ARI Network Services (OTCBB: ARIS) has reported financial results for the second quarter of fiscal 2013 ended Jan. 31, 2013. The company also announced that it has entered into definitive agreements with various accredited investors in a private placement of $4.8 million of common stock at a price of $1.50 per share.

Highlights for the quarter included:

• On Nov. 28, 2012, the company acquired the assets of the retail division of 50 Below Sales & Marketing Inc., a leading provider of eCommerce websites to the powersports, automotive tire and wheel aftermarket, medical equipment and pool and spa industries. The acquisition brings with it more than 3,500 dealer websites, more than doubling the size of ARI’s website business and making websites the company’s largest source of revenue.
• Total revenue for the second quarter of fiscal 2013 increased 35.9 percent to $7.5 million, compared to $5.5 million in for the same period in fiscal 2012, primarily as a result of the acquisition.
• Recurring revenue for the quarter increased 41.9 percent to $6.6 million, or 88.3 percent of total revenue, from $4.7 million, or 84.6 percent of total revenue, for the same period in fiscal 2012.
• For the quarter ended Jan. 31, 2013, churn (the measure of customers that do not renew) improved approximately 28.4 percent compared to the same quarter last year.

Fiscal Year 2013 Second Quarter Financials

ARI reported revenue of $7.5 million for the second quarter of fiscal 2013 versus $5.5 million for the same period last year, an increase of 35.9 percent. Recurring revenue comprised approximately 88.3 percent of total revenue during the quarter and 86.0 percent of total year-to-date revenue in fiscal 2013, compared to 84.6 percent and 84.2 percent for the same periods last year.

Total operating expenses increased 55.0 percent to $6.3 million for the three months ended Jan. 31, 2013 compared with $4.1 million for the three months ended Jan. 31, 2012. This increase resulted primarily from the addition of the Ready2Ride and 50 Below operations. Of this increase, approximately $625,000 represents acquisition-related legal and professional fees. The company reported a loss from operations of $566,000 during the quarter, versus operating income last year of $170,000. This loss stems primarily from the acquisition-related fees as well as ongoing integration activities.

The company reported net income of $4,000, or $0.00 per share, for the quarter ended Jan. 31, 2013, compared to $61,000 or $0.01 per share for the same period last year. EBITDA, a non-GAAP measure, was $241,000 for the second quarter of fiscal 2013, compared to $935,000 for the same period last year.

Private Placement Transaction

The company entered into definitive agreements with various accredited investors in a private placement of approximately $4.8 million of common shares at a price of $1.50 per share. In addition, the company will issue to the investors warrants to purchase 1,066,667 shares of common stock. The warrants have an exercise price of $2 per share and are exercisable for five years.

New institutional investors accounted for the majority of the financing and existing investors made up the remainder. The signing of the purchase agreements occurred on Tuesday, March 12, 2013. The offering is expected to close on or about Monday, March 18, 2013, subject to satisfaction of customary closing conditions. Ascendiant Capital Markets LLC acted as the exclusive placement agent for the transaction.

The securities offered in this private placement have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws. Accordingly, the securities may not be offered or sold in the United States except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act of 1933 and such applicable state securities laws. The securities were offered only to accredited investors.

Management Discussion

Roy W. Olivier, president and chief executive officer of ARI, commented, “50 Below integration activities are well underway; this acquisition will be a game-changer for ARI. The integration of 50 Below into ARI makes us one of the leading providers of websites to the powersports market, and the addition of Ready2Ride’s aftermarket fitment data to our product offering makes ARI one of the most comprehensive providers of eCommerce solutions to the powersports industry. This acquisition also provides us with a footprint in the automotive aftermarket industry with more than 2,000 wheel and tire dealer websites.

“The recent acquisitions should rapidly facilitate the growth of the company, and the synergistic opportunities from integrating operations significantly enhance the scalability of the combined organization," he continued. "We expect both of these acquisitions to be accretive to earnings in fiscal 2014 and anticipate EBITDA returning to historical levels in fiscal 2015, as we continue to consolidate operations and further leverage our fixed operating cost structure. We remain very focused on our organic growth strategy as well and released numerous product upgrades and new features, including the roll-out of our new AccessorySmart aftermarket parts lookup solution, a first for the powersports industry. I am extremely excited with the future prospects for our organization.”

Added Darin Janecek, chief financial officer of ARI, “While our operating results will be affected over the remainder of fiscal 2013 from the acquisition-related legal and professional fees as well as ongoing integration activities, we anticipate significant year-over-year revenue growth from these acquisitions. We expect both the Ready2Ride and 50 Below acquisitions to be accretive to earnings in fiscal 2014 and anticipate additional revenue growth next year as well.”

With respect to the private placement transaction, Olivier commented, “We are also very pleased to announce this significant financing transaction, the proceeds of which will be used to pay down the debt used to finance our recent acquisitions. Reducing our debt structure to pre-acquisition levels will allow us to prioritize our efforts on integrating the acquired companies, which will position us to further advance our competitive position in the marketplace and opportunistically take advantage of strategic situations.”