WATERLOO, Ontario, Sept. 06, 2017 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2018 second quarter (Q2FY18) ended July 31, 2017. 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).

"Our continued strong financial performance reflects the dedication of our employees to delivering success to our customers," said Edward J. Ryan, Descartes' CEO. "With the recent additions of ShipRush, PCSTrac and MacroPoint to our Global Logistics Network (GLN), we've added even more solutions, content and capabilities that can improve the security and efficiency of our customers' operations. We believe that our expanded GLN is the leading global platform for customers to research, plan, execute and monitor multi-modal shipments around the world."

Q2FY18 Financial Results
As described in more detail below, key financial highlights for Descartes' three-month period ended July 31, 2017 (Q2FY18) included:

  • Revenues of $57.3 million, up 13% from $50.5 million in the second quarter of fiscal 2017 (Q2FY17) and up 5% from $54.5 million in the previous quarter (Q1FY18);
  • Revenues were comprised of license revenues of $2.2 million (4% of total revenues) and services revenues (non-license) of $55.1 million (96% of total revenues). Services revenues were up 13% from $48.6 million in Q2FY17 and up 4% from $52.8 million in Q1FY18;
  • Cash provided by operating activities of $17.1 million, up 3% from $16.6 million in Q2FY17 and up 4% from $16.5 million in Q1FY18;
  • Net income of $7.2 million, up 24% from $5.8 million in Q2FY17 and up 4% from $6.9 million in Q1FY18. Net income as a percentage of revenues was 13%, compared to 11% in Q2FY17 and 13% in Q1FY18;
  • Earnings per share on a diluted basis of $0.09, up 13% from $0.08 in Q2FY17 and consistent with Q1FY18; and
  • Adjusted EBITDA of $19.8 million, up 15% from $17.2 million in Q2FY17 and up 4% from $19.0 million in Q1FY18. Adjusted EBITDA as a percentage of revenues was 35%, compared to 34% in Q2FY17 and 35% in Q1FY18.

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
FY18
Q1
FY18
Q4
FY17
Q3
FY17
Q2
FY17
Revenues 57.3   54.5   52.8   51.5   50.5  
Services revenues 55.1   52.8   51.4   49.4   48.6  
Gross margin 73 % 74 % 72 % 73 % 73 %
Cash provided by operating activities 17.1   16.5   19.5   20.5   16.6  
Net income 7.2   6.9   6.1   5.9   5.8  
Net income as a % of revenues 13 % 13 % 12 % 11 % 11 %
Earnings per diluted share 0.09   0.09   0.08   0.08   0.08  
Adjusted EBITDA 19.8   19.0   18.5   17.8   17.2  
Adjusted EBITDA as a % of revenues 35 % 35 % 35 % 35 % 34 %

Year-to-Date Financial Results

As described in more detail below, key financial highlights for Descartes' six-month period ended July 31, 2017 (1HFY18) included:

  • Revenues of $111.8 million, up 12% from $99.4 million in the same period a year ago (1HFY17);
  • Revenues were comprised of license revenues of $3.8 million (3% of total revenues) and services revenues (non-license) of $108.0 million (97% of total revenues). Services revenues were up 12% from $96.1 million in 1HFY17;
  • Cash provided by operating activities of $33.6 million, up 3% from $32.5 million in 1HFY17;
  • Net income of $14.0 million, up 19% from $11.8 million in 1HFY17. Net income as a percentage of revenues was 13%, compared to 12% in 1HFY17;
  • Earnings per share on a diluted basis of $0.18, up 20% from $0.15 in 1HFY17; and
  • Adjusted EBITDA of $38.8 million, up 15% from $33.8 million in 1HFY17. Adjusted EBITDA as a percentage of revenues was 35%, compared to 34% in 1HFY17.

The following table summarizes Descartes' results in the categories specified below over 1HFY18 and 1HFY17 (unaudited, dollar amounts in millions):

  1HFY18 1HFY17
Revenues 111.8   99.4  
Services revenues 108.0   96.1  
Gross margin 73 % 72 %
Cash provided by operating activities 33.6   32.5  
Net income 14.0   11.8  
Net income as a % of revenues 13 % 12 %
Earnings per diluted share 0.18   0.15  
Adjusted EBITDA 38.8   33.8  
Adjusted EBITDA as a % of revenues 35 % 34 %

Cash Position

At July 31, 2017, Descartes had $87.5 million in cash. Cash increased $33.1 million in Q2FY18 and $49.4 million in 1HFY18 primarily due to proceeds from borrowing on the credit facility and cash provided by operating activities, partially offset by cash used to acquire ShipRush and PCSTrac (described further below).

The table set forth below provides a summary of cash flows for Q2FY18 and 1HFY18 in millions of dollars:

  Q2FY18 1HFY18
Cash provided by operating activities 17.1   33.6  
Additions to property and equipment (0.9 ) (1.7 )
Acquisition of subsidiaries, net of cash acquired (25.7 ) (25.7 )
Proceeds from borrowing on credit facility 40.0   40.0  
Issuance of common shares, net of issuance costs -     0.5  
Effect of foreign exchange rate on cash 2.6   2.7  
Net change in cash 33.1   49.4  
Cash, beginning of period 54.4     38.1  
Cash, end of period 87.5   87.5  

Acquisition of ShipRush
On May 18, 2017, we acquired Z-Firm LLC ("ShipRush"), a US-based provider of e-commerce multi-carrier parcel shipping solutions for small-to medium-sized businesses (SMBs). The ShipRush platform helps customers to streamline their supply chain and reduce transportation costs by automatically importing orders, comparing carrier rates, printing shipping labels for all major carriers, and tracking through final delivery. The purchase price for the acquisition was approximately $14.2 million, net of cash acquired, which was funded with cash on hand. Additional contingent consideration of up to $3.0 million in cash is payable if certain revenue performance targets are met by ShipRush in the two years following the acquisition.

Acquisition of PCSTrac
On June 1, 2017, we acquired substantially all of the assets of PCSTrac, Inc., including certain related assets of Progressive Computer Services Inc. dba PCS Technologies (collectively referred to as "PCSTrac"). US-based PCSTrac helps specialty retailers and their logistics service providers collaborate to improve carton-level visibility for shipments from distribution centers to stores.  PCSTrac's solutions provide visibility and insight into the store replenishment supply chain, helping increase sales, enhance loss prevention, and improve inventory control. The purchase price for the acquisition was approximately $11.5 million, net of cash acquired, which was funded using cash on hand.

Acquisition of MacroPoint
On August 14, 2017, we acquired MacroPoint LLC ("MacroPoint"), an electronic transportation network providing location-based truck tracking and predictive freight capacity data content.  US-based MacroPoint runs a connected network helping transportation brokers, logistics service providers and shippers track the locations of deliveries in trucks as well as predictive freight capacity to help identify early opportunities for additional freight moves. The purchase price for the acquisition was approximately $106.6 million, net of cash acquired, which was funded using $20.0 million of Descartes common shares, $80.0 million from drawing on our credit facility (of which $40.0 million was drawn subsequent to July 31, 2017) and the balance using cash on hand. 

Descartes Evolution — 2018 User Group Conference 
Descartes will be hosting Descartes Evolution at the Hilton West Palm Beach from March 6-8, 2018. Descartes Evolution is Descartes' pinnacle event where customers and partners from around the world get together to network with other Descartes users, meet the Descartes product management team, provide input on Descartes' product development plans, and learn more about Descartes solutions and how to improve their operations.  Registration information is available at the following site: https://www.descartes.com/usergroup/conference-registration.

Conference Call
Members of Descartes' executive management team will host a conference call to discuss the company's financial results at 5:00 p.m. ET on Wednesday, September 6. Designated numbers are +1 888 465-5079 for North America and +1 416 216-4169 for international, using Passcode 9965517#.

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 September 13, 2017, by dialing +1 888 843-7419 or +1 630 652-3042 followed by Passcode 9965517#. An archived replay of the webcast will be available atwww.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

Safe Harbor Statement

This release contains forward-looking information within the meaning of applicable securities laws ("forward-looking statements") that relates to Descartes' growth in margins; continued growth and acquisitions; rate of profitable growth; demand for Descartes' solutions; growth of Descartes' Global Logistics Network; 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 execute on acquisitions and to integrate acquired businesses and assets, and to predict expenses associated with and revenues from acquisitions; 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; the impact on Descartes' business of a global economic downturn; 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 2017 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 Q2FY18, Q1FY18, Q4FY17, Q3FY17 and Q2FY17, which we believe is the most directly comparable GAAP measure.

(US dollars in millions) Q2FY18 Q1FY18 Q4FY17 Q3FY17 Q2FY17
Net income, as reported on Consolidated Statements of Operations 7.2   6.9   6.1   5.9   5.8  
Adjustments to reconcile to Adjusted EBITDA:          
Interest expense 0.1   0.1   0.1   0.2   0.2  
Investment income -   -   -   (0.1 ) (0.8 )
Income tax expense 2.0   2.2   1.9   1.8   2.0  
Depreciation expense 0.9   0.8   1.1   1.0   0.9  
Amortization of intangible assets 7.8   7.7   7.8   7.5   7.6  
Stock-based compensation and related taxes 0.9   0.6   0.6   0.5   0.7  
Other charges 0.9   0.7   0.9   1.0   0.8  
Adjusted EBITDA 19.8   19.0   18.5   17.8   17.2  
           
Revenues 57.3   54.5   52.8   51.5   50.5  
Net income as % of revenues 13 % 13 % 12 % 11 % 11 %
Adjusted EBITDA as % of revenues 35 % 35 % 35 % 35 % 34 %
           

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 1HFY18 and 1HFY17, which we believe is the most directly comparable GAAP measure.

(US dollars in millions)       1HFY18 1HFY17
Net income, as reported on Consolidated Statements of Operations       14.0   11.8  
Adjustments to reconcile to Adjusted EBITDA:          
Interest expense       0.4   0.3  
Investment income       (0.1 ) (1.3 )
Income tax expense       4.2   3.9  
Depreciation expense       1.8   1.6  
Amortization of intangible assets       15.5   14.8  
Stock-based compensation and related taxes       1.4   1.2  
Other charges       1.6   1.5  
Adjusted EBITDA       38.8   33.8  
           
Revenues       111.8   99.4  
Net income as % of revenues       13 % 12 %
Adjusted EBITDA as % of revenues       35 % 34 %

 

The Descartes Systems Group Inc.
Condensed Consolidated Balance Sheets
(US dollars in thousands; US GAAP; Unaudited)
 
Year Ended  July 31, January 31,
  2017 2017
(Audited)
ASSETS    
CURRENT ASSETS    
Cash 87,527   38,135  
Accounts receivable (net)    
Trade 27,230   25,401  
Other 3,642   3,709  
Prepaid expenses and other 6,516   5,149  
Inventory 187   167  
  125,102   72,561  
OTHER LONG-TERM ASSETS 1,170   1,525  
PROPERTY AND EQUIPMENT, NET 12,604   10,447  
DEFERRED INCOME TAXES 5,955   7,027  
DEFERRED TAX CHARGE 339   422  
INTANGIBLE ASSETS, NET 146,820   145,445  
GOODWILL 281,487   263,113  
  573,477   500,540  
LIABILITIES AND SHAREHOLDERS' EQUITY    
CURRENT LIABILITIES    
Accounts payable 8,783   4,679  
Accrued liabilities 22,101   23,247  
Income taxes payable 1,050   2,170  
Deferred revenue 25,435   23,728  
  57,369   53,824  
LONG-TERM DEBT 40,000   -  
LONG-TERM DEFERRED REVENUE 1,075   421  
LONG-TERM INCOME TAXES PAYABLE 8,098   5,725  
DEFERRED INCOME TAXES 10,273   9,975  
  116,815   69,945  
     
SHAREHOLDERS' EQUITY    
Common shares — unlimited shares authorized; Shares issued and outstanding totaled 75,970,296 at July 31, 2017 (January 31, 2017 — 75,874,684) 253,869   253,242  
Additional paid-in capital 449,743   448,597  
Accumulated other comprehensive loss (22,492 ) (32,779 )
Accumulated deficit (224,458 ) (238,465 )
  456,662   430,595  
  573,477   500,540  

 

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,
  2017 2016   2017 2016
           
REVENUES 57,293   50,516     111,807   99,427  
COST OF REVENUES 15,347   13,785     29,729   27,474  
GROSS MARGIN 41,946   36,731     82,078   71,953  
EXPENSES          
Sales and marketing 7,606   6,337     14,836   12,019  
Research and development 10,158   8,904     19,493   17,694  
General and administrative 6,178   5,956     12,118   11,290  
Other charges (Note 19) 911   764     1,589   1,473  
Amortization of intangible assets 7,763   7,577     15,466   14,728  
  32,616   29,538     63,502   57,204  
INCOME FROM OPERATIONS 9,330   7,193     18,576   14,749  
INTEREST EXPENSE (169 ) (165 )   (364 ) (294 )
INVESTMENT INCOME 24   788     58   1,301  
INCOME BEFORE INCOME TAXES 9,185   7,816     18,270   15,756  
INCOME TAX EXPENSE          
Current 1,708   1,061     3,398   1,772  
Deferred 318   976     828   2,167  
  2,026   2,037     4,226   3,939  
NET INCOME 7,159   5,779     14,044   11,817  
EARNINGS PER SHARE          
Basic 0.09   0.08     0.18   0.16  
Diluted 0.09   0.08     0.18   0.15  
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)          
Basic 75,969   75,792     75,941   75,777  
Diluted 76,739   76,483     76,687   76,451  

 

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,
  2017 2016 2017 2016
OPERATING ACTIVITIES        
Net income 7,159   5,779   14,044   11,817  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation 933   865   1,745   1,613  
Amortization of intangible assets 7,763   7,577   15,466   14,728  
Stock-based compensation expense 752   545   1,267   942  
Other non-cash operating activities (631 ) (936 ) (610 ) (1,441 )
Deferred tax expense 318   976   828   2,167  
Deferred tax charge 42   37   84   137  
Changes in operating assets and liabilities:        
Accounts receivable        
Trade 334   2,253   (575 ) 1,377  
Other 592   213   (171 ) 257  
Prepaid expenses and other 450   (381 ) (120 ) (446 )
Inventory (15 ) 11   (16 ) (1 )
Accounts payable 1,102   (949 ) 2,299   (506 )
Accrued liabilities (3,890 ) 1,039   (3,160 ) 316  
Income taxes payable 822   (280 ) 1,339   612  
Deferred revenue 1,369   (114 ) 1,148   950  
Cash provided by operating activities 17,100   16,635   33,568   32,522  
INVESTING ACTIVITIES        
Purchase of marketable securities -   -   -   (241 )
Sale of marketable securities -   3,362   -   6,140  
Additions to property and equipment (883 ) (1,704 ) (1,669 ) (2,976 )
Acquisition of subsidiaries, net of cash acquired (25,690 ) (276 ) (25,690 ) (10,648 )
Cash (used in) provided by investing activities (26,573 ) 1,382   (27,359 ) (7,725 )
FINANCING ACTIVITIES        
Proceeds from borrowing on the credit facility 40,000   -   40,000   10,801  
Credit facility repayments -   (2,414 ) -   (2,414 )
Payment of debt issuance costs -   (283 ) -   (922 )
Issuance of common shares for cash, net of issuance costs 7   95   469   22  
Cash provided by (used in) financing activities 40,007   (2,602 ) 40,469   7,487  
Effect of foreign exchange rate changes on cash 2,622   (1,334 ) 2,714   147  
Increase in cash 33,156   14,081   49,392   32,431  
Cash, beginning of period 54,371   55,563   38,135   37,213  
Cash, end of period 87,527   69,644   87,527   69,644