Record Revenues and Cash Provided by Operating Activities

WATERLOO, Ontario, Nov. 30, 2016 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2017 third quarter (Q3FY17) ended October 31, 2016. All financial results referenced are in United States (US) currency and, unless otherwise indicated, are determined in accordance with US Generally Accepted Accounting Principles (GAAP).

“This quarter’s record revenues and cash provided by our operations reflects Descartes’ focus on delivering strong financial performance,” said Edward J. Ryan, Descartes’ CEO. “We believe that Descartes’ strong margins continue to demonstrate the leverage in our business model and the stability of the Global Logistics Network to efficiently deliver quality services to all our global participants. We have a solid platform for continued growth and acquisitions, with a track record of execution, capital capacity and opportunities to continue or accelerate our pace of profitable growth.”

Q3FY17 Financial Results
As described in more detail below, key financial highlights for Descartes in Q3FY17 included:

  • Revenues of $51.5 million, up 9% from $47.4 million in the third quarter of fiscal 2016 (Q3FY16) and up 2% from $50.5 million in the previous quarter (Q2FY17);
  • Revenues were comprised of license revenues of $2.1 million and services revenues (non-license) of $49.4 million. Services revenues were up 9% from $45.5 million in Q3FY16 and up 2% from $48.6 million in Q2FY17. Services revenues comprised 96% of total revenues for the quarter;
  • Cash provided by operating activities of $20.5 million, up 53% from $13.4 million in Q3FY16 and up 23% from $16.6 million in Q2FY17;
  • Net income of $5.9 million, up 13% from $5.2 million in Q3FY16 and up 2% from $5.8 million in Q2FY17. Net income as a percentage of revenues was 11%, compared to 11% in Q3FY16 and 11% in Q2FY17;
  • Earnings per share on a diluted basis of $0.08, up 14% from $0.07 in Q3FY16 and consistent with Q2FY17; and
  • Adjusted EBITDA of $17.8 million, up 13% from $15.8 million in Q3FY16 and up 3% from $17.2 million in Q2FY17. Adjusted EBITDA as a percentage of revenues was 35%, up from 33% in Q3FY16 and up from 34% in Q2FY17.

Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues are non-GAAP financial measures provided as a complement to financial results presented in accordance with GAAP. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, stock-based compensation (for which we include related fees and taxes) and other charges (for which we include restructuring charges and acquisition-related expenses). These items are considered by management to be outside Descartes' ongoing operational results. We define Adjusted EBITDA as a percentage of revenues as the quotient, expressed as a percentage, from dividing Adjusted EBITDA for a period by revenues for the corresponding period. A reconciliation of Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues to net income determined in accordance with GAAP is provided later in this release.

The following table summarizes Descartes' results in the categories specified below over the past 5 fiscal quarters (unaudited; dollar amounts, other than per share amounts, in millions):

 Q3
FY17
Q2
FY17
Q1
FY17
Q4
FY16
Q3
FY16
Revenues 51.5  50.5  48.9  48.0  47.4 
Services revenues 49.4  48.6  47.5  46.3  45.5 
Gross margin 73% 73% 72% 72% 72%
Cash provided by operating activities 20.5  16.6  15.9  16.2  13.4 
Net income 5.9  5.8  6.0  5.4  5.2 
Net income as a % of revenues 11% 11% 12% 11% 11%
Earnings per diluted share 0.08  0.08  0.08  0.07  0.07 
Adjusted EBITDA 17.8  17.2  16.6  16.3  15.8 
Adjusted EBITDA as a % of revenues 35% 34% 34% 34% 33%
    

Year-to-Date Financial Results

As described in more detail below, key financial highlights for Descartes’ nine-month period ended October 31, 2016 (9MFY17) included:

  • Revenues of $151.0 million, up 10% from $137.0 million in the same period a year ago (9MFY16);
  • Revenues were comprised of license revenues of $5.5 million and services revenues (non-license) of $145.5 million. Services revenues were up 12% from $130.0 million in 9MFY16. Services revenues comprised 96% of total revenues for 9MFY17;
  • Cash provided by operating activities of $53.0 million, up 39% from $38.0 million in 9MFY16;
  • Net income of $17.7 million, up 16% from $15.2 million in 9MFY16. Net income as a percentage of revenues was 12%, up from 11% in 9MFY16;
  • Earnings per share on a diluted basis of $0.23, up 15% from $0.20 in 9MFY16; and
  • Adjusted EBITDA of $51.6 million, up 16% from $44.6 million in 9MFY16. Adjusted EBITDA as a percentage of revenues was 34%, up from 33% in 9MFY16.

The following table summarizes Descartes’ results in the categories specified below over 9MFY17 and 9MFY16 (unaudited, dollar amounts in millions):

 9MFY17 9MFY16
Revenues 151.0    137.0 
Services revenues 145.5    130.0 
Gross margin 73%   71%
Cash provided by operating activities 53.0    38.0 
Net income 17.7    15.2 
Net income as a % of revenues 12%   11%
Earnings per diluted share 0.23    0.20 
Adjusted EBITDA 51.6    44.6 
Adjusted EBITDA as a % of revenues 34%   33%
         

Cash Position
At October 31, 2016, Descartes had $77.9 million in cash. Cash has increased $8.3 million in Q3FY17 and $40.7 million in 9MFY17 primarily due to strong cash flow provided by operating activities.

The table set forth below provides a summary of cash flows for Q3FY17 and 9MFY17 in millions of dollars:

 Q3FY17   9MFY17 
Cash provided by operating activities 20.5    53.0 
Purchase of marketable securities -    (0.2)
Sale of marketable securities -    6.1 
Additions to property and equipment (1.0)   (4.0)
Acquisition of subsidiaries, net of cash acquired (5.7)   (16.4)
Proceeds from borrowing on credit facility -    10.8 
Credit facility repayments (4.6)   (7.0)
Payment of debt issuance costs -    (0.9)
Issuance of common shares, net of issuance costs   (0.1)     (0.1)
Effect of foreign exchange rate on cash (0.8)   (0.6)
Net change in cash 8.3    40.7 
Cash, beginning of period   69.6      37.2 
Cash, end of period 77.9    77.9 
         

Acquisition of Appterra
On October 12, 2016, Descartes acquired Appterra, a leading US-based provider of cloud-based business-to-business ("B2B") supply chain integration solutions. The company's solutions help its customers connect electronically, automate supply chain processes, and enhance collaboration and visibility among global trading partners. Descartes acquired Appterra for up-front consideration of $USD 5.8 million, plus potential performance-based consideration.  The maximum amount payable under the all-cash performance-based earn-out is $USD 1.6 million, based on Appterra achieving revenue-based targets in each of the first two years post-acquisition. Any earn-out is expected to be paid in fiscal 2018 and fiscal 2019.

Acquisition of 4Solutions
On November 11, 2016, Descartes acquired 4Solutions, a leading Australia-based provider of cloud-based B2B supply chain integration solutions. 4Solutions operates the Health Supply Network, Australia's foremost electronic document exchange network for the healthcare community. The purchase price for the acquisition was approximately AUD 3.5 million (approximately USD $2.7 million at November 11, 2016), which was paid in cash.

Conference Call
Members of Descartes' executive management team will host a conference call to discuss the company's financial results at 5:00 p.m. ET on Wednesday, November 30. Designated numbers are +1 888 465-5079 for North America and +1 416 216-4169 for international, using Passcode 7886874#.

The company will simultaneously conduct an audio webcast on the Descartes Web site at www.descartes.com/descartes/investor-relations. Phone conference dial-in or webcast log-in is required approximately 10 minutes beforehand.

Replays of the conference call will be available following the call from 8:00 p.m. ET, and until December 7, 2016, by dialing +1 888 843-7419 or +1 630 652-3042 followed by Passcode 7886874#. An archived replay of the webcast will be available at www.descartes.com/descartes/investor-relations.

About Descartes
Descartes (Nasdaq:DSGX) (TSX:DSG) is the global leader in providing on-demand, software-as-a-service solutions focused on improving the productivity, performance and security of logistics-intensive businesses. Customers use our modular, cloud-based solutions to route, schedule, track and measure delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access global trade data; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in the world's largest, collaborative multimodal logistics community. Our headquarters are in Waterloo, Ontario, Canada and we have offices and partners around the world. Learn more at www.descartes.com.

Safe Harbor Statement
This release contains forward-looking information within the meaning of applicable securities laws ("forward-looking statements") that relates to Descartes' growth in margins; continued growth and acquisitions; rate of profitable growth; demand for Descartes' solutions; growth of Descartes' Global Logistics Network; and other matters. These forward-looking statements are based on certain assumptions including the following: global shipment volumes continuing to increase at levels consistent with the average growth rates of the global economy; countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports; countries continuing to implement and enforce existing and additional trade restrictions and sanctioned party lists with respect to doing business with certain countries, organizations, entities and individuals; Descartes' continued operation of a secure and reliable business network; the stability of general economic and market conditions, currency exchange rates, and interest rates; equity and debt markets continuing to provide Descartes with access to capital; Descartes' continued ability to identify and source attractive and executable business combination opportunities; Descartes' ability to develop solutions that keep pace with the continuing changes in technology, and our continued compliance with third party intellectual property rights. These assumptions may prove to be inaccurate. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Descartes, or developments in Descartes' business or industry, to differ materially from the anticipated results, performance or achievements or developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to, Descartes' ability to successfully execute on acquisitions and to integrate acquired businesses and assets, and to predict expenses associated with and revenues from acquisitions; the ability to attract and retain key personnel and the ability to manage the departure of key personnel and the transition of our executive management team; changes in trade or transportation regulations that currently require customers to use services such as those offered by Descartes; the impact on Descartes' business of the global economic downturn; departures of key customers; the impact of foreign currency exchange rates; Descartes' ability to retain or obtain sufficient capital in addition to its debt facility to execute on its business strategy, including its acquisition strategy; disruptions in the movement of freight; the potential for future goodwill or intangible asset impairment as a result of other-than-temporary decreases in Descartes' market capitalization; and other factors and assumptions discussed in the section entitled, "Certain Factors That May Affect Future Results" in documents filed with the Securities and Exchange Commission, the Ontario Securities Commission and other securities commissions across Canada, including Descartes' most recently filed Management's Discussion and Analysis. If any such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price of our common shares could decline, perhaps materially. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

Reconciliation of Non-GAAP Financial Measures - Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues

We prepare and release quarterly unaudited and annual audited financial statements prepared in accordance with GAAP. We also disclose and discuss certain non-GAAP financial information, used to evaluate our performance, in this and other earnings releases and investor conference calls as a complement to results provided in accordance with GAAP. We believe that current shareholders and potential investors in our company use non-GAAP financial measures, such as Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues, in making investment decisions about our company and measuring our operational results.

The term “Adjusted EBITDA” refers to a financial measure that we define as earnings before certain charges that management considers to be non-operating expenses and which consist of interest, taxes, depreciation, amortization, stock-based compensation (for which we include related fees and taxes) and other charges (for which we include restructuring charges and acquisition-related expenses). Adjusted EBITDA as a percentage of revenues divides Adjusted EBITDA for a period by the revenues for the corresponding period and expresses the quotient as a percentage.

Management considers these non-operating expenses to be outside the scope of Descartes’ ongoing operations and the related expenses are not used by management to measure operations. Accordingly, these expenses are excluded from Adjusted EBITDA, which we reference to both measure our operations and as a basis of comparison of our operations from period-to-period. Management believes that investors and financial analysts measure our business on the same basis, and we are providing the Adjusted EBITDA financial metric to assist in this evaluation and to provide a higher level of transparency into how we measure our own business. However, Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues are non-GAAP financial measures and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues should not be construed as a substitute for net income determined in accordance with GAAP or other non-GAAP measures that may be used by other companies, such as EBITDA. The use of Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues does have limitations. In particular, we have completed eleven acquisitions since the beginning of fiscal 2015, and may complete additional acquisitions in the future that will result in acquisition-related expenses and restructuring charges. As these acquisition-related expenses and restructuring charges may continue as we pursue our consolidation strategy, some investors may consider these charges and expenses as a recurring part of operations rather than expenses that are not part of operations.

The table below reconciles Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues to net income reported in our unaudited Consolidated Statements of Operations for Q3FY17, Q2FY17, Q1FY17, Q4FY16 and Q3FY16, which we believe is the most directly comparable GAAP measure.

(US dollars in millions)Q3FY17    Q2FY17    Q1FY17    Q4FY16    Q3FY16
Net income, as reported on Consolidated Statements of Operations 5.9  5.8  6.0  5.4  5.2 
Adjustments to reconcile to Adjusted EBITDA:     
Interest expense 0.2  0.2  0.1  0.1  0.1 
Investment income (0.1) (0.8) (0.5) -  - 
Income tax expense 1.8  2.0  1.9  1.4  1.9 
Depreciation expense 1.0  0.9  0.7  1.1  0.8 
Amortization of intangible assets 7.5  7.6  7.2  7.3  6.9 
Stock-based compensation and related taxes 0.5  0.7  0.5  0.4  0.5 
Acquisition-related expenses 0.6  0.8  0.7  0.6  0.4 
Restructuring charges 0.4  -  -  -  - 
Adjusted EBITDA 17.8  17.2  16.6  16.3  15.8 
      
Revenues 51.5  50.5  48.9  48.0  47.4 
Net income as % of revenues 11% 11% 12% 11% 11%
Adjusted EBITDA as % of revenues 35% 34% 34% 34% 33%
                

The table below reconciles Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues to net income reported in our unaudited Consolidated Statements of Operations for 9MFY17 and 9MFY16, which we believe is the most directly comparable GAAP measure.

(US dollars in millions)   9MFY179MFY16
Net income, as reported on Consolidated Statements of Operations    17.7  15.2 
Adjustments to reconcile to Adjusted EBITDA:     
Interest expense    0.5  0.4 
Investment income    (1.4) (0.2)
Income tax expense    5.8  5.8 
Depreciation expense    2.6  2.3 
Amortization of intangible assets    22.2  18.9 
Stock-based compensation and related taxes    1.7  1.3 
Acquisition-related expenses    2.1  0.8 
Restructuring charges    0.4  0.1 
Adjusted EBITDA    51.6  44.6 
      
Revenues    151.0  137.0 
Net income as % of revenues    12% 11%
Adjusted EBITDA as % of revenues    34% 33%
          

THE DESCARTES SYSTEMS GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED)

Year Ended  October 31,January 31,
  2016  2016 
ASSETS  
CURRENT ASSETS  
Cash 77,925  37,213 
Short-Term marketable securities -  4,639 
Accounts receivable (net)  
Trade 23,896  25,614 
Other 2,875  3,131 
Prepaid expenses and other 4,574  4,205 
Inventory 163  155 
  109,433  74,957 
OTHER LONG-TERM ASSETS 1,548  468 
PROPERTY AND EQUIPMENT, NET 10,447  8,604 
DEFERRED INCOME TAXES 15,044  16,804 
DEFERRED TAX CHARGE 515  906 
INTANGIBLE ASSETS, NET 122,051  133,562 
GOODWILL 226,753  217,486 
  485,791  452,787 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
CURRENT LIABILITIES  
Accounts payable 5,207  4,473 
Accrued liabilities 21,365  16,844 
Income taxes payable 1,569  2,086 
Deferred revenue 17,913  16,639 
  46,054  40,042 
LONG-TERM DEBT 3,290  - 
LONG-TERM DEFERRED REVENUE 1,231  941 
LONG-TERM INCOME TAXES PAYABLE 4,618  3,672 
DEFERRED INCOME TAXES 8,928  6,097 
  64,121  50,752 
   
SHAREHOLDERS’ EQUITY  
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 75,818,684 at October 31, 2016 (January 31, 2016 – 75,761,184) 252,868  252,471 
Additional paid-in capital 448,133  446,747 
Accumulated other comprehensive loss (34,776) (34,880)
Accumulated deficit (244,555) (262,303)
  421,670  402,035 
  485,791  452,787 
       

THE DESCARTES SYSTEMS GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND WEIGHTED AVERAGE SHARE AMOUNTS; US GAAP; UNAUDITED)

 Three Months Ended Nine Months Ended
 October 31,October 31, October 31,October 31,
  2016  2015   2016  2015 
      
REVENUES 51,536  47,360   150,963  136,956 
COST OF REVENUES 13,935  13,416   41,409  40,288 
GROSS MARGIN 37,601  33,944   109,554  96,668 
EXPENSES     
Sales and marketing 6,649  5,549   18,668  16,172 
Research and development 8,925  8,082   26,619  23,026 
General and administrative 5,713  5,897   17,003  16,511 
Other charges 1,038  384   2,511  914 
Amortization of intangible assets 7,443  6,936   22,171  18,906 
  29,768  26,848   86,972  75,529 
INCOME FROM OPERATIONS 7,833  7,096   22,582  21,139 
INTEREST EXPENSE (187) (120)  (481) (399)
INVESTMENT INCOME 62  28   1,363  174 
INCOME BEFORE INCOME TAXES 7,708  7,004   23,464  20,914 
INCOME TAX EXPENSE     
Current 1,408  662   3,180  1,371 
Deferred 369  1,113   2,536  4,341 
  1,777  1,775   5,716  5,712 
NET INCOME 5,931  5,229   17,748  15,202 
EARNINGS PER SHARE     
Basic 0.08  0.07   0.23  0.20 
Diluted 0.08  0.07   0.23  0.20 
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)     
Basic 75,816  75,633   75,790  75,539 
Diluted 76,538  76,421   76,484  76,391 
              

THE DESCARTES SYSTEMS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED)

 Three Months Ended Nine Months Ended
 October 31,October 31, October 31,October 31,
  2016  2015  2016  2015 
OPERATING ACTIVITIES    
Net income 5,931  5,229  17,748  15,202 
Adjustments to reconcile net income to cash provided by operating activities:    
Depreciation 951  846  2,564  2,276 
Amortization of intangible assets 7,443  6,936  22,171  18,906 
Stock-based compensation expense 541  395  1,483  1,192 
Other non-cash operating activities 2  295  (1,439) 295 
Deferred tax expense 369  1,113  2,536  4,341 
Deferred tax charge 128  48  265  136 
Changes in operating assets and liabilities:    
Accounts receivable    
Trade 834  (385) 2,211  1,202 
Other 27  (63) 284  294 
Prepaid expenses and other 507  716  61  259 
Inventory 6  12  5  113 
Accounts payable 1,218  1,476  712  125 
Accrued liabilities 2,541  (340) 2,857  (906)
Income taxes payable (160) 240  452  (1,634)
Deferred revenue 177  (3,139) 1,127  (3,804)
Cash provided by operating activities 20,515  13,379  53,037  37,997 
INVESTING ACTIVITIES    
Purchase of marketable securities -  (3,943) (241) (3,943)
Sale of marketable securities -  -  6,140  - 
Additions to property and equipment (1,023) (1,167) (3,999) (3,432)
Acquisition of subsidiaries, net of cash acquired (5,703) -  (16,351) (91,437)
Cash (used in) investing activities (6,726) (5,110) (14,451) (98,812)
FINANCING ACTIVITIES    
Proceeds from borrowing on the credit facility -  -  10,801  - 
Credit facility repayments (4,568) -  (6,982) - 
Payment of debt issuance costs (15) -  (937) - 
Issuance of common shares for cash, net of issuance costs (81) 62  (59) 153 
Settlement of stock options -  (2,590) -  (2,590)
Cash (used in) provided by financing activities (4,664) (2,528) 2,823  (2,437)
Effect of foreign exchange rate changes on cash (844) 42  (697) (1,846)
Increase (decrease) in cash 8,281  5,783  40,712  (65,098)
Cash, beginning of period 69,644  47,172  37,213  118,053 
Cash, end of period 77,925  52,955  77,925  52,955 

 

Descartes Investor Contact: 
Laurie McCauley +1-519-746-6114 x202358 
investor@descartes.com