On August 25, 2014, Adept Technology, Inc. (NASDAQ: ADEP) reported a FY 4Q 2014 loss of $0.5 million ($0.03 per share) on sales of $14.3 million compared to a loss of $0.1 million ($0.01 per share) on sales of $13.7 million in the same quarter in 2013. These results came in below Yahoo Finance average consensus earnings estimates of $0.02 on sales of $16.22 million.
Adept Technology, Inc. designs, builds and sells robots for semiconductor, logistics and manufacturing markets. The company was founded in 1983 and is based in Pleasanton, California. It currently employs 139 people.
-Gross margin of 46.3%
-$7.6 million in cash and cash equivalents
-No outstanding debt, $10 million line of credit
-$1 million in cash from operations in the year
-Management outlined annual revenue goals of $200 million in 4-6 years with 45%-50% gross margins
-Goal of operating Income of 15%-20% of sales within 4-6 years
No guidance given.
What to look for in FQ1 2015
Management stated that it is excited about international growth and is receiving follow-on orders for customers in Asia and Europe. Management highlighted that its products were being used in explosive manufacturing, consumer electronics manufacturing and the automotive industry.
Stabilizing North American Market
Management repeatedly stated that its North American sales were lagging, and that it is trying to remedy the situation by releasing products specifically for the North American market, such as packaging applications.
From an earnings standpoint, it was an extremely disappointing quarter for the company, which recorded lower sales and a greater loss than last year. This was an extremely short call, and management was finished with its prepared remarks after only about 17 minutes.
Management did not sound too excited about the quarter, and it seemed as if they wanted to get the call over with as soon as possible. The CEO explicitly stated that the company was disappointed with sales performance in the quarter and the year, and said that "the path to position Adept to profitably grow over the long-term will not be a straight line."
Upon discussing the financial results, the CFO stated that he wanted to "be brief" because most of the information he was about to disclose is in the Form 10-K. The CFO talked a bit about the company's high gross margins, but failed to offer any information about how the company was going to decrease operating expenses in order to make the company profitable. Surely there must be some levers to pull with regard to the company's SG&A expenses, which made up 37.3% of the company's operating expenses in the quarter.
Management stated that it has a goal of achieving $200 million in sales within 4-6 years and operating income of 15%-20% of sales (~$30-$40 million). This sounds extremely optimistic given that the company's sales were only $57.5 million in the year and $46.8 million in 2013. For the company's sales to increase nearly fourfold (and operating income to be nearly as much as sales) over this time period will require substantial investment in its products and in its marketing/advertising, as well as growth in its customer base.
Unfortunately, management did not go into a lot of detail about how this goal was going to be accomplished beyond "…investments including new products, sales, service and marketing resources and infrastructure such as an ERP system," which sounds extremely vague. It would be very helpful if we were at least given some information as to what the company planned to roll out over the next few quarters, and who the intended customer is. Without any information about the company's future product pipeline, it is very difficult to see the company increasing its sales and profitability so quickly.
When questioned about the US market, the CEO was extremely vague and wordy in his response and did not provide much detail as to what was going on there. He was a bit more detailed on Europe, where the company has seen some success and expanded upon the company's product portfolio a bit, but was still reluctant to give out any meaningful details.
In listening to the call and reading the transcript, it was incredibly difficult to get a read on where management sees the company going. They mentioned a "five-year plan" but really did not explain how the company would achieve its goals. Such lack of detail from management about the company's go-forward strategy in the wake of a poor quarter is especially concerning, as it does not give investors a reason to be confident in the leadership or the company's strategy.
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