XRS Corporation Reports Fiscal 2014 First Quarter Results

          XRS Corporation Reports Fiscal 2014 First Quarter Results  Mobile software revenue grew 14 percent in first quarter 2014.  First quarter net income drove free cash flow of $0.6 million.  Non-GAAP earnings of $1.9 million, or $0.07 per diluted share in first quarter 2014.  PR Newswire  MINNEAPOLIS, Feb. 6, 2014  MINNEAPOLIS, Feb. 6, 2014 /PRNewswire/ -- XRS Corporation (NASDAQ:XRSC) reported results for its fiscal 2014 first quarter ended December31, 2013.  "The first quarter of fiscal 2014 was our fifth consecutive quarter of profitability, with mobile growth of 14 percent," said Jay Coughlan, chairman and chief executive officer of XRS Corporation. "We are committed to the ongoing success in transitioning to our no upfront hardware cost XRS mobile solution.We continue to enhance functionality of our XRS solution, including aligning with strategic third-party providers to meet the integration requirements of larger, more complex fleets. During this time of continued investment in our XRS mobile solution we are closely controlling costs, which resulted in decreased costs of $0.7 million year-over-year. This positions us well to support the long-term growth of the Company."  First Quarter Results For the three months ended December 31, 2013, mobile software revenue increased 14 percent, while total software revenue decreased $0.9 million with the comparable fiscal period in 2013. Total revenue was $13.3 million for the three months ended December 31, 2013, compared to $14.2 million for the comparable period in fiscal 2013 as a result of new customers selecting the Company's mobile solutions, as well as by attrition in the legacy subscription base.  Gross margin percentage decreased 4 percentage points to 59 percent for the three months ended December 31, 2013. Software gross margins drove the decline in total gross margin percent. Software gross margins declined 4 percentage points to 70 percent for the three months ended December 31, 2013. The decline is reflective of the Company's commitment to continue to support its legacy solutions while it transitions customers to its mobile solutions.  Selling, general and administrative expenses decreased to $4.9 million, compared to $5.5 million for the comparable period in fiscal 2013. Overall selling, general and administrative expenses decreased as a percentage of revenue for the first quarter of fiscal 2014 and 2013 at 37 percent and 39 percent, respectively. The decrease in selling, general and administrative expenses reflects the Company's commitment to increased operational efficiencies. In addition, the current period reflects reduced legal expenses as the Company was involved in defending a patent litigation suit in the first quarter of fiscal 2013.  Research and development expenses were $2.9 million and $3.1 million for the first quarter of fiscal 2014 and 2013, respectively. Research and development expense remained relatively consistent as the Company continued to focus on enhancements to its XRS solution to meet the operational needs of larger, more complex fleets.  First quarter of fiscal 2014 net income was $0.1 million, a decrease of $0.2 million compared to a net income of $0.3 million for the same period in fiscal 2013. The Company reported non-GAAP earnings of $1.9 million, or $0.07 per diluted share for the first quarter of fiscal 2014, compared to a non-GAAP earnings of $2.2 million, or $0.08 per diluted share for the same period in fiscal 2013.  As of December31, 2013, the Company maintained a debt-free balance sheet with $11.2 million in cash. Free cash flow was $0.6 million for the three months ended December31, 2013, compared to a $1.6 million for the comparable period in fiscal 2013. Working capital increased $1.4 million to $14.4 million as of December31, 2013, compared to $13.0 million in working capital as of September30, 2013.  Summary of revenue and gross margins (deficits) is as follows (in thousands, except percentage data):                            For the Three Months Ended                           December 31,                           2013            2012 Revenue:  Software               $   10,908      $  11,769  Hardware systems       2,131           2,191  Services               258             235  Total revenue          $   13,297      $  14,195 Gross margins (deficits):  Software               70%             74%  Hardware systems       25%             21%  Services               (112%)          (122%)  Total gross margin     59%             63%  Non-GAAP vs. GAAP Financial Measures To assist investors in understanding the Company's financial performance, the Company supplements the financial results that are generated in accordance with the accounting principles generally accepted in the United States, or GAAP, with non-GAAP financial measures, including non-GAAP earnings, non-GAAP earnings per diluted share, working capital and free cash flow. These non-GAAP financial measures are useful to investors for evaluating the Company's historical and prospective financial performance, as well as our performance relative to competitors. Management regularly uses these non-GAAP financial measures internally to understand, manage and evaluate its ongoing business operations and to make operating decisions. These non-GAAP financial measures are among the primary factors management uses in planning for and forecasting future period performance. Management believes that these non-GAAP financial measures reflect an additional way of analyzing aspects of the Company's ongoing operations that, when viewed with our GAAP results, provides a more complete understanding of the factors and trends affecting our business.  The end of this release contains a description of the non-GAAP financial measures and/or a reconciliation of the specific non-GAAP financial measures to the nearest comparable GAAP measures.  About XRS Corporation XRS Corporation delivers fleet management and compliance software solutions to the trucking industry to help maintain regulatory compliance and reduce operating costs. XRS Corporation is leading the trucking industry's migration to mobile devices for collecting and analyzing compliance and management data. Its mobile solutions have no upfront hardware costs and run on smartphones, tablets and rugged handhelds. XRS Corporation has sales and distribution partnerships with the major wireless carriers supporting the U.S. and Canadian trucking industries.  Through XRS Corporation's solutions: XRS, Turnpike, XataNet and MobileMax, we serve 109,000 subscriptions through 1,300 customers. Our various solutions help fleet managers, dispatchers and drivers collect, sort, view and analyze data to help reduce costs, increase safety, attain compliance with governmental regulations and improve customer satisfaction.  For more information, visitwww.xrscorp.comor call 1-800-745-9282.  Cautionary note regarding forward-looking statements This announcement includes forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Such statements are based on current expectations, and actual results may differ materially. The forward-looking statements in this announcement are subject to a number of risks and uncertainties including, but not limited to, the possibility of operating losses, the ability to adapt to rapid technological change, the ability of our solutions to be compliant with future regulations, dependence on propriety technology and communication networks owned and controlled by others, the failure to renew contracts or failure to sell additional solutions or services to existing customers, the timely introduction and market acceptance of new products, the ability to fund future research and development activities, the ability to establish and maintain strategic partner relationships and the other factors discussed under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September30, 2013 (as updated in our subsequent reports filed with the SEC). These reports are available under the "Investors" section of our website at www.xrscorp.com and through the SEC website at www.sec.gov. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.    XRS Corporation  Consolidated Statements of Operations  (Unaudited)                                                     For the Three Months Ended                                                     December 31, (In thousands, except per share data)               2013            2012 Revenue  Software                                         $   10,908      $  11,769  Hardware systems                                 2,131           2,191 Services                                         258             235  Total revenue                                    13,297          14,195 Cost of goods sold                                  5,419           5,306 Selling, general and administrative                 4,859           5,497 Research and development                            2,894           3,050 Total costs and expenses                            13,172          13,853 Operating income                                    125             342 Net interest and other expense                      (15)            (18) Income before income taxes                          110             324 Income tax expense                                  19              5 Net income                                          91              319 Preferred stock dividends and deemed                                                     (60)            (58)   dividends Net income to common shareholders                   $   31          $  261 Net income per common share:  Basic                                            $   —           $  0.02  Diluted                                          $   —           $  0.01 Weighted average common and common share equivalents:  Basic                                            10,930          10,809  Diluted                                          12,063          27,357      XRS Corporation  Consolidated Balance Sheets                                                December 31,  September 30, (In thousands)                                 2013          2013                                                (Unaudited) Current assets  Cash and cash equivalents                   $   11,155    $   10,445  Accounts receivable, net                    6,739         6,864  Inventories                                 1,665         1,710  Deferred product costs                      549           625  Prepaid expenses and other current assets   1,172         1,417  Total current assets                        21,280        21,061 Equipment and leasehold improvements, net      5,320         5,980 Intangible assets, net                         4,065         4,578 Goodwill                                       16,241        16,640 Deferred product costs, net of current portion 158           213 Other assets                                   451           667  Total assets                                $   47,515    $   49,139 Current liabilities  Accounts payable                            $   3,205     $   2,885  Accrued expenses                            3,133         4,560  Deferred revenue                            1,759         1,886  Total current liabilities                   8,097         9,331 Deferred revenue, net of current portion       360           496 Other long-term liabilities                    12            62  Total liabilities                           8,469         9,889 Shareholders' equity  Preferred stock                             44,643        44,524  Common stock                                110           109  Additional paid-in capital                  50,806        50,674  Accumulated deficit                         (56,657)      (56,688)  Accumulated other comprehensive income      144           631  Total shareholders' equity                  39,046        39,250  Total liabilities and shareholders' equity  $   47,515    $   49,139      XRS Corporation  Consolidated Statements of Cash Flows  (Unaudited)                                                    For the Three Months Ended                                                    December 31, (In thousands)                                     2013            2012 Operating activities Net income                                         $   91          $   319 Adjustments to reconcile net income to net cash provided by operating activities:  Depreciation and amortization                   1,714           1,690  Amortization of deferred financing costs        25              12  Deferred income taxes                           —               (9)  Loss on sale or disposal of equipment and       10              5 leased equipment  Stock-based compensation                        58              160  Changes in assets and liabilities:  Accounts receivable, net                        321             287  Inventories, net                                45              117  Deferred product costs                          131             42  Prepaid expenses and other assets               171             57  Accounts payable                                468             230  Accrued expenses and other liabilities          (1,412)         (204)  Deferred revenue                                (258)           (524)  Net cash provided by operating activities       1,364           2,182 Investing activities  Purchase of equipment and leasehold             (734)           (613) improvements  Proceeds from the sale of equipment             —               7  Net cash used in investing activities           (734)           (606) Financing activities  Revolving line of credit                        —               (2,300)  Proceeds from exercise of options               75              —  Net cash provided by (used in) financing        75              (2,300) activities  Effects of exchange rate on cash                5               2  Increase (decrease) in cash and cash            710             (722) equivalents Cash and cash equivalents  Beginning                                       10,445          7,120  Ending                                          $   11,155      $   6,398      XRS Corporation  Reconciliation of GAAP to Non-GAAP Financial Measures  (Unaudited) Non-GAAP Earnings and Non-GAAP Earnings Per Diluted Share                                                    For the Three Months Ended                                                    December 31, (In thousands, except per share data)              2013          2012 Net income to common shareholders                  $   31        $    261 Adjustments:  Depreciation & amortization expense             1,714         1,690  Stock-based compensation                        58            160  Net interest expense                            6             16  Preferred stock dividends and deemed dividends  60            58  Income taxes                                    19            5 Total adjustments                                  1,857         1,929 Non-GAAP earnings                                  $   1,888     $    2,190 Non-GAAP earnings per diluted share                $   0.07      $    0.08 Shares used in calculating non-GAAP earnings                                                    28,669        27,357  per diluted share Working Capital                                                    December 31,  September 30, (In thousands)                                     2013          2013 Current assets                                     $   21,280    $    21,061 Current liabilities                                (8,097)       (9,331)  Net current assets                              13,183        11,730 Current portion of deferred revenue net deferred   1,210         1,261 costs Working capital                                    $   14,393    $    12,991      XRS Corporation  Reconciliation of GAAP to Non-GAAP Financial Measures  (Unaudited) Free Cash Flow                                                     For the Three Months Ended                                                     December 31,                                                     2013           2012 Net cash provided by operating activities           $   1,364      $   2,182 Net cash used in investing activities:  Purchase of equipment and leasehold improvements (183)          (114)  Purchase of Relay assets                         (551)          (499)  Proceeds from the sale of equipment              —              7 Net cash used in investing activities               (734)          (606) Free cash flow                                      $   630        $   1,576    SOURCE XRS Corporation  Website: http://www.xrscorp.com Contact: Michael Weber, Chief Financial Officer, XRS Corporation, 952-707-5600