UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 28, 2015
ARI NETWORK SERVICES, INC.
(Exact name of registrant as specified in its charter)
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Wisconsin
(State or other jurisdiction of incorporation)
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0-19608
(Commission File Number)
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39-1388360
(IRS Employer Identification No.)
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10850 W. Park Place, Suite 1200
Milwaukee, Wisconsin
(Address of principal executive offices)
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53224
(Zip Code)
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Registrant’s telephone number, including area code: (414) 973-4300
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
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☐
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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☐
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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☐
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02.
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Results of Operations and Financial Condition.
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On October 28, 2015, ARI Network Services, Inc. issued a press release announcing its operating results for the year ended July 31, 2015. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
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Item 9.01.
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Financial Statements and Exhibits.
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Exhibit No.
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Description
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99.1
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Earnings Release dated October 28, 2015
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Dated: October 28, 2015
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ARI NETWORK SERVICES, INC.
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By:
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/s/ William A. Nurthen
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William A. Nurthen
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Vice President of Finance and Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
99.1 Earnings Release dated October 28, 2015
FOR IMMEDIATE RELEASE
ARI Network Services, Inc. Announces Fourth Quarter and Fiscal 2015 Results
Fiscal 2015 revenue increases 23% to more than $40M, Adjusted EBITDA increases 49% to $6.6M
Milwaukee, Wis., October 28, 2015 – 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 fourth quarter and fiscal year ended July 31, 2015.
Highlights for the fiscal year 2015 included:
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Revenue increased 22.5% to $40.4 million, which compares with $33.0 million for the same period last year. Recurring revenue was $36.5 million, or 90.2% of revenue, compared with $30.9 million, or 93.6% of revenue, for the same period last year. |
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Operating income was $2.3 million, compared with $0.4 million for the same period last year, an increase of 550%. Net Income was $1.1 million, compared with a net loss of $0.1 million last year. |
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Adjusted EBITDA, a non-GAAP measure, was $6.6 million or 16.3% of revenue. This compares with Adjusted EBITDA of $4.4 million or 13.4% of revenue in the same period last year. |
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Cash generated from operations was $6.3 million, compared with $2.4 million for the same period last year, an increase of 165%. |
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The Company completed the acquisitions of TCS Technologies (“TCS”), TASCO Corporation and its affiliated company Signal Extraprise Corporation (collectively “TASCO”) and Direct Communications Inc. (“DCi”). These acquisitions expanded the ARI customer base by more than 2,000 customers and accelerated its growth in the auto tire and wheel aftermarket and the overall automotive aftermarket. |
Highlights for the fourth quarter of fiscal 2015 included:
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Revenue increased 27.7% to $10.9 million, which compares with $8.5 million for the same period last year and $10.3 million in 3Q15. Recurring revenue was $9.8 million, or 90.1% of revenue, which compares with $7.8 million for the same period last year and $9.3 million in 3Q15. |
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Operating income was $686,000, compared with $430,000 for the same period last year and $675,000 in 3Q15. |
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Adjusted EBITDA was $1.8 million, or 16.5% of revenue. This compares with Adjusted EBITDA of $1.6 million, or 18.8% of revenue in the same period last year and $1.7 million, or 16.8% of revenue in 3Q15. |
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Cash generated from operations was $1.7 million, compared with $1.3 million for the same period last year and $1.9 million in 3Q15. |
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On July 13, 2015, the Company completed the acquisition of DCi, a leading provider of differentiated product content and electronic catalog software serving manufacturers, distributors, jobbers and independent retailers in the $300 billion automotive aftermarket. |
Fiscal Year 2015 Financials
Fiscal 2015 was another record year for ARI. The Company achieved record results in total revenues, operating income, Adjusted EBITDA and cash flow from operations.
The Company also returned to a net profit, with net income of $1.1 million or $0.07 per share, compared with a net loss of $0.1 million or ($0.01) per share in the prior year.
Management Discussion
Roy W. Olivier, President and Chief Executive Officer of ARI, commented, “As a result of successfully executing on our strategy in fiscal 2015, it was a transformative year for ARI in many respects. In addition to another year of record results, we closed three acquisitions that complement ARI’s strategic opportunities and position us well for the future. Just a few years ago, we were effectively serving four vertical markets with two products and a total addressable market of about 25,000 dealers in the U.S. As a result of the actions we have taken in the past few years, we are now serving seven vertical markets with four products and services and a total addressable market of about 150,000 dealers in the U.S. I believe this better positions our Company for continued growth.”
William Nurthen, Chief Financial Officer of ARI, commented, “Our operating profit and Adjusted EBITDA performance for the fourth quarter and fiscal year 2015 were especially strong considering the impact of costs related to acquisitions. The Q4 results were impacted by approximately $200,000 in transaction costs, and the fiscal year 2015 results were impacted by more than $500,000 in transactions costs related to the three acquisition completed in the year.”
Fiscal 2015 Conference Call
ARI will conduct a conference call on Wednesday October 28, 2015, at 4:30 p.m. EDT, to review the financial results for the year ended and fiscal quarter ended July 31, 2015. Interested parties can access the conference call by dialing 877.359.3639 or 408.427.3725 and referring to Conference ID: 10333777. 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
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Follow @ARI_Net on Twitter: twitter.com/ARI_Net |
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Become a fan of ARI on Facebook: www.facebook.com/ARInetwork |
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Join us on G+: plus.google.com |
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LinkedIn: www.linkedin.com |
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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.
For media inquiries, contact:
Colleen Malloy, Director of Marketing, ARI, +1.414.973.4323, colleen.malloy@arinet.com
Investor inquiries, contact:
Steven Hooser, Three Part Advisors, +1.214.872.2710, shooser@threepa.com
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ARI Network Services, Inc.
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Consolidated Statements of Operations
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(Dollars in Thousands, Except per Share Data)
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Three months ended July 31
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Twelve months ended July 31
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2015
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2014
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2015
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2014
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(Unaudited)
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(Unaudited)
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(Unaudited)
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(Audited)
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Net revenue
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$
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10,912
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$
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8,548
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$
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40,443
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$
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33,019
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Cost of revenue
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1,911
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1,572
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7,302
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6,378
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Gross profit
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9,001
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6,976
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33,141
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26,641
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Operating expenses:
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Sales and marketing
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2,499
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2,154
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10,427
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9,344
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Customer operations and support
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2,419
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1,616
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7,811
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6,645
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Software development and technical support (net of capitalized software product costs)
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1,153
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701
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4,199
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2,717
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General and administrative
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1,731
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1,732
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6,634
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6,222
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Depreciation and amortization (exclusive of amortization of software product costs included in cost of revenue)
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513
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308
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1,756
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1,322
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Loss on impairment of long-lived assets
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-
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35
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—
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35
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Net operating expenses
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8,315
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6,546
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30,827
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26,285
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Operating income
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686
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430
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2,314
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356
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Other income (expense):
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Interest expense
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(113)
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(70)
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(465)
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(286)
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Loss on change in fair value of stock warrants
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—
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—
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—
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(28)
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Gain on change in fair value of contingent liabilities
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—
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41
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—
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67
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Gain on change in fair value of contingent assets
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—
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—
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28
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—
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Other, net
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—
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3
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5
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30
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Total other income (expense)
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(113)
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(26)
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(432)
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(217)
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Income before provision for income tax
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573
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404
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1,882
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139
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Income tax expense
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(205)
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(230)
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(811)
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(241)
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Net income (loss)
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$
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368
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$
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174
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$
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1,071
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$
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(102)
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Weighted average common shares outstanding:
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Basic
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16,721
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13,455
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14,849
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13,290
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Diluted
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17,117
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13,786
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15,279
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13,290
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Net income (loss) per common share:
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Basic
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$
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0.02
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$
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0.01
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$
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0.07
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$
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(0.01)
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Diluted
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$
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0.02
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$
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0.01
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$
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0.07
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$
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(0.01)
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ARI Network Services, Inc.
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Consolidated Balance Sheets
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(Dollars in Thousands, Except per Share Data)
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July 31
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July 31
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2015
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2014
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(Unaudited)
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(Audited)
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ASSETS
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Cash and cash equivalents
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$
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2,284
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$
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1,808
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Trade receivables, less allowance for doubtful accounts of $372
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and $359 at July 31, 2015 and 2014
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2,046
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1,212
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Work in process
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165
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294
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Prepaid expenses and other
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848
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1,030
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Deferred income taxes
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3,092
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2,655
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Total current assets
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8,435
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6,999
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Equipment and leasehold improvements:
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Computer equipment and software for internal use
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2,800
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2,382
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Leasehold improvements
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629
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626
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Furniture and equipment
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2,981
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2,327
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Total equipment and leasehold improvements
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6,410
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5,335
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Less accumulated depreciation and amortization
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(3,989)
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(3,564)
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Net equipment and leasehold improvements
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2,421
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1,771
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Capitalized software product costs:
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Amounts capitalized for software product costs
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25,463
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22,676
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Less accumulated amortization
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(20,337)
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(18,656)
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Net capitalized software product costs
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5,126
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4,020
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Deferred income taxes
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2,398
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3,507
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Other long-term assets
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84
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72
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Other intangible assets
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10,116
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3,612
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Goodwill
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21,168
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12,367
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Total non-current assets
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41,313
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25,349
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Total assets
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$
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49,748
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$
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32,348
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ARI Network Services, Inc.
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Consolidated Balance Sheets
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(Dollars in Thousands, Except per Share Data)
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July 31
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July 31
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2015
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2014
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(Unaudited)
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(Audited)
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LIABILITIES
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Current portion of long-term debt
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$
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1,338
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$
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675
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Current portion of contingent liabilities
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754
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295
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Accounts payable
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708
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656
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Deferred revenue
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7,327
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7,415
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Accrued payroll and related liabilities
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1,752
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1,336
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Accrued sales, use and income taxes
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140
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123
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Other accrued liabilities
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748
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472
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Current portion of capital lease obligations
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174
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195
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Total current liabilities
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12,941
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11,167
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Long-term debt
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9,191
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3,375
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Long-term portion of contingent liabilities
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362
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153
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Capital lease obligations
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106
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233
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Other long-term liabilities
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199
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|
214
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Total non-current liabilities
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9,858
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3,975
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Total liabilities
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22,799
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15,142
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SHAREHOLDERS' EQUITY
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Cumulative preferred stock, par value $.001 per share, 1,000,000 shares authorized; 0 shares issued and outstanding at July 31, 2015 and 2014
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—
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—
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Junior preferred stock, par value $.001 per share, 100,000 shares authorized; 0 shares issued and outstanding at July 31, 2015 and 2014
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—
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—
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Common stock, par value $.001 per share, 25,000,000 shares authorized; 17,097,426 and 13,506,316 shares issued and outstanding at July 31, 2015 and 2014
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17
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14
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Additional paid-in capital
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114,700
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|
|
106,077
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Accumulated deficit
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(87,793)
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(88,864)
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Other accumulated comprehensive income (loss)
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25
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|
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(21)
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Total shareholders' equity
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26,949
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17,206
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Total liabilities and shareholders' equity
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$
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49,748
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$
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32,348
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ARI Network Services, Inc.
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Consolidated Statements of Cash Flow
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(Dollars in Thousands, Except per Share Data)
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|
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|
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Twelve months ended July 31
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|
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2015
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2014
|
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Operating activities:
|
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(Unaudited)
|
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(Audited)
|
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Net income (loss)
|
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$
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1,071
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$
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(102)
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Adjustments to reconcile net income (loss) to net cash provided by operating activities:
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|
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Amortization of software products
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2,023
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|
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2,052
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Amortization of discount related to present value of earn-out
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(10)
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|
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(15)
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Amortization of bank loan fees
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|
|
38
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|
|
26
|
|
Interest expense related to earn-out payable
|
|
|
49
|
|
|
76
|
|
Depreciation and other amortization
|
|
|
1,756
|
|
|
1,322
|
|
Loss on impairment of long-lived assets
|
|
|
-
|
|
|
35
|
|
Gain on change in fair value of earn-out receivable
|
|
|
(28)
|
|
|
-
|
|
Loss on change in fair value of stock warrants
|
|
|
-
|
|
|
28
|
|
Gain on change in fair value of earn-out payable
|
|
|
-
|
|
|
(67)
|
|
Provision for bad debt allowance
|
|
|
168
|
|
|
279
|
|
Deferred income taxes
|
|
|
720
|
|
|
227
|
|
Stock based compensation
|
|
|
301
|
|
|
340
|
|
Stock based director fees
|
|
|
145
|
|
|
220
|
|
Net change in assets and liabilities:
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
114
|
|
|
(545)
|
|
Work in process
|
|
|
129
|
|
|
(140)
|
|
Prepaid expenses and other
|
|
|
24
|
|
|
(41)
|
|
Other long-term assets
|
|
|
(50)
|
|
|
-
|
|
Accounts payable
|
|
|
(75)
|
|
|
(40)
|
|
Deferred revenue
|
|
|
(584)
|
|
|
(1,156)
|
|
Accrued payroll and related liabilities
|
|
|
266
|
|
|
(229)
|
|
Accrued sales, use and income taxes
|
|
|
8
|
|
|
(24)
|
|
Other accrued liabilities
|
|
|
248
|
|
|
137
|
|
Net cash provided by operating activities
|
|
$
|
6,313
|
|
$
|
2,383
|
|
Investing activities:
|
|
|
|
|
|
|
|
Purchase of equipment, software and leasehold improvements
|
|
|
(692)
|
|
|
(631)
|
|
Cash received on earn-out from disposition of a component of the business
|
|
|
111
|
|
|
101
|
|
Cash paid for contingent liabilities related to acquisitions
|
|
|
(250)
|
|
|
(249)
|
|
Cash paid for net assets related to acquisitions
|
|
|
(9,700)
|
|
|
(241)
|
|
Software developed for internal use
|
|
|
-
|
|
|
(29)
|
|
Software development costs capitalized
|
|
|
(1,411)
|
|
|
(1,769)
|
|
Net cash used in investing activities
|
|
$
|
(11,942)
|
|
$
|
(2,818)
|
|
Financing activities:
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
$
|
(622)
|
|
$
|
(450)
|
|
Borrowings under long-term debt
|
|
|
2,168
|
|
|
-
|
|
Proceeds from capital lease obligations incurred
|
|
|
-
|
|
|
312
|
|
Payments of capital lease obligations
|
|
|
(253)
|
|
|
(100)
|
|
Proceeds from issuance of common stock
|
|
|
4,834
|
|
|
289
|
|
Net cash provided by financing activities
|
|
$
|
6,127
|
|
$
|
51
|
|
Effect of foreign currency exchange rate changes on cash
|
|
|
(22)
|
|
|
(3)
|
|
Net change in cash and cash equivalents
|
|
|
476
|
|
|
(387)
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,808
|
|
|
2,195
|
|
Cash and cash equivalents at end of period
|
|
$
|
2,284
|
|
$
|
1,808
|
|
Cash paid for interest
|
|
$
|
350
|
|
$
|
292
|
|
Cash paid for income taxes
|
|
$
|
64
|
|
$
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-Gaap Measures
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA for the
|
|
three and twelve months ended July 31, 2015 and 2014, respectively:
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
FY2015
|
FY2014
|
FY2015
|
FY2014
|
|
|
|
|
|
Q4
|
Q4
|
YTD
|
YTD
|
|
|
|
Net Income (loss)
|
|
$ 368
|
$ 174
|
$ 1,071
|
$ (102)
|
|
|
|
|
Interest
|
113
|
70
|
465
|
286
|
|
|
|
|
Amortization of software products
|
463
|
558
|
2,023
|
2,052
|
|
|
|
|
Other depreciation and amortization
|
511
|
308
|
1,756
|
1,322
|
|
|
|
|
Loss on FMV of Warrant Derivatives
|
-
|
-
|
-
|
28
|
|
|
|
|
Loss on impairment of long-lived assets
|
-
|
35
|
-
|
35
|
|
|
|
|
Income taxes
|
205
|
230
|
811
|
241
|
|
|
|
|
EBITDA
|
$ 1,660
|
$ 1,375
|
$ 6,126
|
$ 3,862
|
|
|
|
|
Stock-based compensation
|
141
|
231
|
446
|
560
|
|
|
|
|
Adjusted EBITDA
|
$ 1,801
|
$ 1,606
|
$ 6,572
|
$ 4,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 depreciation and amortization expense in subsequent periods. The Company uses Adjusted EBITDA as a factor in evaluating potential acquisition targets and analyzing the pro forma impact of the acquisition on the Company. 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.
The Company began using EBITDA, adjusted to add back non-cash, stock-based compensation, as a performance measure during the fourth quarter of fiscal 2015. All prior periods have been updated to reflect this presentation.