Xplore's (XPLR) CEO Philip Sassower on Q1 2017 Results - Earnings Call Transcript

| About: Xplore Technologies (XPLR)

Xplore Technologies Corp. (NASDAQ:XPLR)

Q1 2017 Results Earnings Conference Call

August 10, 2016 04:30 PM ET

Executives

Philip Sassower - Chairman and CEO

Mark Holleran - President and COO

Tom Wilkinson - CFO

Analysts

Brian Kinstlinger - Maxim Group

William Gibson - ROTH Capital Partners

Jay Harris - Axiom Capital Management

George Melas - MKH Management

Gregory Macosko - Montrose Advisors

Josh Seide - Maxim Group

Operator

Good afternoon and welcome to the Xplore Technologies 2017 Fiscal First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

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 risks 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 are detailed in the Xplore public filings with the U.S. Securities and Exchange Commission.

Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s belief 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.

I’ll now turn the call over to Philip Sassower, Chairman and Chief Executive Officer. Please go ahead.

Philip Sassower

Thank you for joining us today as we discuss the financial results of Xplore’s fiscal first quarter, which ended June 30, 2016. With me on the call are Mark Holleran, our President and Chief Operating Officer; and Tom Wilkinson, our Chief Financial Officer.

If you do not have a copy of this afternoon’s financial results press release, a copy is available on our website at www.xploretech.com. At the conclusion of today’s prepared remarks, we will open the call to a brief question-and-answer session. My remarks today consist of a brief overview of our results for the quarter, comments on our transition to profitability to aggressive operating expense reductions and our decision to begin providing a formal financial outlook. Mark and Tom will then discuss our operations and results in more detail.

Turning to our results, in line with our preannouncement, the first fiscal quarter included revenue of $16.5 million. The first quarter is typically our seasonal low for the year. But this year, our results were also impacted by a global slowdown in rugged tablet shipments across the industry. A customer request to delay a large order and a certain amount of continuing impact from Brexit, which has slowed European side [ph] over the past six months.

It is the nature of our business that revenue will be lumpy from quarter-to-quarter and sometimes orders are delayed into future periods. This is one of the key reasons we focus on performance against long-term targets rather than quarter-to-quarter fluctuations. Even more important, we are not letting this temporary slowdown delaying action on our strategic plan to aggressively transition Xplore to profitability. Instead, we are accelerating these actions with immediate benefit to our results.

While we exited fiscal 2016 strong, having doubled revenue and more than doubled adjusted EBITDA from $1.9 million to $4.5 million year-over-year, we recognize that this is not enough. We must leverage our scale and increase efficiency to make Xplore consistently profitable at the bottom line. To do so, we executed on first quarter headcount reductions and other cost actions that drove an 18% year-over-year reduction in first quarter OpEx. We then took additional actions on both headcount and other spending in August.

In order to both, increase transparency around our operating targets and clearly illustrate this path to profitability, in July, we provided an annual business outlook for the first time. Coupled with our recent operating cost reductions, our outlook indicates that we are now positioned to be at or near breakeven this fiscal year, then drive increasing levels of profitability as scales in order to create greater value for our shareholders.

We also provided further operating targets as our business continues to scale using $120 million as an initial reference point. This is not our end goal but rather a milestone along the path that illustrates the substantial operating profit leverage in our business model, which can lead to sustainable EBITDA margins of 9% to 11%. Importantly, we continue to believe Xplore is addressing a very large market opportunity to fuel our continued success.

VDC Research identifies approximately $600 million in rugged tablet sales worldwide, but those are only existing customers, while we believe Xplore’s addressable market is much larger. This is because we are taking share from other rugged categories such as rugged laptops as well as converting new customers who were previously using consumer grade solutions. This is evidenced by the fact that the largest new opportunities we are now working in the pipeline are either a replacement of a rugged laptop, a consumer grade solution or a business function that was not previously computerized.

In summary, while we started the year in tough industry conditions, we are focused 100% on profitability and taking aggressive actions to achieve it within fiscal 2017. We believe execution against these goals can generate significant shareholder value improvement and are working diligently across a number of fronts to deliver the results our shareholders see.

I will now turn the call over to Mark Holleran, our President and Chief Operating Officer, to discuss our operations and strategy in more detail. Mark?

Mark Holleran

Thank you, Phil, and thank you to all the participants on the call for your interest and support of our Company.

As Phil described, we started the year in a global slowdown affecting our entire industry, which we believe is temporary. Part of that belief is based on customer feedback, including discussions around multiple large opportunities on the verge of completion with both existing and new customers. The effect of the slowdown in Xplore was further exaggerated operated in the first quarter by two factors. First, a large order with an existing customer was delayed, rolling back our shipment and revenue recognition to later periods than anticipated. This is not unusual but the scale of this particular order made a notable impact. Secondly, we continued to see some impact from Brexit and the resulting uncertainty it created for our larger European customer base. We are remaining in close contact with these customers and again think the primary impact is one delaying revenue that will pick up in later periods.

As such, we are reiterating our revenue outlook of $85 million to $95 million in fiscal 2017 as presented earlier this summer in our preannouncement release. We also made a number of adjustments to our internal sales organization to become more responsive and provide better forecast. This includes realigning our reporting lines between the America and Europe so that each is more streamlined. We also increased investment in support of our reseller and channel partner network, such as extensive training to better familiarize these important partners with our industry-leading product line. Finally, we are forward stocking some of our base line models that suited about 80% of our reseller sales in select platforms. This peaks delivery of our products sold through our channel partners and encourage selection of Xplore solutions over competitors.

Perhaps most importantly, we believe Xplore is uniquely positioned against our competitors with not only the number two global share in the 600 million rugged tablet market but also the Company best suited to actually expand our addressable market through penetration of additional enterprise applications and verticals, representing significant additional market opportunity uniquely available to Xplore.

In many cases, we’re able to show our product’s longer life and higher actually reduce cost of ownership while providing greater computing power over consumer grade options or rugged laptops. However, revenue growth is not our only focus. We believe that our greatly increased scale, diversified product line and global customer base now positions us to take the next step and become a consistently profitable business.

We took aggressive action at the start of the first quarter, eliminating approximately $2 million in annual headcount expenses. We’ve followed that as further $2 million in headcount reductions in August plus an additional $1 million in annual cost reductions in other areas. Unfortunately, these savings will be reinvested but we are still greatly cutting operating expenses year-over-year. The net effect is that we now have lowered our breakeven point such that we can be at or near profitability based on our current revenue outlook for fiscal 2017 with significant operating profit leverage at a higher revenue levels. This is a notable structure [ph] from our history and we believe that this immediate shift to focus on sustainable profitability can create meaningful value for our shareholders.

In summary, we have not taken aggressive actions to transform our Company from a history of high revenue growth without profitability to a growing business that can not only make money for shareholders but further increase profitability as we continue to execute.

I now turn the call over to Tom Wilkinson, our Chief Financial Officer, who will present the financial results for the first quarter. Tom?

Tom Wilkinson

Thank you, Mark. I will now review the more significant aspects of the financial results for the first fiscal quarter ended June 30, 2016.

As discussed, revenue for the first quarter was approximately $16.5 million compared to $20.6 million in the fiscal fourth quarter of 2016 and $24 million in the year ago first quarter. Approximately 70% of our quarterly revenue was generated in United States compared to approximately 78% of our quarterly revenue in the previous year.

Gross profit in the first quarter was $4.9 million or 29.5% of revenue, in line with the Company stated expectations, compared to $6.2 million or 30.3% of revenue in the preceding quarter and $8.2 million or 33.9% of revenue in the prior year first quarter. The change in gross margin was primarily attributable to change in product mix. Total operating expenses for the first quarter decreased to $6.4 million from $7.2 million in the preceding quarter and $7.8 million in the year ago quarter. The 18% decline in year-over-year operating expenses reflects the effect of approximately $2 million in annualized headcount reductions instituted at the start of the first quarter. We have subsequently taken additional $2 million in annualized headcount reductions in August, plus instituted other cost savings valued approximately $1 million annually.

A portion of the cost reduction benefit is being reinvested in outsource services to replace functions previously provided in-house, R&D and additional sales, marketing and distributor development to drive future revenue growth. Over the long-term, we expect to be able to increase revenue and gross profit at a rate faster than we will need to increase operating cost outside of one-time events and product development cycles.

For the quarter, Xplore reported a net loss of $1.7 million or $0.16 per basic share compared to a net loss of $1.1 million or $0.09 per basic share in the fourth quarter, and a net loss of $0.2 million or $0.02 per share in the prior year first quarter.

Looking at EBITDA, adjusted for non-cash compensation and historical integration costs, Xplore reported a negative $1.1 million in the first quarter compared to negative adjusted EBITDA of $0.1 million in the fiscal fourth quarter of 2016 and a positive $1.4 million in the prior year first quarter. Outside of the changes in net loss, the primary changes in adjusted EBITDA was non-cash compensation which declined to $175,000 in the first quarter from $522,000 in the preceding quarter and $607,000 in the prior year first quarter. Prior year’s first quarter also included $670,000 integration cost related to the Motion acquisition. A reconciliation is provided in the tables included in our press release for your convenience.

While we are making aggressive changes to move Xplore to profitability within fiscal 2017, we’ve taken steps to protect the notable asset in our existing tax -- net operating loss carry-forwards from prior period.

After careful evaluation and advice from accounting and legal counsel, we determined that our NOL could be at risk if there is a cumulative turnover of ownership in excess of certain thresholds, particularly as it relates to shareholders of greater than 5%. In July, we announced creation of stock rights plan to address this risk. The stock rights seeks to preserve the net operating loss for the benefit of long term shareholders while not interfering with other options to create shareholder value. For example, if the Company is purchased, the NOL is lost at that time, such a sale would be the benefit of all shareholders. While we believe protection of assets for the benefit of all shareholder is the right course of action. This plan will be on the ballet for ratification by the shareholders at the next annual meeting in order to remain into effect.

Turing to the balance sheet, net cash used in operating activities was $6.6 million for the quarter ended June 30, 2016 compared to $3.6 million in the prior year quarter. At the quarter-end, cash was $4.4 million and short-term debt increase to $6.7 million. The increase in net cash used by operating activities and short term borrowings reflects the operating loss as well as $6.3 million increase in inventory. In anticipation of orders that were expected to ship during the quarter, but which have been delayed, as well as need to take on margin shipments to meet minimum order quantities for various products. This inventory is expected to be sold through in the coming two quarters. Changes in accounts receivable and accounts payable were largely offsetting to each other.

Finally, we also reiterated our outlook for fiscal 2017 as revenue ranging between $85 million and $95 million, including the impact of temporary global ship slowdown and shipment delays experienced in the first fiscal quarter. Gross margin for the fiscal year is expected to be between 28% and 30%, while operating expenses are expected to decline to approximately $27 million to $29 million. We anticipate that OpEx will vary slightly quarter-to-quarter due to the product development cycle and other investments, most like peaking in the second quarter. Based on these estimates, the Company anticipates net income at or near breakeven for the full year.

We also reiterated our business operating targets based on a $120 million run rate revenue, including gross margin of 28% to 30%, operating margins of 8% to 10% and profit margin of 6% to 8%, EBITDA margins of 9% to 11%.

That concludes my review of the financial results. Before turning to Q&A, I want to remind you that there are some questions we will not be able to answer because of competitive or legal considerations. Our new policy of providing annual guidance in longer term operating results -- operating targets provides a framework for expectations, but we do not provide specific quarterly expectations as a matter of policy.

In order to facilitate the Q&A process, participants will be permitted to ask one question and one follow-up question. You may then rejoin the roster for additional questions and follow-up, if time permits.

We now welcome your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instruction] Our first question today comes from Brian Kinstlinger of Maxim Group. Please go ahead.

Brian Kinstlinger

Can you guys talk about the customer concentration, maybe top five customers? And maybe I am trying to get at is how penetrated you are with net customer base and maybe what over a longer period of time what the total market opportunity within that large customer base -- that small customer base is?

Tom Wilkinson

I have the figures on our customer concentrations. One thing, when we talk about some of our larger customers, one of them in particular is itself a distributor, and we don’t always get the detailed sell through on larger distributors. In this case, it’s Cenex, [ph] which is pretty material client for us making up about 22% of revenue in the first quarter.

Brian Kinstlinger

I guess my question is outside of those, right, because they are market opportunities unless who they sell to, but maybe other top customers, just trying to get a sense how of penetrated you are. You keep selling into those customers and continue to gain share. What is the total opportunity you think there?

Tom Wilkinson

Mark, maybe you should take that with regard to AT&T and other customers.

Mark Holleran

Thank you, Tom. Well, for example, one of our largest customers last quarter was AT&T. AT&T, we really have sold into one division within AT&T, and that’s around I think around 6,000 to 8,000 tablets. The other divisions, the market potential based on our understanding just within AT&T is over 70,000 rugged tablet devices. We are engaged in a number of other projects which we can, right now will go into pilot over the next 6 to 12 months, which are in total of greater opportunity rate by magnitudes of the existing opportunities. The same can be said as some of our other large customers where we’ve penetrated one division in the tune of thousands of units, but there are multiple divisions within those accounts. And I would say that is in a number of various customers around the world. So, we see a great potential, not only in our existing customer base but also new customers that we are acquiring.

Brian Kinstlinger

My follow-up is maybe you can comment on the competitive environment. Panasonic has particularly difficult start to the year. Have you noticed any increased win rates against Panasonic and do you think those higher win rates are sustainable?

Philip Sassower

I would say we are seeing more opportunities based on the difficulties that Panasonic are experiencing. Even more notable is that Panasonic’s resellers are now -- some of them are reaching out to us to have us added to their product portfolio in addition to the Panasonic line because quite often our products are differentiated from Panasonic. For example, Panasonic does not have a iX104 C6 IP67 rated rugged tablet, we have the most rugged PC in the marketplace today. So, we see an opportunity in the next 6 to 12 months to gain more revenue and market share, and develop more relationships with more resellers that can be a sustainable, and increase our revenue in the future years.

Operator

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

William Gibson

I’d like to delve into the other cost actions. Did I hear Tom say or talk about outsourced R&D is part of that? And what does that consist of?

Tom Wilkinson

I think it was a sentence that includes R&D spending that we will spend on and outsourcing of some of the functions that we’ve eliminated. So, there was an outsourcing of R&D. So for example, we’ve outsourced our IT helpdesk work and some shipping functionality at lower costs.

William Gibson

And then, in terms of the inventory, I understand the build. Is there anything in there that you’re worried about or that might be a risk of old products?

Tom Wilkinson

No, we don’t -- we scrub that pretty hard all the time. We’re constantly vigilant about those, any sort of build up and have not had a problem. We sell through everything that we get.

William Gibson

Actually I am…

Mark Holleran

Let me just add to that. The rugged PC business is different from the consumer or enterprise PC business. Because our products are used by our customers for long periods of time, our products really don’t get that old. I mean, we have customers now that would still like the order our older generation products that we cannot build.

Operator

The next question is from Jay Harris of Axiom Capital Management. Please go ahead.

Jay Harris

Going back to your example of AT&T that there is an addressable opportunity of 70,000 tablets, if you look at that across all your prospective opportunities, what kind of dollar value would you put on that number?

Philip Sassower

I don’t have that number.

Jay Harris

Could you give a number that would not exceed the top end of that range?

Philip Sassower

No, [Multiple Speakers] I would say what you are looking at is opportunities in the hundreds of millions in regards to total market opportunities over X period of time, because those refresh cycles are usually every three to four years when they become available.

Jay Harris

And when you work on a particular project, what would you estimate, if you were going to be successful, how long it would take from a starting point until you receive the purchase order?

Mark Holleran

Sales cycle in large opportunities can be a year plus.

Jay Harris

Thanks Mark.

Operator

[Operator Instruction] Our next question comes from Todd Southey [ph] of Source Capital. Please go ahead.

Unidentified Analyst

Yes, I saw you have about I don’t know, 10 or 112 contract announcements or order announcements since the beginning of the year, what percentage of your customers or your initial customers stay with you and places secondary order down the road?

Philip Sassower

I really don’t know of customers that have really moved away from us. Once Xplore is an account, very seldom do we get removed from the account. I mean, we are -- our products are high quality products.

Unidentified Analyst

Okay, great. My second question would be just in regards to financing. Are you still in a position where you do not see need to raise any capital in the near future?

Tom Wilkinson

That’s correct. We don’t see any such need.

Operator

The next question is from George Melas of MKH Management. Please go ahead.

George Melas

First question on sort of the refresh cycle, I was looking at my model and I see that AT&T placed $10 million in orders and it was in your fiscal 2012. So now, we’re sort of four or five year into that. Are you starting to see a refresh cycle from some of your very large customers that really picked up four, five years ago?

Mark Holleran

Yes, I would say those refresh cycles -- the typical and large accounts range from three to four years. And some will come up during over the next 6 to 12 months.

George Melas

Okay. So just conceptually, Mark, if AT&T placed $10 million in order four, five years ago and there is a refresh cycle, would you expect another $10 million from that particular division, is that the way to look at it, or is it different?

Mark Holleran

First of all, we’ve gone through the refresh of AT&T, alright, and the refresh usually goes over a period of a year plus. We are now engaged in multiple other opportunities within AT&T in the different divisions that range in the thousands of units. And of course, those will go into pilots. We see an opportunity in those for the revenues to come in towards the later part of this fiscal year and continue into next fiscal year.

George Melas

Okay. So, the initial refresh -- the refresh of the initial orders has already happened or at least currently…

Mark Holleran

Correct. And then, we have other projects where we anticipate refreshes of those will happen over the next 6 to 12 months.

George Melas

Okay. And just from a curiosity point of view, those older units, what happened to them? Are they pushed down to another AT&T unit that is less sensitive to being fully ruggedized, what happened or do you repossess or do you take back these units?

Mark Holleran

Sometimes, we’ll take units back actually; we quite often will go and ask to buy some units to help us in the use for our service and repair. Other times, they dispose of all the units or actually they go to a third party due to government legislation and be destroyed.

George Melas

And then, one more question for Tom. Tom, the OpEx in the quarter was $6.4 million, so annualize that, it’s roughly 25.6 and you have some additional cost actions on your part in August, but you’re guiding to 27 to 29. So, you’re seeing a pickup in OpEx for the rest of the year. Can you explain that a little bit?

Tom Wilkinson

The OpEx is itself lumpy mostly because of the R&D cycle, which is not at all smooth during the quarter and the spending was particularly light during Q1. So that will pick up. So you really can’t take this -- you can’t just take this quarter’s OpEx and multiple it by four and feel that that’s exactly how we came out with our projection. There is more to it than that. So, you look for OpEx to be more lumpy than the other costs.

George Melas

And is that primarily R&D or does that apply to…

Tom Wilkinson

The sales costs will go up with revenue quarter-to-quarter. And so, -- but, there will be a more market effect than R&D.

George Melas

And G&A stays roughly flat from the current level, or…

Tom Wilkinson

I would expect so.

Operator

The next question comes from Joseph DiDonna [ph] of Alexander Capital. Please go ahead.

UnidentifiedAnalyst

Hi. I’ve got a question in regards to your sales guidance. You said there was a short-term slowdown. So, are you saying that the orders are mostly pushed out? You’re not seeing too many lost opportunities, or…?

Philip Sassower

That’s correct. What we’ve seen -- when things in the market become uncertain, a lot of people stand back and say okay, let’s wait to see what happens. Also, you have the elections on November 8th where people are there. So, the vast majority of them we see have been delayed and not cancelled.

Unidentified Analyst

So, it’s not like another company came in stole those orders?

Philip Sassower

No, we’re still talking to them and they’re still titling our units.

Unidentified Analyst

And lastly, have you like on no margin business, have you like cut back pursuing some business and that’s why the sales guidance is what it is?

Philip Sassower

That’s correct. We have cut back and then we have told you and foreign people publicly that we are really focusing on profitable, sustainable profitable business and we’re not going to do business at low gross margins.

Unidentified Analyst

And what about the switch to the contract manufacturer, how is that going?

Philip Sassower

We have not switched to…

Tom Wilkinson

I think he means the compile -- the Pegatron…

Unidentified Analyst

Yes, that’s what I mean…

Philip Sassower

That’s done. We’re completely out of that. And Pegatron is producing the products and doing a marvellous job of that.

Unidentified Analyst

And as far as the pipeline, you still are seeing the same type of pipeline that you saw maybe six months ago?

Philip Sassower

I am actually seeing access to even some more large opportunities. And as I mentioned in my previous statement, we’re seeing some opportunities in large Panasonics resellers where we’re being invited to come in and add our product portfolio to their lines.

Operator

The next question comes from Gregory Macosko of Montrose Advisors. Please go ahead.

Gregory Macosko

Just to go back to the headcount reductions, the $2 million plus the $2 million and then the other $1 million, if I were to look out and say in the September quarter or the December quarter, the last calendar quarter, are you saying that the run rate in terms of cost reductions is going to be at least $5 million before any add backs like the outsourcing and the like; is that where we stand in the cost reduction program?

Tom Wilkinson

That’s probably a good way to look at it. The add backs for -- some of the add backs and some of those hard things to kind of articulate and explain, we were able to cut cost, sometimes cutting them from an increases level, so for example, if our healthcare costs go up, which they have historically, substantially and repeatedly, and then you add also to that the outsourcing and variabilization of some of what used fixed cost, there would be some add backs to that. That’s correct. So, it’s not -- you can’t really take let’s say last year’s OpEx plus what we’ve articulated peculated and come up with the exact amount to project. That’s why we were able to express this guidance of $27 million to $29 million to try and help sort of focus what we think the net result’s going to be.

Gregory Macosko

I think you’ve mentioned four areas where you see cost reduction in I think manufacturing costs and R&D and accounting and distribution and the like. These costs, the costs that you’ve taken out of it, kind of across the board, and is there much more to be done that you will see as the quarter progresses and as the year progresses?

Tom Wilkinson

I think the opportunities for further OpEx cost would be pretty far down the road -- this was a pretty solid effort and we are defiantly going to be having to work very hard with the costs that we’re left with. We have some things underway that won’t be completed until this fiscal year-end, for example, the completion of our new ERP with greater automation and some changes to how we go about executing on our supply chain that could create more cost savings in the future, but those wouldn’t really be available until next fiscal year.

Gregory Macosko

Okay. So, what you’re kind of saying is we’re kind of there in terms of the cost reduction, a bit more coming, but you are pretty much there?

Tom Wilkinson

That’s right.

Gregory Macosko

Given that you are saying -- you are saying that you’ll break even for the year. That implies that third and fourth quarter or at least the fourth quarter is likely to be profitable, is that a fair way of looking at it, just it should balance out to be breakeven for the year?

Tom Wilkinson

So, our fourth quarter is in March next year, and our historical seasonality has been such that the second and third quarters for us are stronger quarters, and our fourth and first quarters are weaker quarters. So, I am not sure -- it’s not going to pattern in sort of complete upward motion from here in the lockstep, but it will be more of a curve with the third quarter being the best.

Gregory Macosko

Okay. And then, finally, you mentioned the NOL and the need to protect that, I understand that. How much is that and what kind of a life does it have, I mean how long do you expect it to last?

Tom Wilkinson

Sure. It’s approximately $75 million of net operating loss, so that’s worth about -- you think of that as being worth about a third, and so, it’s worth about $25 million, and it’s off balance sheet fully reserved. Net operating losses are -- they live for 20 years from each year which they are created. So, every year as we go long and if we have tax loss, we add to that, if we have tax gain, we consume some of it; and when they get 20 years old that’s all off. The Company…

Gregory Macosko

And how -- what’s oldest?

Tom Wilkinson

The oldest would be something developed 20 years ago. We are actually celebrating our 20-year anniversary this month.

Gregory Macosko

Okay. So, you have losses from 20 years ago?

Tom Wilkinson

We do have some. The Company was a Canadian company 20 years ago. So, those original -- some of those -- not all of our regional losses were -- become U.S. federal tax loss carry-forwards; only to the extent we had operations in the U.S. And I don’t have a split between those right now. But we -- right now that $75 million as of the end of the year was the net that’s still alive.

Gregory Macosko

But some of that’s going to -- I guess what you’re saying, they’ll probably be some of it that may fall off as you move along?

Tom Wilkinson

Right, exactly. And of course there is differences between GAAP and tax as we go. So, you can’t -- even though -- regardless of what you see on our bottom line for GAAP, that doesn’t always tell you we have [ph] tax gain or losses, you have to go to the footnotes to see that. Because for example the goodwill from the Motion acquisition will be a deduction for tax but not an expense for GAAP and non-cash stock compensation is expense for GAAP and not for tax. So, there is -- it’s a little bit tricky trying to track it down.

Gregory Macosko

And have you had any new large customers come on, or are we -- when you’re looking out that you mentioned that the pipeline and there is opportunity, and aside from the distributors and the resellers and the like, is there any other -- I know you won Bosch not too long ago and then the like. Maybe in the cross-sell with Motion, is there any opportunity there where you’re -- maybe they’re not new customers, but a new customer to explore versus the Motion customer?

Mark Holleran

Yes, we have seen other new customers and we’re in negotiations of contracts with other new large customers and we also see opportunities in cross-selling of our products from the Motion customer base and the Xplore product and also the other way too where we have the Xplore base and selling the Motion legacy products into them.

Operator

The next question is from Jay Harris of Axiom Capital Management. Please go ahead.

Jay Harris

As a follow-up, if you do generate $0.16 a share of earnings in the last nine months of the year, what would be the free cash flow generation associated with that?

Tom Wilkinson

Jay, let me look up my model. Do you have a second question that we can maybe get to while I try and calculate that?

Jay Harris

No, just one, the other thoughts I had have been answered.

Tom Wilkinson

Jay, I should probably follow up to that when we next speak. But you got to think of free cash flow from this point forward, not just coming from the earnings per share but a significant amount coming in over the next nine months from the reduction of inventory, which could be $6 million to $7 million right there.

Jay Harris

But aggregately, what do you think that the total would be?

Tom Wilkinson

It should be something -- for the next nine months, it should be approximately $8 million to $10 million.

Operator

The next question is from Josh Seide of Maxim Group. Please go ahead.

Josh Seide

Can you talk a bit about the industry’s adoption of Android supported tablets, and what verticals would you expect to lead the way in that adoption? And then, could you speak a bit on how far behind you think competitors are in offering their own Android supported tablets? Thanks.

Mark Holleran

I would say we see adaption in the communications industry of Android and in general in the warehousing and distribution market. It really more is customer specific I would say as opposed to a vertical market. I would say from a macroeconomic viewpoint, Android is a acceptable anti- Microsoft play and Android has quite [ph] mature in the marketplace. We see that we have a competitive position presently where we really have the beset rugged Android tablet in the marketplace today. And I believe that will be this fiscal year our highest selling volume product in the marketplace. And our intentions are also to continue with that product and refresh it.

Josh Seide

Okay. And then…

Mark Holleran

Let me just add. It allows you to also have the most -- the lowest cost rugged tablet in the marketplace. So, it’s people that are extremely price sensitive, that’s a product that you can put out there. And Google has matured in the sense that in some organizations they’re now willing to take it. Even in the military, we’re now starting to see some interest in Android, which has always just been a pure Microsoft shop.

Josh Seide

And then, just more broadly, are there any long-term plans to build out the product line up, expand into contractors or…

Mark Holleran

Actually, I am up at what 4 in the morning here in Taipei meeting with the ODMs where we’re looking at and discussing some new innovative product opportunities in our product portfolio.

Operator

The next question comes from Joseph DiDonna of Alexander Capital. Please go ahead.

UnidentifiedAnalyst

I have one more question. You hear about the presidential candidates talking about building up the military or building infrastructure in this country. Is that going to help you guys in any way?

Mark Holleran

Yes, if the military gets funded. The single largest purchaser of rugged PCs in the world is the U.S. military and that business is being crushed over the last two years. Fortunately for us that hasn’t been a large percentage and we’ve had a large project, the drone program, that’s probably generated $20 million to $30 million for us over the last two years.

Unidentified Analyst

Thank you…

Mark Holleran

And we now see other opportunities.

Unidentified Analyst

Thank you.

Operator

This concludes today’s question-and-answer session. I’ll now hand the call back over to Phil Sassower for closing comments.

Philip Sassower

Well, I thank you for participating on today’s call. While fiscal 2017 we began with challenging market conditions, we are processing aggressively -- we are proceeding aggressively with plans to transition Xplore to profitability within a very short time. Much of the work has now been accomplished through the cost reductions we have already undertaken and those actions position us to be at or near breakeven based on the currently projected revenue levels for fiscal 2017. We are also working diligently to propel revenue back at historic level and resume our growth trends. This includes work on a number of large sales opportunities with both existing and new customers who are increasingly recognizing the distinctive value that our products represent. Finally, we plan to participate in a number of investor conferences and road shows in the coming months to continue our efforts toward increasing awareness of Xplore, our market opportunities and our transition to profitability. Have a great evening. And thank you for participating.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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