ARI Network Services Reports Fiscal 2017 Third Quarter Results

MILWAUKEE, June 8, 2017 /PRNewswire/ -- 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 for its fiscal 2017 third quarter ended April 30, 2017.

ARI logo (PRNewsfoto/ARI Network Services, Inc.)

Highlights for the fiscal third quarter included:

  • Revenue increased for the 13th consecutive quarter to $13.4 million, which compares to $12.0 million for the same period last year, a 12.0% increase. Recurring revenue increased 11.6% to $12.3 million, compared to $11.1 million for the same period last year.
  • Operating income increased 61.5% to $1.5 million compared to $0.9 million in the prior year. The operating margin of 11.1% compares with a prior year margin of 7.7%.
  • Net income was $1.4 million or $0.08 per diluted share, an increase of over 200% compared to $0.4 million or $0.03 per diluted share in the same period last year. The Company completed a tax study in the quarter that produced tax research and development credits of $0.6 million, or $0.03 per share.
  • Adjusted EBITDA (a non-GAAP measure) was up 38.9% to a record $3.0 million, or 22.5% of revenue, compared to $2.2 million or 18.2% of revenue in the same period last year.
  • Cash generated from operations increased 24.1% to $3.2 million compared to $2.6 million in the same period last year.

Fiscal 2017 Third Quarter Financials

Revenues in the third quarter of fiscal 2017 increased 12.0% to $13.4 million compared to $12.0 million in the same period last year. Recurring revenue comprised 91.9% of total revenue versus 92.2% for the same period last year.

Gross margin for the third quarter of fiscal 2017 was 80.5%, which is flat compared to the prior year quarter.

The company reported net income of $1.4 million or $0.08 per diluted share for the quarter, compared to net income of $0.4 million or $0.03 per diluted share last year.

Adjusted EBITDA for the third quarter of fiscal 2017 increased to $3.0 million compared to $2.2 million in the same period last year.

Management Discussion

"Our third quarter results exceeded our expectations and place us well on the path to achieving our goals for fiscal 2017," said Roy W. Olivier, President and CEO of ARI. "We had strong bookings in the quarter which were aided by a large business management software sale, and although churn runs seasonally high in Q3, we were able to post a year over year improvement for the fourth consecutive quarter. On a trailing twelve-month basis, we have now recorded over $51 million in revenue and approximately $9.5 million in adjusted EBITDA. As we head into the fourth quarter of our fiscal 2017, we are well positioned to improve on those numbers and report another record year for ARI."

William Nurthen, CFO of ARI, commented: "With most of the non-recurring charges from the first half of the year behind us and an opportunity to realize the cost synergies from the Auction123 acquisition, the third quarter set up well to show strong profitability and cash flow. As Roy noted, the results exceeded our expectations and placed us firmly on plan to achieve annualized adjusted EBITDA of over $10 million in the second half of the year as well as improve fiscal 2017 margins over fiscal 2016. The third quarter also represents the first quarter in our history where we produced over $3 million in adjusted EBITDA and over $3 million of cash flow from operations. This helped propel our cash balance to approximately $5.6 million, while our debt is now down to approximately $15.6 million. We expect another strong cash flow performance in the fourth quarter, which will leave us well positioned to make future investments in the business."

Fiscal 2017 Third Quarter Conference Call

ARI will conduct a conference call on Thursday, June 8, 2017 at 4:30 p.m. EST to review the financial results for the fiscal third quarter ended April 30, 2017. Investors and interested parties can access the conference call by dialing 877.359.3639 or 408.427.3725 and referring to conference ID 16111667. 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

Adjusted EBITDA, a non-GAAP measure, is defined as earnings before interest, income taxes, depreciation and amortization, excluding stock-based compensation. Management believes Adjusted EBITDA to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of operations. While management considers Adjusted EBITDA to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for, net income and other measures of financial performance reported in accordance with generally accepted accounting principles (GAAP). Not all companies calculate Adjusted EBITDA in the same manner and the measure as presented may not be comparable to similarly titled measures presented by 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 25,000 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

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


2017


2016


2017


2016

Net revenue

$

13,425


$

11,984


$

38,941


$

35,473

Cost of revenue 


2,612



2,334



7,504



6,467

Gross profit


10,813



9,650



31,437



29,006

Operating expenses:












Sales and marketing


2,595



2,801



8,104



8,314

Customer operations and support


2,618



2,374



8,258



7,248

Software development and technical support (net of capitalized software product costs)


1,505



1,221



4,321



3,795

General and administrative 


1,864



1,732



5,770



5,247

Depreciation and amortization (exclusive of amortization of software product costs included in cost of revenue)


744



601



2,057



1,800

Net operating expenses


9,326



8,729



28,510



26,404

Operating income


1,487



921



2,927



2,602

Other income (expense):












Interest expense


(200)



(118)



(526)



(350)

Other, net


9



13



11



5

Total other income (expense)


(191)



(105)



(515)



(345)

Income before provision for income tax


1,296



816



2,412



2,257

Income tax expense


129



(368)



(389)



(972)

Net income

$

1,425


$

448


$

2,023


$

1,285













Weighted average common shares outstanding:












Basic


17,493



17,258



17,461



17,199

Diluted


18,010



17,769



17,960



17,689













Net income per common share:











Basic

$

0.08


$

0.03


$

0.12


$

0.07

Diluted

$

0.08


$

0.03


$

0.11


$

0.07

 

ARI Network Services, Inc.

Consolidated Balance Sheets

(Dollars in Thousands, Except per Share Data)










(Unaudited)


(Audited)


April 30


July 31



2017


2016

ASSETS







Cash and cash equivalents


$

5,555


$

5,118

Trade receivables, less allowance for doubtful accounts of $225 and $211 at April 30, 2017 and July 31, 2016, respectively



2,944



1,942

Work in process



199



132

Prepaid expenses and other



829



781

Deferred income taxes



3,259



3,182

Total current assets



12,786



11,155

Equipment and leasehold improvements:







Computer equipment and software for internal use



3,693



3,575

Leasehold improvements



724



639

Furniture and equipment



2,717



2,544

           Total equipment and leasehold improvements



7,134



6,758

Less accumulated depreciation and amortization



(4,874)



(4,237)

Net equipment and leasehold improvements



2,260



2,521

Capitalized software product costs:







Amounts capitalized for software product costs



28,235



24,774

Less accumulated amortization



(21,526)



(19,743)

Net capitalized software product costs



6,709



5,031

Deferred income taxes



664



1,112

Other intangible assets



9,702



7,890

Goodwill



28,037



21,634

Total non-current assets



47,372



38,188

Total assets


$

60,158


$

49,343


LIABILITIES







Current portion of long-term debt


$

2,940


$

2,417

Current portion of contingent liabilities



325



331

Accounts payable



832



718

Deferred revenue



6,381



6,763

Accrued payroll and related liabilities



2,370



1,817

Accrued sales, use and income taxes



326



297

Other accrued liabilities



899



677

Current portion of capital lease obligations



47



50

Total current liabilities



14,120



13,070

Long-term debt



12,588



6,658

Long-term portion of contingent liabilities



1,244



60

Capital lease obligations



28



63

Other long-term liabilities



130



166

Total non-current liabilities



13,990



6,947

Total liabilities



28,110



20,017








SHAREHOLDERS' EQUITY







Cumulative preferred stock, par value $.001 per share, 1,000,000 shares authorized; 0 shares issued and outstanding at April 30, 2017 and July 31, 2016, respectively 





Junior preferred stock, par value $.001 per share, 100,000 shares authorized; 0 shares issued and outstanding at April 30, 2017 and July 31, 2016, respectively





Common stock, par value $.001 per share, 25,000,000 shares authorized; 17,421,719 and  17,310,763 shares issued and outstanding at April 30, 2017 and July 31, 2016, respectively



17



17

Additional paid-in capital



116,062



115,364

Accumulated deficit



(84,027)



(86,050)

Other accumulated comprehensive income



(4)



(5)

Total shareholders' equity



32,048



29,326

Total liabilities and shareholders' equity


$

60,158


$

49,343

 

ARI Network Services, Inc.

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)



Nine months ended April 30



2017


2016

Operating activities:







Net income


$

2,023


$

1,285

Adjustments to reconcile net income to net cash provided by operating activities:







Amortization of software products



1,783



1,571

Amortization of deferred loan fees and imputed interest expense



59



34

Depreciation and other amortization



2,057



1,800

Gain on change in fair value of earn-out receivable and payable



-



(5)

Provision for bad debt allowance



11



80

Deferred income taxes



371



860

Stock based compensation



476



316

Net change in assets and liabilities:







Trade receivables



(130)



(308)

Work in process, prepaid expenses and other



(77)



(51)

Accounts payable



59



(145)

Deferred revenue



(425)



(252)

Accrued payroll and related liabilities



608



342

Accrued taxes and other accrued liabilities



217



16

Net cash provided by operating activities


$

7,032


$

5,543

Investing activities:







Purchase of equipment, software and leasehold improvements



(235)



(557)

Cash paid for net assets related to acquisitions



(11,066)



-

Cash paid for contingent liabilities related to acquisitions



(261)



(505)

Software development costs capitalized



(1,521)



(1,310)

Net cash used in investing activities


$

(13,083)


$

(2,372)

Financing activities:







Payments on long-term debt


$

(1,658)


$

(912)

Borrowings under long-term debt



8,081



-

Payments of capital lease obligations



(38)



(165)

Proceeds from exercise of common stock options and warrants



117



66

Net cash provided by (used in) financing activities


$

6,502


$

(1,011)

Effect of foreign currency exchange rate changes on cash



(14)



(4)

Net change in cash and cash equivalents



437



2,156

Cash and cash equivalents at beginning of period



5,118



2,284

Cash and cash equivalents at end of period


$

5,555


$

4,440

Cash paid for interest


$

392


$

338

Cash paid for income taxes


$

106


$

45

 

ARI Network Services, Inc.







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, 2017 and 2016, respectively:





































EBITDA:

FY2017


FY2016


FY2017


FY2016


FY2017


FY2016








Q3


Q3


YTD


YTD


TTM


TTM







Net Income (loss)

$

1,425


$

448


$

2,023


$

1,285


$

2,481


$

1,653







Interest


200



118



526



350



636



463







Amortization of software products


633



531



1,783



1,571



2,320



2,034







Other depreciation and amortization


744



601



2,057



1,800



2,664



2,311







Loss on debt extinguishment


-



-



-



-



-



-







Loss on FMV of Warrant Derivatives


-



-



-



-



-



-







Loss on impairment of long-lived assets


-



-



-



-



-



-







Income taxes


(129)



368



389



972



768



1,177







   EBITDA

$

2,873


$

2,066


$

6,778


$

5,978


$

8,869


$

7,638







Stock-based compensation


153



113



476



316



587



457







   Adjusted EBITDA

$

3,026


$

2,179


$

7,254


$

6,294


$

9,456


$

8,095























































Earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA for the following fiscal quarters:


























4/30/17


1/31/17


10/31/16


7/31/16


4/30/16


1/31/16


10/31/15


7/31/15


Q3


Q2


Q1


Q4


Q3


Q2


Q1


Q4

Quarterly:

2017


2017


2017


2016


2016


2016


2016


2015

Net Income (loss)

$

1,425


$

242


$

356


$

458


$

448


$

448


$

389


$

368

Interest


200



218



108



110



118



120



112



113

Amortization of software products


633



628



522



537



531



544



496



463

Other depreciation and amortization


744



738



575



607



601



590



609



511

Loss on debt extinguishment


-



-



-



-



-



-



-



-

Loss on FMV of Warrant Derivatives


-



-



-



-



-



-



-



-

Loss on impairment of long-lived assets


-



-



-



-



-



-



-



-

Income taxes


(129)



213



305



379



368



305



299



205

   EBITDA

$

2,873


$

2,039


$

1,866


$

2,091


$

2,066


$

2,007


$

1,905


$

1,660

Stock-based compensation


153



174



149



111



113



88



115



141

   Adjusted EBITDA

$

3,026


$

2,213


$

2,015


$

2,202


$

2,179


$

2,095


$

2,020


$

1,801

























Trailing Twelve Months (TTM):
























Net Income (loss)

$

2,481


`

1,504


$

1,710


$

1,743


$

1,653


$

1,544


$

1,356


$

1,071

Interest


636



554



456



460



463



468



488



465

Amortization of software products


2,320



2,218



2,134



2,108



2,034



1,961



1,970



2,023

Other depreciation and amortization


2,664



2,521



2,373



2,407



2,311



2,175



1,993



1,756

Loss on debt extinguishment


-



-



-



-



-



-



-



-

Loss on FMV of Warrant Derivatives


-



-



-



-



-



-



-



-

Loss on impairment of long-lived assets


-



-



-



-



-



-



-



-

Income taxes


768



1,265



1,357



1,351



1,177



1,052



1,021



811

   EBITDA

$

8,869


$

8,062


$

8,030


$

8,069


$

7,638


$

7,200


$

6,828


$

6,126

Stock-based compensation


587



547



461



427



457



439



458



446

   Adjusted EBITDA

$

9,456


$

8,609


$

8,491


$

8,496


$

8,095


$

7,639


$

7,286


$

6,572

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/ari-network-services-reports-fiscal-2017-third-quarter-results-300471310.html

SOURCE ARI Network Services, Inc.

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