XRS Corp - FORM 8-K - EX-99.1 - EXHIBIT - August 7, 2014

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FOR IMMEDIATE RELEASE    
CONTACT:
Michael Weber
Chief Financial Officer, XRS Corporation
952-707-5600

XRS Corporation Reports Fiscal 2014 Third Quarter Results

•
Mobile software revenue up 19% year-over-year
•
Net income of $0.1 million, non-GAAP earnings of $1.8 million
•
Generated free cash flow of $0.8 million
 
MINNEAPOLIS, August 7, 2014 — XRS Corporation (NASDAQ: XRSC) reported results for its fiscal 2014 third quarter ended June 30, 2014.

“It’s been an impressive quarter for customer growth and we are pleased that over 190 fleets chose our XRS platform as their fleet management and compliance solution,” said Jay Coughlan chairman and chief executive officer of XRS Corporation. “During the quarter we successfully launched additional fuel tax and trip management functionality, supporting our commitment to deliver the best product to fleets of all sizes. Continued investment in our solution positions us well to capitalize on the growing compliance market."

Third Quarter Results

•
Revenue: For the three months ended June 30, 2014 mobile software revenue increased 19 percent compared with the comparable fiscal period in 2013 as customers continue to implement our mobile XRS solution. Total revenue was $12.8 million for the three months ended June 30, 2014, compared to $13.4 million for the comparable period in fiscal 2013 as the Company continues to transition from its legacy hardware-based solutions to its mobile solutions.

•
Gross Margin: Overall gross margin percentage remained consistent at 61 percent for the three months ended June 30, 2014 and 2013. Software gross margins declined 3 percentage points to 70 percent for the three months ended June 30, 2014, compared to the same period in fiscal 2013. The decline in software gross margins is reflective of the Company's commitment to continue to support its legacy solutions while it transitions customers to its XRS mobile solution.




XRS Corporation Releases Fiscal 2014 Third Quarter Results – Page 2


•
Selling, General & Administrative Expenses: Selling, general and administrative expenses decreased to $4.4 million, compared to $5.1 million for the comparable period in fiscal 2013, driven by a decrease in personnel costs.

•
Research & Development Expenses: Reserve and development expenses were $3.3 million and $2.9 million for the third quarter of fiscal 2014 and 2013, respectively. Research and development expenses increased as the Company successfully released new solution functionality, including: trip management for managing routes and enhancements to fuel tax including print, sign and send automated reporting. This new functionality allows the XRS mobile solution to meet the requirements of larger, more complex fleets, while further differentiating our solution from competitors.

•
Net Income: GAAP net income for the third quarter was $0.1 million, compared to $0.2 million for the same period in the prior year.

•
Non-GAAP Earnings: The Company reported non-GAAP earnings of $1.8 million, or $0.06 per diluted share for the third quarter of fiscal 2014, compared to non-GAAP earnings of $2.1 million, or $0.07 per diluted share for the same period in fiscal 2013.

•
Balance Sheet: As of June 30, 2014, XRS Corporation had cash of $13.0 million, an increase of $2.6 million since September 30, 2013. As of quarter end, the Company also maintained a debt free balance sheet.

•
Statement of Cash Flows: During the third quarter of fiscal 2014 the Company generated $1.4 million of cash flow from operations and invested $0.6 million in capital expenditures, Relay assets and software development, resulting in free cash flow of $0.8 million.

•
Working Capital: Working capital increased $3.1 million to $16.1 million as of June 30, 2014, compared to $13.0 million in working capital as of September 30, 2013.

Year-to-Date Results

•
Revenue: For the nine months ended June 30, 2014, mobile software revenue increased 14 percent compared to the same period in fiscal 2013. Total revenue was $38.9 million for the nine months ended June 30, 2014, compared to $42.1 million for the comparable period in fiscal 2013. Attrition of legacy customers and a lower average annual contract values on the XRS mobile solution contributed to the decreased software revenue. The Company's focus on the sale of the no upfront hardware cost XRS mobile solution resulted in decreased hardware systems revenue.




XRS Corporation Releases Fiscal 2014 Third Quarter Results – Page 3


•
Non-GAAP Earnings: For the for the nine months ended June 30, 2014, the Company reported non-GAAP earnings of $5.0 million, or $0.17 per diluted share, compared to $6.5 million, or $0.23 per diluted share, for the comparable period in fiscal 2013.

Summary of revenue and gross margins (deficits) is as follows (in thousands, except percentage data):

 
For the Three Months Ended
 
For the Nine Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Software
$
10,867

 
$
11,266

 
$
32,465

 
$
34,613

Hardware systems
1,689

 
1,798

 
5,610

 
6,569

Services
257

 
340

 
825

 
913

Total revenue
$
12,813

 
$
13,404

 
$
38,900

 
$
42,095

 
 
 
 
 
 
 
 
Gross margins (deficits):
 
 
 
 
 
 
 
Software
70
%
 
73
%
 
70
%
 
73
%
Hardware systems
26
%
 
18
%
 
23
%
 
14
%
Services
(113
%)
 
(94
%)
 
(107
%)
 
(88
%)
Total gross margin
61
%
 
61
%
 
59
%
 
61
%

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 reconciliation of the specific non-GAAP financial measures to the nearest comparable GAAP measures.



XRS Corporation Releases Fiscal 2014 Third Quarter Results – Page 4


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 106,000 subscribers 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 their customer satisfaction.

For more information, visit www.xrscorp.com or 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 September 30, 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 Releases Fiscal 2014 Third Quarter Results – Page 5


XRS Corporation
Consolidated Statements of Operations
(Unaudited)

 
For the Three Months Ended June 30,
 
For the Nine Months Ended June 30,
(In thousands, except per share data)
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Software
$
10,867

 
$
11,266

 
$
32,465

 
$
34,613

Hardware systems
1,689

 
1,798

 
5,610

 
6,569

Services
257

 
340

 
825

 
913

Total revenue
12,813

 
13,404

 
38,900

 
42,095

 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
Cost of goods sold
5,049

 
5,225

 
15,795

 
16,577

Selling, general and administrative
4,389

 
5,094

 
14,322

 
15,940

Research and development
3,289

 
2,873

 
9,297

 
8,721

Total costs and expenses
12,727

 
13,192

 
39,414

 
41,238

 
 
 
 
 
 
 
 
Operating income (loss)
86

 
212

 
(514
)
 
857

Net interest and other expense
(6
)
 
(35
)
 
(52
)
 
(82
)
 
 
 
 
 
 
 
 
Income (loss) before income taxes
80

 
177

 
(566
)
 
775

Income tax (benefit) expense
—

 
(52
)
 
(6
)
 
51

 
 
 
 
 
 
 
 
Net income (loss)
80

 
229

 
(560
)
 
724

 
 
 
 
 
 
 
 
Preferred stock dividends and deemed
    dividends
(68
)
 
(59
)
 
(188
)
 
(175
)
 
 
 
 
 
 
 
 
Net income (loss) to common shareholders
$
12

 
$
170

 
$
(748
)
 
$
549

 
 
 
 
 
 
 
 
Net income (loss) per common share:
 
 
 
 
 
 
 
Basic
$
—

 
$
0.02

 
$
(0.07
)
 
$
0.05

Diluted
$
—

 
$
0.01

 
$
(0.07
)
 
$
0.03

 
 
 
 
 
 
 
 
Weighted average common and common share equivalents:
 
 
 
 
 
 
 
Basic
11,159

 
10,858

 
11,043

 
10,831

Diluted
12,184

 
28,345

 
11,043

 
27,766







XRS Corporation Releases Fiscal 2014 Third Quarter Results – Page 6


XRS Corporation
Consolidated Balance Sheets

 
June 30,
 
September 30,
(In thousands)
2014
 
2013
 
(Unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
13,017

 
$
10,445

Accounts receivable, net
6,629

 
6,864

Inventories
1,156

 
1,710

Deferred product costs
426

 
625

Prepaid expenses and other current assets
1,639

 
1,417

Total current assets
22,867

 
21,061

 
 
 
 
Equipment and leasehold improvements, net
4,234

 
5,980

Intangible assets, net
3,221

 
4,578

Goodwill
16,199

 
16,640

Deferred product costs, net of current portion
112

 
213

Other assets
532

 
667

Total assets
$
47,165

 
$
49,139

 
 
 
 
Current liabilities
 
 
 
Accounts payable
$
3,118

 
$
2,885

Accrued expenses
3,236

 
4,560

Deferred revenue
1,648

 
1,886

Total current liabilities
8,002

 
9,331

 
 
 
 
Deferred revenue, net of current portion
225

 
496

Other long-term liabilities
13

 
62

Total liabilities
8,240

 
9,889

 
 
 
 
Shareholders' equity
 
 
 
Preferred stock
44,728

 
44,524

Common stock
112

 
109

Additional paid-in capital
51,445

 
50,674

Accumulated deficit
(57,436
)
 
(56,688
)
Accumulated other comprehensive income
76

 
631

Total shareholders' equity
38,925

 
39,250

Total liabilities and shareholders' equity
$
47,165

 
$
49,139




XRS Corporation Releases Fiscal 2014 Third Quarter Results – Page 7


XRS Corporation
Consolidated Statements of Cash Flows
(Unaudited)

 
For the Nine Months Ended
 
June 30,
(In thousands)
2014
 
2013
 
 
 
 
Operating activities
 
 
 
Net (loss) income
$
(560
)
 
$
724

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
4,957

 
5,080

Amortization of deferred financing costs
38

 
57

Deferred income taxes
—

 
(9
)
Loss on sale or disposal of equipment and leased equipment
47

 
48

Stock-based compensation
550

 
498

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
431

 
1,056

Inventories, net
555

 
1,165

Deferred product costs
299

 
242

Prepaid expenses and other assets
(269
)
 
(672
)
Accounts payable
460

 
(162
)
Accrued expenses and other liabilities
(1,432
)
 
(10
)
Deferred revenue
(504
)
 
(837
)
Net cash provided by operating activities
4,572

 
7,180

 
 
 
 
Investing activities
 
 
 
Purchase of equipment and leasehold improvements
(2,023
)
 
(2,324
)
Capitalized software development
(138
)
 
(355
)
Proceeds from the sale of equipment
—

 
16

Net cash used in investing activities
(2,161
)
 
(2,663
)
 
 
 
 
Financing activities
 
 
 
Revolving line of credit
—

 
(2,300
)
Deferred financing costs
(30
)
 
(50
)
Proceeds from exercise of options
183

 
13

Net cash provided by (used in) financing activities
153

 
(2,337
)
 
 
 
 
Effects of exchange rate on cash
8

 
9

 
 
 
 
Increase in cash and cash equivalents
2,572

 
2,189

 
 
 
 
Cash and cash equivalents
 
 
 
Beginning
10,445

 
7,120

Ending
$
13,017

 
$
9,309




XRS Corporation Releases Fiscal 2014 Third Quarter Results – Page 8


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 June 30,
 
For the Nine Months Ended June 30,
(In thousands, except per share data)
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net income (loss) to common shareholders
$
12

 
$
170

 
$
(748
)
 
$
549

 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
Depreciation and amortization expense
1,603

 
1,718

 
4,957

 
5,080

Stock-based compensation
150

 
150

 
550

 
498

Net interest expense
8

 
27

 
25

 
68

Preferred stock dividends and deemed dividends
68

 
59

 
188

 
175

Income taxes
—

 
(52
)
 
(6
)
 
51

Other
—

 
—

 
—

 
50

Total adjustments
1,829

 
1,902

 
5,714

 
5,922

 
 
 
 
 
 
 
 
Non-GAAP earnings
$
1,841

 
$
2,072

 
$
4,966

 
$
6,471

 
 
 
 
 
 
 
 
Non-GAAP earnings per diluted share
$
0.06

 
$
0.07

 
$
0.17

 
$
0.23

 
 
 
 
 
 
 
 
Shares used in calculating non-GAAP earnings
    per diluted share
28,819

 
28,345

 
28,773

 
27,766


Working Capital

 
June 30,
 
September 30,
(In thousands)
2014
 
2013
 
 
 
 
Current assets
$
22,867

 
$
21,061

Current liabilities
(8,002
)
 
(9,331
)
Net current assets
14,865

 
11,730

Current portion of deferred revenue net deferred costs
1,222

 
1,261

Working capital
$
16,087

 
$
12,991






XRS Corporation Releases Fiscal 2014 Third Quarter Results – Page 9


XRS Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)

Free Cash Flow
 
For the Three Months Ended June 30,
 
For the Nine Months Ended June 30,
(In thousands)
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
1,395

 
$
2,933

 
$
4,572

 
$
7,180

Net cash used in investing activities:
 
 
 
 
 
 
 
Purchase of equipment and leasehold improvements
(84
)
 
(95
)
 
(604
)
 
(319
)
Purchase of Relay assets
(408
)
 
(843
)
 
(1,419
)
 
(2,005
)
Capitalized software development
(110
)
 
(270
)
 
(138
)
 
(355
)
Proceeds from the sale of equipment
—

 
—

 
—

 
16

Net cash used in investing activities
(602
)
 
(1,208
)
 
(2,161
)
 
(2,663
)
 
 
 
 
 
 
 
 
Free cash flow
$
793

 
$
1,725

 
$
2,411

 
$
4,517




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