Global Logistics Network Drives Record Revenues

WATERLOO, Ontario — March 4, 2020 — The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2020 fourth quarter (Q4FY20) and year (FY20) ended January 31, 2020. 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 are under more pressure than ever and companies need to be agile and flexible to react to changing market conditions,” said Edward J. Ryan, Descartes’ CEO. “The Descartes Global Logistics Network (GLN) is designed to help customers overcome these challenges. Our connected community of shippers, carriers, customs authorities and logistics service providers allows trading partners to seamlessly exchange timely, reliable data, while our advanced logistics applications help our customers use this data to better plan and execute shipments in a dynamic, real-time environment.” 

FY20 Financial Results

As described in more detail below, key financial highlights for FY20 included:

  • Revenues of $325.8 million, up 18% from $275.2 million in the same period a year ago (FY19);
  • Revenues were comprised of services revenues of $284.7 million (88% of total revenues), professional services and other revenues of $33.6 million (10% of total revenues) and license revenues of $7.5 million (2% of total revenues). Services revenues were up 18% from $241.5 million in FY19;
  • Income from operations of $52.3 million, up 26% from $41.4 million in FY19;
    • Net income of $37.0 million, up 18% from $31.3 million in FY19. Net income as a percentage of revenues was 11%, consistent with FY19;
    • Earnings per share on a diluted basis of $0.45, up 13% from $0.40 in FY19; and
  • Cash provided by operating activities of $104.3 million, up 34% from $78.1 million in FY19;
  • Adjusted EBITDA of $122.6 million, up 31% from $93.9 million in FY19. Adjusted EBITDA as a percentage of revenues was 38%, compared to 34% in FY19.

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 for FY20 and FY19 (dollar amounts, other than per share amounts, in millions):

  FY20 FY19
Revenues 325.8 275.2
Services revenues 284.7 241.5
Gross margin 74% 73%
Cash provided by operating activities 104.3 78.1
Income from operations 52.3 41.4
Net income 37.0 31.3
Net income as a % of revenues 11% 11%
Earnings per diluted share 0.45 0.40
Adjusted EBITDA 122.6 93.9
Adjusted EBITDA as a % of revenues 38% 34%

Q4FY20 Financial Results

As described in more detail below, key financial highlights for Q4FY20 included:

  • Revenues of $84.2 million, up 19% from $71.0 million in the fourth quarter of fiscal 2019 (Q4FY19) and up 1% from $83.0 million in the previous quarter (Q3FY20);
  • Revenues were comprised of services revenues of $73.7 million (88% of total revenues), professional services and other revenues of $8.0 million (10% of total revenues) and license revenues of $2.5 million (2% of total revenues). Services revenues were up 17% from $62.9 million in Q4FY19 and up 2% from $72.6 million in Q3FY20;
  • Cash provided by operating activities of $26.4 million, up 21% from $21.8 million in Q4FY19 and down from $27.5 million in Q3FY20;
  • Income from operations of $13.6 million, up 28% from $10.6 million in Q4FY19 and down from $13.7 million in Q3FY20;
  • Net income of $11.4 million, up 44% from $7.9 million in Q4FY19 and up 18% from $9.7 million in Q3FY20;
  • Earnings per share on a diluted basis of $0.13, up 30% from $0.10 in Q4FY19 and up 18% from $0.11 in Q3FY20; and
  • Adjusted EBITDA of $32.2 million, up 29% from $25.0 million in Q4FY19 and up 2% from $31.5 million in Q3FY20. Adjusted EBITDA as a percentage of revenues was 38%, compared to 35% in Q4FY19 and 38% in Q3FY20.

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):

  Q4 FY20 Q3FY20 Q2FY20 Q1FY20 Q4FY19
Revenues 84.2 83.0 80.5 78.0 71.0
Services revenues 73.7 72.6 71.4 67.0 62.9
Gross margin 73% 73% 74% 74% 73%
Cash provided by operating activities 26.4 27.5 26.9 23.4 21.8
Income from operations 13.6 13.7 13.1 11.9 10.6
Net income 11.4 9.7 8.6 7.3 7.9
Net income as a % of revenues 14% 12% 11% 9% 11%
Earnings per diluted share 0.13 0.11 0.10 0.09 0.10
Adjusted EBITDA 32.2 31.5 30.2 28.7 25.0
Adjusted EBITDA as a % of revenues 38% 38% 38% 37% 35%

Cash Position

At January 31, 2020, Descartes had $44.4 million in cash. Cash increased $15.6 million in Q4FY20 and $17.1 million in FY20 primarily due to cash provided from operations partially offset by credit facility repayments. The table set forth below provides a summary of cash flows for Q4FY20 and FY20 in millions of dollars:

  Q4FY20 FY20
Cash provided by operating activities 26.4 104.3
Additions to property and equipment (1.0) (4.9)
Acquisitions of subsidiaries, net of cash acquired - (292.1)
Proceeds from borrowing on credit facility - 297.0
Credit facility repayments (9.2) (322.6)
Payment of debt issuance costs - (1.4)
Issuances of common shares, net of issuance costs          0.1          238.0
Payment of contingent consideration (0.8) (0.8)
Effect of foreign exchange rate on cash 0.1 (0.4)
Net change in cash 15.6 17.1
Cash, beginning of period        28.8        27.3
Cash, end of period 44.4 44.4

Acquistion of Peoplevox

On February 21, 2020, Descartes acquired Peoplevox, a provider of cloud-based ecommerce warehouse management solutions. The purchase price for the acquisition was approximately $24.5 million (GBP 18.9 million), net of cash acquired, which was funded from a combination of cash on hand and drawing on Descartes’ existing credit facility.  

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, March 4. Designated numbers are +1 888 465-5079 for North America and  +1 416 216-4169 for international, using Passcode 8451509#.

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.

Replays of the conference call will be available following the call from 8:00 p.m. ET, and until March 11, 2020, by dialing +1 888 843-7419 or +1 630 652-3042 followed by Passcode 8451509#. 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 Twitter

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Descartes Investor Contact:

Laurie McCauley +1-519-746-6114 x202358

[email protected]

Safe Harbor Statement

This release may contain forward-looking information within the meaning of applicable securities laws ("forward-looking statements") that relates to Descartes' growth in margins and generation of cash; continued growth and acquisitions; 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 to increase at levels consistent with the average growth rates of the global economy; 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.  In particular, we have not adjusted or revised any forward-looking statements in this release to account for the potential disruption to our business from the recent coronavirus outbreak, the impact from which is not immediately known or quantifiable. 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 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 Q4FY20, Q3FY20, Q2FY20, Q1FY20 and Q4FY19, which we believe is the most directly comparable GAAP measure.

(US dollars in millions) Q4FY20 Q3FY20 Q2FY20 Q1FY20 Q4FY19
Net income, as reported on Consolidated Statements of Operations 11.4 9.7 8.6 7.3 7.9
Adjustments to reconcile to Adjusted EBITDA:        
Interest expense 0.4 0.4 1.4 2.2 0.5
Investment income  (0.1)  -  - (0.1) (0.1)
Income tax expense 1.9 3.5 3.1 2.5 2.4
Depreciation expense 2.9 1.2 1.1 0.9 1.5
Amortization of intangible assets 14.1 14.5 14.1 12.8 10.3
Stock-based compensation and related taxes 1.3 1.4 1.3 1.0 1.0
Other charges 0.3 0.8 0.6 2.1 1.5
Adjusted EBITDA 32.2 31.5 30.2 28.7 25.0
       
Revenues 84.2 83.0 80.5 78.0 71.0
Net income as % of revenues 14% 12% 11% 9% 11%
Adjusted EBITDA as % of revenues 38% 38% 38% 37% 35%
       

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 FY20 and FY19, which we believe is the most directly comparable GAAP measure.

(US dollars in millions)     FY20 FY19
Net income, as reported on Consolidated Statements of Operations     37.0 31.3
Adjustments to reconcile to Adjusted EBITDA:      
Interest expense     4.4 2.1
Investment income     (0.2) (0.2)
Income tax expense     11.1 8.2
Depreciation expense     6.0 4.5
Amortization of intangible assets     55.5 40.2
Stock-based compensation and related taxes     5.0 4.0
Other charges     3.8 3.8
Adjusted EBITDA     122.6 93.9
     
Revenues     325.8 275.1
Net income as % of revenues     11% 11%
Adjusted EBITDA as % of revenues     38% 34%

The Descartes Systems Group Inc.

Condensed Consolidated Balance Sheets

(US dollars in thousands; US GAAP)

January 31, January 31,
2020 2019
ASSETS  
CURRENT ASSETS  
Cash 44,403 27,298
Accounts receivable (net)  
Trade 35,118 31,493
Other 7,294 4,331
Prepaid expenses and other 12,984 9,027
Inventory 411 95
  100,210 72,244
OTHER LONG-TERM ASSETS 13,520 10,510
PROPERTY AND EQUIPMENT, NET 13,731 12,612
RIGHT-OF-USE ASSETS 12,877 -
DEFERRED INCOME TAXES 21,602 3,598
INTANGIBLE ASSETS, NET 256,956 176,192
GOODWILL 523,690 378,178
  942,586 653,334
LIABILITIES AND SHAREHOLDERS’ EQUITY  
CURRENT LIABILITIES  
  Accounts payable 7,667 5,147
  Accrued liabilities 34,876 29,392
  Lease obligations 3,928 -
  Income taxes payable 1,329 1,592
  Deferred revenue 41,143 34,236
  88,943 70,367
LONG-TERM DEBT - 25,464
LEASE OBLIGATIONS 9,477 -
DEFERRED REVENUE 920 855
INCOME TAXES PAYABLE 6,470 7,634
DEFERRED INCOME TAXES 15,067 15,507
  120,877 119,827
   
SHAREHOLDERS’ EQUITY  
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 84,156,316 at January 31, 2020 (January 31, 2019 – 76,864,866) 524,154 276,753
Additional paid-in capital 459,269 454,722
Accumulated other comprehensive loss (25,944) (25,201)
Accumulated deficit (135,770) (172,767)
  821,709 533,507
     942,586 653,334
       

The Descartes Systems Group Inc.

Consolidated Statements of Operations

(US dollars in thousands, except per share and weighted average share amounts; US GAAP)

January 31, January 31, January 31,
Year Ended  2020 2019 2018
1.                 
2.            REVENUES 325,791 275,171 237,439
3.            COST OF REVENUES 85,721 74,994 63,704
4.            GROSS MARGIN 240,070 200,177 173,735
EXPENSES    
Sales and marketing 40,389 36,873 33,128
Research and development 53,513 47,872 41,804
General and administrative 34,628 30,012 25,448
Other charges 3,797 3,798 3,994
Amortization of intangible assets 55,485 40,179 33,477
  187,812 158,734 137,851
INCOME FROM OPERATIONS 52,258 41,443 35,884
INTEREST EXPENSE (4,416) (2,128) (1,297)
INVESTMENT INCOME 193 195 161
5.      INCOME BEFORE INCOME TAXES 48,035 39,510 34,748
INCOME TAX EXPENSE    
Current 5,295 6,042 6,572
Deferred 5,743 2,191 1,297
11,038 8,233 7,869
NET INCOME 36,997 31,277 26,879
EARNINGS PER SHARE    
Basic 0.45 0.41 0.35
Diluted 0.45 0.40 0.35
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)    
Basic 81,659 76,832 76,324
Diluted 82,867 77,791 77,112

The Descartes Systems Group Inc.

Condensed Consolidated Statements of Cash Flows

(US dollars in thousands; US GAAP)

Year Ended  January 31, January 31, January 31,  
  2020 2019 2018  
OPERATING ACTIVITIES      
Net income 36,997 31,277 26,879
Adjustments to reconcile net income to cash provided by operating activities:    
Depreciation 6,037 4,544 4,101
Amortization of intangible assets 55,485 40,179 33,477
Stock-based compensation expense 4,909 3,710 2,807
Other non-cash operating activities 337 71 (784)
Deferred tax expense 5,743 2,191 1,297
     Deferred tax charge - (49) (31)
     Changes in operating assets and liabilities: (5,256) (3,849) 4,397
Cash provided by operating activities 104,252 78,074 72,143
INVESTING ACTIVITIES    
Additions to property and equipment (4,900) (5,244) (5,086)
Acquisition of subsidiaries, net of cash acquired (292,053) (67,932) (111,867)
Cash used in investing activities (296,953) (73,176) (116,953)
FINANCING ACTIVITIES    
Proceeds from borrowing on the credit facility 297,015 68,468 80,000
Credit facility repayments (322,634) (78,659) (43,000)
Payment of debt issuance costs (1,400) - -
Issuance of common shares for cash, net of issuance costs 237,973 345 1,003
Payment of contingent consideration (785) (1,531) -
Cash provided by (used in) financing activities 210,169 (11,377) 38,003
Effect of foreign exchange rate changes on cash (363) (1,368) 3,817
Increase (decrease) in cash 17,105 (7,847) (2,990)
Cash, beginning of year 27,298 35,145 38,135
Cash, end of year 44,403 27,298 35,145