Xplore Technologies, a global leader in rugged computing, today reported results for its fiscal 2017 second quarter, ending 30 September 2016.

"Fiscal second quarter revenue increased 21% sequentially on rising shipments while operating costs declined significantly, placing Xplore firmly on track for profitability in the second half of this year," said Philip Sassower, chairman and chief executive officer. "We also secured multiple customer wins which will drive revenue in the second half. These include a record telecommunications order for rugged Android tablets that only partially shipped during the second quarter, a follow-on military order from existing inventory, a follow-on order with another telecommunications customer and our first sale in vehicle emissions testing, a large new addressable market for Xplore. Additionally, we signed purchase agreements with several new customers who will be submitting their first orders in the coming months."

"As revenue further increases in the second half, we will continue to closely manage our lean operating structure to drive performance at the bottom line," said Mark Holleran, president and chief operating officer. "Total operating expenses declined by $1.6 million, or 21%, compared to the year-ago quarter, allowing us to further reduce our annual operating expense outlook by approximately $2 million. We entered the fiscal third quarter with a record backlog of more than $11 million, and have subsequently won additional orders. We are working closely with a number of prospective customers actively field testing our rugged tablet solutions ahead of future purchase decisions, as well as with our production partners to increase capacity to meet this heightened demand."

Fiscal 2017 second quarter financial results

Xplore reported revenue of $20.0 million for the fiscal second quarter ended September 30, 2016, an increase of 21.2% compared to revenue of $16.5 million in the fiscal first quarter of 2017 and compared to $28.9 million in the year-ago second quarter, which included catch-up orders as part of the Motion Computing assets acquisition. Revenue reflected increased sales and initial shipments against the company’s large telecommunications customers purchase order, offset by continued softness in Europe.

Gross profit in the second quarter was $5.6 million, or 28.2% of revenue, in line with the company’s expectations, compared to $4.9 million, or 29.5% of revenue, in the preceding quarter and $8.1 million, or 28.1% of revenue, in the prior year second quarter. The change in gross margin was primarily attributable to product mix.

Total operating expenses for the second quarter decreased to $6.1 million, declining 5.4% from $6.4 million in the preceding quarter and 21.1% from $7.7 million in the prior year second quarter. The decline in operating expenses reflects aggressive implementation of the company’s previously announced cost initiatives undertaken in August 2016. A portion of the cost reduction benefit is being reinvested in sales, marketing, and channel and distributor development to drive revenue growth in the second half of fiscal 2017 and fiscal 2018.

For the quarter, Xplore reported a net loss of $536,000, or $0.05 per basic share, compared to a net loss of $1.7 million, or $0.16 per basic share, in the first quarter of fiscal 2017 and a net profit of $98,000, or $0.01 per share, in the prior year second quarter.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) adjusted for non-cash compensation and historical integration costs was positive $116,000, compared to negative adjusted EBITDA of $1.1 million in the fiscal first quarter 2016, and a positive $1.2 million in the prior year second quarter. A reconciliation is provided in the tables included in this release.

"We accelerated the benefit of our cost reduction initiatives in the second quarter, greatly reducing the breakeven point of the business compared to the prior year and even our fiscal first quarter," said Tom Wilkinson, CFO of Xplore. "As a result, we expect to be profitable in the second half, as well as show the bottom-line benefit of our operating profit leverage model. In addition, we anticipate these operational changes will lead to greater cash flows beginning in the third fiscal quarter due to both improved profitability and greater working capital efficiency as we ship against multiple larger orders currently being fulfilled from existing inventories."

Cash flow and balance sheet

Net cash used in operating activities was $3.9 million, compared to $6.6 million for the three months ending 30 June 2016. At quarter end, cash was $3.5 million and short-term debt $9.2 million. Short term borrowing and use of cash reflects increased working capital, primarily in accounts receivable and inventory, to meet rising shipment demand. Inventory declined at the end of the quarter, which is reflected in the accounts receivable increases, and the company expects to continue to ship substantial goods from inventory of the next two quarters, which will generate increases in accounts receivable and ultimately generate cash flows from operating activities.