INVESTOR PRESENTATION NASDAQ: ARIS FY16 ARI Network Services, Inc. - - PowerPoint PPT Presentation

INVESTOR PRESENTATION

FY16 ARI Network Services, Inc. | investor.arinet.com

NASDAQ: ARIS

SAFE HARBOR STATEMENT

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

• n 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

• nly 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.

COMPANY OVERVIEW

Roy W. Olivier, President & CEO

ARI’S INVESTMENT HIGHLIGHTS

Strategic Financial

• Industry-leading provider of software tools and marketing

services

• #1 or #2 in all core markets served
• Manage largest content library in markets served
• Data both a moat and a growth driver
• Attractive market opportunity
• Strong consumer spending, health care trends, and online

shopping trends

• Market dynamics driving online lead generation and eCommerce
• Multiple growth opportunities
• Grown the number of markets served from 4 to 8
• Grown the number of products/services from 2 to 4
• Raised the ARPD on new products
• Raised TAM from $100M to over $1.5B
• Europe and Asia remain largely untapped
• Consistent track record of growth and profitability
• 17.5% revenue CAGR over last five years
• In FY16, Adjusted EBITDA and cash flow growth outpaced

revenue growth

• Profitable past 12 years
• Strong recurring revenue profile
• Over 90% of revenue is recurring
• Highly diversified customer base
• 22,000+ customers
• Largest Customer is <3% of Revenue
• Profitable and Cash Flow Positive
• FY16 Q4 Adjusted EBITDA margins of 18.0%
• Operational cash flow inline with Adjusted EBITDA

WHAT DO WE DO?

We provide software and related services to help our customers Sell More Stuff™

In-Store

• Dealer business management system
• OEM parts lookup
• Aftermarket Parts, Garments & accessories

(PG&A) lookup

• Lead management

Online

• Lead generation
• eCommerce
• OEM parts
• Aftermarket PG&A
• Digital marketing services

WHO ARE OUR CUSTOMERS

Dealers Distributors Manufacturers (OEM)

Our Customers are:

Powersports Outdoor Power Marine RV Appliances CORE Tire & Wheel HME

Markets We Serve:

GROWTH Aftermarket Auto Service

What “Stuff”?

Whole Goods (Tires, Bike, Boat, RV) OEM Parts Aftermarket Parts, Garments & Accessories (PG&A) Service & Tire

CONTENT THAT DRIVES COMMERCE

OEM Parts 120+ Manufacturers 500K Models 10MParts Aftermarket PG&A 1,400+ Manufacturers 500K Parts Whole Goods 315 Manufacturers 176K Models

Improves productivity and profitability at Dealership

Business Management

POS / Inventory Mgmt. & Accounting Drive traffic to dealership

• Leads
• eCommerce

Digital Marketing

Leads for major units eCommerce sales Web Presence

Lead Gen & eCommerce Websites eCatalogs

Increases sales in Dealership Improves customer satisfaction

SaaS or Subscription

Perpetual License + Maintenance

• r

SaaS

SaaS or Subscription SaaS

STRATEGIC GOALS - BACKGROUND

• To be the leader in providing software and services that help our customers

Sell More Stuff™.

• Complex equipment will continue to be sold primarily through a dealer

network.

• Approximately 7 out of 10 units sold originate as web leads.
• Online shopping is growing faster than in-store.
• Search is now over 50% mobile.
• ARI has a strong online footprint with supporting analytics (8,000+ Dealer

Sites).

• We intend to integrate or own in-store systems (Business

Management/Point of Sale).

STRATEGIC GOALS – THE FUTURE

• We intend to be the leader in helping dealers capitalize on the convergence of
• nline and in-store purchases and research.
• Integrate customer search with the dealership’s location via mobile
• Integrate the customer in-store experience with search and purchasing

history via mobile

• Create personalized shopping experiences based on models owned,

history, etc.

STRATEGIC FOUNDATIONS

• Nurture and retain existing customers through world class customer

service and product feature upgrades.

• Drive organic growth through innovative new service offerings,

differentiated content and geographic expansion.

• Lead the market with open integration to related platforms.
• Successfully execute acquisitions that align with our core strategy.

FOUR POINT GROWTH STRATEGY

• More Markets

66% 40% 90% 10% 25K Dealers

GROWTH DRIVERS

• More Markets
• More Products
• eCatalog
• Lead Gen & eCommerce
• Point of Sale / Dealer Business Mgmt.

Systems (POS/DBMS)

• Digital Marketing Services (DIGMS)
• Cross- Selling Opportunities

GROWTH DRIVERS

• More Markets
• More Products
• Higher ARPD*
• eCatalog

$2,259

• LeadGen/eCommerce

$2,935

• POS/DBMS

$4,169

• DIGMS

$2,931

*Annual Recurring Revenue – annualized as of the quarter ending July 31, 2016

GROWTH DRIVERS

• More Markets
• More Products
• Higher ARPD
• Acquisitions that align

with our core strategy

• Completed 15 in last ten years
• Fragmented markets with many small competitors
• We partner with over 90 today
• One of our Core Competencies
• ~50% Future Growth

HISTORICAL GROWTH

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Historical Revenue

Other

Non-Strategic Revenue Non-Recurring Revenue

• Pro Svcs
• Older Businesses

HISTORICAL GROWTH

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Historical Revenue

Other eCatalog

eCatalog

• $17.9M Revenue
• 17,500+ Dealers
• 100 Countries

HISTORICAL GROWTH

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

• f our customers.

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Historical Revenue

Other eCatalog Website

Lead Gen/eCom Websites

• $24M Revenue
• 8,000 Websites

HISTORICAL GROWTH

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

• f our customers.

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Historical Revenue

Other eCatalog Website Digital Marketing

Digital Marketing Services

• $1.9M Revenues
• 800+ Customers

HISTORICAL GROWTH

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

• f our customers.

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Historical Revenue

Other eCatalog Website Digital Marketing POS

Business Mgmt System/POS

• $3.1M Revenues
• 1,500 Locations

HISTORICAL GROWTH

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

• f our customers.

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Other eCatalog Website Digital Marketing POS

Over $47M in revenue for FY16

GROWTH OPPORTUNITY

Customer Count US TAM # of Customers ARPD TAM Dollars eCatalog 16,200 20,800 $2,259 $38M Lead Gen & eCommerce 8,030 143,800 $2,935 $422M Point of Sale/DBMS 500 143,800 $4,169 $685M Digital Marketing 835 143,800 $2,931 $728M Total US $1.9B

After various adjustments we think TAM is $1.5B

$0.0 $10.0 $20.0 $30.0 $40.0 $50.0 FY12 FY13 FY14 FY15 FY16

Millions

FY = Fiscal Year Ending July 31

Total Revenue

3 - 5 Year CAGR: 16 - 17%

$22.5 $30.1 $47.7 $33.0

REVENUE GROWTH

$40.4

TARGET OPERATING MODEL

FY15 Act. FY16 Act. 3 Years FY19 5 Years FY21

Sales $40M $47.7M ≅ $75M ≅ $100M Growth CAGR 16.5% 16.5%

• Adj. EBITDA %

16.3% 17.8% 18% - 22% 20% - 24%

• Adj. EBITDA $

$6.6M $8.5M $14M - $17M $20M - $24M

• Scale
• Efficiencies
• Product Mix

FINANCIAL OVERVIEW

Bill Nurthen, CFO

MOST RECENT QUARTER HIGHLIGHTS¹

² YoY for the year ending July 31, 2016 ³ Customer Acquisition Costs

10 years of Positive Adjusted EBITDA & Operating Cash Flows

• Total Revenue $12.2M
• 93.1% Recurring Revenue
• 80.9% Gross Margin
• Dealer Sales Bookings Up 28%²
• Operating Cash Flow of $2.2M
• Total CAC³ ‐ 12.3 months
• Adjusted EBITDA Margin of 18.0%

Millions

Quarterly Recurring Revenue (QRR)

FY 15

$5.0 $6.0 $7.0 $8.0 $9.0 $10.0 $11.0 $12.0

FY 16

$0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 FY12 FY13 FY14 FY15 FY16 Millions

FY = For the fiscal year ended July 31 Recurring Revenue Total Revenue

5-yr Total Company Recurring Revenue Growth CAGR = 20.3%

$22.5 $30.1 $40.4 $33.0

REVENUE GROWTH

83.2% 89.7% 93.6% 90.2% $47.7 92.1%

• $1.0

$0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 FY12 FY13 FY14 FY15 FY16 Adjusted EBITDA Operating Cash Flow Free Cash Flow

$4.6 $3.8 $4.4 $6.6 $8.5 Millions 12.7% 13.4% 16.3%

ADJUSTED EBITDA & CASH FLOW

Includes $1.2M of acquisition- related costs. Integration related cost- reduction in FY14Q2

$3.5 $2.4 $2.4 $6.3 $1.1 ($0.1) $4.2

Free Cash Flow = cash flow from operations less capital expenditures and capitalized software development

($0.0) $7.7 $4.9 17.8%

FY = For the fiscal year ended July 31

20.5%

BALANCE SHEET HIGHLIGHTS¹

FY16 Q4 Cash and Investments: $5.1M Deferred Tax Assets² $4.3M Total Debt and Lease Obligations: $9.2M Shares Outstanding: 17.3M Stock Price³: $5.02 Market Cap.: $86.9M Enterprise Value: $91.0M TTM Enterprise Value/Adjusted EBITDA: 10.7x TTM Enterprise Value/Revenues: 1.9x

¹ As of and for the quarter ending July 31, 2016 ² Includes Federal NOL Carryforwards of $2.0M ³As of Market Close 11/7/16

COMPANY OVERVIEW

Roy W. Olivier, President & CEO

SUMMARY

• We have significantly increased the size of our addressable market
• pportunity
• We have a successful track record completing acquisitions
• We have a successful track record executing operationally
• We are well positioned for continued growth and improved

profitability

PEER GROUP ANALYSIS

Software Equity Group Multiples1

ARI2 SaaS Index3 Software Index4 Internet Index5 EV/Revenue 1.9 3.9 – 5.8 2.5 – 3.0 2.0 – 2.3 EV/EBITDA 10.7* 30.3 – 41.2 14.2 – 16.1 18.4 – 20.8

*Adjusted EBITDA

APPENDICES

APPENDIX 1: ACQUISITION HISTORY

YEAR

COMPANY PRODUCT VERTICAL 2016

Auction123 Lead Gen/eCommerce Automotive, Powersports, RV, Marine

2015

DCi eCat Automotive Aftermarket

2015

TASCO Corporation DBMS Tire & Wheel

2014

TCS Dealer Business Management System (“DBMS”), Lead Gen/eCommerce Tire & Wheel

2013

DUO Web Services Digital Marketing Services Powersports

2012

50 Below Lead Gen/eCommerce Home Medical, Tire & Wheel

2012

Ready2Ride eCat Powersports

2009

Channel Blade Lead Gen/eCommerce Marine

2008

Info Access eCat Appliances

2007

OC-Net Lead Gen/eCommerce Powersports

2003

VertX Commerce Lead Gen/eCommerce Powersports

1999

Network Dynamics eCat Outdoor Power

1998

POWERCOM-2000 eCat Outdoor Power

1997

Empart Technologies eCat RV

1996

CD*\.IMG eCat Outdoor Power, Powersports, Marine

3 Sales Channels

• OEM Sales
• Dealer Inside Sales
• International Sales

100

Over Countries Served

2 Geographic Markets

Americas & EMEA

Headquarters Milwaukee, WI Leiden, The Netherlands

425

Employees

APPENDIX 2: LOCATIONS

eCatalog Installs Website Installs

New Delhi, India

APPENDIX 3: BENEFICIAL OWNERSHIP¹

Amount of Beneficial Ownership1 Percent Ownership

Wellington Management Company (2) 1,531,300 8.45% Cowen Prime Services, LLC (3) 1,259,200 6.95% Michael D. Sifen, Inc. (4) 1,205,128 6.65% 12 West Capital Management, LP (5) 1,020,000 5.63% Park City Capital, LLC (5) 1,000,000 5.52% All affiliates as a group 6,015,628 33.21%

(1) Except as otherwise noted, the persons named in the above table have sole voting and investment power with respect to all shares shown as beneficially owned by them. Includes options exercisable within 60 days of June 1, 2015. (2) Ownership information is provided as of December 31, 2014 based upon Schedule 13G amendment filed on February 12, 2015. Includes 250,000 shares acquired in connection with the May 7, 2015 equity offering. (3) Ownership information is provided as of the Schedule 13G filed December 31, 2015. (4) Ownership information is provided as of March 15, 2013 based upon Schedule 13G filed on May 22, 2013 by Michael D. Sifen, Inc. Total includes 498,461 shares of common stock held by Michael D. Sifen and 706,667 shares of common stock held by Michael D. Sifen, Inc., an entity controlled by Mr. Sifen. (5) Ownership information is provided as of the Schedule 13D filed December 10, 2014. (6) Ownership information is provided as of October 7, 2016 based upon Amendment No. 2 to Schedule 13D filed on October 7, 2016 on behalf of Park City Capital, LLC (“Park City Capital”), Park City Capital Offshore Master, Ltd. (“Park City Master”) and Michael J. Fox. According to the amended Schedule 13D, each of the parties beneficially own in the aggregate 1,000,000 shares of common stock, and Park City Master holds, and has the shared power to direct the voting and disposition of such shares. Neither Park City Capital nor Mr. Fox directly holds any of such shares.

APPENDIX 4: INSIDER OWNERSHIP¹

Name of Officer / Director Amount of Direct Beneficial Ownership Percent Ownership

Roy W. Olivier (2)(3) – President & CEO 888,946 4.90% William A. Nurthen (3) – Chief Financial Officer 189,806 * Robert A. Ostermann – Chief Technology Officer 181,567 * Chad J. Cooper – Director 165,484 * William H. Luden, III – Director 114,822 *

• P. Lee Poseidon – Director

113,233 * William C. Mortimore – Director 110,909 * Robert Y. Newell, IV - Director 96,164 * All current executive officers and directors as a group 1,587,472 10.25%

* Denotes less than 1% (1) Except as otherwise noted, the persons named in the above table have sole voting and investment power with respect to all shares shown as beneficially owned by them. Includes options exercisable within 60 days of October 28, 2016. (2) Mr. Olivier’s total includes 155,200 shares held in the Company’s 401(k) plan, of which Mr. Olivier is a trustee with voting power. Mr. Olivier disclaims any beneficial ownership in these shares in excess of his pecuniary interest 13,246 shares. (3) Management team granted 110,000 shares of performance based restricted stock that vests at $6, $7, $8 & $9.

APPENDIX 5: COMPETITIVE LANDSCAPE

eCatalogs Lead Gen + eCommerce Websites Business Management Digital Marketing

APPENDIX 6: MANAGEMENT TEAM

Roy W. Olivier

President & CEO

Rob A. Ostermann

Chief Technology Officer

Bill Nurthen

Chief Financial Officer

Brad Smith

V.P. Product Management

Management & Insiders own 10.25%

Robert Jones

V.P. of Sales

Joined ARI September 2006 as Vice President of Global Sales and Marketing / Appointed as President and CEO in May 2008 / 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 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 Laboratories 2008 to 2011 / Vice President of Finance and then CFO of Inforte Corp., NASDAQ (INFT) 1999 to 2007 / Financial 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 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 2003-2008 / 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 Director 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 and Director of Sales and Service in May 2012. Appointed Vice President of Product Management in January 2014 / Joined ARI in 2007 and most recently served as Director of 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, consulted on an East Asian supply-chain consultancy for a Fortune 500 marine manufacturer.

*Long-term equity bonus plan aligned with Shareholder interests. Management team granted restricted stock that vests at $6, $7, $8 & $9