ARI Network Services Reports Fiscal 2017 Second Quarter Results
Record Quarterly Revenue of $13.2 Million, Cash Flow From Operations of Over $2.0 Million
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MILWAUKEE, WI -- (Marketwired) -- 03/09/17 -- 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 second quarter ended January 31, 2017.
Highlights for the fiscal second quarter included:
- Revenue increased for the 12th consecutive quarter to $13.2 million, which compares to $11.8 for the same period last year, a 12.7% increase. Recurring revenue increased 12.5% to $12.1 million, which compares to $10.8 million for the same period last year.
- Operating income was $672,000 compared to $873,000 in the same period last year and included approximately $250,000 in non-cash depreciation and amortization charges related to the Company's acquisition of Auction 123 in November 2016, and approximately $200,000 in proxy contest and acquisition-related costs.
- Adjusted EBITDA (a non-GAAP measure) was up 6% to a new record of $2.2 million despite the proxy contest and acquisition-related charges noted above. This compares to adjusted EBITDA of $2.1 million in the same period last year.
- Cash generated from operations was $2.0 million compared to $1.2 million for the same period last year.
- Annualized churn for the quarter was 12.2% compared to 15.6% for the same period last year. Excluding the impact of the newly acquired Auction 123 business, which tends to run at a higher churn rate, the annualized churn for the quarter would have been 11.3%.
Fiscal 2017 Second Quarter Financials
Revenues in the second quarter of fiscal 2017 increased 13% to $13.2 million compared to $11.8 million in the same period last year. Recurring revenue comprised 91.4% of total revenue versus 91.6% for the same period last year.
Gross margin for the second quarter of fiscal year 2017 was 80.3% compared to 82.4% last year. Gross margin was negatively impacted by the gross margin of Auction 123 which, inclusive of the acquired amortization expense, is lower than ARI's historically.
The company reported net income of $242,000 or $0.01 per diluted share for the quarter, compared to net income of $448,000 or $0.03 per share last year.
Adjusted EBITDA for the second quarter of fiscal 2017 increased to $2.2 million compared to $2.1 million in the same period last year.
Management Discussion
"We are pleased with where we stand halfway through our fiscal year," said Roy W. Olivier, President and CEO of ARI. "With our proxy matter concluded and several one-time charges behind us, we are well-positioned to expand adjusted EBITDA margins in the back half of the year. In addition, the initiatives we have put forth to address churn are working as we experienced our third straight quarter of year-over-year churn improvement. Combined with the strong second quarter bookings, we expect stronger organic revenue growth in the second half of the year, complemented by the revenue we are driving through our acquisition of Auction 123."
William Nurthen, CFO of ARI, commented: "Our adjusted EBITDA and cash flow performance in the quarter exceeded our expectations. Further, we believe the second half of the year sets up well for us to show significant improvement in both these areas. We remain on track to finish the second half of the year with an annualized adjusted EBITDA run rate of over $10 million and with adjusted EBITDA margins such that our fiscal 2017 performance should be equal to or above fiscal 2016, despite the proxy and acquisition-related expenses incurred in the first half of the year. Lastly, while our operating income and EPS results for the quarter were impacted by the non-cash charges associated with the Auction 123 acquisition, we believe that there is still an opportunity for us to show improvement in both these items for fiscal 2017 over fiscal 2016."
Fiscal 2017 Second Quarter Conference Call
ARI will conduct a conference call on Thursday, March 9, 2017 at 4:30 p.m. EST to review the financial results for the fiscal second quarter ended January 31, 2017. Investors and interested parties can access the conference call by dialing 877.359.3639 or 408.427.3725 and referring to conference ID 51526443. 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 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
- Follow @ARI_Net on Twitter: twitter.com/ARI_Net
- Become a fan of ARI on Facebook: www.facebook.com/ARInetwork
- Join us on G+: plus.google.com/117293073211296447579
- LinkedIn: linkedin.com/company/ari_2
- Read more about ARI: investor.arinet.com/about-us
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 Six months ended
January 31 January 31
---------------------- ----------------------
2017 2016 2017 2016
---------- ---------- ---------- ----------
Net revenue $ 13,244 $ 11,752 $ 25,516 $ 23,489
Cost of revenue 2,603 2,064 4,892 4,133
---------- ---------- ---------- ----------
Gross profit 10,641 9,688 20,624 19,356
Operating expenses:
Sales and marketing 2,822 2,748 5,509 5,513
Customer operations and
support 2,885 2,428 5,640 4,874
Software development and
technical support (net of
capitalized software
product costs) 1,560 1,319 2,816 2,574
General and administrative 1,964 1,730 3,906 3,515
Depreciation and
amortization (exclusive of
amortization of software
product costs included in
cost of revenue) 738 590 1,313 1,199
---------- ---------- ---------- ----------
Net operating expenses 9,969 8,815 19,184 17,675
---------- ---------- ---------- ----------
Operating income 672 873 1,440 1,681
Other income (expense):
Interest expense (218) (120) (326) (232)
Other, net 1 - 2 (8)
---------- ---------- ---------- ----------
Total other income (expense) (217) (120) (324) (240)
---------- ---------- ---------- ----------
Income before provision for
income tax 455 753 1,116 1,441
Income tax expense (213) (305) (518) (604)
---------- ---------- ---------- ----------
Net income $ 242 $ 448 $ 598 $ 837
========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic 17,468 17,188 17,446 17,170
Diluted 18,002 17,695 17,956 17,655
Net income per common share:
Basic $ 0.01 $ 0.03 $ 0.03 $ 0.05
========== ========== ========== ==========
Diluted $ 0.01 $ 0.03 $ 0.03 $ 0.05
========== ========== ========== ==========
ARI Network Services, Inc.
Consolidated Balance Sheets
(Dollars in Thousands, Except per Share Data)
(Unaudited) (Audited)
January 31 July 31
2017 2016
----------- -----------
ASSETS
Cash and cash equivalents $ 4,555 $ 5,118
Trade receivables, less allowance for doubtful
accounts of $225
and $211 at January 31, 2017 and July 31, 2016,
respectively 2,660 1,942
Work in process 145 132
Prepaid expenses and other 695 781
Deferred income taxes 2,827 3,182
----------- -----------
Total current assets 10,882 11,155
----------- -----------
Equipment and leasehold improvements:
Computer equipment and software for internal use 3,648 3,575
Leasehold improvements 724 639
Furniture and equipment 2,643 2,544
----------- -----------
Total equipment and leasehold improvements 7,015 6,758
Less accumulated depreciation and amortization (4,649) (4,237)
----------- -----------
Net equipment and leasehold improvements 2,366 2,521
----------- -----------
Capitalized software product costs:
Amounts capitalized for software product costs 27,801 24,774
Less accumulated amortization (20,893) (19,743)
----------- -----------
Net capitalized software product costs 6,908 5,031
----------- -----------
Deferred income taxes 968 1,112
Other intangible assets 10,225 7,890
Goodwill 28,034 21,634
----------- -----------
Total non-current assets 48,501 38,188
----------- -----------
Total assets $ 59,383 $ 49,343
=========== ===========
LIABILITIES
Current portion of long-term debt $ 2,921 $ 2,417
Current portion of contingent liabilities 206 331
Accounts payable 1,150 718
Deferred revenue 5,329 6,763
Accrued payroll and related liabilities 2,308 1,817
Accrued sales, use and income taxes 336 297
Other accrued liabilities 1,641 677
Current portion of capital lease obligations 50 50
----------- -----------
Total current liabilities 13,941 13,070
----------- -----------
Long-term debt 13,319 6,658
Long-term portion of contingent liabilities 1,420 60
Capital lease obligations 39 63
Other long-term liabilities 142 166
----------- -----------
Total non-current liabilities 14,920 6,947
----------- -----------
Total liabilities 28,861 20,017
SHAREHOLDERS' EQUITY
Cumulative preferred stock, par value $.001 per
share, 1,000,000 shares authorized; 0 shares
issued and outstanding at January 31, 2017 and
July 31, 2016, respectively - -
Junior preferred stock, par value $.001 per share,
100,000 shares authorized; 0 shares issued and
outstanding at January 31, 2017 and July 31,
2016, respectively - -
Common stock, par value $.001 per share,
25,000,000 shares authorized; 17,526,856 and
17,310,763 shares issued and outstanding at
January 31, 2017 and July 31, 2016, respectively 17 17
Additional paid-in capital 115,957 115,364
Accumulated deficit (85,452) (86,050)
Other accumulated comprehensive income - (5)
----------- -----------
Total shareholders' equity 30,522 29,326
----------- -----------
Total liabilities and shareholders' equity $ 59,383 $ 49,343
=========== ===========
ARI Network Services, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Six months ended
January 31
----------------------
2017 2016
---------- ----------
Operating activities:
Net income $ 598 $ 837
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of software products 1,150 1,040
Amortization of deferred loan fees and imputed
interest expense 35 19
Depreciation and other amortization 1,310 1,199
Gain on change in fair value of earn-out
receivable and payable - 8
Provision for bad debt allowance (6) 78
Deferred income taxes 499 592
Stock based compensation 323 203
Net change in assets and liabilities:
Trade receivables 171 (166)
Work in process, prepaid expenses and other 113 107
Accounts payable 377 4
Deferred revenue (1,482) (1,207)
Accrued payroll and related liabilities 606 144
Accrued taxes and other accrued liabilities 121 93
---------- ----------
Net cash provided by operating activities $ 3,815 $ 2,951
Investing activities:
Purchase of equipment, software and leasehold
improvements (117) (324)
Cash paid for net assets related to acquisitions (10,205) -
Cash paid for contingent liabilities related to
acquisitions (191) (322)
Software development costs capitalized (1,087) (827)
---------- ---------
Net cash used in investing activities $ (11,600) $ (1,473)
Financing activities:
Payments on long-term debt $ (935) $ (530)
Borrowings under long-term debt 8,081 -
Payments of capital lease obligations (24) (121)
Proceeds from exercise of common stock options and
warrants 103 56
---------- ----------
Net cash provided by (used in) financing
activities $ 7,225 $ (595)
Effect of foreign currency exchange rate changes on
cash (3) (1)
---------- ----------
Net change in cash and cash equivalents (563) 882
Cash and cash equivalents at beginning of period 5,118 2,284
---------- ----------
Cash and cash equivalents at end of period $ 4,555 $ 3,166
========== ==========
Cash paid for interest $ 200 $ 227
========== ==========
Cash paid for income taxes $ 63 $ 43
========== ==========
ARI Network Services, Inc.
Non-Gaap Disclosure of EBITDA
(Dollars in Thousands)
Three months Six months ended Twelve months
ended January 31 January 31 ended January 31
------------------------------------------------
2017 2016 2017 2016 2017 2016
------------------------------------------------
Net income $ 242 $ 448 $ 598 $ 837 $ 1,504 $ 1,544
Interest expense 218 120 326 232 554 468
Stock-based compensation
expense 174 88 323 203 547 439
Amortization included in
cost of sales 628 544 1,150 1,040 2,218 1,961
Depreciation and
amortization 738 590 1,313 1,199 2,521 2,175
Income tax expense 213 305 518 604 1,265 1,052
------------------------------------------------
Adjusted EBITDA $ 2,213 $ 2,095 $ 4,228 $ 4,115 $ 8,609 $ 7,639
================================================
Revenue $13,244 $11,752 $25,516 $23,489 $49,720 $44,681
Adjusted EBITDA as a % of
revenue 16.7% 17.8% 16.6% 17.5% 17.3% 17.1%
For media inquiries, contact:Colleen Malloy Director of Marketing, ARI 414.973.4323 [email protected] inquiries, contact:Cody Slach or Sean Mansouri Liolios 949.574.3860 [email protected]
Source: ARI Network Services, Inc.
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