INVESTOR PRESENTATION NASDAQ: ARIS FY15 ARI Network Services, Inc. - - PowerPoint PPT Presentation

INVESTOR PRESENTATION

NASDAQ: ARIS

FY15 ARI Network Services, Inc. | investor.arinet.com

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 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

• 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. 1

COMPANY OVERVIEW

Roy W. Olivier, President & CEO

ARI’S INVESTMENT HIGHLIGHTS

Strategic Financial

• Industry-leading provider of software tools and

marketing services

• Leader in solutions to help dealers, distributors and

OEMs in selected markets Sell More Stuff!

• #1 or #2 in all core markets served
• Dominant player in powersports, outdoor power and

marine markets with 40%+ market share

• Manage largest content library in markets served
• Attractive market opportunity
• Breadth of offering means no single competitor

competes across every vertical

• Recently entered new verticals that expand total

addressable market by 5X

• Multiple growth opportunities
• Expanded service offerings to grow both customer

base and average revenue per customer

• Europe and Asia remain largely untapped
• Consistent track record of growth and

profitability

• 22% revenue CAGR over last three years
• In FY15, Adjusted EBITDA and cash flow growth
• utpacing revenue growth
• Strong recurring revenue profile
• Roughly 90% of revenue is recurring
• Highly diversified customer base
• 22,000+ equipment dealers
• 195+ distributors
• 1,500+ manufacturers
• Profitable and Cash Flow Positive
• TTM Adjusted EBITDA margins of 16%
• Operational cash flow inline with Adjusted EBITDA
• Low capital intensity
• Strong free cash flow given low capital expenditure

requirements 3

WHAT DO WE DO? We 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

4

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

5

CONTENT THAT DRIVES COMMERCE

Aftermarket PG&A

1,400+ Manufacturers 500K Parts

Whole Goods

315 Manufacturers 176K Models

OEM Parts

120+ Manufacturers 500K Models 10MParts

MONETIZED VIA

Lead Gen Websites eCommerce Websites DaaS Digital Marketing Mobile Apps Business Management

6

HOW DO WE HELP?

CONTENT

OEM Parts

120+ Manufacturers 500K Models 10MParts

Aftermarket PG&A

1,400+ Manufacturers 500K Parts

Whole Goods

315 Manufacturers 176K Models 7

Improves productivity and profitability at Dealership

Business Management

POS / Inventory Mgmt. & Accounting SEM ORM SOCIAL EMAIL / TEXT

Digital Marketing

Leads for major units eCommerce sales Web Presence

Lead Gen & eCommerce Websites

eCatalogs

Increases sales in Dealership Improves customer satisfaction

BUSINESS MODEL

Business Mgmt. eCatalogs Lead Gen + eCommerce Websites

ARPD = Average Recurring Revenue Per Dealer Data as of and for the year ending July 31, 2015 ¹Does not include bulk customers

Digital Marketing

SaaS / Subscription

55% of Total Revenue ARPD: $3,000 Target Growth: 10% - 20% 34% of Total Revenue ARPD: $1,800¹ Target Growth: 2% - 4% 5% of Total Revenue New Offering with TCS Acquisition (Acquired 9/30/14) 3% of Total Revenue ARPD: $6,400

8

SERVICING MULTI-LINE DEALERS

Appliances Marine & RV Outdoor Power Wheel & Tire Powersports

9

GROWTH DRIVERS

All Markets

• New Logos
• Increase ARPD²
• Lower Churn
• Digital Marketing

Acquisitions that align with our strategy

¹Total addressable market represented by the green bars . Percentages represent ARI’s market share , or the percentage of U.S. dealers that currently use 1 or more of our

• products. For example, ARI currently has 40% market-share of the OPE vertical; with 40% of those dealers using 1 or more of ARI’s products.

²Average revenue per dealer ³Home Medical Equipment

66% 40% 90% 10%

25K dealers

MARKET SIZE

New Markets

• HME³
• Tire & Wheel
• Aftermarket Auto

Service

66% 40% 90% 10% 2% 17% 0%

25K dealers 125K dealers

10

HISTORICAL GROWTH

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Historical Revenue

Other

Non-Strategic Revenue Non-Recurring Revenue

• Pro Svcs
• Older Businesses

11

HISTORICAL GROWTH

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Historical Revenue

Other eCatalog

eCatalog

• $14M Revenue
• 16,000 +Dealers
• 100 Countries

12

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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Historical Revenue

Other eCatalog Website

Lead Gen/eCom Websites

• $22M Revenue
• 6,000 Websites

13

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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Historical Revenue

Other eCatalog Website Digital Marketing

Digital Marketing Services

• $1M Revenues
• 175 Customers

14

HISTORICAL GROWTH

¹Point of Sale 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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Historical Revenue

Other eCatalog Website Digital Marketing POS

Business Mgmt System/POS¹

• $2M Revenues
• 1,500 Locations

15

HISTORICAL GROWTH

¹Point of Sale 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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Other eCatalog Website Digital Marketing POS

Over $40 M in Revenue for FY15

16

RESULT OF STRATEGY

FY12 FY15 Revenues $22.5M $40.4M Sales & Marketing Spend 20.4% 25.8% Sales & Marketing Head Count 38 121 TAM in Dollars $100 Million $1.5+ Billion

TAM – Total Addressable Market FY12 results based on public filings; TAM based on 4 verticals and two products FY15 results based on public filings; TAM based on 7 verticals and four products 17

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 8.65%

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

• n 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

• perations 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

• f 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

18

FINANCIAL OVERVIEW

Bill Nurthen, CFO

MOST RECENT QUARTER HIGHLIGHTS¹

² YoY for the year ending July 31, 2015 ³ Customer Acquisition Costs

10 years of Positive Adjusted EBITDA & Operating Cash Flows

• Total Revenue $10.9M
• 90.1% Recurring Revenue
• 82.5% Gross Margin
• Dealer Sales Bookings Up 17.0%²
• Operating Cash Flow of $1.7M
• Total CAC³ ‐ 11.3 months
• Adjusted EBITDA Margin of 16.5%

Millions

Quarterly Recurring Revenue (QRR) FY 13 FY 14 FY 15

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

QRR 20

$0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0 FY11 FY12 FY13 FY14 FY15

Millions

FY = Fiscal Year Ending July 31

Recurring Revenue Total Revenue

5-yr Total Company Recurring Revenue Growth CAGR = 16.4%

$21.3 $22.5 $30.1 $40.4 81.7% $33.0

REVENUE GROWTH

83.2% 89.7% 93.6% 90.2%

21

• $1.0

$0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 FY11 FY12 FY13 FY14 FY15 Adjusted EBITDA Operating Cash Flow Free Cash Flow

$4.6 $3.8 $4.4 $6.6 Millions 24.4% 20.5% 12.7%

FY = Fiscal Year Ending July 31

13.4% 16.3%

ADJUSTED EBITDA & CASH FLOW

Includes $1.2M of acquisition- related costs. Integration related cost- reduction in FY14Q2, $2.5M annualized

$3.5 22 $5.2 $3.5 $2.4 $2.4 $6.3 $1.1 $1.1 ($0.1) $4.2

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

($0.0)

BALANCE SHEET HIGHLIGHTS¹

FY15 Cash and Investments: $2.3M Federal NOLs of $4.5M Total Debt and Lease Obligations: $10.8M Shares Outstanding: 17.1M Stock Price*: $3.96 Market Cap.: $67.7M Enterprise Value: $76.3M TTM Enterprise Value/Adjusted EBITDA: 11.6x TTM Enterprise Value/Revenues: 1.9x

¹ As of and for the year ending July 31, 2015 * As of Market Close 11/6/15

23

DCi ACQUISITION

Direct Communications Inc. (“DCi”) is a leading provider of differentiated product content and electronic parts catalog software serving manufacturers, distributors, jobbers and independent retailers in the $300 billion automotive aftermarket.

Date: 7/14/15 Consideration: $3.75M cash at closing $2.0M Seller Note (4 yrs., 4% interest to be adjusted based on working capital adjustment as defined in the Purchase Agreement) $0.5M equity (159,795 shares of ARI Common Stock) Funded: Primarily through proceeds from the May 2015 equity offering. Financial Commentary: Expected to add $4M to FY16 revenue and be accretive to FY16 adjusted EBITDA. 24

PEER GROUP ANALYSIS

Software Equity Group Multiples1

ARI2 SaaS Index3 Software Index4 Internet Index5 EV/Revenue 1.9 5.6 – 7.3 2.9 – 3.1 1.8 – 2.1 EV/EBITDA 11.6* 46.2 – 61.7 14.6 – 15.5 16.7 – 19.1

*Adjusted EBITDA

25

RECENT TRANSACTIONS

• Cox Acquires DealerTrack (TRAK) (6/15)

– 4.7x EV/Revenue – 36.1x EV/EBITDA – 60% Premium¹

• INCADEA (INCA) Acquired by DealerTrack (12/14)

– 3.0x TEV/Revenue – 19.3x TEV/EBITDA – 70% Premium²

26 ¹ Offer represents premium of 60% to 6/12/15 stock price. ² Offer represents premium of over 70% to 1 year average.

APPENDICES

YEAR

COMPANY PRODUCT VERTICAL 2015

DCi eCat Automotive Aftermarket

2015

TASCO Corporation Business Management Systems (“BMS”) Tire & Wheel

2014

TCS DMS, 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

APPENDIX 1: ACQUISITION HISTORY

28

# U.S. Dealers 4,700 11,000 3,100 30,000 2,000 18,000 25,000 80,000 ARI Website Customers 1,721 1,222 418 N/A 20 3,250** 490 ARI eCatalog Customers 4,200* 4,011* 3,000* 1,700* 20 N/A N/A ARI POS¹ Customers 1,500²

*total number is approximate and includes a large bulk customer’s estimates ** includes TCS acquisition ¹ Point of Sale ² Total number of physical location rooftops

Powersports Outdoor Power Marine RV Appliances CORE Tire & Wheel HME GROWTH

APPENDIX 2: TOTAL ADDRESSABLE MARKET (TAM)

Aftermarket Auto Service

29

3 Sales Channels

• OEM Sales
• Dealer Inside Sales
• International Sales

100

Over Countries Served

2 Geographic Markets

Americas & EMEA

Headquarters Milwaukee, WI Int’l Sales/Support The Netherlands

387

Employees

*

*includes DCi, TCS & TASCO acquisitions

APPENDIX 3: LOCATIONS

eCatalog Installs Website Installs

30

APPENDIX 4: BENEFICIAL OWNERSHIP¹

Amount of Beneficial Ownership1 Percent Ownership

Wellington Management Company (2) 1,725,300 9.65% Michael D. Sifen, Inc. (3) 1,205,128 6.74% Samjo Capital, LLC (4) 1,100,000 6.15% Park City Capital, LLC (5) 1,000,000 5.59% Grand Slam Asset Management, LLC (6) 945,861 5.29% All affiliates as a group 5,976,28 33.43%

31

• ffering.

• ffering.

APPENDIX 5: INSIDER OWNERSHIP¹

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

Roy W. Olivier (2)(3) – President & CEO 856,645 4.79% William A. Nurthen (3) – Chief Financial Officer 151,215 * Chad J. Cooper – Director 138,040 * William C. Mortimore – Director 107,726 * William H. Luden, III – Director 95,315 * Robert Y. Newell, IV - Director 80,826 *

• P. Lee Poseidon – Director

60,064 * Marvin A. Berg, III (4) – VP Operations 55,636 * All current executive officers and directors as a group 1,545,467 8.65%

32

* Denotes less than 1%

APPENDIX 6: COMPETITIVE LANDSCAPE

eCatalogs Lead Gen + eCommerce Websites Business Management Digital Marketing

33

APPENDIX 7: COMPANY ANNOUNCES PRICING OF UNDERWRITTEN OFFERING ALIGNED WITH ITS ACQUISITION STRATEGY

ARI communicated its intention 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.

Date: 5/7/2015 Shares: 1,760,000 Price: $3.00 Gross Proceeds: $5.3M Net Proceeds: $4.8M

34

APPENDIX 8: TASCO ACQUISITION

TASCO Corporation (“TASCO”), is a leading provider of business management, point of sale and other software exclusively designed for automotive tire and wheel dealers (“T&W”).

Date: 4/28/15 Consideration: $1.75M cash at closing $800K equity (242,424 shares ARI Common Stock) $200K cash payment on anniversary of transaction (subject to set-off & working capital adjustment) Funded: Cash from operations & Line of Credit with Silicon Valley Bank

Consolidates two industry-leading business management software platforms cementing ARI’s position as the most complete technology provider in the T&W market.

35

APPENDIX 9: TCS ACQUISITION

Tire Company Solutions, LLC (“TCS”), a leading provider of software, websites and marketing services designed exclusively for automotive tire and wheel dealers.

Date: 10/1/14 Consideration: $4.2M cash at closing $3.0M Seller Note $1.9M equity (619K shares of ARI Common Stock) Earn-out (to be paid contingent upon specified revenue goals) Funded: Combination of refinancing Senior Debt with Silicon Valley Bank, our Line of Credit and cash from operations. 36