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Descartes Announces Fiscal 2024 Second Quarter Financial Results

The Descartes Systems Group Inc.
The Descartes Systems Group Inc.

Record Revenues and Income from Operations

WATERLOO, Ontario, Sept. 06, 2023 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2024 second quarter (Q2FY24). 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 meet challenges facing their logistics and supply chain operations,” said Edward J. Ryan, Descartes’ CEO. “As our customers succeed, they trust us to invest in the GLN's technologies to power logistics and supply chains into the future. Our strong financial results reflect the confidence our customers and other stakeholders have in Descartes and its role in helping their businesses.”

Q2FY24 Financial Results
As described in more detail below, key financial highlights for Descartes’ Q2FY24 included:

  • Revenues of $143.4 million, up 17% from $123.0 million in the second quarter of fiscal 2023 (Q2FY23) and up 5% from $136.6 million in the previous quarter (Q1FY24);

  • Revenues were comprised of services revenues of $130.7 million (91% of total revenues), professional services and other revenues of $11.3 million (8% of total revenues) and license revenues of $1.4 million (1% of total revenues). Services revenues were up 19% from $109.4 million in Q2FY23 and up 5% from $124.1 million in Q1FY24;

  • Cash provided by operating activities of $52.0 million, up 12% from $46.4 million in Q2FY23 and up 6% from $48.9 million in Q1FY24;

  • Income from operations of $36.8 million, up 17% from $31.5 million in Q2FY23 and up 1% from $36.5 million in Q1FY24;

  • Net income of $28.1 million, up 23% from $22.9 million in Q2FY23 and down from $29.4 million in Q1FY24. Net income as a percentage of revenue was 20%, compared to 19% in Q2FY23 and 22% in Q1FY24;

  • Earnings per share on a diluted basis of $0.32, up 19% from $0.27 in Q2FY23 and down from $0.34 in Q1FY24, respectively; and

  • Adjusted EBITDA of $60.6 million, up 12% from $54.0 million in Q2FY23 and up 5% from $57.7 million in Q1FY24. Adjusted EBITDA as a percentage of revenues was 42%, compared to 44% and 42% in Q2FY23 and Q1FY24, respectively.

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):

 

Q2
FY24

 

Q1
FY24

 

Q4
FY23

 

Q3
FY23

 

Q2
FY23

 

Revenues

143.4

 

136.6

 

125.1

 

121.5

 

123.0

 

Services revenues

130.7

 

124.1

 

113.4

 

110.1

 

109.4

 

Gross margin

76%

 

76%

 

77%

 

77%

 

77%

 

Cash provided by operating activities

52.0

 

48.9

 

50.6

 

50.9

 

46.4

 

Income from operations

36.8

 

36.5

 

33.6

 

34.8

 

31.5

 

Net income

28.1

 

29.4

 

29.8

 

26.5

 

22.9

 

Net income as a % of revenues

20%

 

22%

 

24%

 

22%

 

19%

 

Earnings per diluted share

0.32

 

0.34

 

0.34

 

0.31

 

0.27

 

Adjusted EBITDA

60.6

 

57.7

 

55.4

 

54.5

 

54.0

 

Adjusted EBITDA as a % of revenues

42%

 

42%

 

44%

 

45%

 

44%

 

Year-to-Date Financial Results

As described in more detail below, key financial highlights for Descartes’ six-month period ended July 31, 2023 (1HFY24) included:

  • Revenues of $280.0 million, up 17% from $239.4 million in the same period a year ago (1HFY23);

  • Revenues were comprised of services revenues of $254.9 million (91% of total revenues), professional services and other revenues of $22.8 million (8% of total revenues) and license revenues of $2.3 million (1% of total revenues). Services revenues were up 20% from $212.2 million in 1HFY23;

  • Cash provided by operating activities of $100.9 million, up 11% from $90.8 million in 1HFY23;

  • Income from operations of $73.4 million, up 18% from $62.1 million in 1HFY23;

  • Net income of $57.5 million, up 25% from $46.0 million in 1HFY23. Net income as a percentage of revenues was 21%, compared to 19% in 1HFY23;

  • Earnings per share on a diluted basis of $0.66, up 25% from $0.53 in 1HFY23; and

  • Adjusted EBITDA of $118.3 million, up 12% from $105.2 million in 1HFY23. Adjusted EBITDA as a percentage of revenues was 42%, compared to 44% in 1HFY23.

The following table summarizes Descartes’ results in the categories specified below over 1HFY24 and 1HFY23 (unaudited, dollar amounts in millions):

 

1HFY24

 

1HFY23

 

Revenues

280.0

 

239.4

 

Services revenues

254.9

 

212.2

 

Gross margin

76%

 

76%

 

Cash provided by operating activities

100.9

 

90.8

 

Income from operations

73.4

 

62.1

 

Net income

57.5

 

46.0

 

Net income as a % of revenues

21%

 

19%

 

Earnings per diluted share

0.66

 

0.53

 

Adjusted EBITDA

118.3

 

105.2

 

Adjusted EBITDA as a % of revenues

42%

 

44%

 

Cash Position

At July 31, 2023, Descartes had $227.4 million in cash. Cash increased by $45.2 million in Q2FY24 and decreased $49.0 million in 1HFY24. The table set forth below provides a summary of cash flows for Q2FY24 and 1HFY24 in millions of dollars:

 

Q2FY24

 

1HFY24

 

Cash provided by operating activities

52.0

 

100.9

 

Additions to property and equipment

(2.2

)

(3.4

)

Acquisitions of subsidiaries, net of cash acquired

-

 

(142.7

)

Issuances of common shares, net of issuance costs

0.6

 

6.0

 

Payment of contingent consideration

(6.3

)

(6.3

)

Payment of withholding taxes on net share settlements

-

 

(4.9

)

Effect of foreign exchange rate on cash

1.1

 

1.4

 

Net change in cash

45.2

 

(49.0

)

Cash, beginning of period

182.2

 

276.4

 

Cash, end of period

227.4

 

227.4

 

Conference Call

Members 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, September 6. Designated numbers are +1 416 764 8658 for North America and +1 888 886 7786 for international, using conference ID 54207156#.

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 September 13, 2023, by dialling +1 416 764 8692 or Toll-Free for North America using +1 877 674 7070 with Playback Passcode: 207156#. 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, 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 X (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 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 Q2FY24, Q1FY24, Q4FY23, Q3FY23, and Q2FY23, which we believe is the most directly comparable GAAP measure.

(US dollars in millions)

Q2FY24

Q1FY24

Q4FY23

Q3FY23

Q2FY23

Net income, as reported on Consolidated Statements of Operations

28.1

 

29.4

 

29.8

 

26.5

 

22.9

 

Adjustments to reconcile to Adjusted EBITDA:

 

 

 

 

 

Interest expense

0.3

 

0.3

 

0.3

 

0.3

 

0.3

 

Investment income

(2.0

)

(1.6

)

(2.8

)

(1.1

)

(0.5

)

Income tax expense

10.4

 

8.4

 

6.3

 

9.0

 

8.8

 

Depreciation expense

1.4

 

1.3

 

1.4

 

1.3

 

1.3

 

Amortization of intangible assets

15.5

 

14.7

 

14.3

 

14.7

 

16.1

 

Stock-based compensation and related taxes

4.4

 

3.3

 

3.6

 

3.6

 

3.8

 

Other charges

2.5

 

1.9

 

2.5

 

0.2

 

1.3

 

Adjusted EBITDA

60.6

 

57.7

 

55.4

 

54.5

 

54.0

 

 

 

 

 

 

 

Revenues

143.4

 

136.6

 

125.1

 

121.5

 

123.0

 

Net income as % of revenues

20%

 

22%

 

24%

 

22%

 

19%

 

Adjusted EBITDA as % of revenues

42%

 

42%

 

44%

 

45%

 

44%

 

 

 

 

 

 

 


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

 

July 31,

January 31,

 

2023

 

2023

 

ASSETS

 

 

CURRENT ASSETS

 

 

Cash

227,409

 

276,385

 

Accounts receivable (net)

 

 

Trade

56,236

 

45,173

 

Other

13,133

 

11,658

 

Prepaid expenses and other

26,426

 

24,676

 

Inventory

970

 

759

 

 

324,174

 

358,651

 

OTHER LONG-TERM ASSETS

22,657

 

22,247

 

PROPERTY AND EQUIPMENT, NET

12,603

 

11,434

 

RIGHT-OF-USE ASSETS

5,798

 

6,774

 

DEFERRED INCOME TAXES

3,760

 

11,483

 

INTANGIBLE ASSETS, NET

282,026

 

229,808

 

GOODWILL

765,104

 

675,647

 

 

1,416,122

 

1,316,044

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

CURRENT LIABILITIES

 

 

Accounts payable

 

12,351

 

10,569

Accrued liabilities

 

98,091

 

80,309

Lease obligations

 

3,177

 

3,397

Income taxes payable

 

4,758

 

7,536

Deferred revenue

 

85,421

 

67,784

 

203,798

 

169,595

 

LONG-TERM DEBT

-

 

-

 

LEASE OBLIGATIONS

2,977

 

3,923

 

DEFERRED REVENUE

1,773

 

1,615

 

INCOME TAXES PAYABLE

7,177

 

6,120

 

DEFERRED INCOME TAXES

26,593

 

35,400

 

 

242,318

 

216,653

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

Common shares – unlimited shares authorized; Shares issued and outstanding totaled 85,095,929 at July 31, 2023 (January 31, 2023 – 84,820,100)

546,984

 

538,448

 

Additional paid-in capital

486,520

 

486,551

 

Accumulated other comprehensive income (loss)

(22,017

)

(30,456

)

Retained earnings

162,317

 

104,848

 

 

1,173,804

 

1,099,391

 

     

1,416,122

 

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

 

Six Months Ended

 

July 31,

July 31,

 

July 31,

July 31,

 

2023

 

2022

 

 

2023

 

2022

 

 

 

 

 

 

 

REVENUES

143,393

 

123,011

 

 

280,007

 

239,406

 

COST OF REVENUES

34,974

 

28,919

 

 

67,859

 

56,742

 

GROSS MARGIN

108,419

 

94,092

 

 

212,148

 

182,664

 

EXPENSES

 

 

 

 

 

Sales and marketing

17,321

 

14,315

 

 

34,374

 

27,551

 

Research and development

21,738

 

18,155

 

 

41,805

 

34,724

 

General and administrative

14,591

 

12,700

 

 

28,035

 

24,342

 

Other charges

2,455

 

1,289

 

 

4,388

 

2,771

 

Amortization of intangible assets

15,484

 

16,086

 

 

30,158

 

31,134

 

 

71,589

 

62,545

 

 

138,760

 

120,522

 

INCOME FROM OPERATIONS

36,830

 

31,547

 

 

73,388

 

62,142

 

INTEREST EXPENSE

(340

)

(284

)

 

(677

)

(562

)

INVESTMENT INCOME

2,009

 

461

 

 

3,570

 

614

 

INCOME BEFORE INCOME TAXES

38,499

 

31,724

 

 

76,281

 

62,194

 

INCOME TAX EXPENSE (RECOVERY)

 

 

 

 

 

Current

12,252

 

7,498

 

 

19,873

 

12,339

 

Deferred

(1,869

)

1,324

 

 

(1,061

)

3,838

 

 

10,383

 

8,822

 

 

18,812

 

16,177

 

NET INCOME

28,116

 

22,902

 

 

57,469

 

46,017

 

EARNINGS PER SHARE

 

 

 

 

 

Basic

0.33

 

0.27

 

 

0.68

 

0.54

 

Diluted

0.32

 

0.27

 

 

0.66

 

0.53

 

WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)

 

 

 

 

 

Basic

85,083

 

84,783

 

 

85,017

 

84,774

 

Diluted

86,783

 

86,338

 

 

86,764

 

86,344

 

The Descartes Systems Group Inc.
Condensed Consolidated Statements of Cash Flows
(US dollars in thousands; US GAAP; Unaudited)

 

Three Months Ended

 

Six Months Ended

 

 

July 31,

July 31,

 

July 31,

 

July 31,

 

 

2023

 

2022

 

2023

 

2022

 

OPERATING ACTIVITIES

 

 

 

 

Net income

28,116

 

22,902

 

57,469

 

46,017

 

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

 

 

 

 

Depreciation

1,363

 

1,301

 

2,628

 

2,546

 

Amortization of intangible assets

15,484

 

16,086

 

30,158

 

31,134

 

Stock-based compensation expense

4,451

 

3,736

 

7,370

 

6,523

 

Other non-cash operating activities

(148

)

68

 

72

 

51

 

Deferred tax (recovery) expense

(1,869

)

1,324

 

(1,061

)

3,838

 

Changes in operating assets and liabilities

4,614

 

982

 

4,230

 

722

 

Cash provided by operating activities

52,011

 

46,399

 

100,866

 

90,831

 

INVESTING ACTIVITIES

 

 

 

 

Additions to property and equipment

(2,180

)

(1,786

)

(3,383

)

(3,422

)

Acquisition of subsidiaries, net of cash acquired

-

 

(61,096

)

(142,700

)

(103,988

)

Cash used in investing activities

(2,180

)

(62,882

)

(146,083

)

(107,410

)

FINANCING ACTIVITIES

 

 

 

 

Payment of debt issuance costs

-

 

-

 

(39

)

(66

)

Issuance of common shares for cash, net of issuance costs

566

 

111

 

6,021

 

499

 

Payment of contingent consideration

(6,320

)

(5,215

)

(6,320

)

(5,215

)

Payment of withholding taxes on net share settlements

-

 

-

 

(4,886

)

-

 

Cash used in financing activities

(5,754

)

(5,104

)

(5,224

)

(4,782

)

Effect of foreign exchange rate changes on cash

1,145

 

(1,162

)

1,465

 

(3,046

)

Increase (decrease) in cash

45,222

 

(22,749

)

(48,976

)

(24,407

)

Cash, beginning of period

182,187

 

211,779

 

276,385

 

213,437

 

Cash, end of period

227,409

 

189,030

 

227,409

 

189,030