Analyst Conference Summary

robotics

conference date: February 6, 2013 @ 2:00 PM Pacific Time
for quarter ending: December 30, 2012 (Q2 fiscal 2013)

(at the time this is written)
Forward-looking statements

Overview: Second bad quarter in a row. Focus is on new Lynx robot introductions in March quarter.

Basic data (GAAP):

Revenue was $10.8 million, down 5% sequentially from $11.4 million and down 29% from $15.2 million in the year-earlier quarter.

Net income was negative $5.2 million, down sequentially from negative $3.1 million and down from negative $1.2 million year-earlier.

Diluted Earnings Per Share (EPS) were negative $0.49, down sequentially from negative $0.29, and down from negative $0.13 year-earlier.

Guidance:

Not given.

Conference Highlights:

Focus in quarter was expense reduction, while maintaining strategic investment. Actions should result in $6 million in annual savings. Impact was from weakened consumer spending. The sequential revenue drop was in line with seasonality. Believes it marks the bottom of the cycle. Believes can return to positive cash flow and profitability.

The Lynx autonomous mobile robot platform with Enterprise Manager software was launched at Automate 2013. There has already been a delivery of 4 of the new model of Lynx robot for semiconductor wafer cassette transfers, and an order for 10 more robots has been placed. Also introduced FlexiBowl automated flexible parts feeding system. Adept has channel partners for several vertical markets, will take orders this quarter, and will begin deliveries in Q2.

The food packaging robots will now be sold through channel partners so that they can be integrated into the processing line. This should expand the customer base.

Gross margin was 31.8%, down sequentially from 41.4% and from 43.0% year-earlier. Reserves for excess and obsolete inventory were increased to $875,000. There was a $392,000 restructuring charge and a $1.7 million impairment charge from the InMoTx acquisition.

Adjusted EBITDA was negative $2.4 million.

Cash balance ended at $6.9 million, with no debt. There is a $7.6 million liability in redeemable convertible preferred stock. $8 million was raised from a stock sale.

Cost of revenue was $7.4 million. Gross margin $3.4 million. Operating expenses were $8.8 million, consisting of: research and development $1.9 million; selling, general and administrative $4.6 million; restructuring $0.4 million; amortization $0.1 million; impairment $1.7 million. Leading to an operating profit of negative $5.3 million. Interest and other income was $0.2 million. Income tax provision $0.1 million.

Q&A:

Operating expenses going forward? $6 million savings is from Q4 of last fiscal year. By end of June aim is to be at $6 million per quarter regular operating expense.

Break even revenue level? At 40% gross margin, annual revenue break even would be around $53 million. That would not be a GAAP break even due to non-cash expenses.

End market in core business? Obviously revenue dropped substantially. It was broadbased across technologies and geographies. At the end of the quarter orders started to pick up.

Margin change in packaging business under new channel model? With our headcount down, we decided we could reach the market better through channel partners. Gross margins should be about the same. We will get less per unit cell, but we should sell more units.

Unit price on Lynx? $100,000.

Possible full number of Lynx in that fab? 50 to 60 is the model.

Does the current fab customer own other fabs? Yes.

Won't 200 mm fab robots become obsolete with the fabs? Some day, but fabs are expensive and are likely to be run for years. Very few 300 mm fabs are being built yet.

Other Lynx customers? We are talking to other potential customers, but are waiting to see how they shake down in the factory before going to mass production. Other segments we see Lynx at are warehouses and hospitals, as well as goods within factories.

Lynx robots can be deployed in an existing facility, unlike the Kiva/Amazon product, which requires a purpose-built warehouse to function.

Book to bill? It was positive.

Failure to sell systems outside Earthbound? They have 8 robots now. They still may buy more to fill out their factory. It is a very conservative industry in how they source equipment. They want a full line, not a point solution. So we will be selling through line integration partners. Our soft gripping technology will be available to our partners. We still have a good pipeline for the products, but there have been long delays, including for financial reasons.

Do you have enough cash to reassure customers? We are in a highly cyclical business. With $6 or $7 million in cash we should be able to deal with a light quarter or with an uptick in orders. We are very focused on cash management.

Softness in Asia has been due to our disk drive handling business and solar, which are cyclical businesses. Solar revenue in the December quarter was almost zero, so it is hard to imaging it won't go back up from there.

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