Slipping…again? This time last year (March 2014) Adept Technology’s share price was $21.45 (NASDAQ:ADEP), and it was only the previous November that its Lynx Conveyor won a French Emballage Innovation Award. The Lynx is looked upon as a new lease on life for the ailing robot maker. The Lynx robot combines a Lynx autonomous intelligent vehicle (AIV) base with a motorized conveyor platform that can receive, transport and deliver goods throughout a warehouse. Yet, as Seeking Alpha recently reported, ?over the past decade, Adept has only grown revenues at a compound annual growth rate of 1.4% (despite operating in an industry with a CAGR greater than 7%), has had three different CEOs, two different auditors, been delisted and relisted by the NASDAQ, required multiple emergency capital raisings, been non-compliant with a credit covenant (though subsequently renegotiated), has been a serial underperformer relative to expectations, and has had a cumulative net loss of $45 million.? There are 13,104,000 outstanding shares and Adept?s latest market cap is $91 million. None of which inspires confidence in its ability to succeed. It was only last February (2014) that things looked upbeat: Adept Technology Revenue Up 35% in Q2, making it the first quarter since Q3 2010 that Adept generated operating income. By August of the same year, things had changed for the worse: Adept Technology Posts Disappointing Results for Quarter, which had president and CEO Rob Cain saying, ?the path to position Adept to profitably growth over the long term will not be a straight line.? Then came a nasty black eye just this past February: Ouch! Adept Gets Slammed After Reporting Loss, with shares at $6.51 (near its 52-week low of $6.40) after badly missing FQ2 estimates. Adept blamed ?delayed orders from several customers and geographic softening in China and Europe.? In spite of the bad news, Wall Street Pulse reports that ?Adept remains a strong buy in the latest set of rankings. The counter has received an average rating of 1.33 by 3 analysts. Zacks research analysts are highly optimistic on the counter and has given it a short term rating of 1, indicating that it is an Outperform.? First, what exactly is Adept?s business? Adept focuses on producing two lines of robots: 1. fixed, multi-axis robots; and 2. autonomous, mobile robots for use in the semiconductor, logistics, packaging, food, manufacturing, and automotive industries. The company sells products to systems integrators, OEMs, distributors, and directly to end users based on the value proposition of increasing customers’ productivity and flexibility, while reducing waste, errors, and accidents. These two groups of robots account for 78 percent of Adept?s sales ( minus .1 percent total growth over the last 3 years), which includes controllers, software, fixed (industrial) robots and mobile robots (autonomous vehicles). Although the fixed robot segment currently accounts for most of the revenue, the mobile segment (roughly 17 to 18 percent of segment sales in FY 2014), is by far the fastest growing piece at 106 percent from FY 2013 to FY 2014. As noted above, the centerpiece of the mobile segment is Adept?s Lynx system. Greatest chance for success Writing in Seeking Alpha, Tim Insko, from Insko Equity Research and Consulting, has crafted a valuable look at where and how Adept could return to profitability and long-term success. Part of that report is shown below. See full report: Valuing the Adept Technology Narrative Demonstrates a Highly Speculative Situation SEEKING ALPHA: ?One of the reasons so many investors are attracted to Adept Technology is that the value proposition of the company’s products is so intuitive. ?For instance, utilizing an autonomous robot, instead of a human worker, to transport items around a warehouse or factory is easy to understand from an end user point of view. ?Likewise, investors can comprehend how precision robots can reduce wasted time and material in semiconductor manufacturing. Beyond that, it takes very little imagination to think of dozens of potential end uses once proof of concept established in current applications. ?In other words, to many investors, the sky’s the limit for mobile robots. Instead of focusing on what can be imagined for Adept, this note will focus more on plausible and probable extrapolations from more concrete information. Efficiency, cost savings, and sustainability ?The most obvious thesis for any automation related company is the universal desire to drive efficiency, cost savings, and sustainability. ?As much of the global economy has been mired by slow growth, businesses worldwide have become focused on increasing efficiencies and reducing costs. One of the highest costs for most businesses, is low rate of return labor. ?As mentioned earlier, human employees in factories and warehouses across the globe spend countless hours transporting materials from one place to another. These hours provide an incredibly low return on wages (and benefits) paid, particularly when the employee is capable of being far more productive with the time required for walking back and forth. ?Likewise, in a logistics/shipping environment, there are low return hours spent on sorting and organizing. Most of these low return tasks can be optimized by utilizing the capabilities of relatively low cost (?$100k per unit) autonomous robots. ?In fact, this is already occurring, as Amazon has demonstrated with its fleet of Kiva (now a wholly owned subsidiary of Amazon) robots. ?It has been estimated that Amazon will save between 20 to 40 percent on fulfillment costs by increasing its fleet to 10,000 robots. Given the potential cost savings, It will not take long for other end users to seek similar results. ?As it stands now, Adept has placed “pilots” of its Kiva competitor, Lynx, with over 34 customers. As proof of concept plays out, this should result in exponential fleet growth. Meeting the demands of shifting labor demographics ?In addition to the desire to create efficiencies by offloading menial human tasks to robots, there may be a need to do so because of shifting labor demographics. In fact, all three of the largest economies (by individual country) are showing signs of decelerating population growth and potential for labor force contraction. In the United States, though labor force growth is projected to continue, it is expected to be at a reduced rate relative to the historical rate. ?The primary factors causing this deceleration is the combined effects of “baby boomer” retirements and the lowest U.S. births-to-deaths gap in 35 years. In China, the labor market shift is projected to be even more pronounced, as the IMF expects excess labor to plummet between now and 2020. And, in Japan, an already shrinking labor force is likely to continue its contraction as the country has a higher median age than any other industrialized country. ?These projections, in aggregate, demonstrate a high probability for labor shortages in some industries and higher wages in other
s. Even if these shortages are partially offset by other developing economies, the data show a long term need for large segments of the labor market to be replaced with automation and robots. Indeed, this is already occurring in the market, as spending on robots is spiking and is projected to continue. ?If Adept is able to meet this increased demand with its fixed and mobile product offerings, the result should be high growth for many years to come.? See full report: Valuing the Adept Technology Narrative Demonstrates a Highly Speculative Situation