Xplore Technologies' (XPLR) CEO Philip Sassower on Q3 2016 Results - Earnings Call Transcript

| About: Xplore Technologies (XPLR)

Xplore Technologies Corp. (NASDAQ:XPLR)

Q3 2016 Earnings Conference Call

February 11, 2016 04:30 pm ET

Executives

Philip Sassower - Chairman and CEO

Mark Holleran - President and Chief Operating Officer

Tom Wilkinson - Chief Financial Officer

Analysts

William Gibson - ROTH Capital Partners

George Melas - MKH Management

Jeb Terry - Aberdeen Investment Management

Jeff Kone - Wall Street Capital Partners

Jay Harris - Axiom Capital

Operator

Greetings, and welcome to the Xplore Technologies Corporation Third Quarter Fiscal 2016 Results Earnings Call. [Operator Instructions]. Statements made by Xplore management during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risk and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward looking statements.

The words believe, expect, anticipate, estimate, will and other similar statements of expectation identify forward looking statements. Forward-looking statements are subject to certain risks, uncertainties and important factors that could cause actual results to differ materially from those reflected in the forward-looking statements.

These risks and uncertainties include, but are not limited to the ability to integrate the operations recently acquired, the impact of competitive products and pricing, product demand and market acceptance, new product development, key strategic alliances with vendors that resell the company's products, the ability of the company to control costs, availability of product components produced by third party suppliers, foreign currency fluctuations, fluctuations in operating results and other risks detailed from time-to-time in the Xplore public filings with the US Securities and Exchange Commission.

Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's beliefs only as of the date hereof. The company undertakes no obligation to publicly release the results of any revision to its forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

It is now my pleasure to introduce your host, Philip Sassower, Chairman and CEO for Xplore Technologies Corporation. Thank you, Mr. Sassower, you may begin.

Philip Sassower

Thank you for joining us, to review the financial results of Xplore's third fiscal quarter ended December 31, 2015. We appreciate your time and interest in our company. With me on the call are Mark Holleran, our President and Chief Operating Officer and Tom Wilkinson, our Chief Financial Officer.

Before our prepared remarks, I want to mention a few housekeeping items. If you do not have a copy of this afternoon's press release, you can retrieve one from our website at www.xploretech.com, and at the conclusion of today's prepared remarks, we will open the call to a question-and-answer session. With that said, we will now present our prepared remarks for this call.

To being with, let me provide some background on Xplore in case there are any new participants on the call. Based in Austin, Texas and with a presence across the globe, Xplore has been a leader and innovator in the rugged tablet space for almost 20 years. Our customers include household names like American Airlines, AT&T, Verizon, Daimler, Merck, FedEx, Procter & Gamble and Hertz, just to name a few.

These customers have chosen Xplore Solutions to extend the benefits available by deploying computer devices in the field, while minimizing the downtime and loss of productivity that otherwise occurs with non-rugged computers. Xplore is now the second largest provider of rugged tablets worldwide. And the largest provider in North America.

I encourage you to visit both our Xplore branded website, as well as www.motioncomputing.com, our website dedicated to Motion branded products, where you can find detailed information on our company.

Our second fiscal quarter represents yet another record-breaking quarter with revenue of approximately $27 million or approximately 64% above last year. Our revenue for the nine months to-date of approximately $80 million was equally strong and represented an increase of approximately 148% compared to last year.

These healthy increases resulted both from inclusion of Motion by Xplore branded products and from 44% growth in revenue from our historical product lines for the nine months period ended December 31, 2015.

Revenue from our historical product lines for the quarter decreased by 9% from the same quarter last year, which was the previous highest revenue quarter in company history, due to delivery of several large shipments.

Despite moderately lower gross margins and certain non-recurring integration cost related to the acquisition of the Motion branded products. The significant increase in revenue allowed for a relatively strong bottom line performance including a positive operating income for both the three and nine months period and positive net income for the second consecutive fiscal quarter, are testaments to our prior - already focused on generating profits.

We are extremely proud of the strong performance and our ability to show continued improvements in financial results and are ahead of management's financial plans for fiscal year 2016.

Now to discuss our operations and to provide an update on our integration efforts. I turn the call over to Mark Holleran, our President and Chief Operating Officer. Mark?

Mark Holleran

Thank you, Phil and thank you to all the participants on the call, for your interest and support of our company. We are thrilled about the fantastic results achieved during the quarter. Every quarter tells a story, this one saw a very strong performance from our historical product line with revenue nearly the same as the third quarter in fiscal year 2015, which was a previous record quarter for Xplore.

To be able to nearly match those results is a strong indication of the benefits that this line of products has received, from the addition of customers and channel partners from the Motion transaction. We are confident that, on a year-to-year basis, we can continue to grow revenue from both product lines.

Also during the quarter, our margins of 33% exceeded our goals for the quarter. We have assembled what I believe to be the most experienced management team in the rugged computing space and the results are starting to show. Our integration efforts continue at a rapid pace and all functional areas are making significant strides towards complete integration of the Motion branded lines.

Our fully restructured sales teams have continued to drive growth in our opportunity pipeline. These are opportunities have continue to result in the largest pipeline experience by either company in the past. The pipeline does not represent formal orders or backlog, but is a tool to track the known opportunities through various stages.

A pipeline of opportunities can be observed to better project the range of outcomes, therefore the work to be done and resources required. Our opportunities are in a wide variety of industries and are increasingly large in size. With the support of our marketing team, we have established a strong track record of success in penetrating and growing new segments to the market.

We have recently been successful in adding blue chip customers in the railroad and aviation phase. Similar efforts are ongoing in other key segments and we are replicating the success we achieved in one region to other areas around the globe. We have become a truly global company that can service Fortune 500 companies, anywhere they do business.

This together was possessing the widest range of rugged tablet options and are willing this to provide reasonable levels of customization has greatly improved our ability to drive strong revenue growth and to gain market share. Our efforts in this area recognized by VDC Research which announced that Xplore has maintained the number one spot in the rugged tablet market share in the Americas for another quarter.

With respect to our bottom line, we have previously disclosed the significant improvements achieved. We have a focus on profitability and are constantly looking for savings and synergies. Through our integration, we have found savings in all areas of operating cost and a potential for even further savings.

However, these additional savings may take longer than materialize. For example, supply chain related cost reductions are in part tie to our new product development schedules. The morale of the company remains high. Despite the highly competitive employment market in our space, we are experiencing minimal turnover and have been able to attract leading talent. To ensure a highly motivated team and to provide our new employees from Motion with an equity incentive, we're putting the final touches on a compensation review and plan to make restrictive stock unit grant shortly. It is a great time to be involved with Xplore.

In summary, we've made great strides in integrating and growing our expanded business, while looking after our bottom line and remain confident in our ability to complete this integration in a satisfactory and timely manner.

I now turn the call over to Tom Wilkinson, our Chief Financial Officer. Who'll present the financial results for the second quarter. Tom?

Tom Wilkinson

Thank you, Mark and thank you to all participants on the call for your interest in Xplore. I'll now review some of the more significant aspects of the financial results for the third quarter ended December 31, 2015. Revenue for the third quarter was approximately $27 million, an increase of approximately $11 million or approximately 64% compared to the prior year period.

As mentioned by Phil, this growth is also primarily from the inclusion of the acquired Motion product line. Approximately 59% of our revenue was generated in the United States compared to approximately 68% of our revenues in the previous year reflecting growth in international channel for our products.

Our gross profit percentage for the third quarter was approximately 33% compared to approximately 36% in the prior year. This decrease in gross profit percentage principally the view to change the product mix sold. Better than expected, manages longer term expectation of gross profit ranges. Our year-to-date gross profit percentage is 31%. Operating expenses decreased by $131,000 for this quarter over the second fiscal quarter ended September 30, 2015.

Overall increases operating expenses year-over-year are primarily contributed to conclusion of the additional headcount that resulted in [indiscernible]. However, as the measure improved our efficiency, our operating expenses not only have declined modestly quarter-over-year, the year-to-date operating expenses as a percentage of revenues have improved to 28.9% from 29.5%.

As an additional comparison the prior year-to-date operating expenses as a percentage of revenue was 32%. Over the longer term, we expect we'll be able to increase revenue and gross profit at very faster then we will need to improve operating cost. The third fiscal quarter had operating income of $1,267,000 compared to an operating income of $2,449,000 in the prior year period.

The prior year third quarter was notable and the large amount of revenues produced in the period. Approximately 39% of the revenue we produced for fiscal 2015 was produced in the third quarter. The decrease in operating income was also results of returning the company to a smoother revenue cycle, while also improving further.

The quarter also generated net income of $786,000 compared to income of $2,401,000 in the prior year period. As noted before, the third quarter of fiscal year 2015 was an extraordinary quarter. In comparison, current year net income three quarters were $640,000 to prior year net income three quarter of $683,000. The modest overall decline would have been increase, but for the non-recurring integration cost of $887,000 and the significant foreign currency losses not experienced in the prior year.

The integration cost was resulted from aforementioned [ph] purchase of the Motion assets. Forging currency losses have been the result of significant strengthening of the dollar during the period. While we're offering standard payment terms to most of our customers.

The foreign currency losses were partially made up for in our gross profit, by applying a pricing strategy that anticipates changes in rates. Our core financial condition remains very strong with approximately $17 million of positive working capital including approximately $6 million in cash.

Both of these figures have increased by $2 million over the levels reported for the second fiscal quarter ending September 30, 2015. The decrease in cash from the end of the last fiscal year was strictly related to the purchase of the Motion assets. As been in the quarters, we have no borrowings under our $15 million working capital facility.

We are closely managing our cash positions and working capital to maximize our liquidity. We see no need to raise further capital, this time to support our existing operations. That concludes my review of the financial results. Back to you, Phil.

Philip Sassower

Thank you, Tom. We'll now move to the Q&A portion of our call. In which we're happy to answer questions on our third fiscal quarter. As well as on our ongoing integration efforts related to the Motion asset deal. Before answering your questions, I want to remind you that as a matter of policy. Xplore does not provide guidance or forecast. And that there are some questions, we will not be able to answer because of competitive or legal considerations. We now welcome your questions.

Question-and-Answer Session

Operator

[Operator Instructions] our first question is from William Gibson of ROTH Capital Partners. Please go ahead.

William Gibson

I'm going to step close to the one, you said you wouldn't go to and that relates to the seasonal nature of your business. Historically, the fiscal fourth quarter is been a little lower than the December quarter and do you expect that pattern to play out this year and with the introduction in new products, could it indeed see more growth?

Philip Sassower

First, let me thank Bill and then I'm going to turn it over to our President. This, we're not per se in the seasonal business. We don't make ice skates in the winter time or bathing suits for the summer time. But there has been periods of time, where we've had a lumpiness factor and a lot of that maybe relates to the fact that, we get the launch projects and we may work on that for a year or year and half and then the product gets shipped and that's what happened when we're comparing to that very terrific prior quarter a year ago, where we had a batch of sales, but there is no per se reason why people might buy it at one time or another.

Mark, you may want to take this question?

Mark Holleran

In regards to your question, Bill. There is some seasonality where people have end of their fiscal years and they might have extra cash to spend, by in regards to your question. We really don't provide forward guidance, in regards. The guidance we'll provide is that we're comfortable, that the company will goal on a year-to-year basis and we're focused on driving the company to profitability.

William Gibson

I can appreciate that. One follow-up question, go ahead.

Philip Sassower

Bill, I hope you understood what Mark was saying, is there are companies or there are even government agencies where to certain extent, they have use it or lose it budget. So the company [indiscernible] and they have unspent money, they may be tend to be freer and say, rather than lose that budget of money, they'll even buy products even if there's not the immediate need because they think we'll need in the quarter later. So that leaves to a sometimes that kind of blip, but there's really no seasonality. They buy it, when they need it.

William Gibson

And something we haven't talked about it in a while, is you have the military drone contract and I know you were going to go after other military orders as well, is there any progress on that front? Are we in the running for any other programs?

Mark Holleran

Yes, we did receive revenue for the drone program in the last quarter. We also have several other military programs that we're pursuing, we received some revenue in the Air Force and we have some ongoing programs, that we expect revenue in this quarter and in the next fiscal year.

William Gibson

Good, thanks. Mark.

Operator

[Operator Instructions] the next question is from George Melas of MKH Management. Please go ahead.

George Melas

Mark, I have a question regarding the revenue mix. It seems like, I think you said the legacy business had a very strong quarter roughly $15 million, which sort of implies that Motion had roughly $12 million quarter. I know you look at it on a sort of 12 months basis, not just on quarter-by-quarter basis, but the Motion business my understanding is that it's smaller deals and it's lot more deal.

And it seems like it had, it had progressed from $13 million in June to $18 million in September and in December, it took a little bit of a dip. Can you maybe help us understand that?

Mark Holleran

Sure. The Motion product stopped shifting for about three or four months. So there was some pent up demand in the previous quarter. When we're also transitioning the product from [indiscernible] which was producing half the product over to Pegatron. All right, so there were some issues in that transition.

We see the business now stabilizing and we're focused on growing that business also and also bringing products out to refresh that business. The Xplore legacy products as you mentioned has been very strong for comparing the previous fiscal year year-to-date and this fiscal year, year-to-date.

George Melas

Great. Okay. That helps me understand things a little bit more. On the Motion, this could evaluate to think about for the business or is it because when you purchased it. I think it has roughly $80 million run rate. Is this, do we get back there?

Mark Holleran

No, well George it was in a decline. It was more like a $10 million to $12 million a quarter business that was in a decline. I think we stabilized it. This is a good run rate and we would like to improve upon that too.

George Melas

Okay, great. And then just a quick question for Tom. In the other non-operating there was, cost of $317,000, do you know what that is?

Tom Wilkinson

It's made up of multiple things. Quite a lot of that was exchange rate issues with the dollar strengthening. It was about $100,000 integration cost as well. And we actually have started occurring income tax, this quarter. So the $70,000 of income was I'd like to point out that are on the income statement. You may not be used to seeing us record.

George Melas

Great, okay very good. Thank you.

Operator

Our next question is from Jeb Terry of Aberdeen Investment Management. Please go ahead.

Jeb Terry

One very easy question, is headcount. Now that you've consolidated operations merrily. Where is your headcount today?

Tom Wilkinson

We're about 134 total people. I don't think that's FTE. FTE is probably closer to 130.

Jeb Terry

Okay and Mark you mentioned the transition from over to Pegatron, is that complete or is still in progress? I know there are some issues there. It was going to take a matter of time for those in resolves themselves, where does that stand?

Mark Holleran

All the manufacturing is now being down by Pegatron. It is using some of the supply chain and tools that were over in the [indiscernible] side of those relationships now been transferred over to Pegatron. So Pegatron now is solely responsible for managing and producing all of the Motion legacy products.

Jeb Terry

And was that, a recent completed development or?

Mark Holleran

That's very recent and we're in the process of wrapping up our agreement, with [indiscernible].

Jeb Terry

So therefore any gross margin improvement associated with that move is still ahead of us as opposed to been reflected in the fourth quarter.

Mark Holleran

That's correct.

Jeb Terry

Okay.

Mark Holleran

In Q3, calendar.

Jeb Terry

Right and some of the other verticals, you should be involved in. I know that someone mentioned Military. I was just curious, in retail, railroad and in telecom, any updates on that? Any color you could add to your prepared remarks on those verticals?

Mark Holleran

Yes, we're in the process working with one of our existing telecommunication companies, well I'll tell you, it's Verizon. We secured an initial pilot order, 600 units and the opportunity in that division is for over 12,000 units. We've also secured additional pilot units in several railways including Norfolk and there's been additional potential 1,000 to 2,000 units in several other railways.

We're really doing well in the railways and with our existing telecommunication providers and also expanding into that. We're involved in several very large projects. Where we've been shortlisted or in some cases where we've actually been told that we'll be one of the two suppliers.

Jeb Terry

And are you pleased with the progression that you've seen in your international following up on your Budapest meeting and integration and of your distributors.

Mark Holleran

Yes, I think you saw that our international business increased by roughly 10% in the previous quarter. To me, it's not enough I want more and we're focused on doing that. And going into the new fiscal year, we'll probably add some resources into Europe.

Jeb Terry

Okay, thank you.

Operator

Your next question is from Joseph Serrano [ph] of Alexander Capital. Please go ahead.

Unidentified Analyst

Jeb, answered one of my questions about the margins and they should see some improvement once that manufacturing you said get shifted over.

Philip Sassower

Yes. Well there are a lot of steps in the integration. Some of the easy to get at lower lying food, etc. Headcount reduction and real estate footprint that was accomplished pretty early on. We also eliminated the debt service because we have no debt, so that kind of thing. The supply chain issue in moving from to more desirable sources of contractors, where the quality is better. Where we are, respect in having relationship that is more predictable that you have to do it in appropriate time, when the product is being refresh because other you got to move around tools and etc.

So that's all happening and those are areas for additional benefit. And I must say you that our President and our team has been spending a lot of time. They just came back from the couple of weeks in Taiwan and working on that exact issue.

Unidentified Analyst

Okay and I've got enough - before, I was just going to ask you. I know your business is lumpy and you had a lot of business last year at this time. But it was a little light on the revenue side, is that because of the lumpiness?

Philip Sassower

Well, it's not, actually I wanted to clear up something. I saw some of the report something to be effected some kind of missed projections or something. We don't make forecast. These results were spectacular and they were far, far better than our own internal forecast. We don't give guidance, so forecast to something that somebody else, did.

However in terms of the lumpiness, while they were still doing large projects. I do believe that because of the mix of motion, which has a lot of distribution and a lot of more onesies, twosies as well as explored model, which tends to be larger orders.

I think that and there will be many more larger orders. The problem is not larger orders, if you have two or three large orders then you have more lumpiness, than if you've got 20 large orders because one is starting, one is finishing and one is in the middle. So that's a trick, the trick is to get a lot more business and then it will be less lumpy and we are going to be showing no questions year-over-year revenue growth.

Unidentified Analyst

So you're comfortable with the outlook that, and you know the analyst has as far as I know you don't give guidance, but have you come somewhere with those estimates, for this year.

Philip Sassower

I'm happier with the business than I'm with the stock market, how's that?

Unidentified Analyst

Okay. So you don't see any signs of weakness in the market that you see?

Philip Sassower

There are people who are doing better and there are people who are doing, less well. Our products that we see, very great acceptance. And something that someone touched on a little earlier, I think it was Jeb Terry, we were talking about foreign and domestic. We have paired Panasonic to the last few quarters as the number one company in North America, in the Americas in general, we're number two globally only because Panasonic is big in Europe and big in the Asia Pacific market, which is an area we never really in. But now with Motion, we're now moving into those markets. So we have a big opportunity to not only grow our revenues by telling more to our existing customers, but by attacking additional market geographically.

Unidentified Analyst

Exactly. Not at the dollar’s drop by 5% in the first quarter, is that going to help you because your international business.

Philip Sassower

I'm sorry?

Unidentified Analyst

The dollar has been strong as of last year, but as of this quarter. It's dropped close to 5%, is that a benefit to you.

Philip Sassower

Well, a stronger dollar does put us in a, there's a competitive issue because it obviously in a country like Canada where the dollar was entirety and then the Canadian dollar becomes worth $0.70 and they're paying in the equivalent, if it's marked in the US, so you're winding up in their terms, it's 30% more. Obviously that is a factor. So if a dollar being stable or the dollar being weaker, it helps us, that's one of the reasons why China buys market share by devaluing their currency.

So far our demand has remained relatively strong, but nothing goes in the straight line forever.

Unidentified Analyst

Exactly. All right, so the story this year is probably of this quarter was you've show that, you've been able to improve the margins which was a concern for some investors.

Philip Sassower

The margins, we want to set the right expectations. These margins were far better than our expectation. These were 33%, those were off the chart. Remember, that Motion historically has 22%, 23%. So since they do more business than we do, on a blended basis, we will be happy to target over a period of time 28%, 30% margin will be great because if we're doing. I'd rather be a $200 million company with a 30% margin than a $50 million company with 35% margins because as the volumes goes up, our cost of administering that business is going to go down and our overall margins will grow because as you noticed, is which I think Tom Wilkinson in his report indicated, that our cost of doing business has gone down.

Okay, so our cost of in a way, we're selling more product, research and development doesn't go up, our sales and administrative cost doesn't go up. The commissions which want 2% that remains just a variable, but by in large, we can take our cost and do business from 30% down to 20% and that would leave you with very nice margin approx.

Unidentified Analyst

Okay, thanks.

Operator

The next question is Kevin Rendino of RGJ Capital. Please go ahead.

Unidentified Analyst

Kevin Rendino, he got cut off. I'm sorry. Two questions, first of all relative to $4 share price, higher revenues, higher margins, higher operating profits, soft in general, pretty good. So congratulations on reporting the quarter that clearly the market didn't think, you're about to report. I'm sure less but analyst estimate was out there. The fact the matter is, you reported a profit, $10 a share in sales, the stocks [indiscernible] let's get real about, what [indiscernible], so good job there.

As it relates to your business and the pipeline, I know you don't specifically talk about future orders and all the rest, but talk about your pipeline today relative to a year ago and then the make about that pipeline, is that a Motion pipeline, [indiscernible] excited. Talking about the making of both pipeline.

Philip Sassower

That remark, I wouldn't question, but before I heard a couple of questions talked about Xplore pipeline and Motion pipeline. There is no more Motion, it is only. Everything is Xplore and or its Xplore products by Motion. So I understand your question, but the bear in mind all things being equal, we're probably better off, if we were selling more of the historical legacy Xplore product line, well the margins have historically been higher than the Motion product line and especially Xplore product tend to be more expensive products that involves more dollars.

So Mark, why don't you take that?

Mark Holleran

In regards to the pipeline, we've seen a large increase in the pipeline especially in the large project opportunities. We see the legacy Xplore product in a dominant position on that because of having those products in the market. Already then having them in large opportunities in the past. The Motion products traditionally all right, they have some large but the more of the business had been flowing through a distribution model. But I'm very happy to see a number of large projects.

Especially with the legacy products and the products that we've recently announced. Are in the products like Bobcat, D10 etc. really are being lawful accepted in the marketplace.

Unidentified Analyst

Listen I understand when it's work guys [indiscernible], but margin on the legacy business and the Motion business is different. So it really does matter which product the opportunity set it [indiscernible], it doesn't matter.

Mark Holleran

And to answer your question, the most of the large projects are with the Xplore legacy products, which is better for the company.

Unidentified Analyst

Right and then you mentioned, how you were sort of selected as one of two suppliers. That's something you haven't announced, right?

Mark Holleran

That's something we haven't announced and it appears that, quite often in Europe, they go with a dual supplier as oppose to the Americas, where we go with a single supplier solution. Now you can also take a dominant position in that. But we're in the process of finalizing those agreements and we're in contract negotiations.

Unidentified Analyst

And is it fair to say, the future growth will be faster outside of North America than North America itself. It's not a fair statement.

Mark Holleran

That's a fair statement because I believe the opportunities are greater outside. And those markets according to VDC are growing faster than the Americas.

Unidentified Analyst

Thanks.

Philip Sassower

And by the way, that's one the benefits of the Motion acquisition because they had a good distribution set up in Europe and Asia, elsewhere. But that was an asset that was acquired in effect.

Operator

Our next question is from Jeb Terry of Aberdeen Investment Management. Please go ahead.

Jeb Terry

My question got answered. Thank you.

Operator

And the next question is from William Gibson of ROTH Capital Partners. Please go ahead.

William Gibson

Just one follow-up on R&D spend, I was surprised that it declined as much sequentially, is this is a good base number growing from here or how should I be looking at R&D?

Mark Holleran

R&D will fluctuate depending when they, the tooling cost etc. shipped. It's more, I would say look on it annual basis and we would project that we would have similar cost on an annual basis going forward into the next fiscal year.

William Gibson

Good, thanks.

Operator

Our next question is Jeff Kone of Wall Street Capital Partners. Please go ahead.

Jeff Kone

Earlier this month, you announced I think a new vertical for you logistics. I was just wondering, out of $1 million contract when should we start seeing revenue. And is it much more potential than this in that area or what's the extend of it?

Mark Holleran

Yes, we've received some of that revenue and we see follow-up opportunities in that area over the next fiscal year.

Jeff Kone

Can you give any idea of size or scope of it?

Mark Holleran

That would be in similar size to what we've received in the past and also opportunities to get into new accounts at similar dollar figures, next fiscal year.

Jeff Kone

Okay, thank you.

Operator

Your next question is from George Melas with MKH Management. Please go ahead.

George Melas

Just a follow-up. Can you talk a little bit about customer concentration in the quarter where there any significant customers or how much were the top two or the top five.

Mark Holleran

Sure, I can tell you. They were pretty well, we had a variety of top customers. With some of them continued like Verizon, like AT&T, like our UAS Drone program, also railway companies etc. Then we had a significant business flowing through the distribution chain, which is comprised of predominantly of the Motion branded product. Now that is a whole variety of business which really we haven't had prior to the Motion asset acquisition.

George Melas

Okay, so even within the legacy product line, you had. It was less concentrated than you had a year ago.

Mark Holleran

That's correct, it's spread across more accounts today.

George Melas

Okay, that's great. And then, Mark I just want to go back to the Motion product line. I understand that, it has stabilized now. But it's still well below reduced to be just two years ago. What are you doing to try to grow it back to its [indiscernible].

Mark Holleran

I have a partner meeting for the American partners, this month. And in April, we'll bring in the entire field the sales and our field engineers and train them extensively and the Motion branded products, a way to get them to focus on increasing that too also.

George Melas

Okay, does the product need to be based on the current product. Can you grow the business or do you really need. So if you think of distribution, if you think of product, what's your priority?

Mark Holleran

I would say, what I would really like to see what's best for the company. It's part of legacy products and we need to refresh Motion branded products and make them more and have more of the Xplore DNA in them and we're doing that. We have one of the products is under refresh program right now to replace the R12, we call it complete. And then we will continue to look at, what we should refresh and not refresh.

George Melas

How long do you expect, sort of the refresh program to take?

Mark Holleran

That'll be towards the end of this calendar year.

George Melas

Okay, great. Okay, thank you very much.

Operator

And the next question is from Jay Harris from Axiom Capital. Please go ahead.

Jay Harris

My first question Mark is, you have at least two mechanisms for improving the gross margin on the semi-rugged, the Motion products. One is volume and getting the assembly cost down. And the second that I've heard you talk in the past about is introducing a customization facet to your sales program. Could you talk a little about both?

Mark Holleran

Volume creates opportunities to get quarterly cost reductions from the LVM [ph]. All right, so you really need to do that, so they create a win-win situation. So, we're in the process of doing that. We've got plans in place to increase the volume. The regards to improving the gross margin and customization, you really need to design that into the next generation of that products, so it's able to do that. Present products design at a legacy Motion don't allow themselves into customization. While the Xplore legacy products do.

Jay Harris

Okay, then [indiscernible] in the transportation of units. Is there a different in the tone of conversations with customers between let's say the airline industry which was in during record profits versus the rail industry, which is seeing volume declines.

Mark Holleran

Actually, I'm surprised there is not because really, then to your point. The price of fuel is down. I mean the airline industry has more profit, combined more profits [ph] because of the increasing competitive nature. In the railway industry, they're looking for more productivity tools that can drive them, their more efficiencies in their operations. So we see off demand in both areas.

Jay Harris

I'm inferring from your comments that, you haven't talked about volume with any of these customers and seen order smaller than your initial thoughts because of cash flows considerations.

Mark Holleran

No, we have potential projects that are in the 1,000 plus range where several transportation companies for going forward in this quarter and into next fiscal year.

Jay Harris

Excellent. So that does it for me. Thank you very much and congratulations on moving forward in a very nice way.

Operator

The next question is from Joseph Serrano [ph] of Alexander Capital. Please go ahead.

Unidentified Analyst

Are you seeing any competitive threats from Dell or Zebra or any of the other guys out there that are trying to get into the field?

Philip Sassower

Everything competes with everything. I would say, our principal comes down to the bottom line. Our principal competitor is Panasonic. And we have today, the broadest product line because we have ultra-rugged IP67 standard, we have IP65 fully rugged. We have IP52, IP54 which is simply rugged, which one of the Motion product. So with the advantage that we have because we have a very broad product line. We are prepared to listen to our customers and work with them and configure things to order and customize and we're doing very, very well. And we were expanding our marketing and have a global reach. So I'm very positive and very optimistic.

Unidentified Analyst

You're mainly build to order, correct.

Philip Sassower

Not no, we're not build to order. We basically have six platforms. Think of this way, we have six platforms. We have our Wildcat, our RX104, C6 version, which is the ultra-rugged IP67 device. We have the Bobcat, we have our Android device and the new have three devices that are CL920, we have the F5M and the C5, which is the product assumed C, when you [indiscernible] rent a car, we have a 12.5 inch screen device, so the R12.

We have this broad range of, this broad range of products and we could sell the right applications for what you need and meet the customer and we have to sell them something that's more than they need, but we don't give them something less than they need.

Unidentified Analyst

Yes, that's what I meant. You customize the product, what about [indiscernible].

Mark Holleran

Joseph, the answer to your question. Yes, we're a BTO model. We build to order people place orders and that's what we sell them.

Unidentified Analyst

And that's major competitive advantage right because a lot of the other ones are off the shelf?

Mark Holleran

Yes, that gives us some advantage. Some of our competition does that. We do have a BTO facility here in Austin, where we can customize that particular inventory to that order. That allows us quicker delivery and better satisfaction to the customer.

Unidentified Analyst

Yes because you know I'm looking for ways that you differentiate yourself and separate yourself just as oppose to quality, we know your quality is raided very high. But I mean, there's other things that make your product a better choice.

Mark Holleran

We will do customization on large opportunities, where Panasonic is black and gray and you get what you get? We have a unique capability of making it that customer's product. So we produce the Verizon rugged tablet and you know what, nobody has an ugly baby, now do they? When they believe it's their product then they're going to buy that, you know what they'll pay a little more for it too.

Unidentified Analyst

Exactly. Okay, thank you guys.

Operator

Thank you. At this time, we have no further questions. I would like to turn the conference back over to Mr. Sassower for any closing comments.

Philip Sassower

Well, we thank you all for participating on today's call. We hope that you share our excitement of the strong results delivered last quarter and the progress we're making towards integrating the Motion product line. As always, we remain focused on delivering continued growth and improving results for all of our stakeholders, customers, partners and stockholders alike. We look forward to talking with you again in June. After the release of our fourth quarter and annual results for fiscal year 2016. Have a great evening and thank you for your participation.

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