ARI reports 3Q sales boost but income loss

MILWAUKEE (June 13, 2013) — Software, website and data solutions provider ARI Network Services Inc. reported a 44-percent jump in sales for its third quarter of fiscal 2013 ended April 30 but sustained a loss in income for the period.

ARI said total revenue for the quarter was $8.2 million, a 44-percent increase over the $5.7 million in sales for the same period last year. The Milwaukee-based firm also reported that recurring revenue for the quarter increased 60.1 percent to $7.7 million—or 93 percent of total revenue—from $4.8 million—or 83.7 percent of total revenue—for the same period in fiscal 2012. Gross margin for the third quarter was 77.1 percent, vs. 75.9 percent for the same period last year.

However, the company reported it incurred a net loss of $571,000—or $0.05 per share—for the quarter ended April 30 compared to net income of $210,000 or $0.03 per share for the same period last year. It chalked up the loss primarily to a non-cash loss of $682,000 related to the early repayment of debt and a $420,000 impairment charge to a long-lived asset.

On Nov. 28, 2012, the company acquired the assets out of bankruptcy of the retail division of 50 Below Sales & Marketing Inc., a provider of e-commerce websites to the powersports, automotive tire and wheel aftermarket and medical equipment industries. ARI said the 50 Below operation generated an operating profit during the quarter, though it did not specify the earnings.

Additionally, ARI said that it entered into agreements in March with various accredited investors in a private placement of $4.8 million (3.2 million shares) of its common stock at a purchase price of $1.50 per share. The company also issued warrants to purchase 1.1 million shares at a price per share of $2. The funds raised in the private placement were used to pay down a substantial portion of ARI's outstanding debt.

In April the firm closed new senior secured credit facilities with Silicon Valley Bank that included a $4.5 million term loan and a $3 million revolving credit facility. The proceeds from that transaction were used to pay down the remaining portion of the company's outstanding debt with Fifth Third Bank and with a shareholder, according to ARI.

Roy W. Olivier, ARI's president and CEO, said the company is "pleased with the progress we have made integrating our two fiscal 2013 acquisitions. We were able to generate a profit from the 50 Below operation in the second quarter of our ownership. For the most recent fiscal year prior to the acquisition ended July 31, 2012, the 50 Below operations lost approximately $4 million on $9 million revenue."

He said integration activities will continue over the next nine to 12 months "and we expect the 50 Below operations, as well as our combined operations, to become increasingly more profitable."

The company hosts and maintains more than 5,500 websites, Mr. Olivier continued, "and we expect this number to continue to grow. Our new AccessorySmart aftermarket parts lookup solution, which is a first of its kind in the powersports industry, continues to gain traction in the marketplace after its February launch. We have also launched significant improvements to our products aimed at the automotive wheel and tire aftermarket—a market for which we have significant growth expectations."

Darin Janecek, chief financial officer of ARI, noted that while the company's fiscal 2013 operating results "continue to be affected by the various events and one-time charges that have occurred year-to-date, including two acquisitions, a $4.8 million private placement, and a debt refinancing and transition to a new banking partner, we do expect a return to profitability in the fourth quarter and anticipate further revenue growth and increased profitability in fiscal 2014."