ADEP

Adept Technology, Inc. (ADEP)

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Adept Technology Inc. (ADEP)

F2Q2012 (Qtr End 12/31/2011) Earnings Call

February 1, 2012 04:30 pm ET

Executives

Lisa Cummins - SVP, Finance & CFO

John Dulchinos - President & CEO

Analysts

Sam Bergman - Bayberry Asset Management

Presentation

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Adept Technology second fiscal quarter 2012 results conference call. During today's presentation, all parties will be in a listen-only mode and following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today, February 1st, 2012.

And I would now like to turn the conference over to Lisa Cummins. Please go ahead.

Lisa Cummins

Good afternoon, everyone and thank you for joining us. I just want to clarify this is actually the Q2 2012 fiscal results call. 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, February 1st, 2012.

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 risk 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 second 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 financial results for the quarter were in line with our expectations, up 14% year-over-year but down sequentially which is typical given the period of seasonal weakness. However the numbers don’t accurately reflect the substantial progress we have made towards our strategic objective which I will highlight in a moment.

First, the sequential revenue decline was largely driven by weakness in Europe and to a lesser degree the ongoing downturn in disk drive. Looking at Europe, we believe that we experienced the full impact of any downside in that sector during the quarter and currently expect revenues from that geography to return to growth throughout the remainder of this fiscal year. And not surprising disk drive revenues were close to zero in the quarter reflecting the tight capital investment climate from the industry consolidation and the impact of the floods in Thailand. We do expect to see improvement in the market in 2012.

In our Components business, the aforementioned revenue declines were mostly offset by stronger revenues in the US where we had our best revenue quarter since the downturn as well a very strong quarter in our traditional Packaging Components business. We also saw a beginning traction in China where we recently opened a new support center. If you remember, China is rapidly becoming a major market for industrial robots and we believe the best brand commends value in this market. Assimilating all these data points, component revenues were up year-over-year reflecting strength, growth and value in our traditional Components business.

Now I would like to shift gears and speak to our new initiatives, Packaging Solutions and MobileRobots and how these initiatives support our long-term strategy to achieve sustainable revenue growth and consistent profitability. First, I am pleased to report that in our second fiscal quarter, we recognized our first material revenues related to our Packaging Solutions business as we delivered (inaudible) cells in the natural products market representing close to $1 million in revenue.

As we have discussed on previous calls, the natural foods market is a largely untapped automation market that represents roughly one-third of the entire food market and the technology we’ve acquired from InMoTx is an enabler for these applications.

Besides being a very large opportunity, it also has the potential to substantially change our financial model for a couple of reasons. First, the average order size and the visibility is much better than in our traditional components business. The revenue we recognized in our second quarter was based on two orders, they were booked in the June quarter. This is substantially larger and much longer visibility than atypical in our components business and over time will provide a much more leveraged and consistent sales model.

Second, each sale includes high margin consumable grippers that over the life of the cell contribute almost as much margin as the initial system. As we announced in the last earnings call, we took steps in the quarter to consolidate the Denmark entity and transfer the IP to our corporate offices. As of this month, we have substantially completed the consolidation in our operation with all future cells and grippers delivered from those offices. This should save us approximately $500,000 per quarter in operating expenses, the impact of which will be fully realized in our June quarter.

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