Record Revenues and Income from Operations

WATERLOO, Ontario, May 29, 2019 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2020 first quarter (Q1FY20). 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).

“Our customers continue to benefit from our investments that have expanded the Global Logistics Network with new technologies, content and trading partners,” said Edward J. Ryan, Descartes’ CEO. “Our customers are passionate about sharing their many ideas on acquisitions and enhanced solutions that can benefit the broader GLN community. So, we remain focused on operating a business with strong margins and that generates cash to make these types of investments possible.”

Q1FY20 Financial Results
As described in more detail below, key financial highlights for Descartes’ Q1FY20 included:

  • Revenues of $78.0 million, up 16% from $67.0 million in the first quarter of fiscal 2019 (Q1FY19) and up 10% from $71.0 million in the previous quarter (Q4FY19);
  • Revenues were comprised of services revenues of $67.0 million (86% of total revenues), professional services and other revenues of $8.7 million (11% of total revenues) and license revenues of $2.3 million (3% of total revenues). Services revenues were up 16% from $57.8 million in Q1FY19 and up 7% from $62.9 million in Q4FY19;
  • Cash provided by operating activities of $23.4 million, up 24% from $18.9 million in Q1FY19 and up 7% from $21.8 million in Q4FY19;
  • Income from operations of $11.9 million, up 21% from $9.8 million in Q1FY19 and up 12% from $10.6 million in Q4FY19;
  • Net income of $7.3 million, up 4% from $7.0 million in Q1FY19 down from $7.9 million in Q4FY19. Q1FY20 included $1.7 million in additional interest charges over Q4FY19 primarily as a result of incremental borrowing under the credit facility to complete the acquisition of Visual Compliance, which transaction is described further below. Net income as a percentage of revenues was 9%, compared to 10% in Q1FY19 and 11% in Q4FY19;
  • Earnings per share on a diluted basis of $0.09, compared to $0.09 in Q1FY19 and $0.10 in Q4FY19; and
  • Adjusted EBITDA of $28.7 million, up 30% from $22.1 million in Q1FY19 and up 15% from $25.0 million in Q4FY19. Adjusted EBITDA as a percentage of revenues was 37%, compared to 33% in Q1FY19 and 35% in Q4FY19.

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):

 Q1
FY20
 Q4
FY19
 Q3
FY19
 Q2
FY19
 Q1
FY19
 
Revenues78.0 71.0 70.0 67.1 67.0 
Services revenues67.0 62.9 61.1 59.7 57.8 
Gross margin74% 73% 73% 73% 72% 
Cash provided by operating activities23.4 21.8 19.2 18.2 18.9 
Income from operations11.9 10.6 10.8 10.1 9.8 
Net income7.3 7.9 7.9 8.5 7.0 
Net income as a % of revenues9% 11% 11% 13% 10% 
Earnings per diluted share0.09 0.10 0.10 0.11 0.09 
Adjusted EBITDA28.7 25.0 24.0 22.8 22.1 
Adjusted EBITDA as a % of revenues37% 35% 34% 34% 33% 

Cash Position
At April 30, 2019, Descartes had $29.6 million in cash. Cash increased $2.3 million in Q1FY20 primarily due to cash provided from operations partially offset by credit facility repayments. The table set forth below provides a summary of cash flows for Q1FY20 in millions of dollars:

 Q1FY20
Cash provided by operating activities23.4 
Additions to property and equipment(1.4)
Acquisitions of subsidiaries, net of cash acquired(239.8)
Proceeds from borrowing on credit facility241.2 
Credit facility repayments(19.9)
Payment of debt issuance costs  (1.4)
Issuance of common shares, net of issuance costs0.7 
Effect of foreign exchange rate on cash(0.5)
Net change in cash  2.3 
Cash, beginning of period27.3 
Cash, end of period29.6 

Acquisition of Visual Compliance
On February 12, 2019, Descartes acquired substantially all of the assets of the businesses run by the Management Systems Resources Inc. group of companies (collectively, “Visual Compliance”), a provider of software solutions and services to automate customs, trade and fiscal compliance processes including denied and restricted party screening processes and export licensing. The purchase price for the acquisition was approximately $248.9 million (CAD $330 million), net of cash acquired, which was funded from a combination of drawing on Descartes’ existing credit facility and issuing to the sellers 0.3 million Descartes common shares from treasury.

Acquisition of CORE
On May 10, 2019, Descartes acquired CORE Transport Technologies NZ Limited (“CORE”), an electronic transportation network that provides global air carriers and ground handlers with shipment scanning and tracking solutions. The purchase price for the acquisition was approximately $22.0 million, net of cash acquired, which was funded from drawing on Descartes’ existing credit facility. Additional contingent consideration of up to $9.0 million in cash is payable if certain revenue performance targets are met by CORE in the two years following the acquisition. 

Conference Call
Members of Descartes' executive management team will host a conference call to discuss the company's financial results today at 5:00 p.m. ET, Wednesday, May 29. Designated numbers are +1 888 465-5079 for North America and +1 416 216-4169 for international, using Passcode 9303615#.

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 June 5, 2019, by dialing +1 888 843-7419 or +1 630 652-3042 followed by Passcode 9303615#. 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, software-as-a-service 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, and connect with us on LinkedIn and Twitter

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

Safe Harbor Statement
This release may contain forward-looking information within the meaning of applicable securities laws ("forward-looking statements") that relates to Descartes' growth in margins and generation of cash; continued growth and acquisitions; rate of profitable growth; demand for Descartes' solutions; growth of Descartes' Global Logistics Network; customer buying patterns; customer expectations of Descartes; development of the GLN and the benefits thereof to customers; 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 a global economic downturn; changes in customer behaviour and expectations; Descartes’ ability to successfully design and develop enhancements to our products and solutions; 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 four acquisitions since the beginning of fiscal 2019 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 Q1FY20, Q4FY19, Q3FY19, Q2FY19 and Q1FY19, which we believe is the most directly comparable GAAP measure.

(US dollars in millions)Q1FY20 Q4FY19 Q3FY19 Q2FY19 Q1FY19 
Net income, as reported on Consolidated Statements of Operations7.3 7.9 7.9 8.5 7.0 
Adjustments to reconcile to Adjusted EBITDA:     
Interest expense2.2 0.5 0.6 0.5 0.6 
Investment income(0.1)(0.1)- - (0.1)
Income tax expense2.5 2.4 2.3 1.2 2.3 
Depreciation expense0.9 1.5 1.1 1.0 0.9 
Amortization of intangible assets12.8 10.3 10.4 10.0 9.5 
Stock-based compensation and related taxes1.0 1.0 1.2 1.0 0.8 
Other charges2.1 1.5 0.5 0.6 1.1 
Adjusted EBITDA28.7 25.0 24.0 22.8 22.1 
      
Revenues78.0 71.0 70.0 67.1 67.0 
Net income as % of revenues9% 11% 11% 13% 10% 
Adjusted EBITDA as % of revenues37% 35% 34% 34% 33% 
      


   
The Descartes Systems Group Inc.
Condensed Consolidated Balance Sheets
(US dollars in thousands; US GAAP; Unaudited)
   
 April 30, January 31, 
 2019 2019 
   (Audited) 
ASSETS  
CURRENT ASSETS  
Cash29,550 27,298 
Accounts receivable (net)  
Trade33,913 31,493 
Other4,974 4,331 
Prepaid expenses and other12,274 9,027 
Inventory99 95 
 80,810 72,244 
OTHER LONG-TERM ASSETS11,296 10,510 
PROPERTY AND EQUIPMENT, NET12,869 12,612 
RIGHT-OF-USE ASSETS10,444 - 
DEFERRED INCOME TAXES23,535 3,598 
INTANGIBLE ASSETS, NET266,737 176,192 
GOODWILL497,844 378,178 
 903,535 653,334 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
CURRENT LIABILITIES  
Accounts payable5,294 5,147 
Accrued liabilities34,140 29,392 
Lease obligations3,433 - 
Income taxes payable1,840 1,592 
Deferred revenue41,519 34,236 
 86,226 70,367 
LONG-TERM DEBT242,670 25,464 
LONG-TERM LEASE OBLIGATIONS7,394 - 
LONG-TERM DEFERRED REVENUE1,050 855 
LONG-TERM INCOME TAXES PAYABLE7,590 7,634 
DEFERRED INCOME TAXES9,575 15,507 
 354,505 119,827 
   
SHAREHOLDERS’ EQUITY  
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 77,222,956 at April 30, 2019 (January 31, 2019 – 76,864,866)286,714 276,753 
Additional paid-in capital455,478 454,722 
Accumulated other comprehensive loss(27,715)(25,201)
Accumulated deficit(165,447)(172,767)
 549,030 533,507 
 903,535 653,334 
     


 
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
  April 30, April 30, 
  2019 2018 
    
REVENUES 78,004 67,018 
COST OF REVENUES 19,856 18,584 
GROSS MARGIN 58,148 48,434 
EXPENSES   
Sales and marketing 10,132 9,136 
Research and development 12,728 11,937 
General and administrative 8,478 6,924 
Other charges 2,064 1,140 
Amortization of intangible assets 12,777 9,552 
  46,179 38,689 
INCOME FROM OPERATIONS 11,969 9,745 
INTEREST EXPENSE (2,159)(546)
INVESTMENT INCOME 71 54 
INCOME BEFORE INCOME TAXES 9,881 9,253 
INCOME TAX EXPENSE   
Current 1,735 1,944 
Deferred 826 323 
  2,561 2,267 
NET INCOME 7,320 6,986 
EARNINGS PER SHARE   
Basic 0.09 0.09 
Diluted 0.09 0.09 
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)   
Basic 77,149 76,793 
Diluted 78,273 77,650 
      

 

  
The Descartes Systems Group Inc.
Condensed Consolidated Statements of Cash Flows
(US dollars in thousands; US GAAP; Unaudited)
  
 Three Months Ended
 April 30,  April 30, 
 2019  2018 
OPERATING ACTIVITIES    
Net income7,320 6,986 
Adjustments to reconcile net income to cash provided by operating activities:  
Depreciation892 907 
Amortization of intangible assets12,777 9,552 
Stock-based compensation expense939 733 
Other non-cash operating activities(171)(30)
Deferred tax expense826 323 
Changes in operating assets and liabilities:  
Accounts receivable  
      Trade2,660 (1,875)
     Other(429)225 
Prepaid expenses and other(3,484)(1,675)
Inventory(3)18 
Accounts payable288 4,037 
Accrued liabilities3,779 (1,064)
Income taxes payable200 180 
Operating leases383 - 
Deferred revenue(2,542)536 
Cash provided by operating activities23,435 18,853 
INVESTING ACTIVITIES  
Additions to property and equipment(1,398)(965)
Acquisition of subsidiaries, net of cash acquired(239,863)(32,382)
Cash used in investing activities(241,261)(33,347)
FINANCING ACTIVITIES  
Proceeds from borrowing on the credit facility241,206 33,167 
Credit facility repayments(19,932)(17,610)
Payment of debt issuance costs(1,382)- 
Issuance of common shares for cash, net of issuance costs732 453 
Cash provided by financing activities220,624 16,010 
Effect of foreign exchange rate changes on cash(546)(451)
Increase in cash2,252 1,065 
Cash, beginning of period27,298 35,145 
Cash, end of period29,550 36,210