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Descartes Announces Fiscal 2022 First Quarter Financial Results

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Record Revenues and Income from Operations

WATERLOO, Ontario, June 02, 2021 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2022 first quarter (Q1FY22). 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).

“We believe that by helping our customers succeed, Descartes will succeed. The financial results we’ve reported today reflect that,” said Edward J. Ryan, Descartes’ CEO. “Our customers face complex multi-party, multi-process supply chain and logistics challenges. This is even more so in recent times where our customers have faced rapid changes in supply, demand and trade regulations. Our Global Logistics Network is designed for these complex scenarios, helping shippers, carriers, customs authorities and logistics services providers connect and collaborate to execute the full lifecycle of shipments. We continue to innovate to help our customers prepare for tomorrow’s challenges, and we continue to add more solutions and trading partners to our network. As a result, our customers have trusted us with more of their business.”

Q1FY22 Financial Results
As described in more detail below, key financial highlights for Q1FY22 included:

  • Revenues of $98.8 million, up 18% from $83.7 million in the first quarter of fiscal 2021 (Q1FY21) and up 6% from $93.4 million in the previous quarter (Q4FY21);

  • Revenues were comprised of services revenues of $88.3 million (90% of total revenues), professional services and other revenues of $9.2 million (9% of total revenues) and license revenues of $1.3 million (1% of total revenues). Services revenues were up 19% from $74.1 million in Q1FY21 and up 7% from $82.7 million in Q4FY21;

  • Cash provided by operating activities of $40.9 million, up 49% from $27.5 million in Q1FY21 and up 12% from $36.5 million in Q4FY21;

  • Income from operations of $23.4 million, up 49% from $15.7 million in Q1FY21 and up 7% from $21.9 million in Q4FY21;

  • Net income of $18.4 million, up 67% from $11.0 million in Q1FY21 and up 7% from $17.2 million in Q4FY21;

  • Earnings per share on a diluted basis of $0.21, up 62% from $0.13 in Q1FY21 and up 5% from $0.20 in Q4FY21; and

  • Adjusted EBITDA of $41.5 million, up 26% from $33.0 million in Q1FY21 and up 8% from $38.6 million in Q4FY21. Adjusted EBITDA as a percentage of revenues was 42%, compared to 39% in Q1FY21 and 41% in Q4FY21.

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):

Q1
FY22

Q4
FY21

Q3
FY21

Q2
FY21

Q1
FY21

Revenues

98.8

93.4

87.5

84.0

83.7

Services revenues

88.3

82.7

77.6

75.3

74.1

Gross margin

76%

75%

74%

73%

74%

Cash provided by operating activities

40.9

36.5

33.1

34.1

27.5

Income from operations

23.4

21.9

18.8

15.0

15.7

Net income

18.4

17.2

13.3

10.5

11.0

Net income as a % of revenues

19%

18%

15%

13%

13%

Earnings per diluted share

0.21

0.20

0.15

0.12

0.13

Adjusted EBITDA

41.5

38.6

36.4

34.0

33.0

Adjusted EBITDA as a % of revenues

42%

41%

42%

40%

39%

Cash Position
At April 30, 2021, Descartes had $138.1 million in cash. Cash increased $4.4 million in Q1FY22. The table set forth below provides a summary of cash flows for Q1FY22:

Q1FY22

Cash provided by operating activities

40.9

Additions to property and equipment

(1.6

)

Acquisitions of subsidiaries, net of cash acquired

(35.9

)

Payment of debt issuance costs

(0.1

)

Issuance of common shares for cash

0.6

Effect of foreign exchange rate on cash

0.5

Net change in cash

4.4

Cash, beginning of period

133.7

Cash, end of period

138.1

Acquisition of QuestaWeb
On February 26, 2021, Descartes acquired QuestaWeb, a US-based provider of foreign trade zone (FTZ) and customs compliance solutions. The purchase price for the acquisition was approximately $35.9 million, net of cash acquired, which was funded from cash on hand.

Acquisition of Portrix
On May 7, 2021, Descartes acquired all of the shares of Portrix Logistics Software GmbH, a provider of multimodal rate management solutions for logistics services providers. The purchase price for the acquisition was approximately $25.1 million (EUR 20.7 million), net of cash acquired, which was funded from cash on hand.

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, June 2. Designated numbers are +1 888 465-5079 for North America and +1 416 216-4169 for international, using Passcode 5071 268#.

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 June 9, 2021, 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' 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 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 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 nine 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 Q1FY22, Q4FY21, Q3FY21, Q2FY21, and Q1FY21, which we believe is the most directly comparable GAAP measure.

(US dollars in millions)

Q1FY22

Q4FY21

Q3FY21

Q2FY21

Q1FY21

Net income, as reported on Consolidated Statements of Operations

18.4

17.2

13.3

10.5

11.0

Adjustments to reconcile to Adjusted EBITDA:

Interest expense

0.3

0.3

0.2

0.3

0.3

Investment income

(0.1

)

(0.1

)

-

-

-

Income tax expense

4.8

4.5

5.2

4.2

4.4

Depreciation expense

1.2

1.3

1.5

1.4

1.6

Amortization of intangible assets

13.8

14.1

14.0

14.1

13.7

Stock-based compensation and related taxes

2.6

1.9

1.7

1.8

1.2

Other charges (recoveries)

0.5

(0.6

)

0.5

1.7

0.8

Adjusted EBITDA

41.5

38.6

36.4

34.0

33.0

Revenues

98.8

93.4

87.5

84.0

83.7

Net income as % of revenues

19%

18%

15%

13%

13%

Adjusted EBITDA as % of revenues

42%

41%

42%

40%

39%

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

April 30,

January 31,

2021

2021
(Audited)

ASSETS

CURRENT ASSETS

Cash

138,137

133,661

Accounts receivable (net)

Trade

36,740

37,206

Other

13,188

14,830

Prepaid expenses and other

17,099

16,939

Inventory

599

429

205,763

203,065

OTHER LONG-TERM ASSETS

16,555

15,550

PROPERTY AND EQUIPMENT, NET

12,164

12,089

RIGHT-OF-USE ASSETS

11,464

12,165

DEFERRED INCOME TAXES

12,211

15,216

INTANGIBLE ASSETS, NET

244,443

239,992

GOODWILL

592,768

565,177

1,095,368

1,063,254

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payable

7,582

7,955

Accrued liabilities

38,742

38,879

Lease obligations

4,308

4,168

Income taxes payable

2,097

3,383

Deferred revenue

53,314

49,878

106,043

104,263

LONG-TERM DEBT

-

-

LONG-TERM LEASE OBLIGATIONS

8,411

8,895

LONG-TERM DEFERRED REVENUE

1,336

1,413

LONG-TERM INCOME TAXES PAYABLE

7,855

8,230

DEFERRED INCOME TAXES

28,552

29,385

152,197

152,186

SHAREHOLDERS’ EQUITY

Common shares – unlimited shares authorized; Shares issued and outstanding totaled 84,514,455 at April 30, 2021 (January 31, 2021 – 84,494,658)

532,634

531,825

Additional paid-in capital

466,093

464,102

Accumulated other comprehensive income (loss)

9,693

(1,189

)

Accumulated deficit

(65,249

)

(83,670

)

943,171

911,068

1,095,368

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; Unaudited)

Three Months Ended

April 30,

April 30,

2021

2020

REVENUES

98,838

83,703

COST OF REVENUES

23,849

21,867

GROSS MARGIN

74,989

61,836

EXPENSES

Sales and marketing

11,011

9,322

Research and development

15,219

13,579

General and administrative

11,006

8,737

Other charges

520

783

Amortization of intangible assets

13,835

13,713

51,591

46,134

INCOME FROM OPERATIONS

23,398

15,702

INTEREST EXPENSE

(277

)

(320

)

INVESTMENT INCOME

63

44

INCOME BEFORE INCOME TAXES

23,184

15,426

INCOME TAX EXPENSE

Current

2,134

3,815

Deferred

2,629

564

4,763

4,379

NET INCOME

18,421

11,047

EARNINGS PER SHARE

Basic

0.22

0.13

Diluted

0.21

0.13

WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)

Basic

84,501

84,156

Diluted

86,045

85,456

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,

2021

2020

OPERATING ACTIVITIES

Net income

18,421

11,047

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation

1,215

1,580

Amortization of intangible assets

13,835

13,713

Stock-based compensation expense

2,152

1,168

Other non-cash operating activities

276

78

Deferred tax expense

2,629

564

Changes in operating assets and liabilities

2,378

(617

)

Cash provided by operating activities

40,906

27,533

INVESTING ACTIVITIES

Additions to property and equipment

(1,655

)

(1,022

)

Acquisition of subsidiaries, net of cash acquired

(35,860

)

(24,137

)

Cash used in investing activities

(37,515

)

(25,159

)

FINANCING ACTIVITIES

Proceeds from borrowing on the credit facility

-

10,196

Payment of debt issuance costs

(60

)

(38

)

Issuance of common shares for cash, net of issuance costs

647

16

Cash provided by financing activities

587

10,174

Effect of foreign exchange rate changes on cash

498

(975

)

Increase in cash

4,476

11,573

Cash, beginning of period

133,661

44,403

Cash, end of period

138,137

55,976