The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced
its financial results for its fiscal 2023 first quarter
(
Q1FY23). 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).
“Global supply chains continue to be impacted by
a combination of issues stemming from the ongoing pandemic,
geopolitical events and the current economic environment,” said
Edward J. Ryan, Descartes’ CEO. “It’s more important than ever for
supply chain constituents to share, access and process information
from multiple sources in real-time to help get the right goods in
the right place at the right time. Our Global Logistics Network
(GLN) is designed to do just that, helping shippers, carriers, and
logistics services providers connect and collaborate to plan and
execute shipments in an efficient and sustainable manner. We
continue to see growth from existing customers and new participants
on our network as we add more solutions to the GLN.”
Q1FY23 Financial Results
As described in more detail below, key financial
highlights for Descartes’ Q1FY23 included:
- Revenues of $116.4 million, up 18%
from $98.8 million in the first quarter of fiscal 2022
(Q1FY22) and up 4% from $112.4 million in the
previous quarter (Q4FY22);
- Revenues were comprised of services
revenues of $102.8 million (88% of total revenues), professional
services and other revenues of $11.3 million (10% of total
revenues) and license revenues of $2.3 million (2% of total
revenues). Services revenues were up 16% from $88.3 million in
Q1FY22 and up 3% from $99.5 million in Q4FY22;
- Cash provided by operating activities
of $44.4 million, up 9% from $40.9 million in Q1FY22 and down from
$45.5 million in Q4FY22;
- Income from operations of $30.6
million, up 31% from $23.4 million in Q1FY22 and up 18% from $26.0
million in Q4FY22;
- Net income of $23.1 million, up 26%
from $18.4 million in Q1FY22 and up 20% from $19.2 million in
Q4FY22. Net income as a percentage of revenue was 20%, compared to
19% in Q1FY22 and 17% in Q4FY22;
- Earnings per share on a diluted basis
of $0.27, up 29% from $0.21 in Q1FY22 and up 23% from $0.22 in
Q4FY22; and
- Adjusted EBITDA of $51.2 million, up
23% from $41.5 million in Q1FY22 and up 2% from $50.1 million in
Q4FY22. Adjusted EBITDA as a percentage of revenues was 44%,
compared to 42% in Q1FY22 and 45% in Q4FY22.
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):
|
|
Q1FY23 |
|
Q4FY22 |
|
Q3FY22 |
|
Q2FY22 |
|
Q1FY22 |
|
Revenues |
|
116.4 |
|
112.4 |
|
108.9 |
|
104.6 |
|
98.8 |
|
Services revenues |
|
102.8 |
|
99.5 |
|
97.2 |
|
93.5 |
|
88.3 |
|
Gross margin |
|
76% |
|
76% |
|
76% |
|
76% |
|
76% |
|
Cash provided by operating
activities |
|
44.4 |
|
45.5 |
|
43.3 |
|
46.4 |
|
40.9 |
|
Income from operations |
|
30.6 |
|
26.0 |
|
27.8 |
|
26.1 |
|
23.4 |
|
Net income |
|
23.1 |
|
19.2 |
|
25.5 |
|
23.2 |
|
18.4 |
|
Net income as a % of
revenues |
|
20% |
|
17% |
|
23% |
|
22% |
|
19% |
|
Earnings per diluted
share |
|
0.27 |
|
0.22 |
|
0.30 |
|
0.27 |
|
0.21 |
|
Adjusted EBITDA |
|
51.2 |
|
50.1 |
|
48.2 |
|
45.9 |
|
41.5 |
|
Adjusted EBITDA as a % of
revenues |
|
44% |
|
45% |
|
44% |
|
44% |
|
42% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash PositionAt April 30, 2022,
Descartes had $211.8 million in cash. Cash decreased by $1.6
million in Q1FY23. The table set forth below provides a summary of
cash flows for Q1FY23 in millions of dollars:
|
|
Q1FY23 |
|
Cash provided by operating
activities |
|
44.4 |
|
Additions to property and
equipment |
|
(1.6 |
) |
Acquisitions of subsidiaries,
net of cash acquired |
|
(42.9 |
) |
Issuance of common shares for
cash |
|
0.4 |
|
Effect of foreign exchange
rate on cash |
|
(1.9 |
) |
Net change in cash |
|
(1.6 |
) |
Cash, beginning of period |
|
213.4 |
|
Cash, end of period |
|
211.8 |
|
|
|
|
|
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.
Acquisition of FoxtrotOn April
21, 2022, Descartes acquired substantially all of the assets of
Foxtrot, Inc. (“Foxtrot”), a provider of machine learning-based
mobile route execution solutions. The purchase price for the
acquisition was approximately $4.2 million, net of cash acquired,
which was funded from cash on hand.
Application to Commence Normal Course
Issuer Bid (“NCIB”) for Descartes Common SharesWe have
filed with the Toronto Stock Exchange (TSX) a notice of intention
to commence an NCIB (the “NCIB Application”). If the NCIB
Application is accepted by the TSX, then:
- We will issue a press release
advising of the TSX’s acceptance;
- We expect to be permitted to
repurchase for cancellation, at our discretion during the 12 months
following such acceptance, up to 10% of the “public float”
(calculated in accordance with the rules of the TSX) of Descartes’
issued and outstanding common shares; and
- Any purchases under the NCIB will
be conducted in the open market (or as otherwise permitted),
subject to the terms and limitations applicable to such NCIB, and
will be made through the facilities of the TSX, Nasdaq, other
designated exchanges and/or alternative Canadian trading systems,
or by such other means as may be permitted by the Ontario
Securities Commission or other applicable Canadian Securities
Administrators.
Descartes believes that the NCIB Application
and, if accepted by the TSX, commencement of an NCIB is in
Descartes’ interests and that purchases made pursuant to such NCIB,
if any, will constitute a desirable use of Descartes’ funds.
“We remain committed to efficient capital
deployment, including continuing the profitable growth of the
Global Logistics Network by acquiring and integrating complementary
businesses,” said Allan Brett, Chief Financial Officer. “The NCIB,
if approved by the TSX, will provide us with additional flexibility
to respond to varied capital market conditions.”
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 1. Designated numbers are +1 866 455 3403 for North
America and +1 647 484 8332 for international, using Passcode
67788302#.
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 log-in is required approximately 10 minutes
beforehand.
Replays of the conference call will be available
until June 8, 2022, at the following address:
https://onlinexperiences.com/Launch/QReg/ShowUUID=63A61ACB-E46E-44CE-B717-173ECEC7C261&LangLocaleID=1033
using Passcode EV00134916. 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 +1-519-746-6114 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 war in Ukraine and the
COVID-19 pandemic on our business, results of operations and
financial condition; our application to commence normal course
issuer bid and potential purchases pursuant to such
bid 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 war in 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 five acquisitions
since the beginning of fiscal 2022 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 Q1FY23,
Q4FY22, Q3FY22, Q2FY22, and Q1FY22, which we believe is the most
directly comparable GAAP measure.
(US dollars in millions) |
|
Q1FY23 |
|
Q4FY22 |
|
Q3FY22 |
|
Q2FY22 |
|
Q1FY22 |
|
Net income,
as reported on Consolidated Statements of Operations |
|
23.1 |
|
19.2 |
|
25.5 |
|
23.2 |
|
18.4 |
|
Adjustments to reconcile to
Adjusted EBITDA: |
|
|
|
|
|
|
Interest expense |
|
0.3 |
|
0.3 |
|
0.3 |
|
0.3 |
|
0.3 |
|
Investment income |
|
(0.2) |
|
(0.1) |
|
(0.1) |
|
(0.1) |
|
(0.1) |
|
Income tax expense |
|
7.4 |
|
6.7 |
|
2.1 |
|
2.7 |
|
4.8 |
|
Depreciation expense |
|
1.2 |
|
1.3 |
|
1.3 |
|
1.3 |
|
1.2 |
|
Amortization of intangible assets |
|
15.1 |
|
15.0 |
|
15.4 |
|
15.0 |
|
13.8 |
|
Stock-based compensation and related taxes |
|
2.9 |
|
2.9 |
|
3.0 |
|
3.1 |
|
2.6 |
|
Other charges (recoveries) |
|
1.4 |
|
4.8 |
|
0.7 |
|
0.4 |
|
0.5 |
|
Adjusted EBITDA |
|
51.2 |
|
50.1 |
|
48.2 |
|
45.9 |
|
41.5 |
|
|
|
|
|
|
|
|
Revenues |
|
116.4 |
|
112.4 |
|
108.9 |
|
104.6 |
|
98.8 |
|
Net income as % of
revenues |
|
20% |
|
17% |
|
23% |
|
22% |
|
19% |
|
Adjusted EBITDA as % of revenues |
|
44% |
|
45% |
|
44% |
|
44% |
|
42% |
|
The
Descartes Systems Group Inc.Condensed Consolidated
Balance Sheets(US dollars in thousands; US GAAP;
Unaudited) |
|
|
|
April 30, |
|
January 31, |
|
|
|
2022 |
|
2022 (Audited) |
|
ASSETS |
|
|
|
CURRENT ASSETS |
|
|
|
Cash |
|
211,779 |
|
213,437 |
|
Accounts receivable (net) |
|
|
|
Trade |
|
45,182 |
|
41,705 |
|
Other |
|
14,310 |
|
14,075 |
|
Prepaid expenses and other |
|
20,174 |
|
21,974 |
|
Inventory |
|
806 |
|
868 |
|
|
|
292,251 |
|
292,059 |
|
OTHER LONG-TERM ASSETS |
|
19,191 |
|
18,652 |
|
PROPERTY AND EQUIPMENT,
NET |
|
11,143 |
|
10,817 |
|
RIGHT-OF-USE ASSETS |
|
9,439 |
|
10,571 |
|
DEFERRED INCOME TAXES |
|
13,738 |
|
14,962 |
|
INTANGIBLE ASSETS, NET |
|
239,768 |
|
229,609 |
|
GOODWILL |
|
630,076 |
|
608,761 |
|
|
|
1,215,606 |
|
1,185,431 |
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
CURRENT LIABILITIES |
|
|
|
Accounts payable |
|
9,662 |
|
10,566 |
|
Accrued liabilities |
|
67,884 |
|
56,442 |
|
Lease obligations |
|
3,872 |
|
4,029 |
|
Income taxes payable |
|
4,888 |
|
5,616 |
|
Deferred revenue |
|
62,340 |
|
56,780 |
|
|
|
148,646 |
|
133,433 |
|
LONG-TERM DEBT |
|
- |
|
- |
|
LEASE OBLIGATIONS |
|
6,288 |
|
7,382 |
|
DEFERRED REVENUE |
|
968 |
|
1,920 |
|
INCOME TAXES PAYABLE |
|
8,306 |
|
7,354 |
|
DEFERRED INCOME TAXES |
|
36,906 |
|
35,523 |
|
|
|
201,114 |
|
185,612 |
|
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
Common shares – unlimited
shares authorized; Shares issued and outstanding totaled 84,781,562
at April 30, 2022 (January 31, 2022 – 84,756,210) |
|
536,842 |
|
536,297 |
|
Additional paid-in
capital |
|
475,934 |
|
473,303 |
|
Accumulated other
comprehensive loss |
|
(24,011 |
) |
(12,393 |
) |
Retained earnings |
|
25,727 |
|
2,612 |
|
|
|
1,014,492 |
|
999,819 |
|
|
|
1,215,606 |
|
1,185,431 |
|
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, |
|
|
|
2022 |
|
2021 |
|
|
|
|
|
REVENUES |
|
116,395 |
|
98,838 |
|
COST OF
REVENUES |
|
27,823 |
|
23,849 |
|
GROSS
MARGIN |
|
88,572 |
|
74,989 |
|
EXPENSES |
|
|
|
Sales and marketing |
|
13,236 |
|
11,011 |
|
Research and development |
|
16,569 |
|
15,219 |
|
General and administrative |
|
11,642 |
|
11,006 |
|
Other charges |
|
1,482 |
|
520 |
|
Amortization of intangible assets |
|
15,048 |
|
13,835 |
|
|
|
57,977 |
|
51,591 |
|
INCOME FROM
OPERATIONS |
|
30,595 |
|
23,398 |
|
INTEREST
EXPENSE |
|
(278 |
) |
(277 |
) |
INVESTMENT
INCOME |
|
153 |
|
63 |
|
INCOME BEFORE INCOME
TAXES |
|
30,470 |
|
23,184 |
|
INCOME TAX
EXPENSE |
|
|
|
Current |
|
4,841 |
|
2,134 |
|
Deferred |
|
2,514 |
|
2,629 |
|
|
|
7,355 |
|
4,763 |
|
NET
INCOME |
|
23,115 |
|
18,421 |
|
EARNINGS PER
SHARE |
|
|
|
Basic |
|
0.27 |
|
0.22 |
|
Diluted |
|
0.27 |
|
0.21 |
|
WEIGHTED AVERAGE
SHARES OUTSTANDING (thousands) |
|
|
|
Basic |
|
84,765 |
|
84,501 |
|
Diluted |
|
86,348 |
|
86,045 |
|
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, |
|
|
|
2022 |
|
2021 |
|
OPERATING
ACTIVITIES |
|
|
|
Net income |
|
23,115 |
|
18,421 |
|
Adjustments to reconcile net
income to cash provided by operating activities: |
|
|
|
Depreciation |
|
1,245 |
|
1,215 |
|
Amortization of intangible assets |
|
15,048 |
|
13,835 |
|
Stock-based compensation expense |
|
2,787 |
|
2,152 |
|
Other non-cash operating activities |
|
(17 |
) |
276 |
|
Deferred tax expense |
|
2,514 |
|
2,629 |
|
Changes in operating assets and liabilities |
|
(260 |
) |
2,378 |
|
Cash provided by operating
activities |
|
44,432 |
|
40,906 |
|
INVESTING
ACTIVITIES |
|
|
|
Additions to property and equipment |
|
(1,636 |
) |
(1,655 |
) |
Acquisition of subsidiaries, net of cash acquired |
|
(42,892 |
) |
(35,860 |
) |
Cash used in investing
activities |
|
(44,528 |
) |
(37,515 |
) |
FINANCING
ACTIVITIES |
|
|
|
Payment of debt issuance costs |
|
(66 |
) |
(60 |
) |
Issuance of common shares for cash, net of issuance costs |
|
388 |
|
647 |
|
Cash provided by financing
activities |
|
322 |
|
587 |
|
Effect of foreign exchange
rate changes on cash |
|
(1,884 |
) |
498 |
|
(Decrease) / increase
in cash |
|
(1,658 |
) |
4,476 |
|
Cash, beginning of
period |
|
213,437 |
|
133,661 |
|
Cash, end of
period |
|
211,779 |
|
138,137 |
|
Supplemental
disclosure of cash flow information: |
|
|
|
Cash paid during the period for interest |
|
- |
|
- |
|
Cash paid during the period for income taxes |
|
4,094 |
|
3,178 |
|
Descartes Systems (TSX:DSG)
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From Mar 2024 to Apr 2024
Descartes Systems (TSX:DSG)
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From Apr 2023 to Apr 2024