SOURCE: ARI Network Services, Inc.

ARI Network Services, Inc.

June 09, 2016 16:05 ET

ARI Network Services, Inc. Announces Fiscal 2016 Third Quarter Results

Record Quarterly Revenue of $12.0 Million and Adjusted EBITDA of $2.2 Million

MILWAUKEE, WI --(Marketwired - June 09, 2016) - ARI Network Services, Inc. (NASDAQ: ARIS), an award-winning provider of SaaS, software tools and marketing services that help dealers, distributors and manufacturers Sell More Stuff!™, reported financial results today for its fiscal 2016 third quarter ended April 30, 2016.

Highlights for the fiscal third quarter included:

  • Ninth consecutive quarter of revenue growth for the firm.
  • Revenue increased 16.6% to $12.0 million, which compares with $10.3 million for the same period last year and $11.8 million in 2Q16. Recurring revenue growth continued to outpace overall revenue growth as it increased 18.8% to $11.1 million, which compares with $9.3 million for the same period last year and $10.8 million in 2Q16.
  • Operating income was $921,000, compared with $675,000 for the same period last year and $873,000 in 2Q16.
  • Adjusted EBITDA, a non-GAAP measure, increased 26.5% to $2.2 million, or 18.2% of revenue. This compares with Adjusted EBITDA of $1.7 million, or 16.8% of revenue in the same period last year and $2.1 million, or 17.8% of revenue in 2Q16.
  • Cash generated from operations was $2.6 million, compared with $1.9 million for the same period last year and $1.2 million in 2Q16.

Fiscal Year 2016 Third Quarter Financials

ARI achieved 16.6% revenue growth as it reported revenues of $12.0 million for the third quarter of fiscal year 2016, compared with $10.3 million for the same period last year. Recurring revenue comprised 92.2% of total revenue versus 90.5% for the same period last year and 91.6% from the previous quarter.

Gross margin for the third quarter of fiscal year 2016 was 80.5% versus 82.7% last year.

Operating income was $921,000, or 7.7% of revenue, for the third quarter of fiscal year 2016, compared with operating income of $675,000, or 6.6% of revenue for the same period last year, a 36.4% increase.

The company reported net income of $448,000, or $0.03 per diluted share for the quarter, compared with net income of $339,000, or $0.02 per share last year.

Management Discussion
Roy W. Olivier, President and Chief Executive Officer of ARI, commented, "I am proud of the ARI team, who have worked hard to consistently deliver improving performance throughout the year. We continue to focus on executing our strategy, and our third quarter results are representative of our continued ability to deliver results. We delivered strong new and upsell bookings in all the vertical markets we serve, resulting in over $3.0 million in new bookings and, for the first time, over $11.0 million in new bookings on a trailing twelve month basis. The scale we have added to the business over the past few years is allowing us to make additional investments in enhancing our products and services that I believe will drive growth in the coming years. I am confident that we remain well positioned to have a strong finish to our fiscal year."

William Nurthen, Chief Financial Officer of ARI, commented, "As we enter the fourth quarter of our fiscal year, we continue to experience improvements in our financial performance both on a year-over-year and trailing twelve month basis. In the third quarter of fiscal 2016, the Company was able to establish new quarterly highs for revenue, operating income, cash flow from operations and Adjusted EBITDA. From a profitability standpoint, we reached an important milestone for the Company as our trailing twelve month's Adjusted EBITDA topped $8.0 million for the first time. Perhaps the most notable achievement of the quarter was our cash flow from operations of $2.6 million. This is more cash flow than the firm produced in all of its fiscal 2014 and represents a 39% increase over the prior high for quarterly cash flow. As a result of this performance, we achieved our balance sheet targets for fiscal 2016 a quarter early, as our total cash balance at quarter-end stood at more than $4.4 million."

Fiscal 2016 First Quarter Conference Call
ARI will conduct a conference call on Thursday, June 9, 2016, at 4:30 p.m. EDT, to review the financial results for the fiscal quarter ended April 30, 2016. Interested parties can access the conference call by dialing 877.359.3639 or 408.427.3725 and referring to Conference ID: 5628613. The conference call is also being webcast and is available via the Company's investor relations website at investor.arinet.com. A replay of the webcast will be archived on the Company's investor relations website for 60 days.

Non-GAAP Measures
EBITDA is calculated as net income adjusted to exclude interest expense, amortization, depreciation and income tax expense. Adjusted EBITDA further eliminates non-cash, stock-based compensation expense. Management believes Adjusted EBITDA is helpful in understanding period-over-period operating results separate and apart from non-operating expenses and expenses pertaining to prior period investing activities, particularly given the Company's significant investments in capitalized software and its continuing efforts in completing acquisitions, which typically result in significant non-cash depreciation and amortization expense in subsequent periods. However, Adjusted EBITDA has significant limitations as an analytical tool and should only be used cautiously in addition to, and never as a substitute for, operating income, cash flows or other measures of financial performance prepared in accordance with generally accepted accounting principles and may not necessarily be comparable to similarly titled measures of other companies. A reconciliation of net income to Adjusted EBITDA can be found in this release and at the Company's investor relations website for all periods presented.

About ARI
ARI Network Services, Inc. (ARI) (NASDAQ: ARIS) offers an award-winning suite of SaaS, software tools, and marketing services to help dealers, equipment manufacturers and distributors in selected vertical markets Sell More Stuff!™ -- online and in-store. Our innovative products are powered by a proprietary data repository of enriched original equipment and aftermarket electronic content spanning more than 17 million active part and accessory SKUs and 750,000 equipment models. Business is complicated, but we believe our customers' technology tools don't have to be. We remove the complexity of selling and servicing new and used vehicle inventory, parts, garments and accessories (PG&A) for customers in the automotive tire and wheel aftermarket, powersports, outdoor power equipment, marine, home medical equipment, recreational vehicles and appliance industries. More than 23,500 equipment dealers, 195 distributors and 3,360 brands worldwide leverage our web and eCatalog platforms to Sell More Stuff!™ For more information on ARI, visit investor.arinet.com.

Additional Information

Images for media use only
Roy W. Olivier Hi Res | Roy W. Olivier Low Res
ARI Logo Hi Res| ARI Logo Low Res

Forward-Looking Statements
Certain statements in this news release contain "forward‐looking statements" regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933. All statements other than statements of historical facts are statements that could be deemed to be forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projects about the markets in which we operate and the beliefs and assumptions of our management. Words such as "expects," "anticipates," "targets," "goals," "projects", "intends," "plans," "believes," "seeks," "estimates," "endeavors," "strives," "may," or variations of such words, and similar expressions are intended to identify such forward-looking statements. Readers are cautioned that these forward‐looking statements are subject to a number of risks, uncertainties and assumptions that are difficult to predict, estimate or verify. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Such risks and uncertainties include those factors described in Part 1A of the Company's most recent annual report on Form 10‐K, as such may be amended or supplemented by subsequent quarterly reports on Form 10-Q, or other reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward‐looking statements. The forward‐looking statements are made only as of the date hereof, and the Company undertakes no obligation to publicly release the result of any revisions to these forward‐looking statements. For more information, please refer to the Company's filings with the Securities and Exchange Commission.

             
                  
ARI Network Services, Inc.  
Consolidated Statements of Operations  
(Dollars in Thousands, Except per Share Data)  
(Unaudited)  
              
   Three months ended April 30   Nine months ended April 30  
   2016   2015   2016   2015  
Net revenue  $11,984   $10,280   $35,473   $29,531  
Cost of revenue   2,334    1,780    6,467    5,391  
Gross profit   9,650    8,500    29,006    24,140  
Operating expenses:                     
 Sales and marketing   2,801    2,718    8,314    7,928  
 Customer operations and support   2,374    1,831    7,248    5,392  
 Software development and technical support (net of capitalized software product costs)   1,221    1,102    3,795    3,046  
 General and administrative   1,732    1,709    5,247    4,901  
 Depreciation and amortization (exclusive of amortization of software product costs included in cost of revenue)   601    465    1,800    1,245  
Net operating expenses   8,729    7,825    26,404    22,512  
Operating income   921    675    2,602    1,628  
Other income (expense):                     
 Interest expense   (118 )  (123 )  (350 )  (352 )
 Other, net   13    30    5    33  
Total other income (expense)   (105 )  (93 )  (345 )  (319 )
Income before provision for income tax   816    582    2,257    1,309  
 Income tax expense   (368 )  (243 )  (972 )  (606 )
Net income  $448   $339   $1,285   $703  
                      
Weighted average common shares outstanding:                     
 Basic   17,258    14,362    17,199    14,100  
 Diluted   17,769    14,786    17,689    14,536  
                      
Net income per common share:                    
 Basic  $0.03   $0.02   $0.07   $0.05  
 Diluted  $0.03   $0.02   $0.07   $0.05  
                  
          
   
ARI Network Services, Inc.  
Consolidated Balance Sheets  
(Dollars in Thousands, Except per Share Data)  
          
   (Unaudited)   (Audited)  
   April 30   July 31  
   2016   2015  
ASSETS           
 Cash and cash equivalents  $4,440   $2,284  
 Trade receivables, less allowance for doubtful accounts of $392 and $372 at April 30, 2016 and July 31,2015, respectively   2,294    2,046  
 Work in process   185    165  
 Prepaid expenses and other   851    820  
 Deferred income taxes   3,495    3,092  
  Total current assets   11,265    8,407  
 Equipment and leasehold improvements:           
  Computer equipment and software for internal use   3,502    2,800  
  Leasehold improvements   629    629  
  Furniture and equipment   2,716    2,981  
    Total equipment and leasehold improvements   6,847    6,410  
  Less accumulated depreciation and amortization   (4,637 )  (3,989 )
   Net equipment and leasehold improvements   2,210    2,421  
 Capitalized software product costs:           
  Amounts capitalized for software product costs   27,006    25,463  
  Less accumulated amortization   (21,908 )  (20,337 )
   Net capitalized software product costs   5,098    5,126  
 Deferred income taxes   1,135    2,398  
 Other intangible assets   8,275    10,116  
 Goodwill   21,639    21,168  
  Total non-current assets   38,357    41,229  
  Total assets  $49,622   $49,636  
          
LIABILITIES           
 Current portion of long-term debt  $2,172   $1,338  
 Current portion of contingent liabilities   382    754  
 Accounts payable   574    708  
 Deferred revenue   7,135    7,327  
 Accrued payroll and related liabilities   1,979    1,752  
 Accrued sales, use and income taxes   182    140  
 Other accrued liabilities   736    748  
 Current portion of capital lease obligations   56    174  
  Total current liabilities   13,216    12,941  
 Long-term debt   7,281    9,079  
 Long-term portion of contingent liabilities   124    362  
 Capital lease obligations   68    106  
 Other long-term liabilities   176    199  
  Total non-current liabilities   7,649    9,746  
 Total liabilities   20,865    22,687  
            
SHAREHOLDERS' EQUITY           
 Cumulative preferred stock, par value $.001 per share, 1,000,000 shares authorized; 0 shares issued and outstanding at April 30, 2016 and July 31, 2015, respectively   -    -  
 Junior preferred stock, par value $.001 per share, 100,000 shares authorized; 0 shares issued and outstanding at April 30, 2016 and July 31, 2015, respectively   -    -  
 Common stock, par value $.001 per share, 25,000,000 shares authorized; 17,262,940 and 17,097,426 shares issued and outstanding at April 30, 2016 and July 31, 2015, respectively   17    17  
 Additional paid-in capital   115,243    114,700  
 Accumulated deficit   (86,508 )  (87,793 )
 Other accumulated comprehensive income   5    25  
  Total shareholders' equity   28,757    26,949  
 Total liabilities and shareholders' equity  $49,622   $49,636  
          
   
   
ARI Network Services, Inc.  
Consolidated Statements of Cash Flows  
(Dollars in Thousands)  
(Unaudited)  
  
   Nine months ended April 30  
   2016   2015  
Operating activities:           
Net income  $1,285   $703  
 Adjustments to reconcile net income to net cash provided by operating activities:           
  Amortization of software products   1,571    1,560  
  Non-cash interest expense   34    55  
  Depreciation and other amortization   1,800    1,245  
  (Gain) loss on change in fair value of earn-out receivable and payable   (5 )  (28 )
  Provision for bad debt allowance   80    131  
  Deferred income taxes   860    531  
  Stock based compensation   316    305  
 Net change in assets and liabilities:           
  Trade receivables   (308 )  (594 )
  Work in process, prepaid expenses and other   (51 )  (16 )
  Other long-term assets   -    (139 )
  Accounts payable   (145 )  69  
  Deferred revenue   (252 )  142  
  Accrued payroll and related liabilities   342    349  
  Accrued taxes and other accrued liabilities   16    282  
   Net cash provided by operating activities  $5,543   $4,595  
Investing activities:           
Purchase of equipment, software and leasehold improvements   (557 )  (469 )
Cash received on earn-out from disposition of a component of the business   -    111  
Cash paid for contingent liabilities related to acquisitions   (505 )  (250 )
Cash paid for net assets related to acquisitions   -    (5,950 )
Software development costs capitalized   (1,310 )  (1,000 )
   Net cash used in investing activities  $(2,372 ) $(7,558 )
Financing activities:           
Borrowings under line of credit, net  $-   $1,750  
Payments on long-term debt   (912 )  (470 )
Borrowings under long-term debt   -    2,168  
Payments of capital lease obligations   (165 )  (184 )
Proceeds from exercise of common stock options   66    75  
   Net cash provided by (used in) financing activities  $(1,011 ) $3,339  
Effect of foreign currency exchange rate changes on cash   (4 )  (23 )
Net change in cash and cash equivalents   2,156    353  
Cash and cash equivalents at beginning of period   2,284    1,808  
Cash and cash equivalents at end of period  $4,440   $2,161  
   Cash paid for interest  $338   $256  
   Cash paid for income taxes  $45   $25  
            
                   
                               
Reconciliation of Non-Gaap Measures
                               
Earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA for the three, nine and twelve months ended April 30, 2016 and 2015, respectively:
                               
EBITDA:  FY2016  FY2015  FY2016  FY2015  FY2016  FY2015
   Q3  Q3  YTD  YTD  TTM  TTM
Net Income (loss)  $ 448  $ 339  $ 1,285  $ 703  $ 1,653  $ 877
 Interest    118    123    350    352    463    422
 Amortization of software products    531    458    1,571    1,560    2,034    2,118
 Other depreciation and amortization    601    465    1,800    1,245    2,311    1,553
 Loss on impairment of long-lived assets    -    -    -    -    -    35
 Income taxes    368    243    972    606    1,177    836
  EBITDA  $ 2,066  $ 1,628  $ 5,978  $ 4,466  $ 7,638  $ 5,841
 Stock-based compensation    113    95    316    305    457    536
  Adjusted EBITDA  $ 2,179  $ 1,723  $ 6,294  $ 4,771  $ 8,095  $ 6,377
                     
 
Earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA for the following fiscal quarters:
 
   4/30/16 1/31/16  10/31/15  7/31/15  4/30/15  1/31/15  10/31/14  7/31/14
   Q3 Q2  Q1  Q4  Q3  Q2  Q1  Q4
Quarterly:  2016 2016  2016  2015  2015  2015  2015  2014
Net Income (loss)  $ 448   $ 448   $ 389   $ 368   $ 339   $ 260   $ 104   $ 174  
 Interest    118     120     112     113     123     140     89     70  
 Amortization of software products    531     544     496     463     458     553     549     558  
 Other depreciation and amortization    601     590     609     511     465     408     372     308  
 Loss on impairment of long-lived assets    -     -     -     -     -     -     -     35  
 Income taxes    368     305     299     205     243     274     89     230  
  EBITDA  $ 2,066   $ 2,007   $ 1,905   $ 1,660   $ 1,628   $ 1,635   $ 1,203   $ 1,375  
 Stock-based compensation    113     88     115     141     95     107     103     231  
  Adjusted EBITDA  $ 2,179   $ 2,095   $ 2,020   $ 1,801   $ 1,723   $ 1,742   $ 1,306   $ 1,606  
                                                  
Trailing Twelve Months (TTM):                                 
Net Income (loss)  $ 1,653   $ 1,544   $ 1,356   $ 1,071   $ 877   $ 698   $ (23 ) $ (102 )
 Interest    463     468     488     465     422     367     305     286  
 Amortization of software products    2,034     1,961     1,970     2,023     2,118     2,192     2,157     2,052  
 Other depreciation and amortization    2,311     2,175     1,993     1,756     1,553     1,442     1,373     1,322  
 Loss on FMV of Warrant Derivatives    -     -     -     -     -     (4 )   6     28  
 Loss on impairment of long-lived assets    -     -     -     -     35     35     35     35  
 Income taxes    1,177     1,052     1,021     811     836     746     246     241  
  EBITDA  $ 7,638   $ 7,200   $ 6,828   $ 6,126   $ 5,841   $ 5,476   $ 4,099   $ 3,862  
 Stock-based compensation    457     439     458     446     536     609     627     560  
  Adjusted EBITDA  $ 8,095   $ 7,639   $ 7,286   $ 6,572   $ 6,377   $ 6,085   $ 4,726   $ 4,422  
                                   

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