30, 2009, as well as the risks described in the company’s other SEC filings. No one should assume that any forward-looking statements made by the company remain consistent with our expectations after the date that the forward-looking statements are made.

Certain financial information that we review on today’s conference call is presented on a non-GAAP basis. The most directly comparable GAAP information and reconciliation between the non-GAAP and GAAP figures is provided in our fiscal third quarter 2010 press release, which has been furnished to the SEC on Form 8-K. The press release and all financial, statistical or operational information referred to in this conference call, including the GAAP reconciliation and explanations discussed above, is available on the Investor Relations section of our website. Following our introductory comments, we will open the call to take your questions.

I would now like to turn the call over to John Dulchinos for some opening remarks.

John Dulchinos

Thank you, Lisa, and good afternoon everyone. Before we go through financial results in detail, I'll provide you with a brief update on our business.

First, we are pleased to report that we returned to profitability during the third quarter which is a huge milestone for Adept, and one we've been working towards throughout the economic downturn. While Q3 is seasonally one of our strongest periods, our solid execution is gaining new design wins over the past several quarters as well as our success in creating much improved financial model has enabled us to reach this key objective even earlier than we anticipated.

Revenues were strong during the quarter, growing 55% sequentially and 86% over the same period of a year ago. As indicated in our second quarter conference call, in recent months we have received significant orders from the disk drive market which is beginning to reinvest in capacity after several quarters of pull back. During the recent industry downcycle, we stayed closed to this market and successfully locked up imp design wins throughout the manufacturing process.

We began to reap the benefits of this investment and are now winning and fulfilling significant orders from some of the market's top manufacturers. For example, over the past six weeks, we amassed orders of 4.1 million and 2.9 million for our high-precision robots from our customers in this market. Revenue from these orders will be recognized over the balance of calendar 2010 and is further evidence of the strong position we have maintained in this market.

While the disk drive market is often characterized for its major up and down cycles, according to (inaudible) the need for discharge is currently forecasted to grow at 10% compounded annual growth rate over the next several years. This combined with a very modest capital investment strategy over the past few years has upped the industry's shorter capacity. Adept is currently entrenched in this growing market and with our advanced technology that is uniquely able to address both cleanroom handling and assembly, we are poised to continue to benefit from the emerging cycle of investment and expansion.

We also had a strong quarter in packaging, with sales in the second up 144% sequentially and double what they were a year ago. Orders for our Quattro robot was as strong as we have seen. Coming from our growing base of food and cosmetic customers in France, food packaging customers and applications in the US and increasing packaging customers in Asia indicating that growth is beginning to build outside our initial geographic base.

As we announced in our January call, during the second quarter, we launched the Adept Quattro s650HS, our newest Quattro robot and the only high-speed parallel robot to be accepted by the USDA for meat and poultry packaging. We are pleased now to announce that we began shipping our product during Q3 and in fact sold out our production capacity for the quarter. Our Quattro robots are a high-margin product for Adept and we anticipate at least slightly stronger shipment in the fourth quarter.

We also saw March pick up in our Solar business in the third quarter, which could indicate (inaudible) investment out of India, China and Taiwan, the largest markets in this industry and where we have majority of our design wins today. The orders came from existing customers that are starting to place follow-on orders. But we don't see any – we don't see substantial near-term momentum in this market. We are well positioned to benefit in fiscal 2011 and beyond as the industry begins to invest in capacity at a more aggressive rate.

In early April, we also participated in National Robotics Week, recently designated by the United States Congress to highlight the importance and significance of robotics to our future. As a leader in robotics, Adept co-sponsored activities with Stanford University and demonstrated future advancements in human robot collaboration. Driven by macroeconomic and demographic trends, robotics is emerging as a key technology area for the 21st century and Adept with our long history of technology leadership is poised to participate in the future expansion of this industry.

During the third quarter, we continued to demonstrate the leverage in our financial model and our ability to deliver improved performance. Operating expenses remained below historical levels even if (inaudible) were fully restored for the entirety of the quarter. To illustrate the improvements we made, when we compare our Q3 2010 operating expense with the third quarter of fiscal 2008 in which revenues were 13% higher, our operating expenses are now 13% lower, resulting in an operating profit and supporting our return to net profitability even at this lower revenue base.

We expect maintain our expense levels below our 2008 levels; though obviously the timing of certain investments and other activities may cause fluctuations from time to time. But [ph] it is important to understand our story and that we now have the ability to earn far secured [ph] returns from our investors given our new model.

Finally, before I turn the call over to Lisa, I want to reemphasize our enthusiasm for the results of the quarter. Not only did our revenue grow substantially both on a sequential and annual basis, our orders are up almost 50% sequentially, resulting in strong backlog going into our fiscal fourth quarter. In addition, we reported a net profit and increased our cash. It is obviously very positive signs for Adept. While we are in a cyclical business and normally see seasonally strength in the third and fourth fiscal quarters, we believe this return to historical performance levels is a powerful indicator of where Adept is heading and our ability to leverage product investments across all of our target markets as well as our improved financial model. We are emerging from the downturn in a much stronger position and are excited about what this means for our future opportunities.

I'll now turn the call over to Lisa for a review of our financial results. Lisa?

Lisa Cummins

Thank you, John. Revenues for Adept's fiscal 2010 third quarter were $14.3 million compared $9.2 million in the previous quarter and $7.7 million for the third quarter of 2009. As John said earlier, the increase in revenues was driven by strength in the disk drive and packaging markets.

By business segment, Robotics revenue which represents sales of our intelligent robotics systems and vision guidance technology and motion control software was $12.5 million for the quarter compared to $6.7 million in the previous quarter and $5.9 million in the third quarter of 2009.

Looking now at our services and support business, revenues in the third quarter of 2010 were $1.8 million compared to $2.5 million in the prior quarter and $1.7 million in the third quarter of 2009.

Looking at revenue by region, European sales were 40% of total revenues in the third quarter of 2010. US sales were 20% of revenues in Q3 and Asian sales were 38% of revenue.

Turning now to gross margin, for the fiscal 2010 third quarter, reported gross margin was 42.8% of revenue, compared with 44% in the previous quarter and 38.2% in the third quarter of fiscal 2009. Our margin this quarter was impacted by a change in product mix and a decrease in the value of the euro during the quarter which impacted our currency exchange.

Turning to operating expenses, OpEx for the quarter was $5.7 million compared to $5.7 million last quarter and $6.4 million in the third quarter of 2009. Going forward, we will continue to closely manage our expense levels as we incrementally increase our product investment in line with our revenue expectations.

We reported an operating profit of $374,000 in the third quarter of 2010 compared with an operating loss of $1.6 million in the previous quarter and an operating loss of $3.5 million in the third quarter of 2009.

We recorded GAAP net income of $596,000 in the third quarter or $0.07 per fully diluted share, compared to a net loss of $1.8 million or $0.21 per share in the previous quarter, and a net loss of $3.5 million or $0.42 per share in the third quarter of fiscal 2009.

Adjusted EBITDA, which excludes interest earned, depreciation, amortization, taxes, goodwill impairment and stock option expense, was $1.1 million in the third quarter compared with an adjusted EBITDA loss of $1.1 million in the previous quarter and EBITDA loss of $2.6 million in the third quarter of fiscal 2009.

Turning now to the balance sheet. Adept ended the quarter with cash and cash equivalents of $8.2 million, up slightly when compared with $8 million at the end of December. Cash balances at any given time fluctuate based on the timing of receivables collection.

Accounts receivables were $10.9 million at the end of March compared with $8.3 million at the end of December. The increase was related to higher revenue levels during the quarter.

Inventory levels net of reserves were $7.7 million at the end of the third quarter compared with $7.9 million at the end of December.

With that, I will now turn the call over to the operator for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Management, I show no questions in the queue at this time.

Actually, we do have a question from the line of Chris Thomson with MindShare Capital. Please go ahead.

Chris Thomson – MindShare Capital

From MindShare Capital. How are you?

John Dulchinos

Good, thank you.

Lisa Cummins

Good, how are you?

Chris Thomson – MindShare Capital

Good. I got a question for you on – in the December quarter, you noted that your order bookings were the highest since June of 2008. I was just curious if you have a sequential increase in bookings or if you could speak to that at all?

John Dulchinos

Yes, they were up 50% from the December quarter.

Chris Thomson – MindShare Capital

Okay. I think you gave a book-to-bill of 1.3 last quarter. Do you have a book-to-bill for this quarter?

John Dulchinos

We don't publish our book-to-bill but you can calculate it if you take December's results, add 50%, and then divide by revenues in the March quarter.

Chris Thomson – MindShare Capital

Will do. I don't mind a little bit of work; that's fine. All right, that's all I have guys. Thanks a lot.

John Dulchinos

Okay, thanks.

Operator

(Operator instructions) And management, I show no further questions at this time.

John Dulchinos

Okay, thank you. I'd like to thank all of you for joining us on this call. We feel great about the progress we've made this quarter and look forward to speaking with you when we report our year-end results in August. Thank you, bye.

Operator

Ladies and gentlemen, this concludes the Adept Technology third quarter fiscal year 2010 conference call. If you would like to listen to a replay of today's call, please dial 1-800-406-7325. And for international participants, please dial 1-303-590-3030 and enter the access code 4283849 followed by the # key. The replay will be available until May 5, 2010. Thank you for your participation. You may now disconnect.

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