Record Revenues and Income from Operations

WATERLOO, Ontario, Dec. 04, 2019 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2020 third quarter (Q3FY20). 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).

“Descartes continues to deliver predictable results in an increasingly unpredictable business environment,” said Edward J. Ryan, Descartes’ CEO. “Our customers need access to timely, reliable data from multiple sources via a network to fuel decision-making tools that power their businesses. The Global Logistics Network (GLN) does just that, connecting shippers, carriers and logistics service providers on one platform to manage the lifecycle of shipments.”

Q3FY20 Financial Results
As described in more detail below, key financial highlights for Descartes’ Q3FY20 included:

  • Revenues of $83.0 million, up 19% from $70.0 million in the third quarter of fiscal 2019 (Q3FY19) and up 3% from $80.5 million in the previous quarter (Q2FY20);
  • Revenues were comprised of services revenues of $72.6 million (87% of total revenues), professional services and other revenues of $8.9 million (11% of total revenues) and license revenues of $1.5 million (2% of total revenues). Services revenues were up 19% from $61.1 million in Q3FY19 and up 2% from $71.4 million in Q2FY20;
  • Cash provided by operating activities of $27.5 million, up 43% from $19.2 million in Q3FY19 and up 2% from $26.9 million in Q2FY20;
  • Income from operations of $13.7 million, up 27% from $10.8 million in Q3FY19 and up 5% from $13.1 million in Q2FY20;
  • Net income of $9.7 million, up 23% from $7.9 million in Q3FY19 and up 13% from $8.6 million in Q2FY20;
  • Earnings per share on a diluted basis of $0.11, compared to $0.10 in Q3FY19 and $0.10 in Q2FY20; and
  • Adjusted EBITDA of $31.5 million, up 31% from $24.0 million in Q3FY19 and up 4% from $30.2 million in Q2FY20. Adjusted EBITDA as a percentage of revenues was 38%, compared to 34% in Q3FY19 and 38% in Q2FY20.

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
FY20
Q2
FY20
Q1
FY20
Q4
FY19
Q3
FY19
Revenues83.0 80.5 78.0 71.0 70.0 
Services revenues72.6 71.4 67.0 62.9 61.1 
Gross margin73%74%74%73%73%
Cash provided by operating activities27.5 26.9 23.4 21.8 19.2 
Income from operations13.7 13.1 11.9 10.6 10.8 
Net income9.7 8.6 7.3 7.9 7.9 
Net income as a % of revenues12%11%9%11%11%
Earnings per diluted share0.11 0.10 0.09 0.10 0.10 
Adjusted EBITDA31.5 30.2 28.7 25.0 24.0 
Adjusted EBITDA as a % of revenues38%38%37%35%34%

Year-to-Date Financial Results

As described in more detail below, key financial highlights for Descartes’ nine-month period ended October 31, 2019 (9MFY20) included:

  • Revenues of $241.6 million, up 18% from $204.1 million in the same period a year ago (9MFY19);
  • Revenues were comprised of services revenues of $211.0 million (87% of total revenues), professional services and other revenues of $25.6 million (11% of total revenues) and license revenues of $5.0 million (2% of total revenues). Services revenues were up 18% from $178.6 million in 9MFY19;
  • Cash provided by operating activities of $77.9 million, up 38% from $56.3 million in 9MFY19;
  • Income from operations of $38.7 million, up 26% from $30.7 million in 9MFY19;
  • Net income of $25.6 million, up 9% from $23.4 million in 9MFY19. Net income as a percentage of revenues was 11%, consistent with 9MFY19;
  • Earnings per share on a diluted basis of $0.31, compared to $0.30 in 9MFY19; and
  • Adjusted EBITDA of $90.4 million, up 31% from $68.9 million in 9MFY19. Adjusted EBITDA as a percentage of revenues was 37%, compared to 34% in 9MFY19.

The following table summarizes Descartes’ results in the categories specified below over 9MFY20 and 9MFY19 (unaudited, dollar amounts in millions):

 9MFY209MFY19
Revenues241.6 204.1 
Services revenues211.0 178.6 
Gross margin74%73%
Cash provided by operating activities77.9 56.3 
Income from operations38.7 30.7 
Net income25.6 23.4 
Net income as a % of revenues11%11%
Earnings per diluted share0.31 0.30 
Adjusted EBITDA90.4 68.9 
Adjusted EBITDA as a % of revenues37%34%

Cash Position

At October 31, 2019, Descartes had $28.8 million in cash. Cash increased $1.4 million in Q3FY20 and increased $1.5 million in 9MFY20. The table set forth below provides a summary of cash flows for Q3FY20 and 9MFY20 in millions of dollars:

 Q3FY209MFY20
Cash provided by operating activities27.5 77.9 
Additions to property and equipment(1.5)(3.9)
Acquisitions of subsidiaries, net of cash acquired(11.7)(292.1)
Proceeds from borrowing on credit facility12.0 297.0 
Credit facility repayments(25.5)(313.4)
Payment of debt issuance costs(0.1)(1.9)
Issuances of common shares, net of issuance costs  0.5   238.4 
Effect of foreign exchange rate on cash0.2 (0.5)
Net change in cash1.4 1.5 
Cash, beginning of period  27.4   27.3 
Cash, end of period28.8 28.8 

Acquisition of BestTransport

On August 20, 2019, Descartes acquired all the shares of BestTransport.com, Inc. (“BestTransport”), a cloud-based transportation management system provider focused on flatbed-intensive manufacturers and distributors. The purchase price for the acquisition was approximately $11.7 million, net of cash acquired, which was funded from drawing on Descartes’ existing credit facility.    

Descartes Evolution — 2020 User Group Conference
Descartes will be hosting Descartes Evolution at The Diplomat Beach Resort in Ft. Lauderdale,  Florida from Tuesday, March 17 to Thursday, March 19, 2020. Descartes Evolution is Descartes’ pinnacle event where customers and partners from around the world get together to network with other Descartes users, meet the Descartes product management team, provide input on Descartes' product development plans, and learn more about Descartes solutions and how to improve their operations. Information on the event is available at the following site: https://www.descartes.com/usergroup.  

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, December 4. Designated numbers are +1 888 465-5079 for North America and  +1 416 216-4169 for international, using Passcode 5493847#.

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 11, 2019, by dialing +1 888 843-7419 or +1 630 652-3042 followed by Passcode 5493847#. 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 2020 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 Q3FY20, Q2FY20, Q1FY20, Q4FY19 and Q3FY19, which we believe is the most directly comparable GAAP measure.

(US dollars in millions)Q3FY20Q2FY20Q1FY20Q4FY19Q3FY19
Net income, as reported on Consolidated Statements of Operations9.7 8.6 7.3 7.9 7.9 
Adjustments to reconcile to Adjusted EBITDA:     
Interest expense0.4 1.4 2.2 0.5 0.6 
Investment income -  - (0.1)(0.1)- 
Income tax expense3.5 3.1 2.5 2.4 2.3 
Depreciation expense1.2 1.1 0.9 1.5 1.1 
Amortization of intangible assets14.5 14.1 12.8 10.3 10.4 
Stock-based compensation and related taxes1.4 1.3 1.0 1.0 1.2 
Other charges0.8 0.6 2.1 1.5 0.5 
Adjusted EBITDA31.5 30.2 28.7 25.0 24.0 
      
Revenues83.0 80.5 78.0 71.0 70.0 
Net income as % of revenues12%11%9%11%11%
Adjusted EBITDA as % of revenues38%38%37%35%34%
      

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 9MFY20 and 9MFY19, which we believe is the most directly comparable GAAP measure.

(US dollars in millions)   9MFY209MFY19
Net income, as reported on Consolidated Statements of Operations   25.6 23.4 
Adjustments to reconcile to Adjusted EBITDA:     
Interest expense   4.1 1.6 
Investment income   (0.2)(0.1)
Income tax expense   9.2 5.9 
Depreciation expense   3.1 3.0 
Amortization of intangible assets   41.4 29.9 
Stock-based compensation and related taxes   3.7 3.0 
Other charges   3.5 2.2 
Adjusted EBITDA   90.4 68.9 
      
Revenues   241.5 204.1 
Net income as % of revenues   11%11%
Adjusted EBITDA as % of revenues   37%34%


The Descartes Systems Group Inc.
Condensed Consolidated Balance Sheets
(US dollars in thousands; US GAAP; Unaudited)

 October 31,January 31,
 20192019 (Audited)
ASSETS  
CURRENT ASSETS  
Cash28,848 27,298 
Accounts receivable (net)  
Trade36,231 31,493 
Other5,522 4,331 
Prepaid expenses and other11,353 9,027 
Inventory193 95 
 82,147 72,244 
OTHER LONG-TERM ASSETS12,731 10,510 
PROPERTY AND EQUIPMENT, NET15,757 12,612 
RIGHT-OF-USE ASSETS13,176 - 
DEFERRED INCOME TAXES24,090 3,598 
INTANGIBLE ASSETS, NET270,723 176,192 
GOODWILL523,918 378,178 
 942,542 653,334 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
CURRENT LIABILITIES  
 Accounts payable7,954 5,147 
 Accrued liabilities35,455 29,392 
 Lease obligations3,987 - 
 Income taxes payable2,168 1,592 
 Deferred revenue41,532 34,236 
 91,096 70,367 
LONG-TERM DEBT9,274 25,464 
LONG-TERM LEASE OBLIGATIONS9,692 - 
LONG-TERM DEFERRED REVENUE737 855 
LONG-TERM INCOME TAXES PAYABLE7,750 7,634 
DEFERRED INCOME TAXES15,188 15,507 
 133,737 119,827 
   
SHAREHOLDERS’ EQUITY  
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 84,151,724 at October 31, 2019 (January 31, 2019 – 76,864,866)524,012 276,753 
Additional paid-in capital457,975 454,722 
Accumulated other comprehensive loss(25,974)(25,201)
Accumulated deficit(147,208)(172,767)
 808,805 533,507 
 942,542 653,334 



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 Nine Months Ended
 October 31,October 31, October 31,October 31,
 20192018 20192018
      
REVENUES83,026 70,008  241,570 204,141 
COST OF REVENUES22,133 19,150  63,126 55,695 
GROSS MARGIN60,893 50,858  178,444 148,446 
EXPENSES     
Sales and marketing10,142 9,312  30,309 27,776 
Research and development13,383 11,901  39,469 35,708 
General and administrative8,407 7,931  25,113 22,015 
Other charges799 529  3,463 2,250 
Amortization of intangible assets14,525 10,354  41,404 29,909 
 47,256 40,027  139,758 117,658 
INCOME FROM OPERATIONS13,637 10,831  38,686 30,788 
INTEREST EXPENSE(497)(613) (4,100)(1,678)
INVESTMENT INCOME39 40  151 140 
INCOME BEFORE INCOME TAXES13,179 10,258  34,737 29,250 
INCOME TAX EXPENSE     
Current2,327 1,641  5,688 4,727 
Deferred1,186 716  3,490 1,138 
 3,513 2,357  9,178 5,865 
NET INCOME9,666 7,901  25,559 23,385 
EARNINGS PER SHARE     
Basic0.11 0.10  0.32 0.30 
Diluted0.11 0.10  0.31 0.30 
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)     
Basic84,136 76,854  80,818 76,821 
Diluted85,342 77,863  81,991 77,767 



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,
 2019 2018 2019 2018 
OPERATING ACTIVITIES    
Net income9,666 7,901 25,559 23,385 
Adjustments to reconcile net income to cash provided by operating activities:    
Depreciation1,176 1,098 3,143 3,019 
Amortization of intangible assets14,525 10,354 41,404 29,909 
Stock-based compensation expense1,324 1,002 3,588 2,736 
Other non-cash operating activities- (269)11 (339)
Deferred tax expense1,186 716 3,490 1,138 
Deferred tax charge- (49)- (49)
  Changes in operating assets and liabilities:    
  Accounts receivable    
Trade(2,502)260 2,881 (780)
  Other276 539 (782)120 
  Prepaid expenses and other(1,409)(28)(3,525)(2,278)
  Inventory(51)17 (87)67 
  Accounts payable3,591 1,216 2,000 3,588 
  Accrued liabilities1,931 451 3,071 805 
  Income taxes payable228 (357)579 (1,953)
  Operating leases106 - 516 - 
  Deferred revenue(2,518)(3,631)(3,963)(3,056)
Cash provided by operating activities27,529 19,220 77,885 56,312 
INVESTING ACTIVITIES    
Additions to property and equipment(1,484)(1,131)(3,879)(3,078)
Acquisition of subsidiaries, net of cash acquired(11,718)(9,443)(292,053)(67,932)
Cash used in investing activities(13,202)(10,574)(295,932)(71,010)
FINANCING ACTIVITIES    
Proceeds from borrowing on the credit facility12,000 9,953 297,015 68,468 
Credit facility repayments(25,514)(17,956)(313,376)(53,493)
Payment of debt issuance costs(71)- (1,885)- 
Issuance of common shares for cash, net of issuance costs547 (27)238,350 338 
Payment of contingent consideration- (1,531)- (1,531)
Cash (used in) provided by financing activities(13,038)(9,561)220,104 13,782 
Effect of foreign exchange rate changes on cash197 (393)(507)(1,469)
Increase (decrease) in cash1,486 (1,308)1,550 (2,385)
Cash, beginning of period27,362 34,068 27,298 35,145 
Cash, end of period28,848 32,760 28,848 32,760