Descartes Announces Fiscal 2022 First Quarter Financial Results

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
 
Revenues98.8 93.4 87.5 84.0 83.7 
Services revenues88.3 82.7 77.6 75.3 74.1 
Gross margin76% 75% 74% 73% 74% 
Cash provided by operating activities40.9 36.5 33.1 34.1 27.5 
Income from operations23.4 21.9 18.8 15.0 15.7 
Net income18.4 17.2 13.3 10.5 11.0 
Net income as a % of revenues19% 18% 15% 13% 13% 
Earnings per diluted share0.21 0.20 0.15 0.12 0.13 
Adjusted EBITDA41.5 38.6 36.4 34.0 33.0 
Adjusted EBITDA as a % of revenues42% 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 activities40.9 
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 cash0.6 
Effect of foreign exchange rate on cash0.5 
Net change in cash 4.4 
Cash, beginning of period133.7 
Cash, end of period138.1 

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 Operations18.4 17.2 13.3 10.5 11.0 
Adjustments to reconcile to Adjusted EBITDA:     
Interest expense0.3 0.3 0.2 0.3 0.3 
Investment income(0.1)(0.1)- - - 
Income tax expense4.8 4.5 5.2 4.2 4.4 
Depreciation expense1.2 1.3 1.5 1.4 1.6 
Amortization of intangible assets13.8 14.1 14.0 14.1 13.7 
Stock-based compensation and related taxes2.6 1.9 1.7 1.8 1.2 
Other charges (recoveries)0.5 (0.6)0.5 1.7 0.8 
Adjusted EBITDA41.5 38.6 36.4 34.0 33.0 
      
Revenues98.8 93.4 87.5 84.0 83.7 
Net income as % of revenues19% 18% 15% 13% 13% 
Adjusted EBITDA as % of revenues42% 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  
Cash138,137 133,661 
Accounts receivable (net)  
Trade36,740 37,206 
Other13,188 14,830 
Prepaid expenses and other17,099 16,939 
Inventory599 429 
 205,763 203,065 
OTHER LONG-TERM ASSETS16,555 15,550 
PROPERTY AND EQUIPMENT, NET12,164 12,089 
RIGHT-OF-USE ASSETS11,464 12,165 
DEFERRED INCOME TAXES12,211 15,216 
INTANGIBLE ASSETS, NET244,443 239,992 
GOODWILL592,768 565,177 
 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 OBLIGATIONS8,411 8,895 
LONG-TERM DEFERRED REVENUE1,336 1,413 
LONG-TERM INCOME TAXES PAYABLE7,855 8,230 
DEFERRED INCOME TAXES28,552 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 capital466,093 464,102 
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 

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