Nasdaq: ADEP
2Q 2012/2Q 2011 Results:
Revenue: $10.8 million/$15.1 million
Net loss: $5.2 million/$1.2 million
Net lost per share: $0.49/$0.13

A bruised (optimists might say “tested”) Adept Technology began 2013 newly shuffled, trimmed, funded, and focused. Equity markets have noticed Adept’s realignment — a few short years in the making — but investors are impatient with a recovery that is proving elusive.

Adept’s per-share price ($3.48 at the time of this writing) is one-fifth of its peak in 2006.

Still, CEO John Dulchinos has read the landscape correctly, steering the company away from oblivion as a niche supplier of stationary component robotics and related software primarily to the tech and electronics industries.

Expanding markets

Marketing, Manufacturing and Management departments have been recast to also sell new mobile systems as well as traditional. And, rather than viewing the world as sales silos, the workforce is being strongly encouraged to see robots as horizontal systems.

The company also is cultivating integration partnerships in newer markets, notably food packaging. This is partly an effort to woo skittish prospects that want a single point of responsibility for automated production lines. It?s also savvy recognition that systems integration is not one of Adept?s strong suits.

Unknowns include:

• Geographic markets that either are stuck in neutral (Europe), comparatively small (China) or underperforming (United States)
• Uneven growth in industry sectors
• The ability of new leadership and management teams to implement sobering changes and regain positive cash flow

Financial profile

Second-quarter figures, announced Feb. 6, disappointed Wall Street. Revenue was $10.8 million, compared to $15.1 million for the same period a year ago, according to newly appointed CFO Michael Schradle. Six-month revenue also was down substantially.

Even accounting for restructuring charges related to the 20% reduction in headcount last November, operating expenses grew somewhat year over year, to $8.8 million, during the same period.

Adept’s year-over-year second-quarter net loss almost quintupled, to $5.2 million. Six-month net losses exploded, from $1.8 million in December 2011 to $8.3 million over the same period in 2012.

“We are near the bottom,” Dulchinos, a 26-year veteran of the firm, told analysts during a conference call to discuss the second-quarter results. Perhaps, but call participants were not assuaged, particularly when he said Adept wouldn’t return to a break-even cash-flow stance until the end of the fiscal year, six months from now.

Assuming Adept maintains its 40 percent margins, and projected cost cutting is completed by fiscal year end, Dulchinos said, the company’s cash-flow break-even point will be “in the low $50 million range.”

Shoring things up, Adept in September 2012 closed a private placement of 8,000 shares of its Series A convertible preferred stock to affiliates of Hale Capital Partners for total gross proceeds of $8 million. The shares are convertible into common stock at $4.60 per share. Adept said at the time the funds would go toward general purposes including the growth of its mobile and packaging businesses, and debt reduction.

Adept Technology product pushes

In the meantime, the company is rallying around three strategic pushes

Lynx

The first is Lynx, a new line of autonomous indoor vehicles, and, currently, Adept’s highest-profile product. The result of Adept’s 2010 buyout of MobileRobots Inc., the Lynx (average sale price $100,000) is self-navigating, needing none of the guidance infrastructure required of conventional autonomous guided vehicles.

Once programmed, the Lynx can hit its waypoints without outside assistance, avoiding people and other unexpected obstacles. New permanent features (cubicles, for instance) along a Lynx’s path can be added to its internal map by an operator using Adept’s proprietary, PC-based MobileEyes software tool.

Adept sees the Lynx as a horizontal tool that will find buyers in industries including industrial, warehousing, health care and electronics.

The company has created application programming interfaces to tie one Lynx or a fleet of the robots into customers’ factory using Enterprise Manager software, an important step if the company wants a bigger profile on the potentially lucrative systems level of information-technology architectures.

As of this posting, the Lynx has been deployed by one customer, a computer chip maker, and in just one chip fab so far. Adept has refused to name the buyer, saying only that it has seven older Adept mobile robots, and it took delivery of four new Lynxes in December. Another 11 have been bought but not delivered.

Integrated with stationary vision-guided robots in the customer’s facility, the Lynx systems load and unload tools, and transport 200-mm chip wafers (which are cut into individual chips).

There are an unspecified number of Lynx deals in the wings, according to Dulchinos, waiting for the first deployment to be completed. He says Adept will take Lynx orders this quarter and make its first general-market deliveries this summer

ClamPAC

The second thrust is expanding Adept’s packaging line into natural-food processing. The company already has a solid brand in other-than-natural food systems, notably the USDA-accepted Quattro parallel, or delta, robot, handling meat and poultry.

But whatever Dulchinos’ team thought selling into the natural-food industry would be like, it has turned out to be a very different reality.

While confident — even bullish — that food producers will accept Adept’s ClamPAC systems for packaging fragile goods and clamshells, execs clearly are frustrated with the slow pace of market acceptance. They have, in fact, backed away from an earlier focus on production-line integration.

Dulchinos, speaking to analysts, said he knew going in that food processors were cautious technology adopters, but the market actually is “extremely conservative.”

Adept Technology’s biggest win here so far, a sale that continues to pay dividends in terms of positive media coverage, is salad-purveyor Earthbound Farm Organic. Eight ClamPACs, outfitted with Adept?s SoftPIC grippers, are grabbing and packing lightweight clamshells gently enough not to tear open the packages’ sonically welded seals.

But even at Earthbound, by all accounts a happy customer, it will have been three or four quarters between its first order of eight and a second order that Dulchinos says is near. That’s at least partially because Earthbound had to spread the cost of the full deployment over two capital budgets.

The company is cagey about whether there are beta customers of the ClamPAC near to buying, but its experience so far has taught a lesson. Adept cannot be an integrator, at least not for natural food processors.

The effort that has gone into the Earthbound deal, as well as its presumable returns, have convinced execs to sell to line integrators addressing this niche, not directly to processors.

Beyond avoiding integration headaches, this move, according to Adept, will lower the units? average selling price and spread its products into other industries.

Adept’s third priority is to keep its core markets as hot as possible. The Lynx is being marketed broadly in electronics, healthcare and industrial sectors — probably every place with clean, dry floors. It’s likely to get a lot of second looks even in spend-averse environments.

Flexibowl

And almost simultaneously with the Lynx, Adept rolled out its Flexibowl parts-feeding system, which will be sold into the company’s core markets. Iterative rather than revolutionary, the Flexibowl feeds parts using a circular tray, rather than linear belt. It jostles pieces, allowing vision systems to identify shapes and materials for an automated picker. The company says it is faster and more efficient than linear models.

Remaining uncertainty

After waiting perhaps too long, Dulchinos has crafted a turnaround as solid as any other corporate re-imagining out there today. The spotlight product, the Lynx, is attractive in capabilities and even kind of photogenic (in an R2-D2 way), which will help expand the brand.

Moving more toward partnerships than direct sales will pay dividends in complex, lean environments, which are almost universal.

Now it’s up to Dulchinos’ ability to execute and the appetite of the markets.

Editor’s Note: Since this article’s filing, John Dulchinos has resigned as president, CEO, and director of Adept Technology. The board of directors has appointed Rob Cain as president and CEO to succeed him.