ARI Reports First Profitable Year; Core Electronic Catalog Business Focus and Cost Control Drive Success
MILWAUKEE--Oct. 3, 2002--ARI (OTCBB:ARIS), a leading provider of electronic catalog-enabled business solutions that connect equipment manufacturers with their service and distribution networks today reported results for the fourth quarter and fiscal year ended July 31, 2002.The Milwaukee-based firm reported net income of $188,000 or $0.03 per share for fiscal 2002, compared to a net loss of $13.0 million or $2.11 per share in the previous fiscal year. Revenues for fiscal 2002 totaled $13.9 million, compared to revenues of $15.8 million in the previous fiscal year. EBITDA (earnings before interest, taxes, depreciation and amortization) for fiscal 2002 was $3.5 million, compared to negative $6.7 million in the prior year.
"We are very pleased to have achieved our first full year of profitable operations in a period that was marked by lower revenues and a difficult economy," said Brian E. Dearing, chairman and chief executive officer of ARI. "The fact that we were able to achieve four consecutive quarters of profitability clearly illustrates the viability of our business model and of our core electronic catalog business. Our success is primarily due to the 2001 restructuring in which we focused on our core catalog business and to our ability to continue to control costs. During fiscal 2002, we achieved cash expense savings of over $3.0 million and non-cash expense savings of over $2.4 million and produced operating income of $1.6 million. In addition, we were able to generate over $566,000 in cash in fiscal 2002, after paying down our debt principal by $808,000 during the year," Dearing said.
Dearing indicated that while sales slowed during fiscal 2002, a solid base of recurring revenues helped to stabilize results despite the lagging economy. "Recurring revenues accounted for over 80% of total annual revenues in fiscal 2002. Our recurring revenue stream is a predictable source of income that gives us a solid foundation for the future," Dearing said.
For the fourth quarter of fiscal 2002, ARI recorded net income of $73,000 or $0.01 per share, compared to a loss of $8.8 million or $1.42 per share in the prior fiscal year. Revenues for the fourth quarter of fiscal 2002 totaled $3.3 million, compared to revenues of $3.7 million in the previous fiscal year. EBITDA for the fourth quarter of fiscal 2002 was $894,000, compared to negative $7.2 million in the prior year's fourth quarter.
"Despite the continuing negative effects of the economic slowdown, we are guardedly optimistic about the future. Our long-term focus continues to be in the electronic catalog field, where we have an absolutely top-notch suite of products for both CD and Web catalogs as well as excellent catalog creation and maintenance services and software. Although we anticipate non-catalog-related revenues to continue to decline in the future, recurring revenues in our catalog business should enable us to continue to generate cash going forward. However, the problematic outlook for the manufacturing sector, when coupled with the seasonal nature of our business, could make it difficult for us to maintain full profitability in every quarter of the coming fiscal year," Dearing said.
ARI is a leading provider of electronic catalog-enabled business solutions for sales, service and life-cycle product support in the manufactured equipment market. ARI currently serves approximately 100 lines of manufactured equipment and 25,000 dealers in more than 100 countries in a dozen segments of the worldwide manufactured equipment market including outdoor power, recreation vehicle, floor maintenance, auto and truck parts aftermarket, power sports, marine and construction. The Company builds and supports a full suite of multi-media electronic catalog publishing and viewing software for the Web or CD and provides expert catalog publishing and consulting services. ARI e-Catalog systems support a variety of electronic pathways for parts orders, product registrations, warranty claims and other transactions between manufacturers and their networks of sales and service points. In addition, ARI provides a template-based dealer website service that makes it quick and easy for an equipment dealer to have a professional and attractive website. ARI currently operates three offices in the United States and one in Europe and has sales and service agents in Australia, England and France providing marketing and support of its products and services.
Fiscal 2002 Conference Call
ARI's Fiscal 2002 Conference Call is scheduled for Thursday, October 3, 2002 at 3:30 p.m. Central Time/4:30 p.m. Eastern Time. If you would like to participate on a listen-only basis, please dial in five to ten minutes prior to the starting time at 1-800-360-9865 (International callers dial 1-973-694-6836) and request to be connected to Brian Dearing's conference call. A rebroadcast will be available beginning at 5:30 p.m. CST, Thursday, October 3, 2002 by calling 1-800-428-6051 (International callers dial 1-973-709-2089) and entering passcode no. 262936. A replay of ARI's conference call as well as notes and financial information presented in the call will be available on ARI's website, www.arinet.com, after 6:00 p.m. Central Time on October 3.
Statements in this news release 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 under "Forward Looking Statements Disclosure" in Exhibit 99.1 of the Company's annual report on Form 10-K for fiscal year ended July 31, 2002 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 only 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.
ARI Network Services, Inc.
Statements of Operations
(In thousands, except per share data)
(Audited)
Three months Twelve months
ended ended
July 31 July 31
2002 2001 2002 2001
------- -------- ------- ---------
Net revenues:
Subscriptions, support and other
services fees $2,126 $2,368 $8,915 $9,985
Software licenses and renewals 593 842 2,721 3,266
Professional services 598 463 2,227 2,526
------- -------- ------- ---------
3,317 3,673 13,863 15,777
Operating expenses:
Cost of products and services
sold:
Subscriptions, support and other
services fees 206 471 387 1,740
Software licenses and renewals(a) 269 734 1,523 3,137
Professional services 112 186 738 1,359
------- -------- ------- ---------
587 1,391 2,648 6,236
Depreciation and amortization
(exclusive of amortization
of software products included
in cost of products and
services sold) 61 365 223 1,517
Customer operations and support 318 361 1,220 1,597
Selling, general and
administrative 1,661 1,950 6,835 8,790
Software development and technical
support 412 687 2,056 3,317
Restructuring and other charges - 7,766 - 7,766
------- -------- ------- ---------
Operating expenses before amounts
capitalized 3,039 12,520 12,982 29,223
Less capitalized portion (134) (476) (717) (1,972)
------- -------- ------- ---------
Net operating expenses 2,905 12,044 12,265 27,251
------- -------- ------- ---------
Operating income (loss) 412 (8,371) 1,598 (11,474)
Other income (expense)
Interest expense (353) (454) (1,435) (1,587)
Other, net 14 40 25 36
------- -------- ------- ---------
Total other expense (339) (414) (1,410) (1,551)
------- -------- ------- ---------
Net income (loss) $73 $(8,785) $188 $(13,025)
======= ======== ======= =========
Average common shares outstanding 6,257 6,184 6,215 6,175
Basic and diluted net income (loss)
per share $0.01 ($1.42) $0.03 ($2.11)
======= ======== ======= =========
(a) includes amortization of software products of $407, $742, $1,612
and $3,178 and excluding other depreciation and amortization shown
separately
ARI Network Services, Inc.
Balance Sheets
(In thousands, except share and per share data)
(Audited)
July 31 July 31
ASSETS 2002 2001
-------- ---------
Current Assets:
Cash $879 $313
Trade receivables, less allowance for doubtful
accounts of $140 at July 31, 2002 and $757
at July 31, 2001 1,743 2,084
Prepaid expenses and other 84 140
-------- ---------
Total Current Assets 2,706 2,537
Equipment and leasehold improvements:
Computer equipment 4,394 4,394
Leasehold improvements 73 239
Furniture and equipment 1,292 1,000
-------- ---------
5,759 5,633
Less accumulated depreciation and amortization 5,262 5,293
-------- ---------
Net equipment and leasehold improvements 497 340
Other assets 105 222
Capitalized software product costs 23,585 23,399
Less accumulated amortization 20,519 19,438
-------- ---------
Net capitalized software product costs 3,066 3,961
-------- ---------
Total Assets $6,374 $7,060
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable to shareholder $50 $333
Current portion of notes payable 3,490 2,902
Current portion of line of credit to shareholder - 200
RFC line of credit 360 469
Accounts payable 567 605
Deferred revenue 4,619 4,811
Accrued payroll and related liabilities 1,140 1,364
Other accrued liabilities 1,042 1,376
Current portion of capital lease obligations 151 173
-------- ---------
Total Current Liabilities 11,419 12,233
Long term liabilities:
Notes payable to shareholder - 15
Notes payable - 78
Capital lease obligations 26 158
Other long term liabilities 535 426
-------- ---------
Total Long Term Liabilities 561 677
Shareholders' equity (deficit):
Cumulative preferred stock, par value $.001 per
share, 1,000,000 shares authorized; 20,350
shares issued and outstanding at July 31, 2002
and July 31, 2001 - -
Common stock, par value $.001 per share,
25,000,000 shares authorized; 6,329,301 and
6,184,281 shares issued and outstanding at
July 31, 2002 and July 31, 2001, respectively 6 6
Common stock warrants and options 2,459 2,459
Additional paid-in-capital 91,853 91,797
Accumulated deficit (99,924) (100,112)
-------- ---------
Total Shareholders' Equity (Deficit) (5,606) (5,850)
-------- ---------
Total Liabilities and Shareholders' Equity
(Deficit) $6,374 $7,060
======== =========
ARI Network Services, Inc.
Statements of Cash Flows
(In thousands)
(Audited)
Twelve months ended
July 31
2002 2001
----------------
Operating activities
Net income (loss) $188 $(13,025)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization of network platform - 604
Amortization of software products 1,612 3,178
Amortization of goodwill 15 658
Amortization of deferred financing costs and
debt discount 973 963
Depreciation and other amortization 208 255
Restructuring and other charges - 7,766
Stock compensation expense - 2
Issuance of common stock as contribution to
401(K) plan 38 -
Net change in receivables, prepaid expenses and
other current assets 397 1,167
Net change in accounts payable, deferred revenue,
accrued liabilities and long term liabilities (788) 917
----------------
Net cash provided by operating activities 2,643 2,485
Investing activities
Purchase of equipment and leasehold improvements (341) (5)
Software product costs capitalized (717) (1,972)
----------------
Net cash used in investing activities (1,058) (1,977)
Financing activities
Borrowings (repayments) under line of credit (200) 200
Payments under notes payable (608) (795)
Payments of capital lease obligations (178) (147)
Debt issuance costs incurred (51) (30)
Proceeds from issuance of common stock 18 14
----------------
Net cash used in financing activities (1,019) (758)
----------------
Net increase (decrease) in cash 566 (250)
Cash at beginning of period 313 563
----------------
Cash at end of period $879 $313
================
Cash paid for interest $331 $532
================
Noncash investing and financing activities
Capital lease obligations incurred for:
Computer equipment $24 $154