Xplore Technologies Reports Fiscal Second Quarter 2017 Results

Revenue Increases 21% Sequentially, Operating Cost Reductions Ahead of Target

Backlog at Company Record $11 Million

AUSTIN, Texas, Nov. 10, 2016 (GLOBE NEWSWIRE) -- Xplore Technologies Corp. (NASDAQ:XPLR), a global leader in rugged computing, today reported results for its fiscal 2017 second quarter ended September 30, 2016.

Fiscal Second Quarter and Recent Highlights:
  • Reported revenue of $20.0 million, reflecting steady seasonal trends offset by continued softer sales in Europe and timing of customer shipments;
  • Achieved gross margin of 28.2%, in line with expectations;
  • Reduced operating costs by more than $1.6 million from the prior year quarter, to $6.1 million;
  • Reported GAAP net loss of $536,000, or ($0.05) per share, and adjusted EBITDA of positive $116,000;
  • Announced the largest purchase order in company history to be fulfilled in the fiscal second and third quarter;
  • Secured a $1.1 million follow-on military order for ultra-rugged tablets from existing inventory;
  • Signed purchase agreements with multiple new customers, including Michelin and a global restaurant group;
  • Entered the vehicle emissions inspection market with a seven-figure state-level automated vehicle inspection program order; and
  • Secured an additional follow-on order with a major telecommunications customer.

"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 ResultsXplore 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 customer 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 net loss of $536,000, or $0.05 per basic share, compared to 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.

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 SheetNet cash used in operating activities was $3.9 million, compared to $6.6 million for the three months ended June 30, 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.

Conference Call The company will conduct a conference call and webcast to review the results on Thursday, November 10, 2016, at 4:30 p.m. ET.  Interested parties in the United States can access the call by dialing 866-777-2509; interested parties outside the United States can access the call by dialing +1-412-317-5413. Callers should dial in at least 5 minutes prior to the all start time. A live and archived webcast will be available online in the investor relations section of Xplore's website at www.xploretech.com. A replay of the conference call will be available until 5 p.m. ET on November 24, 2016, by calling 877-344-7529 from the United States or +1-412-317-0088 from outside the United States and entering conference ID number 10094843.

About Xplore TechnologiesXplore is The Rugged Tablet Authority™, exclusively manufacturing powerful, long-lasting, and customer-defined rugged tablet PCs since 1996. Today, Xplore offers the broadest portfolio of genuinely rugged tablets - and the most complete lineup of rugged tablet accessories - on Earth. Its mobility solutions are purpose-built for the energy, utilities, telecommunications, military and defense, manufacturing, distribution, public safety, healthcare, government, and field service sectors. The company's award-winning military-grade computers are also among the most powerful and longest lasting in their class, built to withstand nearly any hazardous condition or environmental extreme for years without fail. Visit www.xploretech.com for more information on how Xplore and its global channel partners engineer complete mobility solutions to meet specialized workflow demands. Follow us on Twitter, Facebook, LinkedIn, and YouTube.

Forward Looking StatementsThis news release contains forward-looking statements that involve risks and uncertainties, which may cause actual results to differ materially from the statements made. When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect" and similar expressions are intended to identify forward-looking statements. Such statements reflect Xplore's current views with respect to future events and are subject to such risks and uncertainties. Many factors could cause actual results to differ materially from the statements made including those factors detailed from time to time in filings made by Xplore with securities regulatory authorities. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated or expected. Xplore does not intend and does not assume any obligation to update these forward-looking statements. 
XPLORE TECHNOLOGIES CORP.  
Consolidated Balance Sheets  
(in thousands)  
   
    September 30, 2016       March 31,   2016  
ASSETS   (unaudited)        
CURRENT ASSETS:            
Cash and cash equivalents    $ 3,455     $ 5,594  
Accounts receivable, net      14,553       14,277  
Inventory, net      19,151       14,858  
Prepaid expenses and other current assets      331       800  
Total current assets      37,490       35,529  
Fixed assets, net      1,031       1,003  
Intangible assets, net      1,605       1,785  
Goodwill      15,159       14,872  
    $ 55,285     $ 53,189  
LIABILITIES AND STOCKHOLDERS' EQUITY                
LIABILITIES:                
Short-term indebtedness with bank   $ 9,246     $  
Accounts payable     5,960       9,611  
Accrued liabilities     3,110       3,409  
Deferred revenue and current warranty liabilities     4,038       4,413  
Total current liabilities     22,354       17,433  
Deferred revenue and non-current warranty liabilities     3,682       4,568  
Total liabilities     26,036       22,001  
Commitments and contingencies             
STOCKHOLDERS' EQUITY:                
Preferred Stock, par value $0.001 per share; authorized 5,000; no shares issued            
Common Stock, par value $0.001 per share; authorized 15,000; shares issued 10,926 and 10,908, respectively     11       11  
Additional paid-in capital      171,482       171,138  
Accumulated deficit     (142,244 )     (139,961 )
      29,249       31,188  
    $ 55,285       $ 53,189  

XPLORE TECHNOLOGIES CORP.
Consolidated Statements of Loss—Unaudited
(in thousands of dollars, except share and per share amounts)
 
    Three Months Ended   Six Months Ended
    September 30, 2016   September 30, 2015   September 30, 2016   September 30, 2015
                 
Revenue     $ 20,007     $ 28,853     $ 36,480     $ 52,896  
Cost of revenue       14,371       20,744       25,980       36,637  
Gross profit       5,636       8,109       10,500       16,259  
                 
Expenses:                
Sales, marketing and support       2,896       3,642       6,331       7,262  
Product research, development and engineering       1,317       1,577       2,270       3,407  
General administration       1,868       2,487       3,907       4,818  
      6,081       7,706       12,508       15,487  
Income (loss) from operations       (445     403       (2,008     772  
                 
Other income (expense):                
Other       (22     (131     (77     (68
Cost of integration               (122             (792
Interest expense      (69     (52     (118     (58
      (91     (305     (195     (918
Income (loss) before income taxes      (536 )     98       (2,203 )     (146 )
Income tax (expense) benefit                      (80        
Net income (loss)   $    (536   $    98     $   (2,283   $    (146
  Income (loss) per common share, primary     $ (0.05 )   $ 0.01     $ (0.21 )   $ (0.01 )
  Income (loss) per common share, fully diluted     $     $ 0.01     $     $  
Weighted average number of common shares outstanding, basic       10,926,542       10,811,056       10,917,498       10,800,441  
Weighted average number of common shares outstanding, fully diluted               10,922,795                  

XPLORE TECHNOLOGIES CORP.
Consolidated Statements of Cash Flows—Unaudited
(in thousands)
 
    Six Months Ended September 30,  
    2016     2015  
             
CASH FLOWS FROM OPERATING ACTIVITIES:            
Cash (used in) provided by operations:            
Net loss   $ (2,283 )   $ (146 )
Items not affecting cash:                
Depreciation and amortization     804       815  
Provision for doubtful accounts     (52     24  
Stock-based compensation expense     302       1,099  
                 
Changes in operating assets and liabilities:                
Accounts receivable      (224     (4,436 )
Inventory     (4,293 )     (932 )
Prepaid expenses and other current assets     469       (326
Accounts payable and accrued liabilities     (5,211 )     (2,973
Net cash used in operating activities     (10,488 )     (6,875 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Net cash received in purchase transaction           653  
Change in liabilities assumed in purchase of business     (287 )     16  
Additions to fixed assets     (652 )     (429 )
Net cash provided by (used in) investing activities     (939 )     240  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from short-term borrowings     27,600       18,000  
Repayment of short-term indebtedness     (18,354 )     (27,098 )
Net proceeds from issuance of Common Stock     42       165  
Net cash provided by (used in) financing activities     9,288       (8,933 )
                 
CHANGE IN CASH AND CASH EQUIVALENTS     (2,139 )     (15,568 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     5,594       19,455  
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 3,455     $ 3,887  
                 
NONCASH INVESTING AND FINANCING ACTIVITIES:                
Net assets acquired with debt in purchase transaction   $     $ 9,079  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:                
Payments for interest    $ 77     $ 58  
Payments for income taxes    $ 80     $  

XPLORE TECHNOLOGIES CORP.
Adjusted EBITDA Reconciliation—Unaudited
(in thousands)
 
    Three Months Ended September 30,  
    2016     2015  
             
Net loss   $ (536 )   $ 98  
             
Income taxes        
Interest expense   69     52  
Depreciation and amortization   456     457  
Stock-based compensation expense   127     492  
Cost of integration       122  
             
ADJUSTED EBITDA   $ 116     $ 1,221  
                 
    Six Months Ended September 30,  
    2016     2015  
             
Net loss   $ (2,283 )   $ (146 )
             
Income taxes   80      
Interest expense   77     58  
Depreciation and amortization   804     815  
Stock-based compensation expense   302     1,099  
Cost of integration       792  
             
ADJUSTED EBITDA   $ (979 )   $ 2,618  
                 

XPLORE TECHNOLOGIES CORP.
Supplemental Three Months Consolidated Statements of Cash Flows—Unaudited
(in thousands)
 
    Three Months Ended September 30,  
    2016     2015  
             
Net loss   $ (536 )   $ 98  
Items not affecting cash:            
Depreciation and amortization   456     457  
Provision for doubtful accounts   (67 )   108  
Stock based compensation expense   127     492  
Other adjustments to cash used in operations   (3,862 )   (4,383 )
Net cash used in operating activities   (3,882 )   (3,228 )
Net cash used in investing activities   (245 )   (176 )
Net cash provided by(used in) financing activities   3,164     (3,726 )
             
Change in cash and cash equivalents   $ (963 )   $ (7,130 )
                 

Xplore Technologies Quarterly Historical Information  
 
  FY 2017
  1st Qtr   2nd Qtr   3rd Qtr   4th Qtr   YTD
 
Revenue $ 16,473     $ 20,007     $   -      $   -      $ 36,480  
Cost of revenue     11,609         14,31          -          -          25,980  
    Gross profit     4,864         5,636         -          -          10,500  
                   
Expenses                  
  Sales, marketing and support     3,435         2,896         -          -          6,331  
  Product research, development & engineering     953         1,317         -          -          2,270  
  General administrative     2,039         1,868         -          -          3,907  
Total expenses     6,427         6,081         -          -          12,508  
                   
  Profit/(loss) from operations     (1,563 )       (445 )       -          -          (2,008 )
                   
Other expenses                  
  Interest expense     (8 )       (69 )       -          -          (77 )
  Cost of integration     -          -          -          -          -   
  Other income/expenses     (96 )       (22 )       -          -          (118 )
      (104 )       (91 )       -          -          (195 )
                   
  Income/(loss) before taxes     (1,667 )       (536 )       -          -          (2,203 )
  Income taxes     (80 )       -          -          -          (80 )
Net income $   (1,747 )   $   (536 )   $   -      $   -      $   (2,283 )
                   
  Depreciation & amortization   348       456         -          -        804  
  Interest expense   8       69         -          -        77  
  Income taxes   80         -          -          -        80  
  EBITDA     (1,311 )       (11 )       -          -          (1,322 )
                  -       
  Non-cash compensation   175       127         -          -        302  
  Cost of integration     -          -          -          -          -   
  Adjusted EBITDA $   (1,136 )   $ 116     $   -      $   -      $   (1,020 )
 
 
  FY 2016
  1st Qtr   2nd Qtr   3rd Qtr   4th Qtr   YTD
 
Revenue $ 24,043     $ 28,853     $ 27,023     $ 20,611     $ 100,530  
Cost of revenue   15,893       20,744       18,181       14,365       69,183  
  Gross profit   8,150       8,109       8,842       6,246       31,347  
                   
Expenses                  
  Sales, marketing and support   3,620       3,642       3,925       3,909       15,096  
  Product research, development & engineering   1,830       1,577       1,129       1,235       5,771  
  General administrative   2,331       2,487       2,521       2,088       9,427  
Total operating expenses   7,781       7,706       7,575       7,232       30,294  
                   
  Profit/(loss) from operations   369       403       1,267       (986     1,053  
                   
Other expenses                  
  Interest expense     (6 )       (52 )       -          -          (58 )
  Cost of integration     (670 )       (122 )       (95 )       (26 )       (913 )
  Other income/expenses     63         (131 )       (317 )       (65 )       (450 )
      (613 )       (305 )       (412 )       (91 )       (1,421 )
  Income/(loss) before taxes     (244 )       98         855         (1,077 )       (368 )
  Income taxes     -          -          (69 )       75         6  
Net income $   (244 )   $ 98     $ 786     $   (1,002 )   $   (362 )
                   
  Depreciation & amortization   358       457       498       417       1,730  
  Interest expense     6         52         -          -          58  
  Income taxes     -          -          69         (75 )       (6 )
  EBITDA     120         607         1,353         (660 )       1,420  
                   
  Non-cash compensation     607         492         535         522         2,156  
  Cost of integration   670       122       95       26       913  
  Adjusted EBITDA $ 1,397     $ 1,221     $ 1,983     $   (112 )   $ 4,489  
                   
 
  FY 2015
  1st Qtr   2nd Qtr   3rd Qtr   4th Qtr   YTD
 
Revenue $ 8,267     $ 7,522     $ 16,443     $ 10,407     $ 42,639  
Cost of revenue   5,203       5,255       10,569       7,293       28,320  
  Gross profit   3,064       2,267       5,874       3,114       14,319  
                   
Expenses                  
  Sales, marketing and support   1,598       1,714       1,630       1,410       6,352  
  Product research, development & engineering   991       739       815       992       3,537  
  General administrative   1,007       977       980       1,139       4,103  
Total operating expenses     3,596         3,430         3,425         3,541         13,992  
                   
  Profit/(loss) from operations     (532 )       (1,163 )       2,449         (427 )       327  
                   
Other expenses                  
  Interest expense         (1 )       (2 )       -          (3 )
  Cost of integration    -         -         -         -          -   
  Other income/expenses     (19 )       (3 )       (7 )       (7 )       (36 )
      (19 )       (4 )       (9 )       (7 )       (39 )
                   
  Income/(loss) before taxes     (551 )       (1,167 )       2,440         (434 )       288  
  Income taxes     -          -          (39 )       -          (39 )
Net income $   (551 )   $   (1,167 )   $ 2,401     $   (434 )   $ 249  
                   
  Depreciation & amortization     172         264         253         230         919  
  Interest expense     -          1         2         -          3  
  Income taxes     -          -          39         -          39  
  EBITDA     (379 )       (902 )       2,695         (204 )       1,210  
                   
  Non-cash compensation     159         166         152         207         684  
  Cost of integration     -          -          -          -          -   
  Adjusted EBITDA $   (220 )   $   (736 )   $ 2,847     $ 3     $ 1,894  
 

 
Xplore Technologies Quarterly Key Statistics
     
    FY 2017
    1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTD
       
Gross margin   29.5 %   28.2 %     28.8 %
Operating margin   -9.5 %   -2.2 %     -5.5 %
Periodic revenue % N/A N/A     100.0 %
Quarter over Quarter  
  Revenue Change %     -20.1 %   21.5 %  
             
     
    FY 2016
    1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTD
     
Gross margin   33.9 %   28.1 %   32.7 %   30.3 %   31.2 %
Operating margin   1.5 %   1.4 %   4.7 %   -4.8 %   1.0 %
Periodic revenue %   23.9 %   28.7 %   26.9 %   20.5 %   100.0 %
Quarter over Quarter          
  Revenue Change %   131.0 %   20.0 %   -6.3 %   -23.7 %  
     
     
    FY 2015
    1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTD
     
Gross margin   37.1 %   30.1 %   35.7 %   29.9 %   33.6 %
Operating margin   -6.4 %   -15.5 %   14.9 %   -4.1 %   0.8 %
Periodic revenue %   19.4 %   17.6 %   38.6 %   24.4 %   100.0 %
Quarter over Quarter          
  Revenue Change %   -0.9 %   -9.0 %   118.6 %   -36.7 %  
Contact Information:Tom Wilkinson  Chief Financial Officer(512) 637-1162twilkinson@xploretech.comDarrow Associates Investor Relations(512) 696-6401xplr@darrowir.com

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