Record Revenues and Operating Performance; Acquisition Line of Credit Expanded to $150 Million

WATERLOO, Ontario, March 03, 2016 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2016 fourth quarter (Q4FY16) and year (FY16) ended January 31, 2016. 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 track record of consistent, profitable investment and growth has helped build a stable and efficient network platform that the global logistics community relies on," said Edward J. Ryan, Descartes' CEO. "With our global team of domain experts, a focus on cash generation and our expanded debt facility, we believe we have the right platform and the capital capacity to continue to grow the Global Logistics Network to help our customers meet the challenges of the ever-changing logistics landscape."

FY16 Financial Results

  • Revenues of $185.0 million, a record high, up 8% from $170.9 million in the same period a year ago (FY15). The approximate impact of changes in foreign exchange rates on revenues was negative $11.7 million from FY15 to FY16;
  • Services revenues of $176.3 million, up 11% from $159.1 million in FY15. Services revenues comprised 95% of total revenues for FY16;
  • Cash provided by operating activities of $54.2 million, up 9% from $49.5 million in FY15;
  • Net income of $20.6 million, up 36% from $15.1 million in FY15;
  • Earnings per share on a diluted basis of $0.27, up 29% from $0.21 in FY15;
  • Adjusted EBITDA of $60.9 million, a record high, up 17% from $52.0 million in FY15. Adjusted EBITDA as a percentage of revenues was 33%, up from 30% in FY15; and
  • Adjusted EBITDA per share on a diluted basis of $0.80, up 10% from $0.73 in FY15.

Adjusted EBITDA and Adjusted EBITDA per diluted share are non-GAAP financial measures provided as a complement to financial results presented in accordance with GAAP. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, stock-based compensation (for which we include related fees and taxes) and other charges (for which we include executive departure charges, restructuring charges and acquisition-related expenses). These items are considered by management to be outside Descartes' ongoing operational results. We define Adjusted EBITDA per diluted share as Adjusted EBITDA divided by the number of diluted shares used to calculate the GAAP measure of earnings per share. A reconciliation of Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and earnings per share determined in accordance with GAAP, respectively, is provided later in this release.

The following table summarizes Descartes' results in the categories specified below over FY16 and FY15 (dollar amounts, other than per share amounts, in millions):

 FY16FY15
Revenues 185.0  170.9 
Services revenues 176.3  159.1 
Gross margin 71% 68%
Cash provided by operating activities 54.2  49.5 
Net income 20.6  15.1 
Earnings per diluted share 0.27  0.21 
Adjusted EBITDA 60.9  52.0 
Adjusted EBITDA as a % of revenues 33% 30%
Adjusted EBITDA per diluted share 0.80  0.73 
 

Q4FY16 Financial Results
As described in more detail below, key financial highlights for Descartes in Q4FY16 included:

  • Revenues of $48.0 million, up 8% from $44.3 million in the fourth quarter of fiscal 2015 (Q4FY15) and up 1% from $47.4 million in the previous quarter (Q3FY16). The approximate impact of changes in foreign exchange rates on revenues was negative $2.0 million (from Q4FY15 to Q4FY16) and negative $0.6 million (from Q3FY16 to Q4FY16);
  • Services revenues of $46.3 million, up 12% from $41.5 million in Q4FY15 and up 2% from $45.5 million in Q3FY16. Services revenues comprised 96% of total revenues for the quarter;
  • Cash provided by operating activities of $16.2 million, up 24% from $13.1 million in Q4FY15 and up 21% from $13.4 million in Q3FY16;
  • Net income of $5.4 million, up 50% from $3.6 million in Q4FY15 and up 4% from $5.2 million in Q3FY16;
  • Earnings per share on a diluted basis of $0.07, up 40% from $0.05 in Q4FY15 and consistent with Q3FY16;
  • Adjusted EBITDA of $16.3 million, up 17% from $13.9 million in Q4FY15 and up 3% from $15.8 million in Q3FY16. Adjusted EBITDA as a percentage of revenues was 34%, up from 31% in Q4FY15 and up from 33% in Q3FY16; and
  • Adjusted EBITDA per share on a diluted basis of $0.21, up 17% from $0.18 in Q4FY15 and consistent with Q3FY16.

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
FY16		Q3
FY16		Q2
FY16		Q1
FY16		Q4
FY15
Revenues 48.0  47.4  45.2  44.4  44.3 
Services revenues 46.3  45.5  42.8  41.7  41.5 
Gross margin 72% 72% 70% 70% 69%
Cash provided by operating activities 16.2  13.4  12.8  11.9  13.1 
Net income 5.4  5.2  5.1  4.9  3.6 
Earnings per diluted share 0.07  0.07  0.07  0.06  0.05 
Adjusted EBITDA 16.3  15.8  14.6  14.2  13.9 
Adjusted EBITDA as a % of revenues 34% 33% 32% 32% 31%
Adjusted EBITDA per diluted share 0.21  0.21  0.19  0.19  0.18 
 

Cash Position
At January 31, 2016, Descartes had $37.2 million in cash. Cash has decreased $15.8 million in Q4FY16 primarily due to the acquisition of Oz Development, Inc. as discussed below, partially offset by cash provided by operating activities. Cash has decreased $80.9 million in FY16 primarily due to the acquisitions of MK Data Services LLC, BearWare, Inc. and Oz Development, Inc. (described below), partially offset by strong cash flow from operations.

The table set forth below provides a summary of cash flows for Q4FY16 and FY16 in millions of dollars:

 Q4FY16FY16
Cash provided by operating activities   16.2    54.2 
Purchase of marketable securities (0.7) (4.7)
Additions to property and equipment (0.9) (4.3)
Acquisition of subsidiaries, net of cash acquired (29.4) (120.9)
Issuance of common shares, net of issuance costs   -    0.2 
Settlement of stock options -  (2.6)
Effect of foreign exchange rate on cash (1.0) (2.8)
Net change in cash   (15.8)   (80.9)
Cash, beginning of period   53.0    118.1 
Cash, end of period   37.2  37.2 
 

Debt Facility Increased from $77 million to $150 million
On March 2, 2016, Descartes amended its $77.0 million revolving debt facility with a new senior secured credit facility ("Credit Facility"). The Credit Facility consists of a $150.0 million revolving operating credit facility to be available for general corporate purposes, including the financing of ongoing working capital needs and acquisitions. The Credit Facility also provides for an additional $7.5 million available to support foreign exchange and interest rate hedging. The Credit Facility has a five year maturity with no fixed repayment dates prior to the end of the five year term. Borrowings under the facility are secured by a first charge over substantially all of Descartes' assets. Depending on the type of advance, interest rates under the revolving operating credit facility are based on the Canada or US prime rate, Bankers' Acceptance (BA) or London Interbank Offered Rate (LIBOR) plus an additional 0 to 200 basis points based on the ratio of net debt to adjusted earnings before interest, taxes, depreciation and amortization, as defined in the credit agreement. A standby fee of between 20 to 28 basis points will be charged on all undrawn amounts. The Credit Facility contains certain customary representations, warranties and guarantees, and covenants.

Acquisition of Oz Development, Inc.
On November 25, 2015, Descartes acquired Oz Development, Inc., a leading US-based provider of application integration solutions that help small-to-medium sized businesses ("SMBs") automate a number of logistics and supply chain processes. The solutions help a growing SMB community connect to, and integrate with, leading ERP, CRM, e-commerce and supply chain platforms. The total purchase price for the acquisition was $29.5 million, net of cash acquired, which was funded with cash on hand.

Descartes Evolution — 2016 User Group Conference
From April 5-7, 2016, Descartes will be hosting Descartes Evolution at the Hilton West Palm Beach.  Evolution, Descartes' Global User & Partner conference, is the pinnacle event where Descartes 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 www.descartes.com/usergroup.

Conference Call
Members of Descartes' executive management team will host a conference call to discuss the company's financial results at 8:00 a.m. ET on Thursday, March 3. Designated numbers are +1 866 229-4144 for North America and +1 416 216-4169 for international, using Passcode 8424891#.

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 11:00 a.m. ET, and until March 10, 2016, by dialing +1 888 843-7419 or +1 630 652-3042 followed by Passcode 8424891#. 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, cloud-based 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.

Safe Harbor Statement
This release contains forward-looking information within the meaning of applicable securities laws ("forward-looking statements") that relates to Descartes' future, opportunities and business; demand for Descartes' solutions; growth of Descartes' Global Logistics Network; 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 the global economic downturn; 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 per Diluted Share
We prepare and release quarterly unaudited and annual audited financial statements prepared in accordance with GAAP. We also disclose and discuss certain non-GAAP financial information, used to evaluate our performance, in this and other earnings releases and investor conference calls as a complement to results provided in accordance with GAAP. We believe that current shareholders and potential investors in our company use non-GAAP financial measures, such as Adjusted EBITDA and Adjusted EBITDA per diluted share, in making investment decisions about our company and measuring our operational results.

The term "Adjusted EBITDA" refers to a financial measure that we define 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 executive departure charges, restructuring charges and acquisition-related expenses). Adjusted EBITDA per diluted share divides Adjusted EBITDA by the number of diluted shares used in calculating the GAAP diluted earnings per share, or diluted EPS, measure.

Management considers acquisition-related and restructuring activities to be outside the scope of Descartes' ongoing operations and the related expenses are not used by management to measure operations. Accordingly, these expenses are excluded from Adjusted EBITDA, which we reference to both measure our operations and as a basis of comparison of our operations from period-to-period. Management believes that investors and financial analysts measure our business on the same basis, and we are providing the Adjusted EBITDA financial metric to assist in this evaluation and to provide a higher level of transparency into how we measure our own business. However, Adjusted EBITDA is a non-GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA should not be construed as a substitute for net income determined in accordance with GAAP or other non-GAAP measures that may be used by other companies, such as EBITDA. The use of Adjusted EBITDA does have limitations. In particular, we have completed eleven acquisitions since the beginning of fiscal 2014, and may complete additional acquisitions in the future that will result in acquisition-related expenses and restructuring charges. As these acquisition-related expenses and restructuring charges may continue as we pursue our consolidation strategy, some investors may consider these charges and expenses as a recurring part of operations rather than non-recurring charges and expenses that are not part of operations.

The table below reconciles Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and diluted earnings per share, respectively, reported in our unaudited Consolidated Statements of Operations for Q4FY16, Q3FY16, Q2FY16, Q1FY16 and Q4FY15, which we believe are the most directly comparable GAAP measures.

(US dollars in millions) Q4FY16  Q3FY16 Q2FY16Q1FY16Q4FY15
Net income, as reported on Consolidated Statements of Operations 5.4  5.2  5.1  4.9  3.6 
Adjustments to reconcile to Adjusted EBITDA:         
Interest expense 0.1  0.1  0.1  0.1  0.2 
Interest income -  -  (0.1) (0.1) (0.1)
Income tax expense 1.4  1.9  1.8  2.1  1.2 
Depreciation expense 1.1  0.8  0.8  0.7  0.9 
Amortization of intangible assets 7.3  6.9  6.0  6.0  6.2 
Stock-based compensation and related taxes 0.4  0.5  0.5  0.3  0.5 
Acquisition-related expenses 0.6  0.4  0.4  0.1  0.7 
Restructuring charges -  -  -  0.1  0.7 
Adjusted EBITDA 16.3  15.8  14.6  14.2  13.9 
          
Weighted average diluted shares outstanding (thousands)   76,423    76,421    76,396    76,344    76,303 
Diluted earnings per share 0.07  0.07  0.07  0.06  0.05 
Adjusted EBITDA per diluted share 0.21  0.21  0.19  0.19  0.18 
 

The table below reconciles Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and diluted earnings per share, respectively, reported in our audited Consolidated Statements of Operations for the years ended January 31, 2016 and 2015, which we believe are the most directly comparable GAAP measures.

(US dollars in millions)FY16FY15
Net income, as reported on Consolidated Statements of Operations 20.6  15.1 
Adjustments to reconcile to Adjusted EBITDA:  
Interest expense 0.5  1.1 
Interest income (0.2) (0.3)
Income tax expense 7.2  6.8 
Depreciation expense 3.4  3.0 
Amortization of intangible assets 26.2  21.7 
Stock-based compensation and related fees and taxes 1.7  1.7 
Acquisition-related expenses 1.4  2.1 
Restructuring charges 0.1  0.8 
Adjusted EBITDA 60.9  52.0 
   
Weighted average diluted shares outstanding (thousands)   76,409    71,584 
Diluted earnings per share 0.27  0.21 
Adjusted EBITDA per diluted share 0.80  0.73 
 

                   

THE DESCARTES SYSTEMS GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US dollars in thousands; US GAAP)
 
Year EndedJanuary 31,January 31,
  2016 2015
ASSETS  
CURRENT ASSETS  
Cash 37,213  118,053 
Short-Term marketable securities 4,639  - 
Accounts receivable (net)  
Trade 25,614  22,613 
Other 3,131  3,257 
Prepaid expenses and other 4,673  4,327 
Inventory 155  474 
Deferred income taxes -  8,572 
  75,425  157,296 
PROPERTY AND EQUIPMENT, NET 8,604  7,829 
DEFERRED INCOME TAXES 16,804  16,510 
DEFERRED TAX CHARGE 906  - 
INTANGIBLE ASSETS, NET 133,562  115,126 
GOODWILL 217,486  147,440 
  452,787  444,201 
LIABILITIES AND SHAREHOLDERS' EQUITY  
CURRENT LIABILITIES  
Accounts payable 4,473  4,620 
Accrued liabilities 16,844  16,695 
Income taxes payable 2,086  4,112 
Deferred revenue 16,639  14,720 
  40,042  40,147 
LONG-TERM DEFERRED REVENUE 941  589 
LONG-TERM INCOME TAXES PAYABLE 3,672  3,450 
DEFERRED INCOME TAXES 6,097  9,630 
  50,752  53,816 
   
SHAREHOLDERS' EQUITY  
Common shares — unlimited shares authorized; Shares issued and outstanding totaled 75,761,184 at January 31, 2016 (January 31, 2015 — 75,480,492) 252,471  247,839 
Additional paid-in capital 446,747  450,623 
Accumulated other comprehensive loss (34,880) (25,212)
Accumulated deficit (262,303) (282,865)
  402,035  390,385 
  452,787  444,201 
 


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   2016 2015 2014
    
REVENUES 184,993  170,860  151,294 
COST OF REVENUES 53,859  54,879  49,043 
GROSS MARGIN 131,134  115,981  102,251 
EXPENSES   
Sales and marketing 22,424  20,404  16,681 
Research and development 31,293  28,077  25,881 
General and administrative 21,607  20,333  20,509 
Other charges 1,491  2,876  6,512 
Amortization of intangible assets 26,222  21,715  17,999 
  103,037  93,405  87,582 
INCOME FROM OPERATIONS 28,097  22,576  14,669 
INTEREST EXPENSE (522) (1,088) (993)
INTEREST INCOME 195  333  57 
INCOME BEFORE INCOME TAXES 27,770  21,821  13,733 
INCOME TAX EXPENSE   
Current 1,443  2,784  1,768 
Deferred 5,765  3,978  2,353 
  7,208  6,762  4,121 
NET INCOME 20,562  15,059  9,612 
EARNINGS  PER SHARE   
Basic 0.27  0.21  0.15 
Diluted 0.27  0.21  0.15 
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)   
Basic 75,595  70,559  62,841 
Diluted 76,409  71,584  64,370 
 


THE DESCARTES SYSTEMS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US dollars in thousands; US GAAP)
 
 January 31,January 31,January 31,
  2016 2015 2014
OPERATING ACTIVITIES   
Net income 20,562  15,059  9,612 
Adjustments to reconcile net income to cash provided by operating activities:   
Depreciation 3,377  3,295  3,396 
Amortization of intangible assets 26,222  21,715  17,999 
Stock-based compensation expense 1,577  1,543  2,523 
Other non-cash operating activities (392) -  - 
Deferred tax expense 5,765  3,978  2,353 
Deferred tax charge 22  -  - 
Changes in operating assets and liabilities:   
Accounts receivable   
Trade 764  3,999  3,650 
Other 203  4,869  2,164 
Prepaid expenses and other (86) 141  91 
Inventory 314  859  (535)
Accounts payable (412) (3,121) 146 
Accrued liabilities 25  (294) 2,051 
Income taxes payable (1,690) (73) 596 
Deferred revenue (2,008) (2,492) (1,432)
Cash provided by operating activities 54,243  49,478  42,614 
INVESTING ACTIVITIES   
Purchase of marketable securities (4,667) -  - 
Additions to property and equipment (4,309) (2,679) (2,385)
Acquisition of subsidiaries, net of cash acquired and bank indebtedness assumed (120,853) (82,152) (58,737)
Cash used in investing activities (129,829) (84,831) (61,122)
FINANCING ACTIVITIES   
Proceeds from borrowing on the debt facility -  20,000  46,262 
Payment of debt issuance costs -  (386) (692)
Repayments of debt and other financial liabilities -  (63,305) (3,722)
Issuance of common shares for cash, net of issuance costs 158  140,724  3,633 
Settlement of stock options (2,590) (405) (1,361)
Cash (used in) provided by financing activities (2,432) 96,628  44,120 
Effect of foreign exchange rate changes on cash (2,822) (5,927) (545)
(Decrease) increase in cash (80,840) 55,348  25,067 
Cash, beginning of period 118,053  62,705  37,638 
Cash, end of period 37,213  118,053  62,705 


Descartes Investor Contact:
Laurie McCauley +1-519-746-6114 x202358
investor@descartes.com