FY15 Q2 ARI Network Services, Inc. │ investor.arinet.com
Statements in this presentation are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. The forward-looking statements can generally be identified by words such as "believes," "anticipates," "expects" or words of similar meaning. Forward-looking statements also include statements relating to the Company's future performance, such as future prospects, revenues, profits and cash flows. The forward-looking statements are subject to risks and uncertainties, which may cause actual results to be materially different from any future performance suggested in the 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. During this presentation, we will discuss GAAP measure such as net income, as well as certain non-GAAP measures such as EBITDA. We have posted on www.investor.arinet.com, a reconciliation of these non-GAAP financial measures to the most comparable financial measures under GAAP. 1
Unique Business Model & Value Proposition – STRONG MARGIN PROFILE – Gross margin and EBITDA margin between 77% – 81% and 12% – 24%, respectively, over last 5 years – HIGH BARRIERS TO ENTRY – ARI owns and manages the largest content library of whole goods and Parts, Garments & Accessories (“PG&A”) – SIGNIFICANT GROWTH OPPORTUNITIES – CUSTOMER CONCENTRATION – No customer accounts for more than 3% of revenue – INSIDERS OWN 8.5% 3
• 120+ Manufacturers • 500K Models • 10MParts 4
• 1,400+ Manufacturers • 500K Parts 5
• 315 Manufacturers • 176 Models 6
1,400+ Manufacturers 120+ Manufacturers 315 Manufacturers 500K Parts 500K Models 176K Models 10MParts Lead Gen eCommerce Digital Mobile Business DaaS Websites Websites Marketing Apps Management 7
• Dealer Business Management System • OEM parts lookup In-Store • Aftermarket Parts, Garments & accessories (PG&A) lookup • Lead Management • Lead Generation • eCommerce Online • OEM Parts • Aftermarket PG&A • Digital Marketing Services 8
Dealers Distributors Manufacturers (OEM) 9
120+ Manufacturers 1,400+ Manufacturers 315 Manufacturers 500K Models 500K Parts 176K Models 10MParts 10
Lead Gen + eCommerce eCatalogs Business Mgmt. Digital Marketing Websites 11
Appliances Marine & RV Outdoor Power Wheel & Tire Powersports 12
0% • • ² • 40% • 66% 2% 90% 10% • 17% ³ 40% • 66% 90% 10% • 13
Historical Revenue $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* Other Catalog Website Digital Marketing POS • 2015 data estimated based off first half FY15 run-rate. In FY13 Q3 we made a change to our lead generation service business model, eliminating the pass-through cost of purchased ad words from the search engine providers on behalf 14 of our customers.
Management & Insiders own 8.5% Joined ARI September 2006 as Vice President of Global Sales and Marketing / Appointed as President and CEO in May 2008 / Roy W. Olivier Director since 2008 / Previously worked for three Fortune 500 companies before starting his first software company in 1989 focused on developing multi-media CD-ROM titles. Sold that company in 1993 to start a software company focused on developing software to President & CEO help dealers in the construction, material handling, mining, and outdoor power vertical markets which was sold to ProQuest (now Snap-On) in 2000. Joined ARI as Chief Financial Officer in November 2013 / CFO of Cabrera Capital Markets, LLC 2011-2013 / CFO of bioLytical Bill Nurthen Laboratories 2008 to 2011 / Vice President of Finance and then CFO of Inforte Corp., NASDAQ (INFT) 1999 to 2007 / Financial Chief Financial Officer operations roles at Platinum Technology International NASDAQ (PLAT) / MBA from The Kellogg School of Management at Northwestern University / BBA undergraduate degree from The University of Notre Dame. Appointed Chief Technology Officer of ARI in August 2012 having served as Executive Director of Technology since November 2011 Rob A. Ostermann and Director of Product Engineering since joining the Company in June 2008 / Served in various technology management and development roles at Parcel Pro Inc. in Torrance, California and The California Breath Clinics in Los Angeles, California from 2003- Chief Technology Officer 2008 / Lead developer at OC-Net, Inc. in Cypress, California / B.S. in Business Administration, Computer Information Systems from California State University. Appointed Vice President of Sales in August 2014 / Most recently served as ARI’s Executive Director of Sales and served as Di rector Robert Jones of Dealer Sales following ARI’s November 2012 acquisition of Duluth, Minn. -based 50 Below / Joined 50 Below as supervisor of the UPS Program in the Financial Services Division in 2011 / Promoted to Sales Manager of the Powersports division in January 2012 V.P. of Sales and Director of Sales and Service in May 2012. Appointed Vice President of Operations in April 2012 / Named an executive officer in August 2012 / Served as Director of Planning & Marv Berg Operations since August 2011 and Director of Finance since joining the Company in March 2010 / Served in various financial positions for Time Warner Cable, Inc. and Norlight Telecommunications, both located in Milwaukee, WI / Successful business V.P. of Operations owner/operator in Milwaukee, WI from 2001 to 2005 /Licensed stock broker from 1997 to 2000 / B.A. in Finance from Michigan State University. Appointed Vice President of Product Management in January 2014 / Joined ARI in 2007 and most recently served as Director of Brad Smith Product Management and General Manager of Aftermarket / Double B.A. in Web/Technology Development and Spanish from the University of Wisconsin-Stevens Point / MBA from the University of Wisconsin-Eau Claire in 2012 / In conjunction with MBA program, V.P. Product Management consulted on an East Asian supply-chain consultancy for a Fortune 500 marine manufacturer. 15
Most Recent Quarter highlights 1 Quarterly Recurring Revenue (QRR) $12.0 • Total Revenue $10.1M QRR • 90.2% Recurring Revenue $10.0 • 81.6% Gross Margin $8.0 • Dealer Sales Bookings Up 31.5% ³ Millions • Operating Cash Flow of $1.1M $6.0 • Total CAC² ‐ 9.3 months $4.0 • EBITDA Margin of 16.1% $2.0 $0.0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY 13 FY 14 FY 15 17
$40.0 $36.0 $33.0 $35.0 $30.1 $30.0 $22.5 $25.0 Millions $21.3 $20.0 $15.0 $10.0 83.2% 81.7% 89.7% 93.6% 91.1% $5.0 $0.0 FY2011 FY2012 FY2013 FY2014 TTM FY = Fiscal Year Ending July 31 Recurring Revenue Total Revenue 18
$6.0 $5.5 Integration related cost- $5.0 reduction in Includes $1.2M $5.0 FY14Q2, $2.5M of acquisition- annualized $4.4 related costs. $3.9 $4.0 $3.5 Millions $3.0 23.6% 11.6% 19.3% 11.7% 15.2% $2.0 $1.0 $0.0 FY2011 FY2012 FY2013 FY2014 TTM FY = Fiscal Year Ending July 31 19
$6.0 $5.1 $5.0 Integration related cost- $4.0 reduction in $3.5 $3.5 Impact of two Millions FY14Q2, $2.5M acquisitions annualized $3.0 $2.4 $2.4 $2.0 $1.0 $0.0 FY2011 FY2012 FY2013 FY2014 TTM FY = Fiscal Year Ending July 31 Notes: • FY14 Q3 & Q4 cash flows combined were $2.4M • FY15 Q1 & Q2 cash flow of $2.7M 20
Last Reported Pro Forma Pre-May 7. 2015 Post-May 7, 2015 Offering Offering Cash and Investments: $1.7M¹ $5.1M Federal NOLs of $5.8M Total Debt and Lease Obligations: $10.0M¹* $9.1M Shares Outstanding: 14.4M³ 16.9M Stock Price: $3.19² Market Cap.: $45.8M² Enterprise Value: $54.1M² TTM Enterprise Value/EBITDA: 9.9x² TTM Enterprise Value/Revenues: 1.5x² ¹ as of and for the quarter ending January 31, 2015 ² as of Market Close May 6, 2015 ³ as of March 1, 2015 *Includes $5.9M of SVB Term Note @ 3.75% refinanced as part of TCS transaction. Also includes $2.9M of Seller Note @ 5.0% associated with TCS transaction. 21
Date: 5/7/2015 Shares: 1,760,000 Price: $3.00 Gross Proceeds: $5.3M Net Proceeds: $4.7M ARI intends to use the net proceeds from the offering to invest in or to acquire, from time to time, businesses that align with ARI’s core acquisition strategy, to repay the outstanding balance of $1,750,000 on its line of credit which was incurred in connection with its recent acquisition of the assets of TASCO Corporation, thus making it fully available for additional transactions, and for general corporate purposes. 23
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