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ADEP > SEC Filings for ADEP > Form 10-Q on 13-Nov-2012All Recent SEC Filings

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Form 10-Q for ADEPT TECHNOLOGY INC


13-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
• the economic environment affecting us and the markets we serve;

• sources of revenues and anticipated revenues, including the contribution from new products and markets;


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• our expectations regarding our cash flows and capital requirements and the impact of the timing of receipts and disbursements and requirements of our credit facility;

• the timing and impact of the Company's decisions to engage in restructuring actions and other expense-related matters;

• our ability to successfully integrate and grow our new and acquired businesses;

• marketing and commercialization of our products under development and services;

• our ability to attract customers and the market acceptance of our products;

• our ability to establish relationships with suppliers, systems integrators and OEMs for the supply and distribution of our products;

• plans for future products and services and for enhancements of existing products and services; and

• plans for future acquisitions of products, technologies and businesses.

In some cases, you can identify forward-looking statements by terms such as "may," "intend," "might," "will," "should," "could," "would," "expect," "believe," "estimate," "predict," "potential," or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions, which may or may not prove to be correct, and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these statements. We discuss many of these risks in greater detail in Item 1A - Risk Factors in our Annual Report on Form 10-K filed on September 24, 2012. Statements made in this report represent our estimates and assumptions only as of the date of this report.
In this report, unless the context indicates otherwise, the terms "Adept," "we," "us," and "our" refer to Adept Technology, Inc., a Delaware corporation, and its subsidiaries.
OVERVIEW We provide intelligent robotics systems, the core of which are, our motion controls systems, integrated vision-guidance technology and application software, which are sold in combination with our own proprietary robot mechanisms. Our vision-guidance technology is tightly integrated with our motion controls technology, and this is a key differentiator for Adept. We also have autonomous robot and fleet management capabilities that enhance our offerings for target markets. In addition, we provide a full complement of robotics services and support for our customers. Through sales to system integrators, OEM partners and end-user companies, we sell our robotics systems and services into a few broad industries where we believe we can provide the best solutions for particular applications. We operate in two segments: Robotics and Services and Support.
Strategy
Our strategy focuses on a few specific industries where the use of automation is expected to grow over the long term and where we can provide significant product differentiation. This strategy reflects our belief that new opportunities exist in the expansion of application level solutions in vertical markets, where automation has been largely non-existent or extremely inflexible. The markets we have targeted are: mobile automation, packaging, clean-tech industries such as semiconductor and solar, and medical. Currently, we are focusing the majority of our investment on our MobileRobots technology for mobile automation and on applications for the packaging market, as we believe these markets hold significant near-term growth opportunities.
We have invested significantly in our MobileRobots technology to take advantage of emerging opportunities for mobile automation applications across a number of vertical industries, including medical, logistics and solar manufacturing. In February 2012, we launched the new Adept Courier, a small autonomous robotic vehicle that performs everyday tasks such as moving goods, materials, samples or parts around an office or production environment. Currently, we are developing a new, internally designed mobile robot platform that initially will be targeted to clean-tech manufacturing markets, which we expect to launch during fiscal 2013. A fleet of robots, along with appropriate control software, is typically needed to effectively solve the common logistics problems found in mobile automation environments. We, therefore, believe our unique mobile robot technology has tremendous long-term potential across a wide range of environments. We further believe that over time, our mobile automation business will be characterized by larger average order sizes and better visibility than our traditional businesses.
The packaging market has continued to increase its use of automation even during the last few years of worldwide economic weakness, and our Quattro robot has been well received in this market. We believe our acquisition of InMoTx in January 2011 further strengthened our capabilities in the packaging market, as InMoTx has differentiated technology for global food processing applications. Our solutions using the Quattro also change the nature of our standard business model, as order sizes for our packaging robot platform, known as an automation cell, are typically larger than our normal component sales, revenues are received in installments over the project term and deferred until recognizable, and each cell includes high-margin consumable grippers that must be replaced periodically over the life of the cell, generating a secondary revenue stream.


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Another area that we believe holds long-term growth opportunity for Adept is the worldwide solar market. While this sector is proving to be inconsistent in the pace of its growth, we have achieved initial customer design wins that provide a base for future sales as solar product manufacturers begin to equip their automation facilities and ramp up their production operations. Also, in June 2011 we opened a new sales and service office in Shanghai with the aim of capitalizing on the rapid development of industrial automation in China. This office allows us to be more visible and to provide better access and support to our growing customer base in the region. Additionally, we continue to address our sales efforts towards our traditional markets, such as the German automotive electronics and industrial markets, where our products are well positioned and we believe significant long-term opportunity exists.
Included in our growth strategy is an ongoing search for possible businesses, product lines or technologies for partnership or collaboration. Our focus is on pursuing partnerships that would broaden our solutions capabilities, further strengthen our position in key markets, increase our revenues and expand our operational scale.
Acquisitions
InMoTx
On January 10, 2011, we acquired InMoTx, Inc. ("InMoTx"), a privately-held Danish provider of robotic platform solutions and gripping technology for the global food processing market, pursuant to a merger agreement dated January 4, 2011, under which we paid $1.5 million in cash and issued 199,979 shares of our common stock to InMoTx shareholders, of which all shares were made subject to a holdback arrangement to secure the InMoTx shareholder indemnity obligations for an 18 month period. Adept also issued 100,000 shares of our common stock to the InMoTx chief technology officer, to vest on the third anniversary of the merger, contingent upon his continued employment by Adept or a subsidiary, subject to certain exceptions for disability, termination without cause or termination for good reason or a change of control. On September 20, 2011, the InMoTx chief technology officer entered into a separation agreement with the Company to terminate employment on January 31, 2012. Of the 100,000 share grant issued upon the merger, 80,500 shares were forfeited as of September 20, 2011, and the remaining 19,500 shares vested on June 30, 2012, upon the satisfactory completion of the requirements set forth in the separation agreement. As of June 30, 2012, there were no shares remaining to vest under this agreement. In the third quarter of fiscal 2012, we agreed upon indemnification amounts of $508,000 due from the former shareholders of InMoTx relating to customer claims for matters arising prior to the acquisition by Adept. Of the 199,979 shares issued on the merger date for the acquisition of InMoTx, 119,145 shares were forfeited by the holders and returned to Adept in the fourth quarter of fiscal 2012.
We also agreed to make certain contingent annual payments in cash to the former InMoTx shareholders and to the chief technology officer in an amount equal to ten percent (10%) and two percent (2%), respectively, of the revenues InMoTx achieves in excess of specified thresholds during the three annual periods following the merger date, the fair value of which at September 29, 2012 was $0. The results of InMoTx's operations have been included in our consolidated financial statements since January 11, 2011.
In October 2011, we announced the decision to consolidate the InMoTx operations in Denmark into our Pleasanton, California operations. Consolidation activities began during the second quarter of fiscal 2012, and were completed by June 30, 2012. See Note 15 to the Consolidated Financial Statements for further information regarding the acquisition of InMoTx. MobileRobots
On June 25, 2010, we acquired MobileRobots Inc. ("MobileRobots"), a privately-held provider of autonomous robot and automated guided vehicle technologies based in New Hampshire, pursuant to a merger agreement dated June 13, 2010, under which we paid approximately $1.0 million in cash and issued 763,359 shares of Adept Common Stock. Adept also agreed to pay bonus amounts in cash up to an aggregate $320,000 to employees of MobileRobots after fiscal 2011, if certain MobileRobots product revenue targets were met for fiscal 2011. MobileRobots fiscal 2011 revenues met the minimum revenue threshold defined in the merger agreement, and a bonus of $100,000 was paid in the first quarter of fiscal 2012.
The results of MobileRobots' operations have been included in our consolidated financial statements since June 25, 2010. See Note 15 to the Consolidated Financial Statements for further information regarding the acquisition of MobileRobots.
Trends in Our Business
During the first quarter of fiscal 2013, our revenues decreased 32% compared with the same period in the previous fiscal year, primarily as a result of cyclical and economic downturns in our traditional markets in Europe and Asia, and due to the timing of demand cycles and orders in our target growth markets of packaging and solar.
Sales to disk drive customers in Asia were significantly impacted in the fiscal 2013 first quarter as the industry entered a cyclical downturn, following approximately three quarters of capital investment. The disk drive industry commonly experiences cycles of capital investment and absorption, which are unpredictable in terms of timing and duration. Given this unpredictability, we currently expect our disk drives sales to experience only modest growth from their current lower levels during the remainder of fiscal 2013.


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Similarly, sales to the solar market were negatively impacted in the fiscal 2013 first quarter due to a lower level of capital investment in the period, which we expect will continue for the next one to two quarters.
In our target packaging market, during the fiscal 2013 first quarter we experienced a lengthening of sales cycles in Europe as businesses became more cautious due to the weakening economic environment, and U.S. sales also were affected by delays in the timing of orders. Europe in general was very weak in the 2013 first quarter due to economic uncertainty, and our sales decreased sharply across our traditional markets including automotive, appliance and consumer goods, with sales to the solar market also decreasing. These unfavorable trends, driven largely by economic and cyclical patterns, are unlikely to resolve in the fiscal 2013 second quarter and we therefore expect that our sales will continue to be under pressure until our markets regain the confidence needed for capital investment.
Europe historically has accounted for more than half of our total annual sales and therefore economic weakness in Europe has a disproportionate impact on our overall performance. We are focused on diversifying our revenue base and increasing activity in other regions. Our mobile automation business currently is focused on the U.S. market where there is opportunity in both the commercial and research environments. We have continued to build our customer base in the research sector, which includes universities, labs and similar environments, and are making investments in our new mobile robot platform that initially will be aimed at commercial environments. We believe that there is significant long-term potential for Adept to address material handling applications in the medical, semiconductor, industrial and other markets with differentiated mobile automation technology and expertise.
Restructuring and Cost Reduction Actions Due to the decline in the Company's revenues in the first quarter of fiscal 2013 because of the weaker economic environment and reduced capital spending in the Company's markets, the Company is defining a comprehensive restructuring to more closely align the Company's spending levels with the Company's near-term revenue expectations to commence in mid-November. The restructuring is expected to include consolidating facilities, headcount reductions, streamlining operations and eliminating duplicate functions, and is currently expected to be completed within the remainder of fiscal 2013. As of the date hereof, the Company is unable to determine the estimated costs, or range of costs, associated with the various actions contemplated to be taken in connection with the restructuring or the total amount of the charge that will result in future cash expenditures.
Product Developments
During the first quarter of fiscal 2013, we introduced Adept ClamPAC™, a robotic packaging automation cell that gently packs hinged food packaging known as "clamshells" into cases at high speeds. The application is designed to reduce the total cost of ownership by delivering a standardized, fully-integrated solution that can be dropped into any production line. ClamPAC reduces integration complexity and deployment time for food processors while providing flexibility, dexterity and speed.
During the third quarter of fiscal 2012, we introduced the Adept Courier, a small autonomous vehicle that simplifies the everyday task of moving goods, materials, samples, or parts around an office or production environment. Using self-navigation software, the Adept Courier finds its own way to destinations, drives around obstacles in its path, and can be deployed in a matter of hours, thus reducing manual transport tasks, shortening turnaround time, and increasing operational efficiencies by re-applying expensive labor from moving goods to higher-value tasks.
During the second quarter of fiscal 2012, we introduced the Adept Viper™ s1700D, a high-performance 6-axis robot. Featuring new motors that are faster and more efficient, the Viper s1700D delivers higher speed motion and increased productivity. Like the previous Viper 1700 robot, the new s1700D offers a long reach and high payload capacity within a small footprint. Designed for applications that require fast and precise automation, the Viper s1700D is ideal for material handling, machine tending, packaging, cutting and assembly. Results of Operations
This discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows during the three month period ended September 29, 2012. Unless otherwise indicated, references to any quarter in this Management's Discussion and Analysis of Financial Condition and Results of Operations refer to our 2013 first fiscal quarter ended September 29, 2012. This discussion should be read with the unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form 10-Q and in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2012, included in our Annual Report on Form 10-K as filed with the SEC on September 24, 2012.


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Revenues. Summary information by segment for the three months ended September 29, 2012 and October 1, 2011 is shown below (in thousands, except %):

                                        Three Months Ended
Revenue by Segment            September 29,       %       October 1,
(unaudited)                       2012         Change        2011
Robotics
Revenues                     $       8,852      (34 )%   $    13,367
Percentage of total revenues            78 %                      80 %
Services and Support
Revenues                             2,518      (23 )%         3,252
Percentage of total revenues            22 %                      20 %
Total Revenues               $      11,370      (32 )%   $    16,619

For the three months ended September 29, 2012, which was our fiscal 2013 first quarter, revenues were $11.4 million, down 32% from revenues of $16.6 million for the three months ended October 1, 2011, our fiscal 2012 first quarter, as a result of lower sales in both our Robotics and Services and Support segments. Robotics segment revenues, which result from the sale of our intelligent robotics systems, vision-guidance technology and/or third party robot mechanisms, were $8.9 million for the fiscal 2013 first quarter, a decrease of 34% from $13.4 million for the same quarter of the prior fiscal year. This decrease primarily was due to a cyclical downturn in the disk drive market, a weaker economy in Europe that affected sales across most of our markets, decreased levels of capital investment in the solar market, and delays of orders for our packaging automation solutions.
Services and Support revenues, which result from the sale of robotics services and support as well as replacement parts, were $2.5 million for the fiscal 2013 first quarter, down 23% from $3.3 million for the fiscal 2012 first quarter as a result of weaker economic conditions in the majority of our markets. Revenue by geography for the three months ended September 29, 2012 and October 1, 2011 is shown below (in thousands, except %):

                                        Three Months Ended
Revenue by Geography          September 29,       %       October 1,
(unaudited)                       2012         Change        2011
United States
Revenues                     $       3,751        7  %   $     3,512
Percentage of total revenues            33 %                      21 %
Europe
Revenues                     $       5,340      (36 )%   $     8,391
Percentage of total revenues            47 %                      51 %
Asia
Revenues                     $       1,908      (54 )%   $     4,161
Percentage of total revenues            17 %                      25 %
Other countries
Revenues                     $         371      (33 )%   $       555
Percentage of total revenues             3 %                       3 %
Total International Revenues $       7,619      (42 )%   $    13,107
Percentage of total revenues            67 %                      79 %

Total Revenues $ 11,370 (32 )% $ 16,619

U.S. sales were $3.8 million for the fiscal 2013 first quarter, accounting for 33% of total revenue and up 7% compared with $3.5 million for the first quarter of fiscal 2012. This increase primarily was due to higher sales of our mobile solutions for universities and labs as well as increased sales to the domestic automotive, consumer electronics and appliance markets, partially offset by lower sales of packaging automation solutions and commercial mobile solutions.


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Total international sales were $7.6 million for the fiscal 2013 first quarter, accounting for 67% of total revenue and down 42% compared with $13.1 million for the first quarter of fiscal 2012. Performance for individual regions is explained below.
European sales decreased 36% to $5.3 million, and accounted for 47% of total revenue in the fiscal 2013 first quarter compared with the first quarter of the prior fiscal year, reflecting a weaker economic environment across most of the Company's European markets.
Sales from Asia decreased 54% to $1.9 million, and accounted for 17% of total revenue in the fiscal 2013 first quarter compared with the first quarter of the prior fiscal year, when Asia accounted for 25% of total revenue. This change resulted primarily from decreased disk drive sales as this market entered a cyclical downturn.
Revenues from other countries were a relatively small percentage of the Company's sales in the first quarters of both fiscal 2013 and 2012. Gross Margin. Summary information on gross margin for the three months ended September 29, 2012 and October 1, 2011 is shown below (in thousands, except %):

                               Three Months Ended
(unaudited)          September 29,       %       October 1,
                         2012         Change        2011
Revenues            $      11,370               $    16,619
Gross profit margin         4,709      (35 )%         7,274
Gross margin %               41.4 %                    43.8 %

Gross margin as a percentage of revenues was 41.4% for the fiscal 2013 first quarter, compared to 43.8% for the same period of the previous fiscal year. Lower gross margin in the fiscal 2013 period primarily resulted from poor absorption of manufacturing costs given lower revenue levels and a less favorable product mix.
We may experience significant fluctuations in our gross margin percentage from period to period due to changes in volume, changes in availability of components, changes in product configuration, increased price-based competition, changes in sales mix of products and/or changes in operating costs. Operating Expenses
Research, Development and Engineering Expenses.
Research, development and engineering expenses for the three months ended September 29, 2012 and October 1, 2011 are as follows (in thousands, except %):

                                  Three Months Ended
(unaudited)             September 29,       %       October 1,
                            2012         Change        2011
Expenses               $       2,130      (3 )%    $     2,196
Percentage of revenues            19 %                      13 %

Research, development and engineering ("R&D") costs are expensed as incurred, with the exception of software development costs incurred subsequent to establishing technological feasibility and up to the general release of the software products that are capitalized. Technological feasibility is demonstrated by the completion of a working model or a detailed program design. Capitalized costs are amortized on a straight-line basis over either two or three years, whichever term is the estimated life of the software product. R&D expenses for the fiscal 2013 first quarter were $2.1 million, or 19% of revenues, down 3% from $2.2 million, or 13% of revenues for the first quarter of fiscal 2012 due to the consolidation of the InMoTx operations in Denmark into the Company's Pleasanton, California operations. We expect R&D expenses to decrease in the near-term as a result of the Company's restructuring plan for the remainder of fiscal 2013.


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Selling, General and Administrative Expenses.
Selling, general and administrative expenses for the three months ended September 29, 2012 and October 1, 2011 are as follows (in thousands, except %):

                                  Three Months Ended
(unaudited)             September 29,       %       October 1,
                            2012         Change        2011
Expenses               $       5,157      (4 )%    $     5,396
Percentage of revenues            45 %                      32 %

Selling, general and administrative ("SG&A") expenses consist primarily of employee compensation, professional fees arising from legal, auditing and other consulting services, indirect costs for service, as well as tradeshow participation and other marketing costs.

SG&A expenses were $5.2 million, or 45% of revenues for the fiscal 2013 first quarter, down 4% from $5.4 million, representing 32% of revenues for the first quarter of fiscal 2012. The decrease in SG&A expenses in the fiscal 2013 first quarter compared with the prior fiscal year period primarily resulted from lower stock-based compensation expense and increased operational efficiencies. We expect SG&A expenses to decrease in the near-term as a result of the Company's restructuring plan for the remainder of fiscal 2013.
Restructuring Charges. For the first quarter of fiscal 2013, we recorded restructuring charges of $3,000 related to trailing costs associated with the consolidation of our InMoTx operations in Denmark into our California operations, which was initiated at the beginning of our fiscal 2012 second quarter and substantially completed at June 30, 2012, the end of our 2012 fiscal year.
Amortization. Amortization expense was $117,000 in the first quarter of both fiscal 2013 and 2012 and related to the amortization of intangible assets acquired as part of the MobileRobots acquisition in the fourth quarter of fiscal 2010 and the InMoTx acquisition in the third quarter of fiscal 2011. Stock-Based Compensation Expense. Stock-based compensation expense for our equity incentive plans, ESPP and restricted stock grants was $336,000 and $552,000 for the first quarter of fiscal 2013 and 2012, respectively. Lower stock-based compensation expense during the fiscal 2013 first quarter was due to the absence of stock expense as compared to prior periods which included stock-based compensation expense for grants made in connection with the acquisition of MobileRobots and InMoTx. We did not record an income-tax benefit for stock-based compensation expense in any of the periods presented because of the extent of our net operating loss carry forwards. See Note 2 of the Notes to the Consolidated Financial Statements for more information about our recognition of stock-based compensation expense.
Operating Income (Loss). We recorded an operating loss of $2.7 million for the fiscal 2013 first quarter, compared with an operating loss of $0.4 million for the first quarter of fiscal 2012. The higher operating loss recorded in the first quarter of fiscal 2013 primarily resulted from lower revenues and margin . . .

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