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Executives

Lisa Cummins - CFO

John Dulchinos - President, CEO

Analysts

John Nelson - State of Wisconsin Investment Board

Frank Buressi - Stifel Nicolaus

Craig Samuels - Samuels Capital Management

Adept Technology, Inc (ADEP) F4Q 2011 Earnings Call Transcript August 24, 2011 5:00 PM ET

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Adept Technology fiscal fourth quarter and year-end 2011 results conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions).

This conference is being recorded today, Wednesday, August 24, 2011. At this time I would like to turn the conference over to Lisa Cummins, Chief Financial Officer. 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, August 24, 2011.

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, 2010 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 fourth quarter 2011 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. 2011 was a solid execution year for Adept, in which we made significant progress on our strategic roadmap while strengthening our competitive position and aligning the company for growth.

The year was marked by the acquisitions and integration of InMoTx and Mobile Robot, both of which substantially increased our available target market and brings differentiated technology and products that complement and extend our existing offerings.

For the year, revenues grew 11%, driven primarily by strengthening demand from our traditional markets such as industrial and automotive customers in Germany as well as packaging and solar in Asia along with our service business.

We also saw the first commercial contributions from our recently acquired Mobile Robot business.

As you know, in our last fiscal year, the disc drive market was very strong, comprising roughly $15.1 million or 29% of last year's revenues. In fiscal 2011, disc drive revenue has declined sharply as capital spending began its cross cycle. It constitutes only $5.5 million or 9.6% of our revenue.

If we back our disc drive for both years, as well as revenues from Mobile Robot and InMoTx for 2011 for an apples-to-apples comparison between the two years, our core market revenues actually increased 32% year-over-year.

We believe fiscal 2012 is poised to experience solid growth as well even without any revenues from the unpredictable disc drive market, which may or may not pick up in the second half of the fiscal year.

As the primary supplier disc drive customers in the world, we will benefit from any return to growth in capital spending, enhanced disc drive sales but do not rely on it to achieve our growth objective.

We feel confident in our strategic roadmap and how we will leverage our recent acquisitions with our existing core technologies to tap large, underserved markets with differentiated solutions.

Our Mobile Robot technology is gaining traction and we recently signed an agreement to be the exclusive supplier or autonomous mobile robots based on our MP400 robotic platform to Swisslog Healthcare Solutions to be used in hospitals, labs and clinics to provide on-demand delivery systems.

With the increasing financial strain on today's healthcare system, providers are eager to find ways to reduce repetitive duties, such as transporting items from one place to another to allow healthcare workers to focus on patient care.

Our autonomous mobile robot solutions are uniquely suited to carry out these monotonous tasks, increasing efficiency and improving the quality of care within the healthcare system.

This particular agreement is a validation of the maturity of our Mobile Robot technology for use in high traffic people environment and an excellent illustration of how our systems can replace existing below efficiency, labor-intensive logistics with autonomous flexible solutions, which are secure, traceable and deterministic.

This solution extends well beyond healthcare facilities to production facilities, clean rooms, laboratories, warehouses, distribution centers and even retail outlets, creating an enormous future opportunity for Adept.

We remain enthusiastic about this acquisition and believe our industry-leading, natural feature-based autonomous navigation and mapping, which we deliver today in our MP400 platform and our [motivity] core, is uniquely positioned within the commercial market.

We will continue to focus on vertical applications for this technology and expect to bring up additional OEM partners as the year progresses with enterprise-level Mobile Robot revenues continuing to build throughout the year.

We are equally excited about our InMoTx acquisition. As we discussed in the last call, InMoTx brings a unique and patented way to flexibly and hygienically handle natural and odd shaped products. Natural products represents about a third of the total packaging market and today there is no viable method for handling these products.

InMoTx was a small technology company lacking scale and product maturity and we have spent the past two quarters commercializing their technology into saleable products and solutions for the market.

At the end of the fourth quarter, we received our first mutlisale order from these products from our new channel partner in Australia. As we stated in the past, we are targeting proteins such as meat, poultry, seafood first because of the labor and contamination issues that these producers face and the lack of an acceptable solution on the market.

Beyond our first multisale order from Australia, we had successfully begun to build our pipeline of opportunities for this proprietary technology with its very attractive ROI to customers. We expect to build meaningful revenues as the fiscal year progresses.

The fourth quarter was also very strong for Adept with revenues growing 31% sequentially. We saw particular strength out of Germany, which has reached peak recession levels. Our core automotive industrial markets in Germany continue to be steady drivers and we're also seeing solar emerge with strong sales in bookings.

We continue to actively build relationships with OEM suppliers that can take our products into the rapidly growing China solar market. This is the third consecutive quarter where orders were up. All of this points to a stronger, more stable business as we enter our fiscal 2012 year.

In the US, we are finally starting to see signs of improvement. We have taken aggressive measures with our sales organization and strategy to refocus our activities around our key vertical market and value add products and saw a 73% increase over the fourth quarter of last year as a result.

We are cautiously optimistic as this trend will continue, albeit slow by normal seasonality throughout fiscal 2012.

In packaging, activity in Asia continued to increase. China is one of the fastest growing robotics markets for packaging in Asia and globally. To address this opportunity and to support our growing customer base in the region, we recently opened a new office in China and are aggressively staffing it with sales applications and service engineers to position us for growth in this explosive market.

In closing, we are excited about our current position in our core market and our performance over the past quarter and year. We continue to execute to plan growing both organically and through acquisitions that are complementary in technology, target market and customer bases.

These acquisitions are being successfully integrated and roadmaps have been defined. Our financial position is in solid shape and we maintain a financial model that has leverage to grow.

We believe fiscal 2012 will prove to be an excellent period for Adept reflecting the successful acquisition and growth strategy. We will continue to focus on integration, synergies and opportunities to address our core markets and believe we have the right technologies and solutions to take Adept to the next phase of our growth cycle.

I will now turn the call over to Lisa for a review of the financials. Lisa?

Lisa Cummins

Thank you, John. Revenues for just fiscal 2011 fourth quarter grew 31% to $16.8 million from $12.8 million in the previous quarter and from $16.5 million for the fourth quarter 2010. The increase in revenues was driven primarily by gains in some of our core markets, including automotive, industrial, consumer goods and solar as well as the addition of new revenues from the acquired Mobile Robot business.

By business segment, robotics revenue, which represents sales of our intelligent robotics systems and vision guidance technology and motion control software, was $13.2 million for the quarter, compared to $9.8 million in the previous quarter and $14.1 million in the fourth quarter of 2010.

As a reminder, the disc drive market was very strong in 2010 comprising 33% of Q4 2010 revenues compared to 4% of Q4 2011 revenues.

Looking now at our services and support business, revenues in the fourth quarter of 2011 were $3.6 million compared to $3 million in the prior quarter and $2.4 million in the fourth quarter of 2010.

Looking at revenue by region, European sales were 56% of total revenues in the fourth quarter of 2011. US was 22%, Asia was 20% and 2% for all other.

Turning now to gross margins, for the fiscal 2011 fourth quarter, reported gross margin was 45.3% of revenue compared with 44.8% in the previous quarter and 41.5% in the fourth quarter of fiscal 2010.

Our margin this quarter was impacted by the increase in higher margin sales to Europe as well as favorable product mix shift. Turning to operating expenses, OpEx for the quarter was $8.8 million compared to $8.6 million last quarter and $6.9 million in the fourth quarter of 2010.

We recorded an operating loss of $1.2 million in the fourth quarter of 2011 compared with operating loss of $2.9 million in the previous quarter and operating loss of $59,000 in the fourth quarter of 2010.

GAAP net loss for the quarter was $686,000 or $0.08 per diluted share compared to a net loss of $3.3 million or $0.37 per diluted share in the previous quarter and a net loss of $186,000 or $0.02 per share in the fourth quarter of 2010.

Adjusted EBITDA which excludes interest, depreciation and amortization, taxes, merger and acquisition expense and stock option expense was $127,000 in the fourth quarter compared with an adjusted EBITDA loss of $1.5 million in the previous quarter and an adjusted EBITDA of $992,000 in the fourth quarter of fiscal 2010.

Now on to the full fiscal year; revenues for full fiscal year of 2011 grew 11% to $57.5 million from $51.6 million for fiscal 2010. By business segment, robotics revenue were $45.1 million in fiscal 2011 compared to $42.7 million in fiscal 2010.

For our services and support businesses, revenues were $12.4 million in fiscal 2011 compared to $8.9 million in fiscal 2010. European sales were 51% in fiscal 2011 reflecting continued strength in Germany. Asian sales were 18%. US sales were 29% and all other were 2%.

Gross margin for the full fiscal year of 2011 was 43.3% of revenue compared with gross margin of 43.2% in the previous year. Operating expenses in fiscal 2011 came in at $31.4 million compared to $23.8 million in 2010.

The majority of the increase is due to the expected additional operating expenses for Mobile Robot and InMoTx.

Operating loss as reported under GAAP was $6.5 million compared with operating loss of $1.5 million in fiscal 2010. GAAP net loss for the fiscal year was $6.8 million or $0.77 per diluted share which compares with a net loss of $1.4 million or $0.17 per diluted share for 2010.

Adjusted EBITDA was a loss of $1.3 million for the fiscal 2011 year compared with adjusted EBITDA of $1.7 million for fiscal 2010.

Turning now to the balance sheet, Adept ended the quarter with cash and cash equivalents of $8.6 million, up from $7.3 million at the end of March. Accounts receivable were $10.9 million at the end of June compared with $10.4 million at the end of March. Accounts payable were $8.2 million which compares with $6.9 million at the end of last quarter.

Inventory levels net of reserves were $9.5 million at the end of the fourth quarter compared with $10.3 million at the end of March.

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

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of John Nelson - State of Wisconsin Investment Board.

John Nelson - State of Wisconsin Investment Board

I have a couple of questions. First off, I'm impressed with the growth in the non-disc drive business. That's phenomenal. Good work on that and I think that the first question is related to the customer base. Does the customer base seem to -- besides the lack of the disc drive orders, is the customer base changing significantly in any way as far as either size or composition? What can you tell me about that?

John Dulchinos

John, I can answer that question. Thanks for the comments on the core business. It's actually grown quite a bit. If you take out -- we gave up $10 million in revenue year-over-year in disc drive and made up all of that and then some with the rest of the business.

The growth has really come from two particular areas. One is Germany and it really is a return to some of our very traditional customers in Germany, companies who are building automotive components, companies who are supplying the machine tool industry, companies who are building electric consumer products like lasers and OEMs who are feeding the solar -- China solar market.

We've certainly added some new customers in Germany. We continue to do that but I think the substantial growth is a return from some of our existing customers who were quite healthy in the last investment cycle who had fallen off quite a bit during the down turn.

The other area for growth is in Asia. We continue to build traction with partners into Southeast Asia and, in particular, into China. China right now has emerged now as our largest Quattro market and we're selling robots now into both packaging and solar in the China market and that's been adding to the mix of customers.

John Nelson - State of Wisconsin Investment Board

Are the Chinese -- do they seem to be more receptive? You mentioned as far as the packaging, the Quattro market. Do they seem to be more receptive to the use of robots versus say a number of your other cultures or countries that you market to?

John Dulchinos

I wouldn't say they're more receptive. I would say that we have two things that are driving it. One is that costs are just going up there and labor is becoming much more difficult to get to go into factories.

I think if you -- the little side bar note is that there's one job policy. If you have one job in your family the last thing you want them to do is to go in to be a factory worker. What's happening is it's getting harder and harder to get the younger generation to the jobs that their parents did. But that plus labor wages are driving up the need to automate.

The second thing is just the sheer numbers. China as a manufacturer -- just to put it into perspective, there's 115 million workers in China in manufacturing. The United States has 12 million. I don't know the exact numbers for Germany but I imagine it's probably on the scale of 12 million to 15 million.

So China's at a magnitude higher in terms of just manufacturing operations and with that presents even a small -- even if you get a small acceptance level you end up with big numbers and that's kind of what's driving the business.

John Nelson - State of Wisconsin Investment Board

Can you tell us who some of your larger Chinese customers are?

John Dulcinos

No, I can't tell you specifically but I can tell you that they are primarily in packaging and right now the big markets are often in the dairy industry. As you know, there was some issues with contamination in dairy in the past in China and I think that's helping to drive automation.

Then the other segment is OEM customers who are servicing the solar market, which is China has become the contract manufacturing center for solar cells in the world and we've got a number of OEMs who are starting to feed that community with automation.

John Nelson - State of Wisconsin Investment Board

You mentioned in the call also that there was good growth in the service and support revenues. Are those margins significantly different, better or worse, versus product sales margins?

Lisa Cummins

Yes, definitely. The service support business is higher, about [57] percentage points higher.

John Nelson - State of Wisconsin Investment Board

Could you discuss any goals for -- as far as either timing or the manner in which you plan to get to both non-GAAP and GAAP profitability?

John Dulchinos

We still -- and I think we actually were -- had debated starting to go the way a business guidance model. We chose not to do it just given some of the uncertainty in the global equity market.

But our objective is to continue to build revenue sequentially and we expect the -- we expect to be cash flow positive this fiscal year and I think beyond that I'll probably leave it at that.

John Nelson - State of Wisconsin Investment Board

I would urge you as one shareholder, urge you to, despite the economic uncertainties, is to join most of your peers and try to provide additional guidance on future calls.

John Dulchinos

Sure. I think that's certainly -- we've heard that before and we're working towards it. Let me add just one other bit of commentary. If you look at the core business, right now our traditional business is generating good, strong cash flows and I think even -- I don't know the exact numbers -- but it was probably close to break even on a GAAP basis in the fourth quarter.

What we have done in the business is we made two investments in technology companies that put us in significantly larger market opportunities. But they're taking a little bit of investment and that's really what has been dragging down the near-term results.

We expect that as we continue to progress forward quarter-on-quarter that we'll be building momentum in these new initiatives and obviously over time, once we get to a critical mass point, we'll start to generate very good cash flows for the company and very good profitability.

John Nelson - State of Wisconsin Investment Board

Do you have adequate financial resources at this time to progress as fast as you would like in developing those markets?

Lisa Cummins

Well, obviously I would always like a little more cash than we have but we definitely have a plan laid out and we have enough to invest for the next year that we really want to make our solid increasing investments and we should be able to get our return we're looking for.

John Dulchinos

Yes, John, we do. We've got a very good relationship with our banking partner and we feel we've got enough steady cash reserves and active working capital to drive the growth.

John Nelson - State of Wisconsin Investment Board

I think I usually ask this every quarter. Any significant changes as far as the competitive landscape? Anybody coming in or exiting that you're aware of?

John Dulchinos

No, I think the most significant thing in those -- from the last conference call; I think China is emerging as a larger and larger automation opportunity. I think that the market is rapidly emerging to one of the largest robotics markets in the world and that just has been building momentum over a number of years, since the downturn has been building momentum.

But it's building -- through the last six months it's built even at a faster pace, which is why we're making the investments we are in China.

John Nelson - State of Wisconsin Investment Board

Do you have to worry much about, if any, about copying or patent infringement in China?

John Dulchinos

It's a fact of life. I think, yes. I think everyone has to worry about that. We feel we've got the necessary product differentiation and enough IP built on software and firmware that our product can be copied from the hardware basis but wouldn’t offer the functionality or performance that we can offer from Adept product.

Operator

Your next question comes from the line of Frank Buressi - Stifel Nicolaus.

Frank Buressi - Stifel Nicolaus

John, on the last call you talked a lot about the natural food packaging and how you were building momentum there and I think you mentioned that there was a couple cells an Australian company bought. But can you comment a little bit more about progress you are making there?

John Dulchinos

Sure. First off, we think it's a tremendous opportunity. As we talked about since the acquisition of InMoTx is their technology is enabling and we get tremendous validation from customers about their technology being a key need for installing the applications in natural food products.

I think as we've gone through the first couple of quarters with InMoTx we realize it's been a little more work we've had to do at the commercialization level to really get the products to a state of readiness that we can start to scale. We don't want to get too far ahead of ourselves and put a bunch of products in the field that aren't ready for primetime.

We feel like we're converging on that. We've held back our sales organization to be selective about the projects we take on in the near term just to make sure that we have a systematic approach to this.

I think that net of all that is we're building very good momentum in our pipeline. We'll probably over the next quarter or so still be selective about which programs we go to. I think the important thing is that there's a long gestation period from first contact to orders and we're building a pipeline that's going to extend out over next several quarters to allow us to build traction and have customers who are ready to place orders as we're ready to scale the operational side of the business.

So it's taking a little bit longer than we had initially expected when we acquired the company and that's been a little more of a challenge for us internally but we're still very bullish on how the technology reshapes the packaging market and we're delivering cells now to customers and we're going through a validation process and we'll be systematically building that from here.

Frank Buressi - Stifel Nicolaus

So you're delivering -- I don't know if you've delivered to many new customers this quarter but you've delivered a lot of the robots. They're using them -- you were saying they're having some trouble -- or not trouble but just things. I guess small things go wrong or big things. What kind of progress are you making there?

John Dulchinos

We're making very good progress. I think that -- let me back up. I wouldn’t characterize it as trouble at all. I would characterize it that we've been investing more on the engineering side to get the products to a state of standardization that we can deploy them without substantial engineering resources.

So the risk in an equipment business is you put something out too early, you end up gluing bodies to it for long periods of time to get it accepted in customer sites. So we've been more cautious in terms of -- and very selective about which projects we're doing so that we can make sure we don't get ahead of ourselves and that's what's delayed the revenue stream.

Frank Buressi - Stifel Nicolaus

So are you changing, [refrying] the products then?

John Dulchinos

That's what we've been -- yes, the first six months have been that and there's a little company, great technology, wonderful product but as all little companies, they're not well documented, the properties aren't well defined and that's the kind of stuff that Adept does very well.

So we've been systematically been working through that and we've been building a pipeline but we've been selective about which orders we take in so we can be sure that we can scale the business in a pragmatic way.

Frank Buressi - Stifel Nicolaus

Just so I understand, a lot of the InMoTx products are -- are they like grippers and all that go on to the Quattros? I don't know if I have a good understanding of that. Is that a lot?

John Dulchinos

Yes, so the core IP they have that is very unique is it's flexible gripping technology, which it adjusts to the shape of a product, which is really key for a natural product. The second piece of technology they have is some really good vision algorithms that allows a system to be able to identify objects that are odd shaped.

Then all of that along with our Quattro and application software gets delivered in a packaging cell that typically has a $200,000, $200,225 ASP selling price to the market.

So there's a lot of technology in what we deliver and we need to make sure that all aspects of that are solid and robust and supportable so that we don't put a bunch of time bombs in the field. That's what's taken longer for us to get to market than we initially anticipated when we acquired the company.

Frank Buressi - Stifel Nicolaus

I don't know how much you're selling but I'm sure you're making good progress and you haven't had it that long yet.

John Dulchinos

It's a tremendous opportunity and I wish I could take you out on some of the sales calls and to hear customer reactions to what we have. I think we've got a wonderful position. Now it's just a matter of getting it to market and scaling the business.

Frank Buressi - Stifel Nicolaus

Just one other question on the Mobile Robot; I don't recall exactly when you acquired that but the medical application you seem to have a lot of enthusiasm for. I've seen these in the warehouse but I don't know about yours in particular but these mobile robots in the warehouses, there seem to be a lot of them there.

But is this something new to have them in hospitals or is this something you think -- you evidently I guess think it's a tremendous opportunity. Can you just comment a little on that?

John Dulchinos

Sure. We've got some great technology here in Mobile Robot and there's a number of companies in the world today who have some level of Mobile Robot solution. Most tend to have some kind of operator in the loop, some telerobotic solution where you're actually -- someone's making decisions for the robot.

We're one of a very small set of companies who have an ability to have a robot be able to make its own decisions, to operate completely autonomously in an unstructured environment. I would argue that we have the best technology in the world for that and the most mature.

That can get deployed in a variety of different applications, warehouses being one, production facilities are another, hospitals is a third, clean room is another one. Any place where you're moving small items reasonably large distances that you have to do on a regular basis and have to do it in environments where you're making changes to your decision is a good application for us.

I wouldn't say that hospitals is the end all solution. We have a very good solution for that market. If you look at what's happening, most hospitals want to get their nurses and doctors and anyone who is in the healthcare profession, they want those people spending maximum amount of time with patients.

Anything they're doing that isn't as face time with patients is inefficiencies. So what mobile robots enable is they basically free up nurses and caregivers to optimize the amount of time they're spending with patients and do some of the back office things like delivering medicine, delivering mittens, delivering laboratory specimens. It's a very good application for this.

Another very exciting market opportunity for us, Mobile Robot technology, is in clean rooms. If you look at the semiconductor, the disc drive and a variety of industries where they have to build products in contamination free environments, clean rooms, the worst form of contamination you can have is people.

People are inherently dirty. If you look at a typical clean room production operation, the processes have been getting largely automated. That's where we've been selling all these robots in the disc drive industry to do. So they're getting people all away from the product where all the people are left is in logistics, moving stuff around by carts.

We have some great technology and our Mobile Robot's been able to solve those. What differentiates what we have is our solution requires no infrastructure. So you can take an existing facility as it is today and as long as there's a wireless network, our robot can come in and operate without any changes to the floor, change to the walls, [size] or anything.

That flexibility allows companies to automate their logistics in bite size investments rather than having to make a big infrastructure investment and bite it off all at once.

So we're very excited about this technology. Again, as with Denmark, the technology is really good. It's taken us a year to get it to a commercializable state and to really identify the right target market. I think we've done an excellent job there and we fully expect that revenues will continue to grow in the mobile robot segment as we go forward.

Operator

(Operator Instructions). Your next question comes from the line of Craig Samuels - Samuels Capital Management.

Craig Samuels - Samuels Capital Management

Can you talk about your payment terms in China?

John Dulchinos

Well, how about Lisa talk about payment terms in general and then we can talk about China specifically?

Lisa Cummins

Well, payment terms in China, right now I’m usually asking for cash in advance as they try to have expenditures. But until they get established with the customer I’m getting cash in advance as much as possible.

John Dulchinos

I would say, Craig, just -- .

Craig Samuels - Samuels Capital Management

Good answer.

John Dulchinos

Can I add something Craig and say that we've had excellent performance in Asia about not writing off bad debt.

Lisa Cummins

Yes, because we got the cash in advance.

John Dulchinos

Yes. So we've managed out very strong. I guess we've managed it very tightly.

Lisa Cummins

Yes.

Craig Samuels - Samuels Capital Management

I'm sure you guys are aware since you're relatively new into China of all the frivolous activity amongst the public companies and even before the scandalous activity the DSOs for most of these public companies create in the US, 150 to 300, 400 days. So good to hear that you're taking cash.

Lisa Cummins

No, they try for that.

Craig Samuels - Samuels Capital Management

Next question, as far as your [cam], I've actually followed Adept for years and visited the company under [Rob] several years ago. With some of your new initiatives you've clearly expanded your [cam]. Any thoughts on where it stands now?

John Dulchinos

Oh, yes, it is substantially better. I think it's a good rough perspective is that the global -- so the history of Adept's bread and butter product is a product called [aprobo], which is a scary robot.

If you look at the global [cam] for that particular product category, which today represents about half our revenues, it's about $250 million. If you look at how much of that is really available to us because a large slice of that is in Japan which is really an untouchable market, it's about that, $150 million, $160 million.

Yes, and we're extracting a large percent of that in terms of market share. These new initiatives are several times the size of that [cam]. So I think for the first time since I've been with Adept the size of the market will not be a limiting factor in terms of our growth. We've got substantial amount of headwind in both packaging and mobile robots.

Craig Samuels - Samuels Capital Management

In terms of the mobile robots, are there -- I didn't hear your, nor did I read in the press release today or historically, any military applications. It seems like that would be a pretty good area for you guys to explore.

John Dulchinos

Yes, we were asked that question in the last call. Our perspective is companies like iRobot and a couple of other companies do a very good job servicing that sector and the government business -- you talk about China, this is almost like a China. It's got its own set of rules and requirements.

Craig Samuels - Samuels Capital Management

Maybe worse.

John Dulchinos

We're not -- as a company, what we do really well is enterprise-level business and I think that's what actually creates a tremendous opportunity for our mobile robot technology is that we're really the only company right now who has really an enterprise level capability, who has mobile robot technology. Because of that, we're really working very hard to exploit that opportunity in an area where we feel really comfortable selling into and supporting and maintaining.

I wouldn't rule out military in the future but the set of parameters that the military needs is less -- we could certainly deliver our products into those applications. I don't think it commands the most value for what we can do with this technology.

Craig Samuels - Samuels Capital Management

Then my last question, I'm sure you're familiar with intuitive surgical and the success that's had in the public markets over the past several years. Is your CLARA initiative progressing and is that a viable competitor or entrant into this medical or surgical robotics space?

John Dulchinos

I'm going to say two things. One is [intuitive surgical] is a tremendous company and I think many, many companies in the automation space would love to have their financial model. They've done a tremendous job carving out what they do.

But the CLARA program we have is a program that will lead to our having safe robots, robots that can operate alongside people. We are not going to develop procedure-level technology here. It's just too far afoot from what we'd be able to be capable of.

So if you look where we would end up in healthcare, we would end up supplying our technology like we do in Swisslog to companies like [intuitive surgical] would take our products into procedure-based applications.

So I think we'll go from underlying technology. I would also venture to guess that a company like [intuitive surgical] if it was going to start today would be less likely to develop all of the robotic technology that they had to develop but rather source a lot of that technology. They can focus their value add on the things that really make sense, which is the procedure and that's where they make their money.

It's a rare thing to have a company that can develop robotic technology and surgical procedure. It's two very, very different disciplines.

Craig Samuels - Samuels Capital Management

Then my last question just based on your revenue run rate, your depth of IP within the robotics space and your current market cap, do you guys actually become an interesting acquisition target for somebody?

John Dulchinos

Well, I think -- personally, I think we're substantially undervalued as we sit today given our IP base and our brand and market access. I think that [if a greater someone] wants to gain access to it, absolutely. We're not actively marketing the company any way but I think that -- and I think it's unreasonable to expect that someone could acquire the company at the current market cap given what would happen if you try and buy those kind of shares on the market.

So I'm sure that we're of value to somebody. We're not actively looking at that though, Craig.

Operator

Your next question comes from the line of Frank Buressi - Stifel Nicolaus.

Frank Buressi - Stifel Nicolaus

John and Lisa, just one thing; just thinking about all the volatility with the economy and all -- and if there were a lot of fluctuations in sales just because of uncertainty and all -- hopefully that won't happen but could you -- what kind of level of sales do we need to avoid trouble on loan covenants or whatnot?

Lisa Cummins

We're definitely secure on our loan covenants. I negotiated pretty good loan rate with them for the next year, so I'm confident that we will be able to meet our covenants even with a downsize scenario.

John Dulchinos

Yes, Frank, but rest assured if we [spent] that there's any downward pressure on our revenue plan, we'll take the necessary steps here to ensure that we're not using cash flows.

Lisa Cummins

Exactly.

Frank Buressi - Stifel Nicolaus

Just one other thing; you mentioned, I think you said $2.5 million of revenue in the quarter was solar related.

John Dulchinos

We took -- yes, I don't have the solar revenues. We took $2.5 million in orders. We had a very healthy booking quarter in June. In fact, it's one of the biggest quarters we've had in a number of years that was I think a very positive sign. We did take $2.5 million of that in solar.

Frank Buressi - Stifel Nicolaus

With -- you hear about tariffs being reduced to where in Spain and Germany and wherever but despite that the solar business is ramping up pretty good? I guess it is.

John Dulchinos

Well, I think you need to separate I guess a couple of different things. I mean, certainly from a source of supply standpoint now, it's all in Asia and largely in China. So back in 2006, 2007 during that ramp up, the majority of the manufacturing capacity was not in China but over the last three or four years it's all shifted there.

We do two levels of applications. One is we do loading and unloading processed tools, handling and inspecting the solar cells. That's one set. The second is we're integrated into the tabbing and stringing process, which is actually the wiring, the physical wiring and stringing together of solar cells and panels.

That's a process that will be automated regardless of capacity needs. So today a lot of that stuff has been historically and continues to be done by hand and automation is proven to substantially improve yields and costs and so that will -- even if the capacity needs level off we would expect at least that segment of the solar business to continue to be healthy going forward.

Frank Buressi - Stifel Nicolaus

So this tabbing -- so the yields are much higher when it's automated?

John Dulchinos

Yes, if you think about women in China with soldering irons taking little wires and soldering them to these little flexible solar cells, there are lots of issues with potential quality defects, too much solder, not enough solder and crack in the wafer, a host of things. So the yield's much better when you do it with automation.

Frank Buressi - Stifel Nicolaus

Are there other opportunities that -- or I guess the other semiconductor things, those have already been automated are with the …

John Dulchinos

Yes, we don't sell robots. We don't sell manipulated robots into semiconductor. We do believe semiconductor may be an exciting market opportunity for our mobile robots to move wafers around fabs.

Operator

Thank you. Mr. Dulchinos, at this time, there is no further questions. Sir, I'd like to turn the conference back over to you for any closing comments.

John Dulchinos

Thank you. I want to thank everybody for joining us. We appreciate everybody's support of our company and our strategy and our plan and we look forward to updating you on our progress at the next quarterly conference call in I think October, somewhere around there. Anyway, thank you, everybody.

Operator

Thank you, sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 and type in the access code of 4463184. This does conclude the Adept Technology fiscal fourth quarter and year-end 2011 results conference call. Thank you for your participation. You may now disconnect.

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