·

Revenue increased for the 13th consecutive quarter to $13.4 million, which compares to $12.0 million for the same period last year, a 12.0% increase. Recurring revenue increased 11.6% to $12.3 million, compared to $11.1 million for the same period last year.

·

Operating income increased 61.5% to $1.5 million compared to $0.9 million in the prior year. The operating margin of 11.1% compares with a prior year margin of 7.7%.

·

Net income was $1.4 million or $0.08 per diluted share, an increase of over 200% compared to $0.4 million or $0.03 per diluted share in the same period last year. The Company completed a tax study in the quarter that produced tax research and development credits of $0.6 million, or $0.03 per share.

·

Adjusted EBITDA (a non-GAAP measure) was up 38.9% to a record $3.0 million, or 22.5% of revenue, compared to $2.2 million or 18.2% of revenue in the same period last year.

·

Cash generated from operations increased 24.1% to $3.2 million compared to $2.6 million in the same period last year.

·

Follow @ARI_Net on Twitter: twitter.com/ARI_Net

·

Become a fan of ARI on Facebook: www.facebook.com/ARInetwork

·

Join us on G+: plus.google.com/117293073211296447579

·

LinkedIn: linkedin.com/company/ari_2

·

Read more about ARI: investor.arinet.com/about-us



ARI Network Services, Inc.

Consolidated Statements of Operations

(Dollars in Thousands, Except per Share Data)

(Unaudited)





Three months ended April 30

Nine months ended April 30



2017

2016

2017

2016

Net revenue

$

$

$

$

Cost of revenue

Gross profit

Operating expenses:

Sales and marketing

Customer operations and support

Software development and technical support (net of capitalized software product costs)

General and administrative

Depreciation and amortization (exclusive of amortization of software product costs included in cost of revenue)

Net operating expenses

Operating income

Other income (expense):

Interest expense

Other, net

Total other income (expense)

Income before provision for income tax

Income tax expense

Net income

$

$

$

$



Weighted average common shares outstanding:

Basic

Diluted



Net income per common share:

Basic

$

$

$

$

Diluted

$

$

$

$





ARI Network Services, Inc.

Consolidated Balance Sheets

(Dollars in Thousands, Except per Share Data)





(Unaudited)

(Audited)



April 30

July 31



2017

2016

ASSETS

Cash and cash equivalents

$

$

Trade receivables, less allowance for doubtful accounts of $225

  and $211 at April 30, 2017 and July 31, 2016, respectively

Work in process

Prepaid expenses and other

Deferred income taxes

Total current assets

Equipment and leasehold improvements:

Computer equipment and software for internal use

Leasehold improvements

Furniture and equipment

          Total equipment and leasehold improvements

Less accumulated depreciation and amortization

Net equipment and leasehold improvements

Capitalized software product costs:

Amounts capitalized for software product costs

Less accumulated amortization

Net capitalized software product costs

Deferred income taxes

Other intangible assets

Goodwill

Total non-current assets

Total assets

$

$



LIABILITIES

Current portion of long-term debt

$

$

Current portion of contingent liabilities

Accounts payable

Deferred revenue

Accrued payroll and related liabilities

Accrued sales, use and income taxes

Other accrued liabilities

Current portion of capital lease obligations

Total current liabilities

Long-term debt

Long-term portion of contingent liabilities

Capital lease obligations

Other long-term liabilities

Total non-current liabilities

Total liabilities



SHAREHOLDERS' EQUITY

Cumulative preferred stock, par value $.001 per share, 1,000,000 shares authorized; 0 shares issued and outstanding at April 30, 2017 and July 31, 2016, respectively

 —

 —

Junior preferred stock, par value $.001 per share, 100,000 shares authorized; 0 shares issued and outstanding at April 30, 2017 and July 31, 2016, respectively

 —

 —

Common stock, par value $.001 per share, 25,000,000 shares authorized; 17,421,719 and  17,310,763 shares issued and outstanding at April 30, 2017 and July 31, 2016, respectively

Additional paid-in capital

Accumulated deficit

Other accumulated comprehensive income

Total shareholders' equity

Total liabilities and shareholders' equity

$

$



ARI Network Services, Inc.

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)



Nine months ended April 30



2017

2016

Operating activities:

Net income

$

$

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of software products

Amortization of deferred loan fees and imputed interest expense

Depreciation and other amortization

Gain on change in fair value of earn-out receivable and payable

 -

Provision for bad debt allowance

Deferred income taxes

Stock based compensation

Net change in assets and liabilities:

Trade receivables

Work in process, prepaid expenses and other

Accounts payable

Deferred revenue

Accrued payroll and related liabilities

Accrued taxes and other accrued liabilities

Net cash provided by operating activities

$

$

Investing activities:

Purchase of equipment, software and leasehold improvements

Cash paid for net assets related to acquisitions

 -

Cash paid for contingent liabilities related to acquisitions

Software development costs capitalized

Net cash used in investing activities

$

$

Financing activities:

Payments on long-term debt

$

$

Borrowings under long-term debt

 -

Payments of capital lease obligations

Proceeds from exercise of common stock options and warrants

Net cash provided by (used in) financing activities

$

$

Effect of foreign currency exchange rate changes on cash

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

$

$

Cash paid for interest

$

$

Cash paid for income taxes

$

$





ARI Network Services, Inc.

Reconciliation of Non-Gaap Measures



Earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA for the three, nine and twelve

months ended April 30, 2017 and 2016, respectively:



EBITDA:

FY2017

FY2016

FY2017

FY2016

FY2017

FY2016



Q3

Q3

YTD

YTD

TTM

TTM

Net Income (loss)

$

$

$

$

$

$

Interest

Amortization of software products

Other depreciation and amortization

Loss on debt extinguishment

 -

 -

 -

 -

 -

 -

Loss on FMV of Warrant Derivatives

 -

 -

 -

 -

 -

 -

Loss on impairment of long-lived assets

 -

 -

 -

 -

 -

 -

Income taxes

  EBITDA

$

$

$

$

$

$

Stock-based compensation

  Adjusted EBITDA

$

$

$

$

$

$





Earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA for the following fiscal quarters:



`

4/30/17

1/31/17

10/31/16

7/31/16

4/30/16

1/31/16

10/31/15

7/31/15



Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Quarterly:

2017

2017

2017

2016

2016

2016

2016

2015

Net Income (loss)

$

$

$

$

$

$

$

$

Interest

Amortization of software products

Other depreciation and amortization

Loss on debt extinguishment

 -

 -

 -

 -

 -

 -

 -

 -

Loss on FMV of Warrant Derivatives

 -

 -

 -

 -

 -

 -

 -

 -

Loss on impairment of long-lived assets

 -

 -

 -

 -

 -

 -

 -

 -

Income taxes

  EBITDA

$

$

$

$

$

$

$

$

Stock-based compensation

  Adjusted EBITDA

$

$

$

$

$

$

$

$



Trailing Twelve Months (TTM):

Net Income (loss)

$

`

$

$

$

$

$

$

Interest

Amortization of software products

Other depreciation and amortization

Loss on debt extinguishment

 -

 -

 -

 -

 -

 -

 -

 -

Loss on FMV of Warrant Derivatives

 -

 -

 -

 -

 -

 -

 -

 -

Loss on impairment of long-lived assets

 -

 -

 -

 -

 -

 -

 -

 -

Income taxes

  EBITDA

$

$

$

$

$

$

$

$

Stock-based compensation

  Adjusted EBITDA

$

$

$

$

$

$

$

$