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Descartes Announces Fiscal 2025 Third Quarter Financial Results

Record Revenues as Global Logistics Network Expands

WATERLOO, Ontario and ATLANTA, Dec. 03, 2024 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2025 third quarter (Q3FY25). 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 business has grown organically while we've added complementary solutions to our Global Logistics Network by way of acquisition,” said Edward J. Ryan, Descartes’ CEO. “We listen to our customers about where best to invest to help them meet the many logistics and supply chain challenges they're facing, which contributed to us completing two acquisitions this past quarter. The global trade landscape remains highly uncertain and complex for our customers, especially with potential upcoming changes to tariffs and sanctions and the resulting impact on trade. As always, our goal is to help our customers manage this complexity so that they can continue to focus on their core businesses.”

Q3FY25 Financial Results
As described in more detail below, key financial highlights for Descartes’ Q3FY25 included:

  • Revenues of $168.8 million, up 17% from $144.7 million in the third quarter of fiscal 2024 (Q3FY24) and up 3% from $163.4 million in the previous quarter (Q2FY25);
  • Revenues were comprised of services revenues of $149.7 million (89% of total revenues), professional services and other revenues of $15.6 million (9% of total revenues) and license revenues of $3.5 million (2% of total revenues). Services revenues were up 15% from $130.4 million in Q3FY24 and up 2% from $146.2 million in Q2FY25;
  • Cash provided by operating activities of $60.1 million, up 7% from $56.1 million in Q3FY24 and up 73% from $34.7 million in Q2FY25. Cash provided by operating activities was negatively impacted in Q2FY25 by the payment of $25.0 million in contingent acquisition consideration for previously completed deals, which was not accrued for at the time of acquisition;
  • Income from operations of $45.8 million, up 41% from $32.4 million in Q3FY24 and down from $45.9 million in Q2FY25;
  • Net income of $36.6 million, up 38% from $26.6 million in Q3FY24 and up 5% from $34.7 million in Q2FY25. Net income as a percentage of revenue was 22%, compared to 18% in Q3FY24 and 21% in Q2FY25;
  • Earnings per share on a diluted basis of $0.42, up 35% from $0.31 in Q3FY24 and up 5% from $0.40 in Q2FY25, respectively; and
  • Adjusted EBITDA of $72.1 million, up 14% from $63.5 million in Q3FY24 and up 2% from $70.6 million in Q2FY25. Adjusted EBITDA as a percentage of revenues was 43%, compared to 44% and 43% in Q3FY24 and Q2FY25, 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, acquisition-related expenses, and contingent consideration incurred due to better-than-expected performance from acquisitions). 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):

  Q3
FY25
Q2
FY25
Q1
FY25
Q4
FY24
Q3
FY24
Revenues 168.8 163.4 151.3 148.2 144.7
Services revenues 149.7 146.2 137.8 135.7 130.4
Gross margin 74% 75% 77% 76% 76%
Cash provided by operating activities* 60.1 34.7 63.7 50.8 56.1
Income from operations 45.8 45.9 42.4 37.0 32.4
Net income 36.6 34.7 34.7 31.8 26.6
Net income as a % of revenues 22% 21% 23% 21% 18%
Earnings per diluted share 0.42 0.40 0.40 0.37 0.31
Adjusted EBITDA 72.1 70.6 67.0 65.7 63.5
Adjusted EBITDA as a % of revenues 43% 43% 44% 44% 44%
(*) Q2FY25 cash provided by operating activities was negatively impacted by the payment of $25.0 million in contingent acquisition consideration for previously completed deals, which was not accrued for at the time of acquisition
 

Year-to-Date Financial Results
As described in more detail below, key financial highlights for Descartes’ nine-month period ended October 31, 2024 (9MFY25) included:

  • Revenues of $483.5 million, up 14% from $424.7 million in the same period a year ago (9MFY24);
  • Revenues were comprised of services revenues of $433.7 million (90% of total revenues), professional services and other revenues of $44.4 million (9% of total revenues) and license revenues of $5.4 million (1% of total revenues). Services revenues were up 13% from $385.3 million in 9MFY24;

Cash provided by operating activities of $158.5 million, up 1% from $156.9 million in 9MFY24. Cash provided by operating activities was negatively impacted in 9MFY25 by the payment of $25.0 million in contingent acquisition consideration for previously completed deals, which was not accrued for at the time of acquisition;

  • Income from operations of $134.0 million, up 27% from $105.8 million in 9MFY24;
  • Net income of $105.9 million, up 26% from $84.1 million in 9MFY24. Net income as a percentage of revenues was 22%, compared to 20% in 9MFY24;
  • Earnings per share on a diluted basis of $1.21, up 25% from $0.97 in 9MFY24; and
  • Adjusted EBITDA of $209.7 million, up 15% from $181.7 million in 9MFY24. Adjusted EBITDA as a percentage of revenues was 43%, consistent with 9MFY24.

The following table summarizes Descartes’ results in the categories specified below over 9MFY25 and 9MFY24 (unaudited, dollar amounts in millions):

    9MFY25 9MFY24  
  Revenues 483.5 424.7  
  Services revenues 433.7 385.3  
  Gross margin 75% 76%  
  Cash provided by operating activities * 158.5 156.9  
  Income from operations 134.0 105.8  
  Net income 105.9 84.1  
  Net income as a % of revenues 22% 20%  
  Earnings per diluted share 1.21 0.97  
  Adjusted EBITDA 209.7 181.7  
  Adjusted EBITDA as a % of revenues 43% 43%  
(*) 9MFY25 cash provided by operating activities was negatively impacted by the payment of $25.0 million in contingent acquisition consideration for previously completed deals, which was not accrued for at the time of acquisition
 

Cash Position
At October 31, 2024, Descartes had $181.3 million in cash. Cash decreased by $71.4 million in Q3FY25 and $139.7 million in 9MFY25. The table set forth below provides a summary of cash flows for Q3FY25 and 9MFY25 in millions of dollars:

  Q3FY25 9MFY25
Cash provided by operating activities 60.1 158.5
Additions to property and equipment (1.3) (4.7)
Acquisitions of subsidiaries, net of cash acquired (132.8) (286.5)
Issuances of common shares, net of issuance costs 2.4 9.9
Payment of withholding taxes on net share settlements - (6.7)
Payment of contingent consideration - (9.2)
Effect of foreign exchange rate on cash 0.2 (1.0)
Net change in cash (71.4) (139.7)
Cash, beginning of period 252.7 321.0
Cash, end of period 181.3 181.3
 

Acquisition of MyCarrierPortal
On September 17, 2024, Descartes acquired all of the shares of Assure Assist, Inc., doing business as MyCarrierPortal (“MCP”), a leading provider of carrier onboarding and risk monitoring solutions for the trucking industry. The purchase price for the acquisition was approximately $22.5 million, net of cash acquired, which was funded from cash on hand, plus potential performance-based consideration of up to $6.0 million based on MCP achieving revenue-based targets over the first two years post-acquisition.

Acquisition of Sellercloud
On October 11, 2024, Descartes acquired all of the shares of Sellercloud LLC and certain assets of Sellercloud Europe Ltd. (collectively referred to as “Sellercloud”), a leading provider of omnichannel ecommerce solutions. The purchase price for the acquisition was approximately $110.2 million, net of cash acquired, which was funded from cash on hand, plus potential performance-based consideration of up to $20.0 million based on Sellercloud achieving revenue-based targets over the first two years post-acquisition.

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 Tuesday, December 3, 2024. Designated numbers are +1 289 514 5100 and +1 800 717 1738 for Toll-Free in North America, using conference ID 07584.

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 December 10, 2024, by dialing +1 289 819 1325 or Toll-Free for North America using +1 888 660 6264 with Playback Passcode: 07584#. 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, security and sustainability of logistics-intensive businesses. Customers use our modular, software-as-a-service solutions to route, track and help improve the safety, performance and compliance of 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                                                                     
(519) 746-2969
investor@descartes.com

Cautionary Statement Regarding Forward-Looking Statements

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 “Russia-Ukraine Conflict”), and between Israel and Hamas (“Israel-Hamas Conflict”), or other potentially catastrophic events, 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 Russia-Ukraine Conflict and Israel-Hamas Conflict 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, acquisition-related expenses, and contingent consideration incurred due to better-than-expected performance from acquisitions). 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 seven acquisitions since the beginning of fiscal 2024 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 Q3FY25, Q2FY25, Q1FY25, Q4FY24, and Q3FY24, which we believe is the most directly comparable GAAP measure.

  Q3FY25 Q2FY25 Q1FY25 Q4FY24 Q3FY24
Net income, as reported on Consolidated Statements of Operations 36.6 34.7 34.7 31.8 26.6
Adjustments to reconcile to Adjusted EBITDA:          
Interest expense 0.2 0.2 0.3 0.3 0.3
Investment income (2.9) (2.7) (4.1) (3.4) (2.7)
Income tax expense 11.9 13.6 11.5 8.3 8.2
Depreciation expense 1.4 1.4 1.4 1.4 1.5
Amortization of intangible assets 17.5 17.4 15.0 15.1 15.3
Stock-based compensation and related taxes 5.6 5.8 4.3 4.7 4.6
Other charges 1.8 0.2 3.9 7.5 9.7
Adjusted EBITDA 72.1 70.6 67.0 65.7 63.5
           
Revenues 168.8 163.4 151.3 148.2 144.7
Net income as % of revenues 22% 21% 23% 21% 18%
Adjusted EBITDA as % of revenues 43% 43% 44% 44% 44%
 

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 9MFY25 and 9MFY24, which we believe is the most directly comparable GAAP measure.

(US dollars in millions) 9MFY25 9MFY24
Net income, as reported on Consolidated Statements of Operations 105.9 84.1
Adjustments to reconcile to Adjusted EBITDA:    
Interest expense 0.8 1.0
Investment income (9.7) (6.3)
Income tax expense 37.0 27.0
Depreciation expense 4.1 4.1
Amortization of intangible assets 50.0 45.4
Stock-based compensation and related taxes 15.7 12.4
Other charges 5.9 14.0
Adjusted EBITDA 209.7 181.7
     
Revenues 483.5 424.7
Net income as % of revenues 22% 20%
Adjusted EBITDA as % of revenues 43% 43%
 

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

  October 31, January 31,
  2024 2024
ASSETS    
CURRENT ASSETS    
Cash 181,282 320,952
Accounts receivable (net)    
Trade 54,326 51,569
Other 17,268 12,193
Prepaid expenses and other 40,743 33,468
  293,619 418,182
OTHER LONG-TERM ASSETS 24,560 24,737
PROPERTY AND EQUIPMENT, NET 12,048 11,552
RIGHT-OF-USE ASSETS 6,576 6,257
DEFERRED INCOME TAXES 3,184 2,097
INTANGIBLE ASSETS, NET 343,811 251,047
GOODWILL 935,440 760,413
  1,619,238 1,474,285
LIABILITIES AND SHAREHOLDERS’ EQUITY    
CURRENT LIABILITIES    
Accounts payable 20,599 17,484
Accrued liabilities 78,205 91,824
Lease obligations 2,821 3,075
Income taxes payable 16,108 6,734
Deferred revenue 101,140 84,513
  218,873 203,630
LEASE OBLIGATIONS 4,121 3,903
DEFERRED REVENUE 1,215 1,464
INCOME TAXES PAYABLE 4,949 6,153
DEFERRED INCOME TAXES 33,817 21,101
  262,975 236,251
     
SHAREHOLDERS’ EQUITY    
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 85,539,437 at October 31, 2024 (January 31, 2024 – 85,183,455) 564,793 551,164
Additional paid-in capital 498,787 494,701
Accumulated other comprehensive income (loss) (33,978) (28,586)
Retained earnings 326,661 220,755
  1,356,263 1,238,034
  1,619,238 1,474,285
 


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   Nine Months Ended
  October 31, October 31,   October 31, October 31,
  2024 2023   2024 2023
           
REVENUES 168,756   144,698     483,529   424,705  
COST OF REVENUES 43,154   34,325     119,115   102,184  
GROSS MARGIN 125,602   110,373     364,414   322,521  
EXPENSES          
Sales and marketing 19,134   17,209     55,636   51,583  
Research and development 24,472   21,118     70,572   62,923  
General and administrative 16,858   14,712     48,328   42,747  
Other charges 1,830   9,679     5,898   14,067  
Amortization of intangible assets 17,519   15,250     49,962   45,408  
  79,813   77,968     230,396   216,728  
INCOME FROM OPERATIONS 45,789   32,405     134,018   105,793  
INTEREST EXPENSE (244 ) (343 )   (760 ) (1,020 )
INVESTMENT INCOME 2,883   2,717     9,657   6,287  
INCOME BEFORE INCOME TAXES 48,428   34,779     142,915   111,060  
INCOME TAX EXPENSE (RECOVERY)          
Current 18,310   10,334     42,105   30,207  
Deferred (6,440 ) (2,157 )   (5,096 ) (3,218 )
  11,870   8,177     37,009   26,989  
NET INCOME 36,558   26,602     105,906   84,071  
EARNINGS PER SHARE          
Basic 0.43   0.31     1.24   0.99  
Diluted 0.42   0.31     1.21   0.97  
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)          
Basic 85,501   85,101     85,403   85,045  
Diluted 87,342   86,791     87,231   86,772  
 

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

  Three Months Ended
  Nine Months Ended
  October 31,
October 31,   October 31,
October 31,
  2024
2023   2024
2023
OPERATING ACTIVITIES                  
Net income 36,558   26,602     105,906   84,071  
Adjustments to reconcile net income to cash provided by operating activities:                  
Depreciation 1,393   1,452     4,137   4,080  
Amortization of intangible assets 17,519   15,250     49,962   45,408  
Stock-based compensation expense 5,298   4,513     14,575   11,883  
Other non-cash operating activities (42 ) (15 )   (1 ) 57  
Deferred tax expense (recovery) (6,440 ) (2,157 )   (5,096 ) (3,218 )
Changes in operating assets and liabilities 5,860   10,405     (10,936 ) 14,635  
Cash provided by operating activities 60,146   56,050     158,547   156,916  
INVESTING ACTIVITIES                  
Additions to property and equipment (1,313 ) (1,462 )   (4,653 ) (4,845 )
Acquisition of subsidiaries, net of cash acquired (132,753 ) -     (286,468 ) (142,700 )
Cash used in investing activities (134,066 ) (1,462 )   (291,121 ) (147,545 )
FINANCING ACTIVITIES                  
Payment of debt issuance costs (15 ) -     (53 ) (39 )
Issuance of common shares for cash, net of issuance costs 2,373   447     9,887   6,468  
Payment of withholding taxes on net share settlements -   -     (6,745 ) (4,886 )
Payment of contingent consideration -   -     (9,223 ) (6,320 )
Cash provided by (used in) financing activities 2,358   447     (6,134 ) (4,777 )
Effect of foreign exchange rate changes on cash 191   (2,835 )   (962 ) (1,370 )
(Decrease) increase in cash (71,371 ) 52,200     (139,670 ) 3,224  
Cash, beginning of period 252,653   227,409     320,952   276,385  
Cash, end of period 181,282   279,609     181,282   279,609  

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