INVESTOR PRESENTATION NASDAQ: ARIS FY17 Q2 ARI Network Services, - - PowerPoint PPT Presentation

INVESTOR PRESENTATION

FY17 Q2 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 $2.0B
• 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
• 25,000+ customers
• Largest Customer is <5% of Revenue
• Profitable and Cash Flow Positive
• FY17 Q2 Adjusted EBITDA margins of 16.7%
• Operational cash flow inline with Adjusted EBITDA

DURABLE GOODS BECOMING MORE COMPLEX – NOT LESS

1957 BMW offered 7 Models; 10 Trims 2017 BMW offers 20 Models; 85 Trims 1976 Honda offered 32 Models 2016 Honda offered 60 Models 1957 BMW 600: ~15,000 Parts 2017 BMW i3: ~50,000 Parts 1976 Honda Gold Wing: ~2,000 Parts 2016 Honda Gold Wing: ~4,700 Parts

AN UNMATCHED PRODUCT CONTENT NETWORK AT THE CORE OF OMNI-CHANNEL DEALER COMMERCE ECOSYSTEM

8,000

B2C INTEGRATIONS

>2,200

MAJOR UNIT OEMs

PRODUCT DATA CONSUMERS

(DISTRIBUTORS & RETAILERS) B2C (Dealer-to to-Consumer) systems:

• Lead Generation Websites
• E-commerce Websites
• Mobile Apps

B2B (Distributor-to to-Dealer) systems:

• Parts Counter
• In-store POS

PRODUCT DATA SOURCES

(ORIGINAL EQUIPMENT AND AFTERMARKET MANUFACTURERS)

>10 MILLION SKUs

B2B Integration

18,000

B2B INTEGRATIONS

165 165

PARTS OEMs

3,200

AFTERMARKET PARTS MANUFACTURERS

• Mobile Dealer Apps

Data Ac Access Ag Agreements Al Allow AR ARI to publish multiline OEM and Aftermarket Data Through Its Proprietary Product Content Repository Dealers of complex goods require robust, up to date networks of data from manufactures in order to sell, rent and service goods. However, multiline dealerships, which are the most common type of dealerships in our core markets, are faced with the challenge of accessing and curating data for thousands of SKUs from multiple

• OEMs. ARI solves that problem for its customer base by establishing a product content network, enriched by thousands of manufacturer partners and tens of

thousands of OEM, dealer and distributor customers.

CONSUME MER SHOP OPPING G TRE RENDS

87% of customers

research online before visiting a store

37% are desktop

browsers

63% are

mobile/tablet browsers

80% 80% of small business

purchases are made in- store

85% 85% say they’d be more

likely to shop in places that

• ffer personalized coupons

and excusive offers in-store

Start with a Search Research Online Visit a Retailer’s Website Visit In-Store Buy In-Store Become a Loyal Customer

What are your customers looking for?

• Price of the item at the store and

promotions

• Details about store hours
• If the item they’re looking for is in stock
• Map showing item’s location in the store
• Location of the store
• Additional and related inventory
• Email marketing
• Apps
• Text message marketing
• Pay-per-click (“PPC”)

Review Sites Social Media YouTube eBay & Craigslist

61% read online

reviews before making a purchase decision

36% said

interaction on social media led them to buy more from that company Generate 10x more leads than by traditional methods

90% find videos

helpful when researching online

79% 79% of in-store

customers research

• nline while in-stores

using:

CONSUMER SHOPPING TRENDS

WHAT DO WE DO?

ONLINE IN-STORE

Websites Digital Marketing E-Commerce Mobile Apps Channel Marketing Management Systems Proximity Marketing Mobile Search POS Systems Kiosk Software Parts Lookup Software

Product Information Customer Insights & Trends Analytics & Attribution

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

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 7,160 Brands 500K Models 10M Parts Aftermarket PG&A > 3,200 Brands 500K Parts Whole Goods > 2,200 Brands 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

• re of our products. For exam

• re of ARI’s products.

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

$2,354

• LeadGen/eCommerce

$2,930

• POS/DBMS

$4,222

• DIGMS

$2,596

*Annual Recurring Revenue – annualized as of the quarter ending January 31, 2017

GROWTH DRIVERS

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

with our core strategy

• Completed 10 in last ten years
• Fragmented markets with many small competitors
• We partner with over 90 today
• One of our Core Competencies
• ~50% Future Growth

CURRENT U.S. DEALERSHIP MARKET OPPORTUNITY

PRODUCT CATEGORIES ADDRESSABLE # DEALERS ARR PER CUSTOMER TAM B2C E-COMMERCE 282,864 $2,930 $829M B2B E-COMMERCE & PRODUCT CONTENT 31,245 $2,354 $74M DEALERSHIP BUSINESS MANAGEMENT SYSTEMS 84,586 $4,222 $357M DIGITAL MARKETING SERVIES 282,864 $2,596 $734M AUCTION123 180,819 $2,640 $477M TOTAL

$2.5 B

TOTAL ADDRESSABLE DEALERSHIP MARKET (“TAM”)

After various adjustments we believe TAM is $2.0B

HISTORICAL GROWTH

$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 2017*

Historical Revenue

Other

Non-Strategic Revenue Non-Recurring Revenue

• Pro Svcs
• Older Businesses

*2017 data estimated based off first and second quarter revenue annualized.

HISTORICAL GROWTH

$0 $10,000 $20,000 $30,000 $40,000 $50,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Historical Revenue

Other eCatalog

eCatalog

• $17.6M Revenue
• 19,000+ Dealers
• 100 Countries

*2017 data estimated based off first and second quarter revenue annualized.

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 $10,000 $20,000 $30,000 $40,000 $50,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Historical Revenue

Other eCatalog Website

Lead Gen/eCom Websites

• $27M Revenue
• 8,000 Websites

*2017 data estimated based off first and second quarter revenue annualized.

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 $10,000 $20,000 $30,000 $40,000 $50,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Historical Revenue

Other eCatalog Website Digital Marketing

Digital Marketing Services

• $2.8M Revenues
• 1,000 Customers

*2017 data estimated based off first and second quarter revenue annualized..

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 $10,000 $20,000 $30,000 $40,000 $50,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Historical Revenue

Other eCatalog Website Digital Marketing POS

Business Mgmt System/POS

• $2.7M Revenues
• 1,500 Locations

*2017 data estimated based off first quarter revenue annualized.

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 $10,000 $20,000 $30,000 $40,000 $50,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* Other eCatalog Website Digital Marketing POS

Projecting $53M – 55M in revenue for FY17

*2017 data estimated based off first quarter revenue annualized.

FINANCIAL OVERVIEW

Bill Nurthen, CFO

MOST RECENT QUARTER HIGHLIGHTS¹

² YoY for the quarter ending January 31, 2017 ³ Customer Acquisition Costs

10+ years of Positive Adjusted EBITDA & Operating Cash Flows

• Total Revenue $13.2M
• 91.4% Recurring Revenue
• 80.3% Gross Margin
• Dealer Sales Bookings Up 3.3%²
• Operating Cash Flow of $2.0M
• Total CAC³ ‐ 12.7 months
• Adjusted EBITDA Margin of 16.7%

Millions

Quarterly Recurring Revenue (QRR)

FY15

$5.0 $6.0 $7.0 $8.0 $9.0 $10.0 $11.0 $12.0 $13.0

FY16 FY17

Millions

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

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

$30.1 $40.4 $33.0

REVENUE GROWTH

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

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

$30.1 $33.0 $40.4 $47.7 89.7% 93.6% 90.2% 92.1% $49.7 92.6%

ADJUSTED EBITDA & CASH FLOW

FY = For the fiscal year ended July 31 Free Cash Flow = cash flow from operations less capital expenditures and capitalized software development

Millions $3.8 $4.4 $6.6 $8.5 $8.6 $2.4 $2.4 $6.3 $7.7 $8.6 ($0.1) ($0.0) $4.2 $4.9 $5.7

• $1.0

$0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0

FY13 FY14 FY15 FY16 TTM

Adjusted EBITDA Operating Cash Flow Free Cash Flow

12.7% 13.4% 16.3% 17.8% 17.3%

BALANCE SHEET HIGHLIGHTS¹

FY17 Q2 Cash and Investments: $4.6M Deferred Tax Assets² $3.8M Total Debt and Lease Obligations: $16.3M Shares Outstanding: 17.5M Stock Price³: $5.19 Market Cap.: $91.0M Enterprise Value: $102.7M TTM Enterprise Value/Adjusted EBITDA: 11.9x TTM Enterprise Value/Revenues: 2.1x

¹ As of and for the quarter ending January 31, 2017 ² Includes Federal NOL Carryforwards of $1.75M ³As of Market Close March 3, 2017

COMPANY OVERVIEW

Roy W. Olivier, President & CEO

$30.1 $33.0 $40.4 $47.7 $49.7

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

Millions

FY = Fiscal Year Ending July 31

Total Revenue

3 - 5 Year CAGR: 16 - 17%

REVENUE GROWTH

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

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 2.1 4.2 – 5.2 2.5 – 3.1 1.9 – 2.3 EV/EBITDA 11.9* 29.6 – 41.2 14.4 – 16.1 18.1 – 19.5

*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 T echnologies 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

434

Employees

APPENDIX 2: LOCATIONS

eCatalog Installs Website Installs

New Delhi, India

APPENDIX 3: BENEFICIAL OWNERSHIP¹

(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 warrants exercisable within 60 days of March 7, 2017. (2) Ownership information is provided as of the Schedule 13G/A filed February 9, 2017. (3) Ownership information is provided as of the Schedule 13G filed February 10, 2017. (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 October7, 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. (7) Ownership information is provided as of the Schedule 13G/A filed February 10, 2017. (8) Ownership information is provided as of the Schedule 13G filed February 2, 2017.

Name of Beneficial Owner Amount of Direct Beneficial Ownership (1) Percent Ownership Wellington Management Co (2) 1,509,294 8.61% Cowen Prime Services, LLC (3) 1,352,950 7.72% Michael D. Sifen, Inc. (4) 1,205,128 6.88% 12 West Capital Management LP (5) 1,020,000 5.82% Park City Capital, LLC (6) 1,000,000 5.71% Samjo Capital, LLC (7) 941,800 5.37% Grand Slam Asset Management (8) 877,404 5.01% All affilliates as a group 7,906,576 45.11%

APPENDIX 4: INSIDER OWNERSHIP¹

* 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 March 7, 2017. (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.

Name of Officer / Director Amount of Direct Beneficial Ownership (1) Percent Ownership Roy W. Olivier – President & CEO (2)(3) 888,946 4.97% William A. Nurthen –Chief Financial Officer (3) 189,806 * Robert A. Ostermann - Chief Technology Officer 181,567 * Chad J. Cooper - Director 170,666 * William H. Luden, III – Director 122,596 *

• P. Lee Poseidon –Director

118,415 * William C. Mortimore –Director 113,966 * Robert Y. Newell, IV - Director 101,346 * All current executive officers and directors as a group. 1,887,308 10.41%

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 10.41%

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 w orked 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 pow er vertical markets w hich 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 Northw estern 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 follow ing 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 Pow ersports 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 w ith 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