XRS Corp - FORM 8-K - EX-99.1 - PRESS RELEASE DATED NOVEMBER 8, 2012 - November 8, 2012

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

XRS Reports Fiscal 2012 Fourth Quarter and Year-end Results
Software revenue growth of 5 percent contributes to Non-GAAP earnings of $2.0 million for the fourth quarter of fiscal 2012
MINNEAPOLIS, November 8, 2012 —XRS Corporation (formerly Xata Corporation, NASDAQ:XRSC) reported revenue of $15.0 million for its fiscal fourth quarter ended September 30, 2012, versus $15.3 million for the comparable period in 2011. Net loss to common shareholders for the fourth quarter of fiscal 2012 was $0.3 million, or $0.03 per diluted share, compared to $1.6 million, or $0.15 per diluted share, for the comparable period in fiscal 2011.
The Company's bottom-line improvement resulted from software revenue growth of 5 percent and benefits realized from the recent business realignment announced in the third quarter.
Important developments for the quarter include:
•
Software revenue in the quarter increased $0.5 million, up 5 percent year-over-year, to $12.2 million. The growth in software revenue was fueled by a 24 percent and 8 percent growth in Turnpike and XataNet software revenue, respectively.
•
Higher margin software revenues increased as the market demand continues to evolve from hardware systems-based to lower-cost mobile solutions. As a result, fiscal 2012 fourth quarter software revenue accounted for approximately 82 percent of total revenue, compared to 77 percent percent for the same period of fiscal 2011.
•
The Company acquired 63 new customers in the fourth quarter of fiscal 2012, all of whom selected XRS' Turnpike solution.
•
Fiscal 2012 fourth quarter total gross margin of 59 percent improved 7 percentage points compared to the same period in fiscal 2011.
“Our revenue results in the fourth quarter are reflective of our continued strategic shift away from hardware systems sales to mobile solutions,” said Jay Coughlan, chairman, president and CEO of XRS Corporation. “This positive sales mix, coupled with improvements in software margins, delivered gross margin results that we believe are sustainable into fiscal 2013.”




XRS Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 2


For the fourth quarter of fiscal 2012, selling, general and administrative expenses decreased to $5.4 million from $6.1 million for the fourth quarter of 2011.

For the fourth quarter of fiscal 2012, the Company reported adjusted non-GAAP earnings of $2.3 million or $0.08 per diluted share, compared to adjusted non-GAAP earnings of $0.2 million or $0.01 per diluted share for the same period of fiscal 2011, an increase of $2.1 million over the same period in the prior year. The increase in adjusted non-GAAP earnings is a reflection of the Company’s realigned cost structure, which reflects continued investment in our new mobile solution and support of existing solutions.
 
As of September 30, 2012, XRS held $7.1 million in cash and cash equivalents and had $9.6 million of working capital.

Full-year Results
For the fiscal year ended September 30, 2012, total revenue remained relatively consistent with the previous year. Software revenue increased 4 percent as a result of strong growth in Turnpike and XataNet revenues of 35 percent and 7 percent, respectively. In addition, software revenue as a percentage of total revenue grew 3 percentage points as the Company’s customers continue to shift to mobile-based platforms.

Research and development (R&D) spending for fiscal 2012 increased to $14.8 million versus $11.1 million in the previous year. “Fiscal 2012 was a year of investment in our new XRS mobile platform,” Coughlan said. “We are currently in alpha testing and seeing excellent results. Beta testing is on schedule, and we anticipate rollout of our new XRS mobile solution in the spring of 2013. Looking ahead to 2013, we anticipate additional R&D investments in the first half of the year with reductions to follow in the second half.”

For the fiscal year ended September 30, 2012, the Company reported adjusted non-GAAP earnings of $4.5 million or $0.17 per diluted share as compared to $4.2 million or $0.15 per diluted share in the previous year.

Looking ahead to fiscal 2013, XRS will focus on the following strategic objectives:
1.
Invest resources to ensure the successful development and rollout of the new XRS mobile solution, which will offer a cost-efficient, easy to install electronic onboard routing system (EOBR) to small and mid-size fleets.
2.
Continue to drive near-term mobile-based sales to mid-sized fleets with XRS' Turpike solution and offer on-going support and service to our existing XataNet customers.



XRS Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 3



3.
Align with third-party providers to broaden the capabilities of the new XRS mobile solution, once deployed, to meet the more complex demands of larger fleets.
4.
Remain diligent in positioning XRS for long-term financial success as the Company strives to reach profitability in fiscal 2014.

“We remain diligent in our goal of reaching profitability, but anticipate soft top line performance in fiscal 2013 as a result of changes in our customer mix," Coughlan said. "Gross margins should stabilize, and we will continue to make necessary investments in the first half of the fiscal year to support our new XRS mobile solution. Mobile is the route the commercial trucking industry is taking, and we are positioning XRS as the go-to provider of EOBR solutions.”

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

(in thousands, except percentage data)
For the Year Ended September 30,
 
2012
 
2011
 
Change
Revenue:
 
 
 
 
 
Software
$
47,455

 
$
45,800

 
4
 %
Hardware systems
13,893

 
14,635

 
(5
)%
Services
1,741

 
2,596

 
(33
)%
Total revenue
$
63,089

 
$
63,031

 
0
 %

 
For the Year Ended September 30,
 
 
 
2012
 
2011
 
 
Gross margins (deficits):
 
 
 
 
 
Software
73
 %
 
75
 %
 
 
Hardware systems
(10
)%
 
(8
)%
 
 
Services
(34
)%
 
(30
)%
 
 
Total gross margin
51
 %
 
51
 %
 
 

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. 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



XRS Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 4


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 specific non-GAAP financial measures, along with a reconciliation to the nearest comparable GAAP measures and further explanation of their usefulness to investors can be found at the end of this release.

About XRS
XRS Corporation (NASDAQ: XRSC) provides intuitive, automated fleet management software solutions to the commercial trucking industry. By delivering real-time critical information on vehicle and driver performance, XRS makes it easy for fleet managers, dispatchers and drivers to collect, sort, view and analyze data to help reduce costs, increase safety and compliance and improve customer satisfaction.
Our award-winning solutions include 1) XataNet, a full featured, enterprise-wide solution that helps private and for-hire fleets drive continuous improvement, and 2) Turnpike, a technologically advanced, low-cost, easy-to-install solution that runs on drivers’ existing cell phones, smartphones and tablet computers. Both solutions help fleet managers and drivers meet established electronic onboard recorder (EOBR) regulations. We also offer a portfolio of professional services, including implementation, training and consulting to help our customers deliver bottom-line results. Today XRS solutions increase the productivity of approximately 114,000 trucks across North America.  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 continuing 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, 2011 (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 Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 5


XRS Corporation
Consolidated Statements of Operations
(Unaudited)

 
For the Three Months Ended September 30,
 
For the Year Ended September 30,
(In thousands, except per share data)
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Software
$
12,233

 
$
11,698

 
$
47,455

 
$
45,800

Hardware systems
2,325

 
3,128

 
13,893

 
14,635

Services
429

 
462

 
1,741

 
2,596

Total revenue
14,987

 
15,288

 
63,089

 
63,031

 
 
 
 
 
 
 
 
Cost of goods sold
6,157

 
7,293

 
30,657

 
30,713

Selling, general and administrative
5,377

 
6,074

 
24,706

 
24,691

Research and development
3,819

 
3,951

 
14,798

 
11,119

Impairment of intangible asset
—

 
—

 
3,500

 
—

Total costs and expenses
15,353

 
17,318

 
73,661

 
66,523

 
 
 
 
 
 
 
 
Operating loss
(366
)
 
(2,030
)
 
(10,572
)
 
(3,492
)
Net interest and other income (expense)
33

 
58

 
(264
)
 
(214
)
 
 
 
 
 
 
 
 
Loss before income taxes
(333
)
 
(1,972
)
 
(10,836
)
 
(3,706
)
Income tax benefit
(80
)
 
(422
)
 
(550
)
 
(908
)
 
 
 
 
 
 
 
 
Net loss
(253
)
 
(1,550
)
 
(10,286
)
 
(2,798
)
 
 
 
 
 
 
 
 
Preferred stock dividends and deemed
    dividends
(58
)
 
(55
)
 
(177
)
 
(176
)
 
 
 
 
 
 
 
 
Net loss to common shareholders
$
(311
)
 
$
(1,605
)
 
$
(10,463
)
 
$
(2,974
)
 
 
 
 
 
 
 
 
Net loss per common share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.03
)
 
$
(0.15
)
 
$
(0.97
)
 
$
(0.28
)
 
 
 
 
 
 
 
 
Weighted average common and common
    share equivalents:
 
 
 
 
 
 
 
Basic and diluted
10,795

 
10,672

 
10,734

 
10,488







XRS Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 6


XRS Corporation
Consolidated Balance Sheets

 
September 30,
(In thousands)
2012
 
2011
 
(Unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
7,120

 
$
12,407

Accounts receivable, net
7,835

 
8,556

Inventories
3,811

 
3,374

Deferred product costs
770

 
1,148

Prepaid expenses and other current assets
1,406

 
1,006

Total current assets
20,942

 
26,491

 
 
 
 
Equipment and leasehold improvements, net
7,313

 
9,155

Intangible assets, net
6,487

 
12,158

Goodwill
17,288

 
16,474

Deferred product costs, net of current portion
425

 
857

Other assets
351

 
690

Total assets
$
52,806

 
$
65,825

 
 
 
 
Current liabilities
 
 
 
Revolving line of credit
$
2,300

 
$
—

Current portion of debt obligations
—

 
1,746

Accounts payable
3,436

 
5,003

Accrued expenses
4,832

 
4,533

Deferred revenue
2,314

 
3,442

Total current liabilities
12,882

 
14,724

 
 
 
 
Debt obligations, net of current portion
—

 
1,386

Deferred revenue, net of current portion
1,077

 
1,874

Deferred tax liabilities
9

 
596

Other long-term liabilities
314

 
559

Total liabilities
14,282

 
19,139

 
 
 
 
Shareholders' equity
 
 
 
Preferred stock
44,292

 
44,149

Common stock
108

 
107

Contingent common stock earn-out
—

 
1,912

Additional paid-in capital
50,226

 
47,249

Accumulated deficit
(57,565
)
 
(47,103
)
Accumulated other comprehensive income
1,463

 
372

Total shareholders' equity
38,524

 
46,686

Total liabilities and shareholders' equity
$
52,806

 
$
65,825




XRS Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 7


XRS Corporation
Consolidated Statements of Cash Flows
(Unaudited)
 
For the Year Ended September 30,
(In thousands)
2012
 
2011
 
 
 
 
Operating activities
 
 
 
Net loss
$
(10,286
)
 
$
(2,798
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
8,013

 
6,477

Impairment of intangible asset
3,500

 
—

Amortization of deferred financing costs
32

 
—

Deferred income taxes
(617
)
 
(877
)
Loss on sale or disposal of equipment and leased equipment
76

 
332

Stock-based compensation
1,036

 
1,137

Reversal of unearned cash portion of contingent earn-out
(51
)
 
(68
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
1,298

 
2,829

Inventories, net
(437
)
 
(275
)
Deferred product costs
810

 
1,793

Prepaid expenses and other assets
(48
)
 
(40
)
Accounts payable
(1,787
)
 
(222
)
Accrued expenses and other liabilities
(519
)
 
(538
)
Deferred revenue
(1,926
)
 
(3,342
)
Net cash (used in) provided by operating activities
(906
)
 
4,408

 
 
 
 
Investing activities
 
 
 
Purchase of equipment and leasehold improvements
(2,943
)
 
(4,161
)
Proceeds from the sale or disposal of equipment
2

 
12

Net cash used in investing activities
(2,941
)
 
(4,149
)
 
 
 
 
Financing activities
 
 
 
Revolving line of credit, net
2,300

 
—

Payments on debt obligations
(3,627
)
 
(1,239
)
Deferred financing costs
(97
)
 
—

Proceeds from exercise of options
—

 
36

Net cash used in financing activities
(1,424
)
 
(1,203
)
 
 
 
 
Effects of exchange rate on cash
(16
)
 
(23
)
 
 
 
 
Decrease in cash and cash equivalents
(5,287
)
 
(967
)
 
 
 
 
Cash and cash equivalents
 
 
 
Beginning
12,407

 
13,374

Ending
$
7,120

 
$
12,407




XRS Releases Fiscal 2012 Fourth Quarter and Year-end 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 September 30,
 
For the Year Ended September 30,
(In thousands, except per share data)
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Net loss to common shareholders
$
(311
)
 
$
(1,605
)
 
$
(10,463
)
 
$
(2,974
)
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
Depreciation & amortization expense
1,695

 
1,802

 
8,013

 
6,477

Impairment of intangible asset
—

 
—

 
3,500

 
—

Stock-based compensation
251

 
277

 
1,036

 
1,137

Net interest expense
16

 
91

 
320

 
263

Preferred stock dividends and deemed
    dividends
58

 
55

 
177

 
176

Income taxes
(80
)
 
(422
)
 
(550
)
 
(908
)
Other
400

 
—

 
400

 
—

Total adjustments
2,340

 
1,803

 
12,896

 
7,145

 
 
 
 
 
 
 
 
Non-GAAP earnings
$
2,029

 
$
198

 
$
2,433

 
$
4,171

 
 
 
 
 
 
 
 
Non-GAAP earnings per diluted share
$
0.07

 
$
0.01

 
$
0.09

 
$
0.15

 
 
 
 
 
 
 
 
Shares used in calculating non-GAAP
    earnings per diluted share
27,344

 
27,126

 
27,260

 
26,941




XRS Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 9


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


Adjusted Non-GAAP Earnings and Adjusted Non-GAAP Earnings Per Diluted Share

 
For the Three Months Ended September 30,
 
For the Year Ended September 30,
(In thousands, except per share data)
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Non-GAAP earnings
$
2,029

 
$
198

 
$
2,433

 
$
4,171

Adjustments for additional realignment
    charges *
282

 
—

 
2,095

 
—

 
 
 
 
 
 
 
 
Adjusted non-GAAP earnings
$
2,311

 
$
198

 
$
4,528

 
$
4,171

 
 
 
 
 
 
 
 
Adjusted non-GAAP earnings per diluted
    share
$
0.08

 
$
0.01

 
$
0.17

 
$
0.15

 
 
 
 
 
 
 
 
Shares used in calculating adjusted
    non-GAAP earnings per diluted share
27,344

 
27,126

 
27,260

 
26,941


* For the fourth quarter of fiscal 2012, additional realignment charges include $0.3 million to write off excess and obsolete inventory, $38,000 in estimated costs to terminate inventory purchase commitments and a reduction of $10,000 in personnel expenses from a workforce reduction. For the fiscal year ended September 30, 2012, additional realignment charges include $0.9 million in personnel expenses from a workforce reduction, $0.8 million to write off excess and obsolete inventory and $0.4 million in estimated costs to terminate inventory purchase commitments.



XRS Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 10


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


Working Capital

 
September 30,
 
2012
 
2011
 
 
 
 
Current assets
$
20,942

 
$
26,491

Current liabilities
(12,882
)
 
(14,724
)
Net current assets
8,060

 
11,767

Current portion of deferred revenue net deferred costs
1,544

 
2,294

Working capital
$
9,604

 
$
14,061






XRS Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 11


Footnotes to GAAP to Non-GAAP Reconciliation
(Unaudited)

The non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. The method we use to produce non-GAAP results is not computed according to GAAP and may differ from the methods used by other companies. The methods of calculation and explanations of the adjustments to the most comparable GAAP measures are set forth below:

Non-GAAP Earnings
This measure provides a supplemental view of earnings trends. Non-GAAP earnings excludes depreciation, amortization, stock-based compensation, net interest expense, preferred stock dividends and deemed dividends, income taxes, acquisition and financing related costs and litigation settlement costs from GAAP net loss to common shareholders. We believe our investors benefit from understanding these exclusions when comparing current to historical results from operations.

Adjusted Non-GAAP Earnings
Adjusted non-GAAP earnings is based on non-GAAP earnings adjusted for additional realignment charges not included in the Company’s historical definition of non-GAAP earnings. We believe our investors benefit from understanding the impact of these charges on our historically presented non-GAAP earnings performance to allow for a more consistent view of results of ongoing operations.

Non-GAAP Diluted Earnings per Share
We believe investors benefit by understanding the Company’s non-GAAP operating performance as reflected in a per share calculation as a way of measuring non-GAAP operating performance by ownership in the Company. Non-GAAP diluted earnings per share is based on non-GAAP earnings, as defined above, divided by the sum of the weighted average common and dilutive common shares equivalents, such as options, restricted stock awards, restricted stock units, warrants or convertible preferred stock, assuming they were exercised or converted into common stock that then shared in the non-GAAP earnings of the Company, as defined by GAAP. Non-GAAP diluted loss per share is based on non-GAAP loss, as defined above, divided by only the weighted average number of common shares outstanding for the period, as defined by GAAP. The non-GAAP diluted net loss per common share is equal to basic net loss per common share for all periods presented because the effect of including such securities or obligations would have been antidilutive. We believe that these exclusions provide investors a useful view of current operations when comparing current to historical non-GAAP diluted earnings per share.




XRS Releases Fiscal 2012 Fourth Quarter and Year-end Results – Page 12


Adjusted Non-GAAP Diluted Earnings per Share
Adjusted non-GAAP diluted earnings per share is based on adjusted non-GAAP earnings, as defined above, divided by the sum of the weighted average common and dilutive common shares equivalents, such as options, restricted stock awards, restricted stock units, warrants or convertible preferred stock, assuming they were exercised or converted into common stock that then shared in the non-GAAP earnings of the Company, as defined by GAAP. We believe that the exclusion of the additional realignment charges provide investors a more consistent view diluted earnings per share.

Working Capital
Working capital represents current assets, less current liabilities, excluding the current portion of deferred revenue, net of deferred costs. We believe working capital provides investors with an additional view of the Company’s liquidity and ability to repay current obligations.



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