The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced
its financial results for its fiscal 2026 first quarter
(
Q1FY26). 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 first quarter of fiscal 2026 showed strong annual growth,
consistent with our communicated plans," said Edward J. Ryan,
Descartes' CEO. "This is a challenging and uncertain economic and
trade environment for shippers, carriers and logistics services
providers. They face challenges on how, when, or if, to react to
changes in global trade relationships, tariffs, sanctions and
economic forecasts. We continue to see strong interest in our
domain expertise and our solutions to help companies navigate the
complex trade landscape. We remain committed to growing our
business with prudent investments and cost discipline to build the
premier network and technology for logistics-intensive
businesses."
Q1FY26 Financial Results As described in more
detail below, key financial highlights for Descartes’ Q1FY26
included:
- Revenues of $168.7 million, up 12% from $151.3 million in the
first quarter of fiscal 2025 (Q1FY25) and up 1% from $167.5 million
in the previous quarter (Q4FY25);
- Revenues were comprised of services revenues of $156.6 million
(93% of total revenues), professional services and other revenues
of $11.8 million (7% of total revenues) and license revenues of
$0.3 million (less than 1% of total revenues). Services revenues
were up 14% from $137.8 million in Q1FY25 and consistent with
$156.5 million in Q4FY25;
- Cash provided by operating activities of $53.6 million, down
from $63.7 million in Q1FY25 and down from $60.7 million in
Q4FY25;
- Income from operations of $46.2 million, up 9% from $42.4
million in Q1FY25 and down from $47.1 million in Q4FY25;
- Net income of $36.2 million, up 4% from $34.7 million in Q1FY25
and down from $37.4 million in Q4FY25. Net income as a percentage
of revenues was 21%, compared to 23% in Q1FY25 and 22% in
Q4FY25;
- Earnings per share on a diluted basis of $0.41, up 2% from
$0.40 in Q1FY25 and down from $0.43 in Q4FY25; and
- Adjusted EBITDA of $75.1 million, up 12% from $67.0 million in
Q1FY25 and consistent with $75.0 million in Q4FY25. Adjusted EBITDA
as a percentage of revenues was 45%, compared to 44% in Q1FY25 and
45% in Q4FY25.
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, acquisition-related expenses, and contingent
consideration incurred due to better-than-expected performance from
acquisitions). 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):
|
|
Q1FY26 |
Q4FY25 |
Q3FY25 |
Q2FY25 |
Q1FY25 |
| Revenues |
168.7 |
167.5 |
168.8 |
163.4 |
151.3 |
| Services revenues |
156.6 |
156.5 |
149.7 |
146.2 |
137.8 |
| Gross margin |
76% |
76% |
74% |
75% |
77% |
| Cash provided by operating
activities |
53.6 |
60.7 |
60.1 |
34.7 |
63.7 |
| Income from operations |
46.2 |
47.1 |
45.8 |
45.9 |
42.4 |
| Net income |
36.2 |
37.4 |
36.6 |
34.7 |
34.7 |
| Net income as a % of
revenues |
21% |
22% |
22% |
21% |
23% |
| Earnings per diluted
share |
0.41 |
0.43 |
0.42 |
0.40 |
0.40 |
| Adjusted EBITDA |
75.1 |
75.0 |
72.1 |
70.6 |
67.0 |
| Adjusted EBITDA as a % of
revenues |
45% |
45% |
43% |
43% |
44% |
| |
|
|
|
|
|
Cash PositionAt April 30, 2025, Descartes had
$176.4 million in cash. Cash decreased by $59.7 million in Q1FY26.
The table set forth below provides a summary of cash flows for
Q1FY26 in millions of dollars:
|
|
Q1FY26 |
| Cash provided by
operating activities |
53.6 |
| Additions to
property and equipment |
(1.9) |
| Acquisitions of
subsidiaries, net of cash acquired |
(112.3) |
| Issuances of
common shares, net of issuance costs |
3.6 |
| Payment of
withholding taxes on net share settlements |
(6.5) |
| Effect of foreign
exchange rate on cash |
3.8 |
| Net change in
cash |
(59.7) |
| Cash, beginning of
period |
236.1 |
| Cash, end of
period |
176.4 |
| |
|
Acquisition of 3GTMSOn March 24, 2025,
Descartes acquired all of the shares of 3GTMS, a leading provider
of transportation management solutions. The purchase price for the
acquisition was approximately $112.7 million, net of cash acquired,
which was funded from cash on hand.
Cost Reduction InitiativesConsidering the
economic and global trade uncertainty many Descartes customers are
facing, Descartes has undertaken cost reduction initiatives
designed to reduce its cost base. The plan is designed to reduce
Descartes’ global workforce by approximately 7% and eliminate
various other operating expenses. As a result, Descartes expects to
incur restructuring charges of approximately $4 million in the
second quarter of fiscal 2026 (Q2FY26), which will also impact cash
generated from operations in Q2FY26. Once completed, Descartes
anticipates annualized cost savings of approximately $15
million.
Management UpdateDescartes is pleased to
announce the appointment of William Green as Executive Vice
President, Global Sales. Mr. Green has served as Descartes’ Senior
Vice President for North American Sales since August 2020. Mr.
Green has previously held senior commercial roles at Salesforce,
PROLIFIQ and CDC Software (now Aptean). “We’re excited for Bill to
extend his leadership of our growth successes in North America to
our global commercial operations,” said Mr. Ryan.
Andrew Roszko, Descartes’ Chief Commercial Officer, will depart
the company in Q2FY26 to pursue another opportunity. Mr. Roszko was
appointed EVP Global Sales in February 2019 and appointed Chief
Commercial Officer in June 2022. “Andrew has been a valuable
contributor to Descartes’ commercial development. We wish him well
in his future endeavors,” said Mr. Ryan.
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, June 4.
Designated numbers are +1 289 514 5100 for North America and +1 800
717 1738 for international, using conference ID 26605.
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 11,
2025, by dialing +1 289 819 1325 or Toll-Free for North America
using +1 888 660 6264 with Playback Passcode: 26605#. 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, security and sustainability of
logistics-intensive businesses. Customers use our modular,
software-as-a-service solutions to route, track and help improve
the safety, performance and compliance of 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 X (Twitter).
Descartes Investor Contact Laurie
McCauley
(519) 746-2969investor@descartes.com
Cautionary Statement Regarding Forward-Looking
Statements 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 “Russia-Ukraine Conflict”), and between
Israel and Hamas (“Israel-Hamas Conflict”), or other potentially
catastrophic events, on our business, results of operations and
financial condition; our assessment of the potential impact of
tariffs, sanctions and other actions by individual countries on
global trade and our business; 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 Russia-Ukraine Conflict and Israel-Hamas Conflict 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 the impact of current and future trade barriers,
including tariffs, further protectionist measures and reactive
countermeasure or 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, acquisition-related expenses, and
contingent consideration incurred due to better-than-expected
performance from acquisitions). 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 2025 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 Q1FY26, Q4FY25, Q3FY25,
Q2FY25, and Q1FY25, which we believe is the most directly
comparable GAAP measure.
|
|
Q1FY26 |
Q4FY25 |
Q3FY25 |
Q2FY25 |
Q1FY25 |
| Net income,
as reported on Consolidated Statements of Operations |
36.2 |
37.4 |
36.6 |
34.7 |
34.7 |
| Adjustments to reconcile to
Adjusted EBITDA: |
|
|
|
|
|
|
Interest expense |
0.2 |
0.2 |
0.2 |
0.2 |
0.3 |
|
Investment income |
(1.9) |
(1.9) |
(2.9) |
(2.7) |
(4.1) |
|
Income tax expense |
11.7 |
11.4 |
11.9 |
13.6 |
11.5 |
|
Depreciation expense |
1.5 |
1.5 |
1.4 |
1.4 |
1.4 |
|
Amortization of intangible assets |
19.1 |
19.4 |
17.5 |
17.4 |
15.0 |
|
Stock-based compensation and related taxes |
4.9 |
5.4 |
5.6 |
5.8 |
4.3 |
|
Other charges |
3.4 |
1.6 |
1.8 |
0.2 |
3.9 |
|
Adjusted EBITDA |
75.1 |
75.0 |
72.1 |
70.6 |
67.0 |
|
|
|
|
|
|
|
|
Revenues |
168.7 |
167.5 |
168.8 |
163.4 |
151.3 |
| Net income as % of
revenues |
21% |
22% |
22% |
21% |
23% |
|
Adjusted EBITDA as % of revenues |
45% |
45% |
43% |
43% |
44% |
| |
|
|
|
|
|
|
The Descartes Systems Group Inc.Condensed
Consolidated Balance Sheets(US dollars in thousands; US
GAAP; Unaudited) |
|
|
|
|
| |
April 30, |
January 31, |
|
|
2025 |
2025 |
|
ASSETS |
|
|
| CURRENT
ASSETS |
|
|
|
Cash |
176,411 |
236,138 |
|
Accounts receivable (net) |
|
|
|
Trade |
60,456 |
53,953 |
|
Other |
15,646 |
16,931 |
|
Prepaid expenses and other |
43,100 |
45,544 |
|
|
295,613 |
352,566 |
| OTHER LONG-TERM
ASSETS |
27,366 |
24,887 |
| PROPERTY AND
EQUIPMENT, NET |
13,944 |
12,481 |
| RIGHT-OF-USE
ASSETS |
7,721 |
7,623 |
| DEFERRED INCOME
TAXES |
4,867 |
3,802 |
| INTANGIBLE ASSETS,
NET |
368,122 |
321,270 |
| GOODWILL |
992,257 |
924,755 |
| |
1,709,890 |
1,647,384 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
| CURRENT
LIABILITIES |
|
|
|
Accounts payable |
23,154 |
20,650 |
|
Accrued liabilities |
73,151 |
79,656 |
|
Lease obligations |
3,402 |
3,178 |
|
Income taxes payable |
9,535 |
9,313 |
|
Deferred revenue |
109,608 |
104,230 |
| |
218,850 |
217,027 |
| LEASE
OBLIGATIONS |
4,533 |
4,718 |
| DEFERRED
REVENUE |
2,196 |
978 |
| INCOME TAXES
PAYABLE |
6,540 |
5,531 |
| DEFERRED INCOME
TAXES |
25,834 |
34,127 |
| |
257,953 |
262,381 |
| |
|
|
| SHAREHOLDERS’
EQUITY |
|
|
| Common shares –
unlimited shares authorized; Shares issued and outstanding totaled
85,782,830 at April 30, 2025 (January 31, 2025 – 85,605,969) |
574,816 |
568,339 |
| Additional paid-in
capital |
498,092 |
503,133 |
| Accumulated other
comprehensive loss |
(21,243) |
(50,497) |
| Retained
earnings |
400,272 |
364,028 |
| |
1,451,937 |
1,385,003 |
| |
1,709,890 |
1,647,384 |
| |
|
|
|
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, |
|
|
2025 |
2024 |
| |
|
|
|
REVENUES |
168,739 |
151,348 |
| COST OF
REVENUES (exclusive of amortization presented separately
below) |
39,747 |
35,413 |
| GROSS
MARGIN |
128,992 |
115,935 |
|
EXPENSES |
|
|
|
Sales and marketing |
18,850 |
17,471 |
|
Research and development |
25,069 |
22,191 |
|
General and administrative |
16,312 |
14,948 |
|
Other charges |
3,449 |
3,918 |
|
Amortization of intangible assets |
19,114 |
15,024 |
|
|
82,794 |
73,552 |
| INCOME
FROM OPERATIONS |
46,198 |
42,383 |
| INTEREST
EXPENSE |
(236) |
(273) |
| INVESTMENT
INCOME |
1,962 |
4,059 |
| INCOME BEFORE
INCOME TAXES |
47,924 |
46,169 |
| INCOME TAX
EXPENSE (RECOVERY) |
|
|
|
Current |
12,251 |
12,318 |
|
Deferred |
(571) |
(816) |
|
|
11,680 |
11,502 |
| NET
INCOME |
36,244 |
34,667 |
| EARNINGS
PER SHARE |
|
|
|
Basic |
0.42 |
0.41 |
|
Diluted |
0.41 |
0.40 |
| WEIGHTED
AVERAGE SHARES OUTSTANDING (thousands) |
|
|
|
Basic |
85,677 |
85,274 |
|
Diluted |
87,577 |
87,116 |
| |
|
|
|
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, |
|
|
2025 |
2024 |
| OPERATING
ACTIVITIES |
|
|
| Net income |
36,244 |
34,667 |
| Adjustments to
reconcile net income to cash provided by operating activities: |
|
|
|
Depreciation |
1,450 |
1,358 |
|
Amortization of intangible assets |
19,114 |
15,024 |
|
Stock-based compensation expense |
4,366 |
3,769 |
|
Other non-cash operating activities |
(34) |
96 |
|
Deferred tax recovery |
(571) |
(816) |
|
Changes in operating assets and liabilities |
(6,966) |
9,643 |
| Cash provided by
operating activities |
53,603 |
63,741 |
| INVESTING
ACTIVITIES |
|
|
|
Additions to property and equipment |
(1,862) |
(1,764) |
|
Acquisition of subsidiaries, net of cash acquired |
(112,327) |
(139,973) |
| Cash used in
investing activities |
(114,189) |
(141,737) |
| FINANCING
ACTIVITIES |
|
|
|
Payment of debt issuance costs |
(38) |
(38) |
|
Issuance of common shares for cash, net of issuance costs |
3,558 |
4,231 |
|
Payment of withholding taxes on net share settlements |
(6,487) |
(6,745) |
| Cash used in
financing activities |
(2,967) |
(2,552) |
| Effect of foreign
exchange rate changes on cash |
3,826 |
(1,482) |
| Decrease
in cash |
(59,727) |
(82,030) |
| Cash,
beginning of period |
236,138 |
320,952 |
| Cash, end
of period |
176,411 |
238,922 |
| |
|
|
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