Record Quarterly Revenues and Operating Performance Driven by 35% Year-Over-Year Increase in Revenues

WATERLOO, Ontario, Sept. 9, 2010 (GLOBE NEWSWIRE) -- Descartes Systems Group (TSX:DSG) (Nasdaq:DSGX), a federated global logistics network, announced financial results for its fiscal 2011 second quarter (Q2FY11) ended July 31, 2010. 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).

Q2FY11 Financial Results

As described in more detail below, key financial highlights for Descartes in Q2FY11 included:

  • Revenues of $25.2 million, up 35% from $18.6 million in the second quarter of last fiscal year (Q2FY10) and up 18% from $21.3 million in the previous quarter (Q1FY11), fuelled in part by recently-completed acquisitions;
  • Services revenues of $23.9 million, up 40% from $17.1 million in Q2FY10 and up 18% from $20.2 million in Q1FY11. Services revenues comprised 95% of total revenues for the quarter;
  • Gross margin of 66%, compared to 68% in Q2FY10 and 65% in Q1FY11;
  • Net income of $2.0 million, up from $0.8 million in Q2FY10 and $0.2 million in Q1FY11;
  • Earnings per share on a diluted basis of $0.03 compared to $0.02 in Q2FY10 and $0.00 in Q1FY11;
  • Days-sales-outstanding (DSO) for Q2FY11 were 57 days, compared to 48 days in Q2FY10 and 68 days in Q1FY11;
  • Adjusted EBITDA of $6.6 million, up 27% from $5.2 million in Q2FY10 and up 25% from $5.3 million in Q1FY11. Adjusted EBITDA as a percentage of revenues was 26% this quarter, compared to 28% in Q2FY10 before Descartes' acquisition of Zemblaz NV ("Porthus"), and 25% in Q1FY11; and
  • Adjusted EBITDA per diluted share for Q2FY11 was $0.11, compared to $0.10 in Q2FY10 and $0.08 in Q1FY11.

Adjusted EBITDA and Adjusted EBITDA per diluted share 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 and amortization (for which we include amortization of intangible assets, deferred compensation, stock-based compensation and related taxes), acquisition-related expenses and restructuring charges. These items are considered by management to be outside Descartes' ongoing operational results. We define Adjusted EBITDA per diluted share as Adjusted EBITDA divided by the number of diluted shares used to calculate the GAAP measure of earnings per share. A reconciliation of Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and earnings per share determined in accordance with GAAP, respectively, 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 in millions):

 
  Q2
FY11
Q1
FY11
Q4
FY10
Q3
FY10
Q2
FY10
Revenues 25.2 21.3 18.9 18.9 18.6
Services revenues 23.9 20.2 17.7 18.0 17.1
Gross margin 66% 65% 68% 69% 68%
Net income* 2.0 0.2 10.3 1.0 0.8
Adjusted EBITDA 6.6 5.3 5.2 5.2 5.2
Adjusted EBITDA as a % of revenues 26% 25% 28% 28% 28%
Adjusted EBITDA per diluted share 0.11 0.08 0.08 0.09 0.10
DSOs (days) 57 68 47 48 48
 
* Net income was positively impacted by income tax recoveries of $0.1 million and $11.0 million in Q2FY11 and Q4FY10, respectively. Net income was negatively impacted by income tax expenses of $0.7 million, $1.8 million and $2.0 million in Q1FY11, Q3FY10 and Q2FY10, respectively. Net income in Q4FY10 was also impacted by $3.0 million in non-cash stock-based compensation expense, as further described in our audited annual consolidated financial statements for fiscal 2010, compared to $0.3 million, $0.3 million, $0.2 million and $0.1 million in Q2FY11, Q1FY11, Q3FY10 and Q2FY10, respectively.

Total revenues of $25.2 million in Q2FY11 were comprised of $23.9 million (95%) in services revenues and $1.3 million (5%) in license revenues. Q2FY11 services revenues were up 40% from $17.1 million in Q2FY10 and up 18% from $20.2 million in Q1FY11.

Based on the location of Descartes' customers, the geographic distribution of revenues was as follows:

  • $11.3 million of revenues (45%) were generated in the US;
  • $5.1 million (20%) in Europe, Middle East and Africa ("EMEA"), excluding Belgium;
  • $4.5 million (18%) in Belgium;
  • $3.2 million (13%) in Canada;
  • $0.9 million (3%) in the Asia Pacific region; and
  • $0.2 million (1%) in the Americas, excluding the US and Canada.

Year-to-Date Financial Results

As described in more detail below, key financial highlights for Descartes six-month period ended July 31, 2010 (1HFY11) included:

  • Revenues of $46.5 million, up 29% from $36.0 million in the same period a year ago (1HFY10);
  • Services revenues of $44.1 million, up 30% from $33.9 million in 1HFY10. Services revenues comprised 95% of total revenues for 1HFY11;
  • Gross margin of 66%, compared to 69% in 1HFY10;
  • Net income of $2.2 million, compared to $3.0 million in 1HFY10;
  • Earnings per share on a diluted basis of $0.04 compared to $0.06 in 1HFY10;
  • Adjusted EBITDA of $11.9 million, up 20% from $9.9 million in 1HFY10. Adjusted EBITDA as a percentage of revenues was 26% in 1HFY11, compared to 28% in 1HFY10, before the Porthus acquisition; and
  • Adjusted EBITDA per share on a diluted basis for 1HFY11 was $0.19, compared to $0.18 in 1HFY10.

The following table summarizes Descartes' results in the categories specified below over 1HFY11 and 1HFY10 (unaudited, dollar amounts in millions):

 
  1HFY11 1HFY10
Revenues 46.5 36.0
Services revenues 44.1 33.9
Gross margin 66% 69%
Net income* 2.2 3.0
Adjusted EBITDA 11.9 9.9
Adjusted EBITDA as a % of revenues 26% 28%
Adjusted EBITDA per diluted share 0.19 0.18
     
* Net income was negatively impacted by income tax expenses of $0.6 million and $1.6 million in 1HFY11 and 1HFY10, respectively.

"Our focus is on helping customers deploy quickly, and the rapid successes they've achieved have contributed to our own financial results outpacing our internal plans," said Art Mesher, Descartes' CEO. "We're on-course strategically and look forward to the opportunities that lie ahead for Descartes. Our federated network, encompassing logistics business infrastructure, is inherent to global commerce. Our customers and United by Design partners continue to help us grow our GLN and strengthen our position as a leading SaaS provider of logistics solutions."

Q2FY11 Acquisitions

On June 16, 2010, Descartes acquired privately-held, Belgian-based, Routing International NV ("Routing International"), a leading developer and distributor of optimized route planning solutions. Routing International's flagship solution suite, WinRoute, and dedicated consultants help enterprises of all sizes and across industries to optimize distribution planning to improve the productivity and performance of their operations. To complete the acquisition, net of cash received, Descartes paid approximately EUR 3.4 million (approximately $4.2 million at the time of the transaction).

The fair value of trade accounts receivable acquired from Routing International was $1.3 million. Descartes' results of operations for Q2FY11 included $0.4 million in revenues and less than $0.1 million in net income from Routing International.

Cash Position at July 31, 2010

As at July 31, 2010, Descartes had $58.5 million in cash comprised entirely of cash and cash equivalents. The largest uses of cash in the first half of 2011 was cash used to complete the acquisitions of Porthus (March 2010, approximately $34.6 million), 882976 Ontario Inc. ("Imanet", April 2010, approximately $5.8 million) and Routing International (June 2010, approximately $3.2 million). On January 31, 2010, we had $94.6 million in cash and cash equivalents and short-term investments.

"Descartes continues to drive excellent operating performance with a record level of quarterly revenues, clearly confirming the success of the company's strategic focus. Our consolidation strategy, combined with our market position and operational execution, has delivered operating growth in our business," said Stephanie Ratza, CFO at Descartes.

The table set forth below provides a summary of cash flows for Q2FY11 and 1HFY11 in millions of dollars:

  Q2FY11 1HFY11
Cash provided by operating activities 6.0 8.1
Additions to capital assets (0.4) (0.8)
Proceeds from the sale of investment in affiliate 0.5 0.5
Business acquisitions and acquisition-related costs, net of cash acquired (3.3) (43.8)
Issuance of common shares -- 0.2
Repayment of financial liabilities (0.2) (0.3)
Effect of foreign exchange rate on cash, cash equivalents and short-term investments (0.2) --
Net change in cash, cash equivalents and short-term investments 2.4 (36.1)
Cash, cash equivalents and short-term investments, beginning of period 56.1 94.6
Cash, cash equivalents and short-term investments, end of period 58.5 58.5

Conference Call

Members of Descartes' executive management team are scheduled to host a conference call to discuss the company's financial results and business prospects at 8:00 a.m. EDT on Thursday, September 9th. Designated numbers are (888) 812-2278 for North America or (706) 679-7397 for International. The company simultaneously has scheduled an audio web cast on the Descartes Web site at www.descartes.com/company/investors . Phone conference dial-in or web cast log-in is required approximately 10 minutes beforehand.

Replays of the conference call will be available in two formats and accessible for 24 hours after the call's completion by dialing (800) 642-1687 for North America or (706) 645-9291 for International and using passcode number 91468858. An archived replay of the web cast will be available at www.descartes.com/company/investors .  

About Descartes

Descartes (TSX:DSG) (Nasdaq:DSGX) is making the world a better place by enabling global organizations with logistics-intensive businesses to save money by improving the productivity and performance of their operations. Underlying Descartes' offerings is Descartes' federated network, the GLN, one of the world's most extensive multi-transportation-mode business application networks. Descartes' regulatory & trade compliance, supply chain execution and mobile resource management solutions provide messaging services between logistics trading partners, shipment management services to help manage third party carriers, global customs filing and compliance services to meet regulatory requirements and private fleet management services for organizations of all sizes.  The hosted, transactional and packaged solutions deliver repeatable, measurable results and fast time-to-value.  Descartes has over 6,800 customers including ground carriers, airlines, ocean carriers, freight forwarders, third-party providers of logistics services customs house brokers, freight payment agencies, manufacturers, retailers, distributors, mobile services providers and regulatory agencies.  The company has more than 650 employees and is based in Waterloo, Ontario, with operations in Amsterdam, Atlanta, Brussels, Copenhagen, Eindhoven, Gent, Lier, Namestovo, Paris, Pittsburgh, Ottawa, Madrid, Montreal, Miami, Washington DC, Silver Spring, Stockholm, Suzhou, Shanghai, Tokyo, Toronto, and Zilina. For more information, visit www.descartes.com .

The Descartes Systems Group logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4065

Safe Harbor Statement

This release contains forward-looking information within the meaning of applicable securities laws ("forward-looking statements") that relates to the positioning of Descartes to provide value to customers and shareholders; its ability to grow its federated network; its ability to build a valuable trading community; and other matters. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions 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 execute on acquisitions and to integrate acquired businesses and assets, and to predict expenses associated with and revenues from the acquisitions; the ability to attract and retain key personnel and the ability to manage the departure of key personnel; changes in trade or transportation regulations that currently require customers to use services such as those offered by Descartes; the impact on Descartes' business of the global economic downturn; departures of key customers; the impact of foreign currency exchange rates; Descartes' ability to retain or obtain sufficient capital to execute on its business strategy, including its acquisition strategy; disruptions in the movement of freight; the potential for future goodwill or intangible 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' Annual Report on Form 40-F for FY10. 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 per Diluted Share

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 per diluted share, in making investment decisions about our company and measuring our operational results.

The term "Adjusted EBITDA" (which we formerly referred to as "Adjusted Net Income") refers to a financial measure that we define as earnings before interest, taxes, depreciation and amortization (for which we include amortization of intangible assets, deferred compensation, stock-based compensation and related taxes), acquisition-related expenses and restructuring charges. Adjusted EBITDA per diluted share divides Adjusted EBITDA by the number of diluted shares used in calculating the GAAP diluted earnings per share, or diluted EPS, measure.

For fiscal periods ended on or before January 31, 2009, costs and expenses of acquisitions, as well as certain costs of restructuring/integrating acquired companies, were capitalized as part of the purchase price for each acquisition. Effective for Descartes' fiscal year ended January 31, 2010, GAAP changed to require that such costs be expensed in the period incurred rather than recorded as part of goodwill. Management considers acquisition-related and restructuring activities to be outside the scope of Descartes' ongoing operations and the related expenses are not used by management to measure operations. Accordingly, these expenses arising as a result of this accounting change 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 is a non-GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA 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 does have limitations. In particular, we have completed nine acquisitions over the past three fiscal years and three acquisitions this fiscal year, 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 non-recurring charges and expenses that are not part of operations.

The table below reconciles Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and diluted earnings per share, respectively, reported in our unaudited Consolidated Statements of Operations for Q2FY11, Q1FY11, Q4FY10, Q3FY10 and Q2FY10, which we believe are the most directly comparable GAAP measures.

(US dollars in millions) Q2FY11 Q1FY11 Q4FY10 Q3FY10 Q2FY10
           
Net income, as reported on
Consolidated Statements of Operations
2.0 0.2 10.3 1.0 0.8
Adjustments to reconcile to Adjusted EBITDA:          
Investment income -- (0.1) (0.1) (0.1) (0.1)
Income tax expense (recovery) (0.1) 0.7 (11.0) 1.8 2.0
Depreciation expense 0.6 0.5 0.6 0.5 0.4
Amortization of intangible assets 3.0 2.2 1.7 1.7 1.8
Amortization of deferred compensation, stock-based compensation and related taxes 0.3 0.3 3.0 0.2 0.1
Acquisition-related expenses 0.5 0.9 0.4 -- 0.2
Restructuring charges 0.3 0.6 0.3 0.1 --
Adjusted EBITDA 6.6 5.3 5.2 5.2 5.2
           
Weighted average diluted shares outstanding (thousands) 62,718 62,681 62,519 55,475 54,086
Diluted earnings per share 0.03 -- 0.17 0.02 0.02
Adjusted EBITDA per diluted share 0.11 0.08 0.08 0.09 0.10
             

The table below reconciles Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and diluted earnings per share, respectively, reported in our unaudited Consolidated Statements of Operations for 1HFY11 and 1HFY10, which we believe are the most directly comparable GAAP measures.

(US dollars in millions) 1HFY11 1HFY10
     
Net income, as reported on Consolidated Statements of Operations 2.2 3.0
Adjustments to reconcile to Adjusted EBITDA:    
Investment income (0.1) (0.2)
Income tax expense (recovery) 0.6 1.6
Depreciation expense 1.1 0.8
Amortization of intangible assets 5.2 3.6
Amortization of deferred compensation, stock-based compensation and related taxes 0.6 0.2
Acquisition-related expenses 1.4 0.5
Restructuring charges 0.9 0.4
Adjusted EBITDA 11.9 9.9
     
Weighted average diluted shares outstanding (thousands) 62,745 53,926
Diluted earnings per share 0.04 0.06
Adjusted EBITDA per diluted share 0.19 0.18
 
 
THE DESCARTES SYSTEMS GROUP INC.
CONSOLIDATED BALANCE SHEETS
(US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED)
     
  July 31, January 31,
  2010 2010
ASSETS    
CURRENT ASSETS    
Cash and cash equivalents 58,515 89,554
Short-term investments -- 5,071
Accounts receivable    
Trade 15,902 9,840
Other 3,073 2,231
Prepaid expenses and other 1,961 1,146
Deferred income taxes 5,551 4,414
Deferred tax charge 197 197
  85,199 112,453
CAPITAL ASSETS 7,249 5,482
GOODWILL 55,396 34,456
INTANGIBLE ASSETS 45,515 21,058
DEFERRED INCOME TAXES 33,814 34,346
DEFERRED TAX CHARGE 296 395
  227,469 208,190
LIABILITIES AND SHAREHOLDERS' EQUITY    
CURRENT LIABILITIES    
Accounts payable 5,053 2,603
Accrued liabilities 12,320 7,509
Income taxes payable 749 975
Deferred income tax liability 87 --
Deferred revenue 7,364 5,454
Other liabilities 81 --
  25,654 16,541
DEFERRED REVENUE 1,300 1,172
INCOME TAX LIABILITY 2,817 2,605
DEFERRED INCOME TAX LIABILITY 6,974 --
OTHER LIABILITIES 198 --
  36,943 20,318
SHAREHOLDERS' EQUITY    
Common shares – unlimited shares authorized; Shares issued and
outstanding totalled 61,496,427 at July 31, 2010 (January 31, 2010 – 61,410,877)
86,960 86,609
Additional paid-in capital 452,084 451,591
Accumulated other comprehensive loss (2,439) (2,034)
Accumulated deficit (346,079) (348,294)
  190,526 187,872
  227,469 208,190

 

 
 
THE DESCARTES SYSTEMS GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; US GAAP; UNAUDITED)
     
  Three Months Ended Six Months Ended
  July 31, July 31, July 31, July 31,
  2010 2009 2010 2009
         
REVENUES 25,249 18,610 46,535 36,029
COST OF REVENUES 8,553 5,977 15,940 11,164
GROSS MARGIN 16,696 12,633 30,595 24,865
EXPENSES        
Sales and marketing 3,131 2,564 5,721 4,949
Research and development 4,438 3,676 7,997 7,047
General and administrative 4,281 1,958 8,976 4,946
Amortization of intangible assets 3,003 1,763 5,235 3,552
  14,853 9,961 27,929 20,494
INCOME FROM OPERATIONS 1,843 2,672 2,666 4,371
INTEREST EXPENSE (3) -- (3) --
INVESTMENT INCOME 37 91 119 183
INCOME BEFORE INCOME TAXES 1,877 2,763 2,782 4,554
INCOME TAX EXPENSE (RECOVERY)        
Current 82 352 618 591
Deferred (228) 1,599 (51) 943
  (146) 1,951 567 1,534
NET INCOME 2,023 812 2,215 3,020
EARNINGS PER SHARE        
Basic and diluted 0.03 0.02 0.04 0.06
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)        
Basic 61,481 53,051 61,457 53,034
Diluted 62,718 54,086 62,745 53,926

 

 
 
THE DESCARTES SYSTEMS GROUP INC.
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,
  2010 2009 2010 2009
OPERATING ACTIVITIES        
Net income 2,023 812 2,215 3,020
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation 604 439 1,093 823
Amortization of intangible assets 3,003 1,763 5,235 3,552
Amortization of deferred compensation 1 2 6 3
Stock-based compensation expense 256 138 542 264
Gain on sale of investment in affiliate  (20) -- (20) --
Loss from investment in affiliate 25 -- 19 --
Deferred tax expense (recovery) (228) 1,599 (51) 943
Deferred tax charge 49 49 98 98
Changes in operating assets and liabilities:        
Accounts receivable        
Trade 1,198 (139) 877 606
Other 260 203 871 7
Prepaid expenses and other 302 60 95 301
Accounts payable (39) 575 638 745
Accrued liabilities (441) (1,513) (2,842) (1,499)
Income taxes payable (597) 79 (431) 309
Deferred revenue (384) 281 (275) (418)
Cash provided by operating activities 6,012 4,348 8,070 8,754
INVESTING ACTIVITIES        
Maturities of short-term investments -- -- 5,071 164
Purchase of short-term investments -- (30,311) -- (30,311)
Additions to capital assets (365) (498) (760) (789)
Proceeds from the sale of investment in affiliate 487 -- 487 --
Acquisition of subsidiaries, net of cash acquired and bank indebtedness assumed (3,312)  
(122)
(43,862)  
(14,964)
Acquisition-related costs -- -- -- (58)
Cash used in investing activities (3,190) (30,931) (39,064) (45,958)
FINANCING ACTIVITIES        
Issuance of common shares for cash 62 42 266 82
Repayment of other liabilities (229) -- (307) --
Cash provided by (used in) financing activities (167) 42 (41) 82
Effect of foreign exchange rate changes on cash and cash equivalents (223) 578 (4)  599
Increase (decrease) in cash and cash equivalents 2,432 (25,963) (31,039) (36,523)
Cash and cash equivalents, beginning of period 56,083 36,862 89,554 47,422
Cash and cash equivalents, end of period 58,515 10,899 58,515 10,899
CONTACT:  Descartes Systems Group
          Investor Contact:
          Laurie McCauley
          (519) 746-6114 x 2358
          [email protected]

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