BUY-XRS Corporation-XRSC

XRS Corporation (NASDAQ–XRSC)

Valuation-$6.50
Price February 26, 2013-$1.50

We have followed XRS for a couple of years now (formerly XATA Corp.) but never bought it despite a compelling valuation because it was losing too much money.
But XRS reported earnings on February 7th and they showed such improvement that we are finally buying it even though it ran away from us a bit at first to $1.94.
For the December quarter XRS reported revenues of $14.2 million, down from $16.6 million in the prior year. The big news is that they made $261,000 versus a loss of $1,675,000 in 2011 on a GAAP basis. Expense cutting obviously got them profitable as gross margin was 63% versus 59% last year and SG&A expenses fell about $1 million. It looks even better on a Non-GAAP basis as they made $2,190,000 or $.08 a share versus $544,000 or $.02 a share.
While XRS has no outstanding debt and $6.4 million of cash, it does have $44.3 million of preferred stock—which we treat as debt since in an acquisition it gets paid off before common shareholders. Even with counting the preferred stock as debt, our valuation is a huge $6.50 a share up from $3.76 a share a year ago.
We think this is a BUY here as it is trading at just under 25% of our valuation even though we feel like we are “chasing it” a bit.
There are about 11 million shares outstanding (excluding the preferred) but it trades only about 12,000 shares a day, so patient buying is needed.

About XRS:
XRS Corporation (formerly Xata Corporation) delivers fleet management and compliance software solutions to the trucking industry to help maintain regulatory compliance and reduce operating costs. XRS is leading the trucking industry’s migration to mobile devices for collecting and analyzing compliance and management data. Its existing mobility-based products have no upfront hardware costs and run on smartphones, tablets and rugged handhelds. XRS has sales and distribution partnerships with the major wireless carriers supporting the U.S. and Canadian trucking industries.
Through XRS’ solutions: XataNet, Turnpike and XRS, we are currently serving 114,000 subscriptions through 1,400 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.

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