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):

 FY20FY19
Revenues325.8275.2
Services revenues284.7241.5
Gross margin74%73%
Cash provided by operating activities104.378.1
Income from operations52.341.4
Net income37.031.3
Net income as a % of revenues11%11%
Earnings per diluted share0.450.40
Adjusted EBITDA122.693.9
Adjusted EBITDA as a % of revenues38%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):

 Q4FY20Q3FY20Q2FY20Q1FY20Q4FY19
Revenues84.283.080.578.071.0
Services revenues73.772.671.467.062.9
Gross margin73%73%74%74%73%
Cash provided by operating activities26.427.526.923.421.8
Income from operations13.613.713.111.910.6
Net income11.49.78.67.37.9
Net income as a % of revenues14%12%11%9%11%
Earnings per diluted share0.130.110.100.090.10
Adjusted EBITDA32.231.530.228.725.0
Adjusted EBITDA as a % of revenues38%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:

 Q4FY20FY20
Cash provided by operating activities26.4104.3
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 cash0.1(0.4)
Net change in cash15.617.1
Cash, beginning of period       28.8       27.3
Cash, end of period44.444.4

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. 

# # #

Descartes Investor Contact:

Laurie McCauley +1-519-746-6114 x202358

investor@descartes.com

Safe Harbor Statement

This release may contain forward-looking information within the meaning of applicable securities laws ("forward-looking statements") that relates to Descartes' 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)Q4FY20Q3FY20Q2FY20Q1FY20Q4FY19
Net income, as reported on Consolidated Statements of Operations11.49.78.67.37.9
Adjustments to reconcile to Adjusted EBITDA:    
Interest expense0.40.41.42.20.5
Investment income (0.1) - -(0.1)(0.1)
Income tax expense1.93.53.12.52.4
Depreciation expense2.91.21.10.91.5
Amortization of intangible assets14.114.514.112.810.3
Stock-based compensation and related taxes1.31.41.31.01.0
Other charges0.30.80.62.11.5
Adjusted EBITDA32.231.530.228.725.0
    
Revenues84.283.080.578.071.0
Net income as % of revenues14%12%11%9%11%
Adjusted EBITDA as % of revenues38%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)  FY20FY19
Net income, as reported on Consolidated Statements of Operations  37.031.3
Adjustments to reconcile to Adjusted EBITDA:   
Interest expense  4.42.1
Investment income  (0.2)(0.2)
Income tax expense  11.18.2
Depreciation expense  6.04.5
Amortization of intangible assets  55.540.2
Stock-based compensation and related taxes  5.04.0
Other charges  3.83.8
Adjusted EBITDA  122.693.9
   
Revenues  325.8275.1
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,
20202019
ASSETS 
CURRENT ASSETS 
Cash44,40327,298
Accounts receivable (net) 
Trade35,11831,493
Other7,2944,331
Prepaid expenses and other12,9849,027
Inventory41195
 100,21072,244
OTHER LONG-TERM ASSETS13,52010,510
PROPERTY AND EQUIPMENT, NET13,73112,612
RIGHT-OF-USE ASSETS12,877-
DEFERRED INCOME TAXES21,6023,598
INTANGIBLE ASSETS, NET256,956176,192
GOODWILL523,690378,178
 942,586653,334
LIABILITIES AND SHAREHOLDERS’ EQUITY 
CURRENT LIABILITIES 
 Accounts payable7,6675,147
 Accrued liabilities34,87629,392
 Lease obligations3,928-
 Income taxes payable1,3291,592
 Deferred revenue41,14334,236
 88,94370,367
LONG-TERM DEBT-25,464
LEASE OBLIGATIONS9,477-
DEFERRED REVENUE920855
INCOME TAXES PAYABLE6,4707,634
DEFERRED INCOME TAXES15,06715,507
 120,877119,827
  
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)524,154276,753
Additional paid-in capital459,269454,722
Accumulated other comprehensive loss(25,944)(25,201)
Accumulated deficit(135,770)(172,767)
 821,709533,507
    942,586653,334
    

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 202020192018
1.               
2.            REVENUES325,791275,171237,439
3.            COST OF REVENUES85,72174,99463,704
4.            GROSS MARGIN240,070200,177173,735
EXPENSES  
Sales and marketing40,38936,87333,128
Research and development53,51347,87241,804
General and administrative34,62830,01225,448
Other charges3,7973,7983,994
Amortization of intangible assets55,48540,17933,477
 187,812158,734137,851
INCOME FROM OPERATIONS52,25841,44335,884
INTEREST EXPENSE(4,416)(2,128)(1,297)
INVESTMENT INCOME193195161
5.      INCOME BEFORE INCOME TAXES48,03539,51034,748
INCOME TAX EXPENSE  
Current5,2956,0426,572
Deferred5,7432,1911,297
11,0388,2337,869
NET INCOME36,99731,27726,879
EARNINGS PER SHARE  
Basic0.450.410.35
Diluted0.450.400.35
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)  
Basic81,65976,83276,324
Diluted82,86777,79177,112

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, 
 202020192018 
OPERATING ACTIVITIES   
Net income36,99731,27726,879
Adjustments to reconcile net income to cash provided by operating activities:  
Depreciation6,0374,5444,101
Amortization of intangible assets55,48540,17933,477
Stock-based compensation expense4,9093,7102,807
Other non-cash operating activities33771(784)
Deferred tax expense5,7432,1911,297
     Deferred tax charge-(49)(31)
     Changes in operating assets and liabilities:(5,256)(3,849)4,397
Cash provided by operating activities104,25278,07472,143
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 facility297,01568,46880,000
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 costs237,9733451,003
Payment of contingent consideration(785)(1,531)-
Cash provided by (used in) financing activities210,169(11,377)38,003
Effect of foreign exchange rate changes on cash(363)(1,368)3,817
Increase (decrease) in cash17,105(7,847)(2,990)
Cash, beginning of year27,29835,14538,135
Cash, end of year44,40327,29835,145