The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced
its financial results for its fiscal 2024 first quarter
(
Q1FY24). 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).
“The Global Logistics Network (GLN) continues to
help shippers, carriers and logistics services providers benefit
from more efficient supply chains and logistics operations,” said
Edward J. Ryan, Descartes’ CEO. “Our customers’ successes with the
GLN have put us in a strong position to continue to invest in our
business for the future. We continue to add more services for our
customers to manage the complete lifecycle of shipments, such as
our recent acquisition of Localz.”
Q1FY24 Financial ResultsAs
described in more detail below, key financial highlights for Q1FY24
included:
- Revenues of $136.6 million, up 17% from $116.4 million in the
first quarter of fiscal 2023 (Q1FY23) and up 9%
from $125.1 million in the previous quarter
(Q4FY23);
- Revenues were comprised of services revenues of $124.1 million
(91% of total revenues), professional services and other revenues
of $11.5 million (8% of total revenues) and license revenues of
$1.0 million (1% of total revenues). Services revenues were up 21%
from $102.8 million in Q1FY23 and up 9% from $113.4 million in
Q4FY23;
- Cash provided by operating activities of $48.9 million, up 10%
from $44.4 million in Q1FY23 and down from $50.6 million in
Q4FY23;
- Income from operations of $36.5 million, up 19% from $30.6
million in Q1FY23 and up 9% from $33.6 million in Q4FY23;
- Net income of $29.4 million, up 27% from $23.1 million in
Q1FY23 and down from $29.8 million in Q4FY23. Net income as a
percentage of revenues was 22%, compared to 20% in Q1FY23 and 24%
in Q4FY23;
- Earnings per share on a diluted basis of $0.34, up 26% from
$0.27 in Q1FY23 and consistent with $0.34 in Q4FY23; and
- Adjusted EBITDA of $57.7 million, up 13% from $51.2 million in
Q1FY23 and up 4% from $55.4 million in Q4FY23. Adjusted EBITDA as a
percentage of revenues was 42%, compared to 44% in both Q1FY23 and
Q4FY23.
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):
|
Q1FY24 |
|
Q4FY23 |
|
Q3FY23 |
|
Q2FY23 |
|
Q1FY23 |
|
Revenues |
136.6 |
|
125.1 |
|
121.5 |
|
123.0 |
|
116.4 |
|
Services
revenues |
124.1 |
|
113.4 |
|
110.1 |
|
109.4 |
|
102.8 |
|
Gross
margin |
76 |
% |
77 |
% |
77 |
% |
77 |
% |
76 |
% |
Cash
provided by operating activities |
48.9 |
|
50.6 |
|
50.9 |
|
46.4 |
|
44.4 |
|
Income
from operations |
36.5 |
|
33.6 |
|
34.8 |
|
31.5 |
|
30.6 |
|
Net
income |
29.4 |
|
29.8 |
|
26.5 |
|
22.9 |
|
23.1 |
|
Net
income as a % of revenues |
22 |
% |
24 |
% |
22 |
% |
19 |
% |
20 |
% |
Earnings
per diluted share |
0.34 |
|
0.34 |
|
0.31 |
|
0.27 |
|
0.27 |
|
Adjusted
EBITDA |
57.7 |
|
55.4 |
|
54.5 |
|
54.0 |
|
51.2 |
|
Adjusted
EBITDA as a % of revenues |
42 |
% |
44 |
% |
45 |
% |
44 |
% |
44 |
% |
|
|
|
|
|
|
|
|
|
|
|
Cash PositionAt April 30, 2023,
Descartes had $182.2 million in cash. Cash decreased by $94.2
million in Q1FY24. The table set forth below provides a summary of
cash flows for Q1FY24 in millions of dollars:
|
Q1FY24 |
|
Cash
provided by operating activities |
48.9 |
|
Additions to property and equipment |
(1.2 |
) |
Acquisitions of subsidiaries, net of cash acquired |
(142.7 |
) |
Net
proceeds from the issuance of common shares |
0.5 |
|
Effect
of foreign exchange rate on cash |
0.3 |
|
Net
change in cash |
(94.2 |
) |
Cash,
beginning of period |
276.4 |
|
Cash,
end of period |
182.2 |
|
|
|
|
Acquisition of GroundCloudOn
February 14, 2023, Descartes acquired all of the shares of Windigo
Logistics, Inc., doing business as GroundCloud (“GroundCloud”), a
cloud-based provider of final-mile carrier solutions and road
safety compliance tools. The purchase price for the acquisition was
approximately $136.8 million, net of cash acquired, which was
funded from cash on hand, plus potential performance-based
contingent consideration of up to $80.0 million based on
GroundCloud achieving revenue-based targets over the first two
years post-acquisition.
Acquisition of LocalzOn April
20, 2023, Descartes acquired substantially all of the assets of
Localz Pty Ltd.(“Localz”), a cloud-based customer engagement
platform for day-of-service interaction and order management. The
purchase price for the acquisition was approximately $5.9 million,
net of cash acquired, which was funded from cash on hand.
Conference CallMembers of
Descartes' executive management team will host a conference call to
discuss the company's financial results at 5:30 p.m. ET on
Wednesday, May 31. Designated numbers are +1 416 764 8658 for North
America and +1 888 886 7786 for international, using conference ID
95079934#.
The company will simultaneously conduct an audio
webcast on the Descartes website at
www.descartes.com/descartes/investor-relations. Phone conference
dial-in or webcast login is required approximately 10 minutes
beforehand.
Replays of the conference call will be available
until June 7, 2023, by dialling +1 416 764 8692 or Toll-Free for
North America using +1 877 674 7070 with Playback Passcode:
079934#. An archived replay of the webcast will be available at
www.descartes.com/descartes/investor-relations.
About DescartesDescartes
(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 +1-519-746-2969 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' expectations concerning future revenues and
earnings, and our projections for any future reductions in expenses
or growth in margins and generation of cash; our assessment of the
potential impact of geopolitical events such as the ongoing
conflict between Russia and Ukraine (the “Ukraine Conflict”), or
other potentially catastrophic events, such as the spread of the
COVID-19 virus (the “Pandemic”) on our business, results of
operations and financial condition; continued growth and
acquisitions including our assessment of any increased opportunity
for our products and services as a result of trends in the
logistics and supply chain industries; rate of profitable growth
and Adjusted EBITDA margin operating range; demand for Descartes'
solutions; growth of Descartes' Global Logistics Network (“GLN”);
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 at levels generally consistent with those
experienced historically; the Ukraine Conflict and the Pandemic not
having a material negative impact on shipment volumes or on the
demand for the products and services of Descartes by its customers
and the ability of those customers to continue to pay for those
products and services; 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 identify and execute
on acquisitions and to integrate acquired businesses and assets,
and to predict expenses associated with and revenues from
acquisitions; the impact of network failures, information security
breaches or other cyber-security threats; disruptions in the
movement of freight and a decline in shipment volumes including as
a result of contagious illness outbreaks; a deterioration of
general economic conditions or instability in the financial markets
accompanied by a decrease in spending by our customers; 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; 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 six acquisitions
since the beginning of fiscal 2023 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 Q1FY24,
Q4FY23, Q3FY23, Q2FY23, and Q1FY23, which we believe is the most
directly comparable GAAP measure.
(US dollars in millions) |
Q1FY24 |
|
Q4FY23 |
|
Q3FY23 |
|
Q2FY23 |
|
Q1FY23 |
|
Net income, as reported on Consolidated Statements
of Operations |
29.4 |
|
29.8 |
|
26.5 |
|
22.9 |
|
23.1 |
|
Adjustments to reconcile to Adjusted EBITDA: |
|
|
|
|
|
Interest expense |
0.3 |
|
0.3 |
|
0.3 |
|
0.3 |
|
0.3 |
|
Investment income |
(1.6 |
) |
(2.8 |
) |
(1.1 |
) |
(0.5 |
) |
(0.2 |
) |
Income tax expense |
8.4 |
|
6.3 |
|
9.0 |
|
8.8 |
|
7.4 |
|
Depreciation expense |
1.3 |
|
1.4 |
|
1.3 |
|
1.3 |
|
1.2 |
|
Amortization of intangible assets |
14.7 |
|
14.3 |
|
14.7 |
|
16.1 |
|
15.1 |
|
Stock-based compensation and related taxes |
3.3 |
|
3.6 |
|
3.6 |
|
3.8 |
|
2.9 |
|
Other charges |
1.9 |
|
2.5 |
|
0.2 |
|
1.3 |
|
1.4 |
|
Adjusted EBITDA |
57.7 |
|
55.4 |
|
54.5 |
|
54.0 |
|
51.2 |
|
|
|
|
|
|
|
Revenues |
136.6 |
|
125.1 |
|
121.5 |
|
123.0 |
|
116.4 |
|
Net income as % of revenues |
22 |
% |
24 |
% |
22 |
% |
19 |
% |
20 |
% |
Adjusted EBITDA as % of revenues |
42 |
% |
44 |
% |
45 |
% |
44 |
% |
44 |
% |
|
|
|
|
|
|
The Descartes Systems Group
Inc.Condensed Consolidated Balance
Sheets(US dollars in thousands; US GAAP; Unaudited)
|
April 30, |
|
January 31, |
|
|
2023 |
|
2023 |
|
ASSETS |
|
|
CURRENT
ASSETS |
|
|
Cash |
182,187 |
|
276,385 |
|
Accounts receivable (net) |
|
|
Trade |
50,134 |
|
45,173 |
|
Other |
11,330 |
|
11,658 |
|
Prepaid expenses and other |
28,525 |
|
24,676 |
|
Inventory |
1,352 |
|
759 |
|
|
273,528 |
|
358,651 |
|
OTHER
LONG-TERM ASSETS |
22,085 |
|
22,247 |
|
PROPERTY
AND EQUIPMENT, NET |
11,347 |
|
11,434 |
|
RIGHT-OF-USE ASSETS |
6,383 |
|
6,774 |
|
DEFERRED
INCOME TAXES |
4,594 |
|
11,483 |
|
INTANGIBLE ASSETS, NET |
295,294 |
|
229,808 |
|
GOODWILL |
759,867 |
|
675,647 |
|
|
1,373,098 |
|
1,316,044 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
CURRENT
LIABILITIES |
|
|
|
Accounts payable |
12,373 |
|
10,569 |
|
Accrued liabilities |
102,900 |
|
80,309 |
|
Lease obligations |
3,376 |
|
3,397 |
|
Income taxes payable |
5,963 |
|
7,536 |
|
Deferred revenue |
75,018 |
|
67,784 |
|
|
199,630 |
|
169,595 |
|
LONG-TERM DEBT |
- |
|
- |
|
LEASE
OBLIGATIONS |
3,493 |
|
3,923 |
|
DEFERRED
REVENUE |
1,572 |
|
1,615 |
|
INCOME
TAXES PAYABLE |
7,009 |
|
6,120 |
|
DEFERRED
INCOME TAXES |
29,157 |
|
35,400 |
|
|
240,861 |
|
216,653 |
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
Common shares – unlimited
shares authorized; Shares issued and outstanding totaled 85,078,029
at April 30, 2023 (January 31, 2023 – 84,820,100) |
546,274 |
|
538,448 |
|
Additional paid-in capital |
482,214 |
|
486,551 |
|
Accumulated other comprehensive income (loss) |
(30,452 |
) |
(30,456 |
) |
Retained
earnings |
134,201 |
|
104,848 |
|
|
1,132,237 |
|
1,099,391 |
|
|
1,373,098 |
|
1,316,044 |
|
|
|
|
|
|
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, |
|
|
2023 |
|
2022 |
|
|
|
|
REVENUES |
136,614 |
|
116,395 |
|
COST OF REVENUES |
32,885 |
|
27,823 |
|
GROSS MARGIN |
103,729 |
|
88,572 |
|
EXPENSES |
|
|
Sales and marketing |
17,053 |
|
13,236 |
|
Research and development |
20,067 |
|
16,569 |
|
General and administrative |
13,444 |
|
11,642 |
|
Other charges |
1,933 |
|
1,482 |
|
Amortization of intangible assets |
14,674 |
|
15,048 |
|
|
67,171 |
|
57,977 |
|
INCOME FROM OPERATIONS |
36,558 |
|
30,595 |
|
INTEREST EXPENSE |
(337 |
) |
(278 |
) |
INVESTMENT INCOME |
1,561 |
|
153 |
|
INCOME BEFORE INCOME TAXES |
37,782 |
|
30,470 |
|
INCOME TAX EXPENSE |
|
|
Current |
7,621 |
|
4,841 |
|
Deferred |
808 |
|
2,514 |
|
|
8,429 |
|
7,355 |
|
NET INCOME |
29,353 |
|
23,115 |
|
EARNINGS PER SHARE |
|
|
Basic |
0.35 |
|
0.27 |
|
Diluted |
0.34 |
|
0.27 |
|
WEIGHTED AVERAGE SHARES OUTSTANDING
(thousands) |
|
|
Basic |
84,949 |
|
84,765 |
|
Diluted |
86,746 |
|
86,348 |
|
|
|
|
|
|
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, |
|
|
2023 |
|
2022 |
|
OPERATING ACTIVITIES |
|
|
Net
income |
29,353 |
|
23,115 |
|
Adjustments to reconcile net income to cash provided by operating
activities: |
|
|
Depreciation |
1,265 |
|
1,245 |
|
Amortization of intangible assets |
14,674 |
|
15,048 |
|
Stock-based compensation expense |
2,919 |
|
2,787 |
|
Other non-cash operating activities |
220 |
|
(17 |
) |
Deferred tax expense |
808 |
|
2,514 |
|
Changes in operating assets and liabilities |
(384 |
) |
(260 |
) |
Cash
provided by operating activities |
48,855 |
|
44,432 |
|
INVESTING ACTIVITIES |
|
|
Additions to property and equipment |
(1,203 |
) |
(1,636 |
) |
Acquisition of subsidiaries, net of cash acquired |
(142,700 |
) |
(42,892 |
) |
Cash
used in investing activities |
(143,903 |
) |
(44,528 |
) |
FINANCING ACTIVITIES |
|
|
Payment of debt issuance costs |
(39 |
) |
(66 |
) |
Issuance of common shares for cash, net of issuance costs |
5,455 |
|
388 |
|
Payment of withholding taxes on net share settlements |
(4,886 |
) |
- |
|
Cash
provided by financing activities |
530 |
|
322 |
|
Effect
of foreign exchange rate changes on cash |
320 |
|
(1,884 |
) |
Decrease in cash |
(94,198 |
) |
(1,658 |
) |
Cash, beginning of period |
276,385 |
|
213,437 |
|
Cash, end of period |
182,187 |
|
211,779 |
|
Supplemental disclosure of cash flow
information: |
|
|
Cash paid during the period for interest |
- |
|
- |
|
Cash paid during the period for income taxes |
8,218 |
|
4,094 |
|
|
|
|
|
|
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