Adept Technology's CEO Discusses F1Q 2012 Results - Earnings Call Transcript

| About: Adept Technology, (ADEP)

Adept Technology, Inc. (NASDAQ:ADEP)

F1Q 2012 Earnings Conference Call

November 3, 2011 5:00 PM EST

Executives

Lisa Cummins – CFO

John Dulchinos – President and CEO

Analysts

Sam Bergman – Bayberry Asset Management

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Adept Technology first quarter 2012 results conference call.

During today's presentation, all participants are in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions).

This conference is being recorded today, November 3rd, 2011.

It is now my pleasure to introduce our host for today, Ms. Lisa Cummins, Chief Financial Officer. Please go ahead.

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, November 3rd, 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 30th, 2011 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 first quarter 2012 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. The results of the first quarter were strong, particularly as we begin our normally slower seasonal period with revenues growing 14% over the same period last year and flat with the fourth quarter of 2011. The increase was driven by relative strength in our core markets such as automotive, industrial, solar, consumer goods, and electronics. If we exclude disk drive revenues, revenues are up 27% compared to the first quarter of last year. Additionally, we believe the more diversified revenue streams from our acquisitions MobileRobots and InMoTx, which were not meaningfully large in the period will enable further reduction in our historical seasonal cycles in the coming years.

During the quarter, we launched our program to be exclusive supplier of autonomous hospital robots based on our MT400 mobile robots platform, which we acquired from MobileRobots to Swisslog Healthcare solutions. These robots will be used in hospitals, labs, clinics to provide on-demand delivery systems that are uniquely suited to carryout monotonous tasks typically found in these environments, increasing efficiency and improving the quality of care within the healthcare system.

In addition, we are beginning to see commercial traction with our MT400 platform solution, which given its natural feature based autonomous navigation and mapping technology can extend well beyond healthcare facilities to production facilities, clean rooms, laboratories, warehouses, distribution centers and retail outlets. We’re actively engaged with large manufacturing customers in a variety of industries focusing on vertical applications for this technology. And expect as the year progresses, we will see additional commercial enterprise level mobile robots continuing to build.

Our expectations for InMoTx also remain strong. We have recently made some aggressive changes to the operational structure of that business, including the decision to close down the facility in Denmark and consolidate resources and expertise to our headquarters here in California. We anticipate this action will result in a net savings of approximately $400,000 per quarter, the impact of which will begin to occur in the third quarter, with a full impact in fiscal Q4.

Along with the consolidation of operations, we are also refocusing our strategy to target new customers and gain penetration into the extremely large natural food handling market. Previously, InMoTx was a technology company lacked the scale and product maturity and they were somewhat restricted to addressing very customized applications for individualized customers and end products, requiring a substantial investment per program.

To remain in line with this overall strategy to address broad and diverse markets with our technology, it is crucial that we are able to replicate device and meet multiple standards and products. As a result, we are being very selective with the programs we take on ensuring that we maximize our own investment while providing the highest possible ROI to any given customer. Our pipeline is somewhat smaller as are our near-term revenue expectations. However, we’re confident that this is the right move to leverage this unique and patented method to efficiently and identically handle natural and irregularly shaped products.

As we have stated in the past, natural products represents about one-third of the total food packaging market, and today there is not a viable method of handling these products. With such a large untapped opportunity and our unsurpassed technology, we need to be certain that we’re entering a market in a way that we can scale the business.

Our traditional core business performed well during the first quarter. Despite the seasonally soft period, we achieved annual revenue growth in nearly all of our core segments, including automotive, industrial, electronics, consumer goods, and solar. In the US, while the economy remains uncertain, our order activity was up both sequentially and annually. Our sales organization is focused on our key vertical markets and value-added products. And we’re working diligently to maintain existing business throughout fiscal 2012, likely in line with the overall economy.

Also, you may have seen our announcement that John Boutsikaris has joined us as our Senior Vice President of Sales and Marketing. John has extensive experience of running global sales operations at both Fortune 500 companies as well as microcaps. And I’m confident that his expertise will complement our existing executive team in our key objectives and growth strategies.

Overall, activity in Asia is solid, as we continue to get strong revenues from our packaging, solar, and electronics businesses. Disk drive sales showed a marginal increase compared to last year, however remained considerably lower on an annual basis. Our new China office is operational and we remain committed to staffing with sales, application service engineers to position us for growth in this exciting market.

In closing, we are pleased with the results for the quarter and believe we are well positioned to continue on our growth trajectory for fiscal 2012. Given the ongoing economic weakness in the US and the obvious European currency crisis, we’re somewhat cautious as a general matter. However, our strategy remains unchanged. We continue to execute to plan growing both organically and through acquisitions that are complementary in technology, target markets, and customer bases. We will continue to focus on integrations, synergies and opportunities to address our core markets and believe we have the right technology and so we wish to take Adept to the next phase of our growth cycle.

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

Lisa Cummins

Thank you, John. Revenues for our just fiscal 2012 first quarter were $16.6 million compared with $14.6 million for the same quarter of last year, and $16.8 million for the previous quarter-end. The annual increase in revenues was driven primarily by gains in some of our core markets, including automotive, industrial, consumer goods, electronics and solar, and more than offset the significant decline in disk drive sales compared to the first quarter of last year.

By business segment, robotics revenue, which represents sales of our intelligent robotics systems and vision guidance technology and motion control software, was $13.4 million for the quarter, compared to $13.2 million in the previous quarter and $12 million in the first quarter of 2011.

Looking now at our services and support business, revenues in the first quarter of 2012 were $3.2 million compared to $3.6 million in the prior quarter and $2.6 million in the first quarter of 2011.

Looking at revenue by region, European sales were 51% of total revenues in the first quarter of 2012. US was 21%, Asia was 25%, and 3% for all other.

Turning now to gross margins, for the fiscal 2012 first quarter, reported gross margin was 43.8% of revenue compared with 45.3% in the previous quarter and 43.7% in the first quarter of fiscal 2011. Our margin this quarter was impacted by normal product mix shift.

Turning to operating expenses, OpEx for the quarter was $7.7 million compared to $8.8 million last quarter and $7 million in the first quarter of 2011. The annual increase in expenses are directly related to the acquisition of InMoTx.

We recorded an operating loss of $435,000 in the first quarter of 2012 compared with an operating loss of $1.2 million in the previous quarter and an operating loss of $638,000 in the first quarter of 2011.

GAAP net loss for the quarter was $619,000 or $0.07 per diluted share compared to a net loss of $686,000 or $0.08 per diluted share in the previous quarter and a net loss of $1.1 million or $0.12 per share for the first quarter of 2011.

Adjusted EBITDA which excludes interest, depreciation and amortization, taxes, merger and acquisition expense and stock option expense was $418,000 in the first quarter compared with an adjusted EBITDA of $127,000 in the previous quarter and adjusted EBITDA of $203,000 in the first quarter of fiscal 2011.

Turning now to the balance sheet, Adept ended the quarter with cash and cash equivalents of $7.1 million, down from $8.6 million at the end of June. The decrease in cash is primarily the result of a higher than normal inventory level as we began to launch various packaging programs with our customers and for orders to be delivered in the second quarter of fiscal 2012.

Accounts receivable were $11 million at the end of the quarter, slightly higher than $10.9 million at the end of June. Accounts payable were $8.1 million which compares with $8.2 million at the end of last quarter.

Inventory levels net of reserves were $10.7 million at the end of the first quarter compared with $9.5 million at the end of June.

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

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Sam Bergman from Bayberry Asset Management. Please go ahead.

Sam Bergman – Bayberry Asset Management

Good morning, John and Lisa. How are you?

John Dulchinos

Good.

Lisa Cummins

Thank you.

Sam Bergman – Bayberry Asset Management

Couple of questions. One is, what’s driving the accounts in the solar industry? What percentage of sales is that for a –

John Dulchinos

Your question is what is the percentage – what is our percentage of sales from solar?

Sam Bergman – Bayberry Asset Management

Yes. Is that broken not at all?

John Dulchinos

It’s approx – you have – I have a trouble hearing to you Sam, but it’s approximately 10% of our revenues.

Sam Bergman – Bayberry Asset Management

Have you seen quotations and activities level off in that particular area or is that still going pretty strong, because there has been a lot of different negative comments on the news on the solar industry. And so I’m little concerned about your – whether it’s the same or in that range of future business.

John Dulchinos

Yes. So our solar business is largely – probably everyone’s solar business large comes out of China, which has consolidated most of the manufacturing for solar cells and panels. We have – we’ve had – we’ve been pretty steady – we’ve been building through probably the summer and I guess I’d probably say it’s certainly leveled-off at this point, I don’t know if that’s falling off, but yes. But I’d say that our growth is kind of flat toed in solar at the moment. Everybody is – I think we’ve talked about on the calls. We have a combination of OEMs in the US, Europe and Asia that generally feed their solutions into the China market.

Sam Bergman – Bayberry Asset Management

And in the natural food industry which seems to be an upcoming growth area for you, there is at presently no competition in that industry that handles those kind of robotic products? And what products do you have ready to shift to that industry?

John Dulchinos

Food is big, Sam. I’d say it’s one of the largest markets in the world in terms of just shear dollars spent. So it’s hard to be a across the board supplier. What we focused on is a more narrow segment of it called natural food products, which is products that have irregular shape to them, they’re typically meat, seafood, foods, vegetables, some diary. In that market, there is various levels of competition, but really in the areas that we’re focused on where the product itself has an irregular shape and leverages the grouping technology we acquired from InMoTx. There really is very little or no competition at this point.

We’ve been selling our Quatros to people who are working on the fringe where the grouping technology isn’t required already in natural food products. What our initiatives was we started earlier this year was to move into providing solutions into natural food handling which had irregularly shaped products.

We are shipping solutions as we speak in that market. Although we are taking a cautious approach, because we don’t want to – we want to make sure that we’re delivering equipment that we have a high degree of confidence we can replicate and replicate profitably. And so we’ve taken a little slower path than I think we would have liked to have done at the beginning, but I think it’s going to payoff very well in terms of our ability to be successful in the marketplace.

So we will continue to ship product into this market a modest revenue levels for probably the next couple of quarters until we’re confident that we can scale the business.

Sam Bergman – Bayberry Asset Management

And you have a dedicated sales staff for that business?

John Dulchinos

We have dedicated sales people. We don’t need – at the current revenue levels and at the average selling price you don’t need a lot of sales effort to generate revenues. Typically, an average order for us thus far in this business is probably about $400,000 to $500,000. But it’s much higher average order than it is in our components business.

Sam Bergman – Bayberry Asset Management

And what are you hearing in the rest of the world, the Europe especially with the macro economics the way it is? Have you seen a drop-off in quotations on the capital equipment or do you see a pretty good activity right now?

John Dulchinos

Well, it’s remained steady. We are watching it weekly. I think that there is a – there is two trends that we need to discern between. One is, normally our September and December quarters are usually are softer period in the year just because of the order patterns of our customers. And then, of course, there is the overriding macroeconomic environment. As you can tell from our first quarter results, neither of those affected us. We were able to maintain flat revenues quarter-over-quarter and grew revenues 14% year-over-year.

But we’re taking a cautious outlook. I can’t imagine that the credit crisis in Europe is going to help our business. I think the real question is will it slow it down much. Most of our European revenues come from Germany and Germany is an export nation. So a reasonable percent of the revenues that go into Germany for us come out of Germany and go to places like China. So our overall revenues from Europe aren’t completely affected by just what goes on in Europe, they’re linked to other economies around the world.

And so – to answer your question, we have not seen anything directly yet in our business, but certainly it’s something that we monitor on a weekly basis.

Sam Bergman – Bayberry Asset Management

Okay. And can you break out organic growth for the quarter minus the acquisitions?

John Dulchinos

Yes.

Lisa Cummins

We don’t really look at it that way. We don’t present the information that way.

John Dulchinos

Let me just add one comment to that, which is that packaging solutions revenue was essentially – was barely above zero in the quarter. So it’s what we had in Q1 to Q1 is a pretty accurate year-over-year comparison.

Lisa Cummins

Without the solutions –

John Dulchinos

Without the solutions, yes.

Lisa Cummins

– and the mobile business.

John Dulchinos

Yes. But if you look at our core business plus our MobileRobot acquisition this year versus our core business plus our MobileRobot acquisition last year, it’s really reflected almost a 100% in that 14% increase in revenues.

Sam Bergman – Bayberry Asset Management

I see. Thank you very much.

John Dulchinos

Yes.

Operator

Thank you. And our next question comes from the line of Alex Gasquet [ph], Private Investor.

Alex Gasquet – Private Investor

Yes, thanks for taking my call. I noted that flooding in Thailand has knocked out roughly a third of global disk drive capacity and led to spot shortages and roughly doubled disk drive prices. And I wondered if in building – rebuilding the industry’s capacity, do you anticipate that any additional disk drive capital expenditure in order for Adept paralyze [ph] the result?

John Dulchinos

Yes. I can answer that. First-off it’s a shame what’s happened. It’s – we’ve had some pictures sent to us from our team over in Asia and it’s really remarkable the extent of the flooding.

The disk drive business – just as a bit of background, we’ve typically sold to the US manufacturer of disk drive over the last couple of decades. And what’s happened over the last year is or in the last decade or last five years, but certainly most recently this year is the industry just keeps getting more and more consolidated around the two major suppliers in the US, the Seagate and Western Digital.

The challenge from a capital equipment standpoint has been that with the acquisitions it’s tended to slow down investments going on into programs while they sore through the digestion process. The impact in Thailand has affected some of the facilities where our equipment is in to the extent – the extent of that damage is not clear yet, some of the waters haven’t receded. And I would expect that there would be some uptick of expenditures to either service or replace some of that equipment. But we don’t yet to the extent that how broad that is and what this total damage is. I don’t think it will be material. I think it’s not something there will be millions of dollars of incremental – the equipment for us, but I do think it will be in the hundred or hundreds of thousands of dollars of equipment will be my guess.

Alex Gasquet – Private Investor

Okay, thank you.

Operator

(Operator Instructions). Our next question comes from the line of Phil Faraci [ph] from Enterprise Financials [ph].

Phil Faraci – Enterprise Financials

Hi John and Lisa.

John Dulchinos

Hello.

Lisa Cummins

Hello.

Phil Faraci – Enterprise Financials

I just want to be sure I understand the gentleman – not the last one, but before, you said that your, the 14% increase in sales was like the MobileRobot acquisition that there weren’t a lot of sales in the packaging area, is that –?

Lisa Cummins

That is correct. Q1 to Q1 was pretty much of normal with our organic business compared to mobile with our organic business with some amount of packaging solutions.

Phil Faraci – Enterprise Financials

Okay. And then the packaging business, you mentioned that you thought the orders would be like $400,000 or $500,000 would be a normal order, are you expecting to see – since you’re not getting any of – or you didn’t have any in the second quarter, are you expecting that to pick – start to pickup soon or –?

John Dulchinos

Yes, we’re getting orders. We just haven’t delivered product for revenue yet. So the short answer is, yes we would expect to see revenues in the second quarter from our packaging solutions business and going forward after that.

Phil Faraci – Enterprise Financials

Okay, so you’re getting orders, but it’s just making sure everything works right. It’s like they’re like the beta installations if you will.

Lisa Cummins

Right. We get cash in advance on those, so it’s in our deferred income on our balance sheet. So you will see that there.

Phil Faraci – Enterprise Financials

Okay, okay.

John Dulchinos

But we are being very selective about what we do there. We want to make sure that we – these kind of solutions can get you in a lot of trouble if you take the wrong projects. So we are being very careful to be – these first jobs that we do and make sure they’re going to be successful.

Phil Faraci – Enterprise Financials

Yes. And you are not only going slow to make sure to make sure everything works right in the plant, but also so that there is broader application to what you do, so you don’t spend – when you say getting a lot of trouble, well I guess you could spend a lot of money to make it work.

John Dulchinos

Yes. And we don’t want to be in the custom business. And really to look at InMoTx was doing they were doing a lot of custom projects. And so we’ve been raising it up a level of granularity in what we’re looking at, because we don’t want to – we’re not trying to solve the individual customer problem, we’re trying to solve market problems with a higher value and a larger amount of contents. And so that’s taken a little bit longer than we have initially modeled to get this to start bringing revenues in.

But they’ve been a – their financial equation is compelling in this – when you look at the depths, its sales expense is a large number normally to get the revenues we get in the components business. The packaging solutions business with initial orders averaging $400,000 to $500,000 a piece has tremendous promise in the future to really reshape our sales and marketing expense as a percent of revenues on that segment of our business. And so it’s very attractive long-term financially to get this equation right and scale it in that manner.

Phil Faraci – Enterprise Financials

Right. Yes. And what got my attention is, I don’t remember how long ago it was, when you made this acquisition and you talked about the potential and – you gave some really good examples of how the product would really – could really help some of these food processors. So you’ve got several – well if you can look, you said you can look – I can look in the 10-K, 10-Q, but you have several installations now and it’s just when will they be ready to apply on a more broad based solution?

John Dulchinos

Yes, we’re starting – we’re turning down many more projects than we accept. So we’re trying to keep the market at bay until we’re confident that we can scale the revenues.

Phil Faraci – Enterprise Financials

And just one last question, because I guess this is something we’re potentially as – because the return on investment is so compelling, I mean it would not only reshape your income statement from an – potentially from an expense point of view, but – I mean there is a huge amount of revenue potential out there, right?

John Dulchinos

Yes, there is a – food is a big market and natural products is a third of all foods. So it’s a – there is plenty of business out there. It’s a very large TAM in terms of a market. We want to make sure that we’re dialed in at the right spots and that we can really maximize the value we get from each projects and each segment of customers. And but – yes it’s a very big market. It’s a much big market opportunity than our SCARA robot business which is generally few of the line of our component business.

Phil Faraci – Enterprise Financials

Which business was that you said that field a lot of your component business?

John Dulchinos

The SCARA robot business that are Cobras. If you look in our website, our Cobra robots are in a segment of the market that’s – and packaging is many times bigger than that in that market segment. So I mean –

Phil Faraci – Enterprise Financials

Okay.

John Dulchinos

If we had the same level of success in that market as we have in the SCARA business, we would be a much bigger company.

Phil Faraci – Enterprise Financials

Good deal. I’ll let somebody else ask questions. Thanks.

John Dulchinos

Yes.

Lisa Cummins

Great, thank you.

Operator

(Operator Instructions). There are no further questions. You may continue for any closing remarks.

John Dulchinos

Okay. I want to thank everybody for joining us again today. We appreciate your support and interest in Adept Technologies, and we look forward to joining us on our call just after the first of the year. So thank you everybody.

Operator

Ladies and gentlemen that does conclude today’s teleconference. Thank you for your participation. If you’d like to listen to today’s replay, the phone number is 1-800-406-7325, access ID 4484527. You may now disconnect.

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