ARI sees quarterly growth in income, cash flow

News release

ARI Network Services, Inc. (NASDAQ: ARIS), an award-winning provider of data-driven software tools and marketing services that help dealers, distributors and manufacturers Sell More Stuff!, reported financial results today for its fiscal 2014 third quarter ended April 30, 2014.

Highlights for the fiscal third quarter included:

Total revenues for the third quarter of fiscal year 2014 were $8.2 million, which compares with $8.1 million in 2Q14 and $8.2 million for the same period last year.

Operating income was $365,000 for the third quarter of fiscal 2014, compared with operating losses of ($606,000) in 2Q14 and ($493,000) for the same period last year.

Net income was $160,000 or $0.01 per diluted share for the third quarter of fiscal 2014, compared with net losses of ($461,000) or $(0.03) per share in 2Q14 and ($571,000) or ($0.05) per share for the same period last year.

EBITDA, a non-GAAP measure, adjusted for non-cash charges, was $1.3 million or 15.4% of revenue in the third quarter of fiscal year 2014. This compares with EBITDA of $0.3M or 3.2% of revenue in 2Q14 and $0.8 million or 9.4% of revenue in the same period last year.

Cash generated from operations was more than $1.0 million for the third quarter of fiscal 2014, compared with $53,000 in 2Q14 and $127,000 for the same period last year.

Fiscal Year 2014 Third Quarter Financials

ARI reported revenues of $8.2 million for the third quarter of fiscal year 2014 which compares with $8.2 million for the same period last year. Recurring revenues for the third quarter of fiscal year 2014 were $7.6 million, a slight increase from the same period last year. Recurring revenue comprised 93.3% of total revenue for the third quarter of fiscal year 2014 versus 92.6% for the third quarter of fiscal year 2013.

Gross margin for the third quarter of fiscal year 2014 was 80.9%, versus 77.1% last year. The gross margin improvement resulted primarily from cost efficiencies realized from the integration related headcount reductions the firm made in 2Q14, and the decision of the company during 3Q13 to no longer pass through costs for pay-per-click advertising.

Operating income was $365,000 for the third quarter of fiscal year 2014, compared with an operating loss of ($493,000) for the same period last year. The increase in results from operations is attributed to cost efficiencies from the aforementioned integration related headcount reductions in 2Q14, a reduction in general and administrative expense in the quarter, and a $420,000 charge in the third quarter of fiscal 2013 related to the impairment of long-lived assets.

The company reported net income of $160,000 or $0.01 per diluted share for the quarter, compared with a net loss of ($571,000) or ($0.05) per share last year.

Roy W. Olivier, President and Chief Executive Officer of ARI, commented, “As we noted on our prior quarter earnings call, we expected year-over-year organic revenue growth in the back half of fiscal 2014 to be challenging, however, we anticipated significant improvement in our earnings and cash flow. The results for Q3 are in line with these expectations. The investments we are making in sales and marketing are having a positive impact on new sales and upsells. To date in fiscal 2014, we have invested 29.4% of revenue in sales and marketing versus 25.2% for the first nine months of last year. This has contributed to new dealer sales and upsell bookings, measured in annual contract value (ACV), being up 38.8% year-to-date. We believe this should translate into single-digit organic growth in Q1 FY15, growing toward low double-digit growth as we progress through fiscal 2015.”

William Nurthen, Chief Financial Officer, commented, “The cost reductions we made in Q2 allowed us to experience substantial profitability gains in fiscal Q3. Our EBITDA margin was 15.4%, which represents good progress toward returning margins back to their pre-acquisition levels of roughly 18% to 20%. Additionally, in the third quarter we experienced our strongest cash flow performance since the fourth quarter of fiscal 2012. As a result, we were able to pay down our outstanding line of credit balance a quarter earlier than planned, while at the same time increasing our overall cash balance.”