Xplore Technologies (NASDAQ: XPLR), a global leader in rugged computing, today reported results for its fiscal 2017 third quarter ended 31 December 2016.

"We are pleased to report a profitable fiscal third quarter, including GAAP net income of $0.02 per share, on 22% sequential revenue growth and continued lower operating expenses," said Philip Sassower, chairman and chief executive officer.

"In addition to fulfillment of the largest purchase order in company history with a top US telecommunications customer, we also secured a number of follow-on orders from customers in multiple end markets. These include our second follow-on order in six months from another major telecommunications customer, our second follow-on order this year from a top-10 US electric utility customer, and an initial 1,000-unit OEM order from CLS America, among others."

Mark Holleran, president and chief operating officer, stated: "We continued to closely manage our lean operating structure in the fiscal third quarter. Total operating expenses declined by $1.3m, or 17%, compared to the year-ago quarter, leading to profitability as revenue ramped.

"We also maintained higher than typical backlog, at $5.6m entering the fiscal fourth quarter, indicative of increased demand for a number of our platforms, such as the XSLATE B10 and our popular XSLATE D10 Android device, as well as certain global supply chain and ODM constraints affecting our industry and delaying order fulfillment.

"We are coordinating closely with our production partners to increase parts availability and production capacity to meet steadily increasing demand for several of our product families, a process which will be ongoing over the next two quarters."

Fiscal 2017 third quarter financial results

Xplore reported revenue of $24.5m for the fiscal third quarter ended 31 December 2016, an increase of 22% compared to revenue of $20m in the fiscal second quarter of 2017 and compared to $27m in the year-ago third quarter. The prior year quarter included notable shipments of one-time catch-up orders related to Motion Computing’s screen supply issue. Revenue reflected increased sales and completion of shipments against the company’s large telecommunications customer purchase orders, offset by continued softness in Europe.

Gross profit in the second quarter was $6.7m, or 27.4% of revenue, compared to $5.6m, or 28.2% of revenue, in the preceding quarter and $8.8m, or 32.7% of revenue, in the prior year third quarter. The change in gross margin was primarily attributable to product mix related to fulfillment of a large customer order.

Xplore continued to maintain significantly reduced operating costs, at $6.3m for the fiscal third quarter, compared to $6.1 million in the preceding quarter and down 17.1% from $7.6m in the prior year third quarter. The decline in operating expenses reflects continued aggressive implementation of the company’s focus on profitability, including cost reductions begun 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 into fiscal 2018 and beyond.

For the quarter, Xplore reported net income of $219,000, or $0.02 per basic share, compared to net loss of $536,000, or $0.05 per basic share, in the second quarter of fiscal 2017 and a net profit of $786,000, or $0.07 per share, in the prior year third quarter. Current period profitability improved through the increase in sales and continued operational efficiency, offset by lower gross margin due to fulfillment of large-volume orders for lower ASP platforms.

EBITDA adjusted for non-cash compensation and historical integration costs was positive $822,000 compared to positive adjusted EBITDA of $116,000 in the fiscal second quarter 2017, and a positive $2.0m in the prior year third quarter. A reconciliation is provided in the tables included in this release.

"We maintained our focus on operating efficiency and low operating expenses, driving Xplore to profitability in the fiscal third quarter," said Tom Wilkinson, CFO of Xplore. "As a result of our cost diligence, we have greatly reduced the breakeven point of the business compared to prior quarters. We also generated operating cash flows of $5.7m in the third fiscal quarter, and anticipate further cash flows in the fourth quarter due to collection of accounts receivable and sales from inventory, as well as greater working capital efficiency."

Cash flow and balance sheet

Net cash provided by operating activities was $5.7m, compared to net cash used in operating activities of $3.9m for the three months ended 30 September 2016. At quarter end, cash was $4.1m and short-term debt $5.1m. 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 in the fiscal fourth quarter, which will drive continued high accounts receivable and ultimately generate further cash flows from operating activities.

Outlook

For fiscal 2017, Xplore revised its revenue outlook to a range of $78m and $82m, reflecting continued high demand offset by production capacity constraints and continued softness in Europe. Gross margin for the fiscal year is still expected to be between 28% and 30%, and operating expenses are expected to be approximately $25m-$27m, compared to $30.3m in the prior year.

Xplore continues to anticipate sales growth beyond its fiscal year 2017 revenue targets, as well as continued reduced operating costs. As such, Xplore maintained its previously disclosed business operating targets as revenue scales to a $120m run-rate, assuming both organic growth and cost reduction initiatives are achieved in future periods: gross margin 28%-30%, operating margin 8%-10%, profit margin 6%-8% and EBITDA margin 9%-11%.