The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2022 fourth quarter (Q4FY22) and year (FY22) ended January 31, 2022. 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).

“Changes in geopolitical and economic environments create complexity and uncertainty for our customers,” said Edward J. Ryan, Descartes’ CEO. “Inflationary pressures and international sanctions/restrictions, among other things, add to the challenges faced by today’s supply chain participants. Our Global Logistics Network and various compliance solutions help our customers understand and comply with sanctions, adapt to rapidly shifting regulatory conditions, and quickly make cost-effective changes in their supply chains. We continue to leverage our experience and financial position to grow our Global Logistics Network for the benefit of our customers, such as the recent addition of NetCHB to our business.”

FY22 Financial Results

As described in more detail below, key financial highlights for Descartes’ FY22 included:

  • Revenues of $424.7 million, up 22% from $348.7 million in the same period a year ago (FY21);
  • Revenues were comprised of services revenues of $378.5 million (89% of total revenues), professional services and other revenues of $41.1 million (10% of total revenues) and license revenues of $5.1 million (1% of total revenues). Services revenues were up 22% from $309.7 million in FY21;
  • Cash provided by operating activities of $176.1 million, up 34% from $131.2 million in FY21;
  • Income from operations of $103.4 million, up 45% from $71.4 million in FY21;
  • Net income of $86.3 million, up 66% from $52.1 million in FY21. Net income as a percentage of revenues was 20%, compared to 15% in FY21;
  • Earnings per share on a diluted basis of $1.00, up 64% from $0.61 in FY21; and
  • Adjusted EBITDA of $185.7 million, up 31% from $142.0 million in FY21. Adjusted EBITDA as a percentage of revenues was 44%, compared to 41% in FY21.

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 FY22 and FY21 (dollar amounts in millions):

  FY22 FY21
Revenues 424.7 348.7
Services revenues 378.5 309.7
Gross margin 76% 74%
Cash provided by operating activities 176.1 131.2
Income from operations 103.4 71.4
Net income 86.3 52.1
Net income as a % of revenues 20% 15%
Earnings per diluted share 1.00 0.61
Adjusted EBITDA 185.7 142.0
Adjusted EBITDA as a % of revenues 44% 41%

Q4FY22 Financial ResultsAs described in more detail below, key financial highlights for Q4FY22 included:

  • Revenues of $112.4 million, up 20% from $93.4 million in the fourth quarter of fiscal 2021 (Q4FY21) and up 3% from $108.9 million in the previous quarter (Q3FY22);
  • Revenues were comprised of services revenues of $99.5 million (89% of total revenues), professional services and other revenues of $11.7 million (10% of total revenues) and license revenues of $1.2 million (1% of total revenues). Services revenues were up 20% from $82.7 million in Q4FY21 and up 2% from $97.2 million in Q3FY22;
  • Cash provided by operating activities of $45.5 million, up 25% from $36.5 million in Q4FY21 and up 5% from $43.3 million in Q3FY22;
  • Income from operations of $26.0 million, up 19% from $21.9 million in Q4FY21 and down from $27.8 million in Q3FY22;
  • Net income of $19.2 million, up 12% from $17.2 million in Q4FY21 and down from $25.5 million in Q3FY22. Net income as a percentage of revenues was 17%, compared to 18% in Q4FY21 and 23% in Q3FY22;
  • Earnings per share on a diluted basis of $0.22, up 10% from $0.20 in Q4FY21 and down from $0.30 in Q3FY22; and
  • Adjusted EBITDA of $50.1 million, up 30% from $38.6 million in Q4FY21 and up 4% from $48.2 million in Q3FY22. Adjusted EBITDA as a percentage of revenues was 45%, compared to 41% in Q4FY21 and 44% in Q3FY22.

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):

  Q4FY22 Q3FY22 Q2FY22 Q1FY22 Q4FY21
Revenues 112.4 108.9 104.6 98.8 93.4
Services revenues 99.5 97.2 93.5 88.3 82.7
Gross margin 76% 76% 76% 76% 75%
Cash provided by operating activities 45.5 43.3 46.4 40.9 36.5
Income from operations 26.0 27.8 26.1 23.4 21.9
Net income 19.2 25.5 23.2 18.4 17.2
Net income as a % of revenues 17% 23% 22% 19% 18%
Earnings per diluted share 0.22 0.30 0.27 0.21 0.20
Adjusted EBITDA 50.1 48.2 45.9 41.5 38.6
Adjusted EBITDA as a % of revenues 45% 44% 44% 42% 41%

Cash PositionAt January 31, 2022, Descartes had $213.4 million in cash. Cash increased by $42.3 million in Q4FY22 and increased $79.7 million in FY22. The table set forth below provides a summary of cash flows for Q4FY22 and FY22 in millions of dollars:

  Q4FY22   FY22  
Cash provided by operating activities 45.5   176.1  
Additions to property and equipment (1.0 ) (4.8 )
Acquisitions of subsidiaries, net of cash acquired -   (90.3 )
Credit facility and other debt repayments -   (1.1 )
Payment of debt issuance costs -   (0.1 )
Issuances of common shares, net of issuance costs          0.1            2.7  
Effect of foreign exchange rate on cash (2.3 ) (2.8 )
Net change in cash 42.3   79.7  
Cash, beginning of period        171.1          133.7  
Cash, end of period 213.4   213.4  

Acquisition of NetCHBOn February 9, 2022, Descartes acquired all of the shares of NetCHB, LLC (“NetCHB”), a provider of customs filing solutions in the US. The purchase price for the acquisition was approximately $38.7 million, net of cash acquired. The purchase price was funded from cash on hand. There is also potential performance-based purchase price consideration of up to $60.0 million based on NetCHB achieving revenue-based targets over the first two years post-acquisition.

Conference CallMembers of Descartes' executive management team will host a conference call to discuss the company's financial results today at 5:30 p.m. ET, Wednesday, March 2. Designated numbers are +1 888 465-5079 for North America and +1 416 216-4169 for international, using Passcode 8617702#.

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. A digital replay of the conference call will be available following the call from 8:00 p.m. ET, and until March 9, 2022, 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 +1-519-746-6114 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' 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 current and future potential impact of the crisis in the Ukraine and the COVID-19 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; 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 current crisis in the Ukraine and the COVID-19 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 seven acquisitions since the beginning of fiscal 2021 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 FY22 and FY21, which we believe is the most directly comparable GAAP measure.

(US dollars in millions) FY22   FY21  
Net income, as reported on Consolidated Statements of Operations 86.3   52.1  
Adjustments to reconcile to Adjusted EBITDA:    
Interest expense 1.1   1.2  
Investment income (0.3 ) (0.2 )
Income tax expense 16.3   18.3  
Depreciation expense 5.1   5.8  
Amortization of intangible assets 59.1   55.9  
Stock-based compensation and related taxes 11.6   6.6  
Other charges 6.5   2.3  
Adjusted EBITDA 185.7   142.0  
     
Revenues 424.7   348.7  
Net income as % of revenues 20 % 15 %
Adjusted EBITDA as % of revenues 44 % 41 %

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 Q4FY22, Q3FY22, Q2FY22, Q1FY22, and Q4FY21, which we believe is the most directly comparable GAAP measure.

(US dollars in millions) Q4FY22   Q3FY22   Q2FY22   Q1FY22   Q4FY21  
Net income, as reported on Consolidated Statements of Operations 19.2   25.5   23.2   18.4   17.2  
Adjustments to reconcile to Adjusted EBITDA:          
Interest expense 0.3   0.3   0.3   0.3   0.3  
Investment income (0.1 ) (0.1 ) (0.1 ) (0.1 ) (0.1 )
Income tax expense 6.7   2.1   2.7   4.8   4.5  
Depreciation expense 1.3   1.3   1.3   1.2   1.3  
Amortization of intangible assets 15.0   15.4   15.0   13.8   14.1  
Stock-based compensation and related taxes 2.9   3.0   3.1   2.6   1.9  
Other charges (recoveries) 4.8   0.7   0.4   0.5   (0.6 )
Adjusted EBITDA 50.1   48.2   45.9   41.5   38.6  
           
Revenues 112.4   108.9   104.6   98.8   93.4  
Net income as % of revenues 17 % 23 % 22 % 19 % 18 %
Adjusted EBITDA as % of revenues 45 % 44 % 44 % 42 % 41 %

THE DESCARTES SYSTEMS GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US DOLLARS IN THOUSANDS; US GAAP)             
 
  January 31,   January 31,  
  2022   2021  
ASSETS    
CURRENT ASSETS    
Cash 213,437   133,661  
Accounts receivable (net)    
Trade 41,705   37,206  
Other 14,075   14,830  
Prepaid expenses and other 21,974   16,939  
Inventory 868   429  
  292,059   203,065  
OTHER LONG-TERM ASSETS 18,652   15,550  
PROPERTY AND EQUIPMENT, NET 10,817   12,089  
RIGHT-OF-USE ASSETS 10,571   12,165  
DEFERRED INCOME TAXES 14,962   15,216  
INTANGIBLE ASSETS, NET 229,609   239,992  
GOODWILL 608,761   565,177  
  1,185,431   1,063,254  
LIABILITIES AND SHAREHOLDERS’ EQUITY    
CURRENT LIABILITIES    
Accounts payable 10,566   7,955  
Accrued liabilities 56,442   38,879  
Lease obligations 4,029   4,168  
Income taxes payable 5,616   3,383  
Deferred revenue 56,780   49,878  
  133,433   104,263  
LONG-TERM DEBT -   -  
LONG-TERM LEASE OBLIGATIONS 7,382   8,895  
LONG-TERM DEFERRED REVENUE 1,920   1,413  
LONG-TERM INCOME TAXES PAYABLE 7,354   8,230  
DEFERRED INCOME TAXES 35,523   29,385  
  185,612   152,186  
     
SHAREHOLDERS’ EQUITY    
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 84,756,210 at January 31, 2022 (January 31, 2021 – 84,494,658) 536,297   531,825  
Additional paid-in capital 473,303   464,102  
Accumulated other comprehensive loss (12,393 ) (1,189 )
Retained earnings (accumulated deficit) 2,612   (83,670 )
  999,819   911,068  
  1,185,431   1,063,254  

 

THE DESCARTES SYSTEMS GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND WEIGHTED AVERAGE SHARE AMOUNTS; US GAAP)
 
  January 31,   January 31,   January 31,  
Year Ended  2022   2021   2020  
       
REVENUES 424,690   348,664   325,791  
COST OF REVENUES 101,810   89,910   85,721  
GROSS MARGIN 322,880   258,754   240,070  
EXPENSES      
Sales and marketing 46,895   38,785   40,389  
Research and development 62,570   54,066   53,513  
General and administrative 44,454   36,267   34,628  
Other charges 6,428   2,335   3,797  
Amortization of intangible assets 59,099   55,905   55,485  
  219,446   187,358   187,812  
INCOME FROM OPERATIONS 103,434   71,396   52,258  
INTEREST EXPENSE (1,123 ) (1,186 ) (4,416 )
INVESTMENT INCOME 299   159   193  
INCOME BEFORE INCOME TAXES 102,610   70,369   48,035  
INCOME TAX EXPENSE      
Current 14,814   3,746   5,295  
Deferred 1,514   14,523   5,743  
  16,328   18,269   11,038  
NET INCOME 86,282   52,100   36,997  
EARNINGS PER SHARE      
Basic 1.02   0.62   0.45  
Diluted 1.00   0.61   0.45  
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)      
Basic 84,591   84,360   81,659  
Diluted 86,200   85,756   82,867  

 

THE DESCARTES SYSTEMS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS; US GAAP)
 
Year Ended  January 31,   January 31,   January 31,  
  2022   2021   2020  
OPERATING ACTIVITIES        
Net income 86,282   52,100   36,997  
Adjustments to reconcile net income to cash provided by operating activities:      
Depreciation 5,129   5,757   6,037  
Amortization of intangible assets 59,099   55,905   55,485  
Stock-based compensation expense 11,017   6,313   4,909  
Other non-cash operating activities 308   207   337  
Deferred tax expense 1,514   14,523   5,743  
Changes in operating assets and liabilities: 12,789   (3,575 ) (5,256 )
Cash provided by operating activities 176,138   131,230   104,252  
INVESTING ACTIVITIES      
Additions to property and equipment (4,829 ) (3,759 ) (4,900 )
Acquisition of subsidiaries, net of cash acquired (90,278 ) (48,403 ) (292,053 )
Cash used in investing activities (95,107 ) (52,162 ) (296,953 )
FINANCING ACTIVITIES      
Proceeds from borrowing on the credit facility -   10,196   297,015  
Credit facility and other debt repayments (1,068 ) (10,793 ) (322,634 )
Payment of debt issuance costs (72 ) (40 ) (1,400 )
Issuance of common shares for cash, net of issuance costs 2,656   6,194   237,973  
Payment of contingent consideration -   -   (785 )
Cash provided by financing activities 1,516   5,557   210,169  
Effect of foreign exchange rate changes on cash (2,771 ) 4,633   (363 )
Increase in cash 79,776   89,258   17,105  
Cash, beginning of year 133,661   44,403   27,298  
Cash, end of year 213,437   133,661   44,403  
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