Descartes Announces Fiscal 2022 Second Quarter Financial Results

Record Revenues and Income from Operations

WATERLOO, Ontario, Sept. 08, 2021 (GLOBE NEWSWIRE) — The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced its financial results for its fiscal 2022 second quarter (Q2FY22). 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).

“We continue to focus on helping our customers thrive in the face of an increasingly dynamic, complex global trade landscape, and in turn our customers continue to trust us with more of their business” said Edward J. Ryan, Descartes’ CEO. “The challenges and opportunities faced by our customers can vary for shippers, carriers, logistics service providers and customs authorities, but all parties need to connect and collaborate in real-time. Our Global Logistics Network does just that, helping our customers seamlessly exchange information and leverage data with a growing number of tailored, value-added applications for each participant to manage the lifecycle of shipments.”

Q2FY22 Financial Results
As described in more detail below, key financial highlights for Q2FY22 included:

  • Revenues of $104.6 million, up 25% from $84.0 million in the second quarter of fiscal 2021 (Q2FY21) and up 6% from $98.8 million in the previous quarter (Q1FY22);
  • Revenues were comprised of services revenues of $93.5 million (89% of total revenues), professional services and other revenues of $9.9 million (10% of total revenues) and license revenues of $1.2 million (1% of total revenues). Services revenues were up 24% from $75.3 million in Q2FY21 and up 6% from $88.3 million in Q1FY22;
  • Cash provided by operating activities of $46.4 million, up 36% from $34.1 million in Q2FY21 and up 13% from $40.9 million in Q1FY22;
  • Income from operations of $26.1 million, up 74% from $15.0 million in Q2FY21 and up 12% from $23.4 million in Q1FY22;
  • Net income of $23.2 million, up 121% from $10.5 million in Q2FY21 and up 26% from $18.4 million in Q1FY22;
  • Earnings per share on a diluted basis of $0.27, up 125% from $0.12 in Q2FY21 and up 29% from $0.21 in Q1FY22; and
  • Adjusted EBITDA of $45.9 million, up 35% from $34.0 million in Q2FY21 and up 11% from $41.5 million in Q1FY22. Adjusted EBITDA as a percentage of revenues was 44%, compared to 40% in Q2FY21 and 42% in Q1FY22.

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
FY22
Q1
FY22
Q4
FY21
Q3
FY21
Q2
FY21
Revenues 104.6 98.8 93.4 87.5 84.0
Services revenues 93.5 88.3 82.7 77.6 75.3
Gross margin 76% 76% 75% 74% 73%
Cash provided by operating activities 46.4 40.9 36.5 33.1 34.1
Income from operations 26.1 23.4 21.9 18.8 15.0
Net income 23.2 18.4 17.2 13.3 10.5
Net income as a % of revenues 22% 19% 18% 15% 13%
Earnings per diluted share 0.27 0.21 0.20 0.15 0.12
Adjusted EBITDA 45.9 41.5 38.6 36.4 34.0
Adjusted EBITDA as a % of revenues 44% 42% 41% 42% 40%

Year-to-Date Financial Results

As described in more detail below, key financial highlights for Descartes’ six-month period ended July 31, 2021 (1HFY22) included:

  • Revenues of $203.4 million, up 21% from $167.7 million in the same period a year ago (1HFY21);
  • Revenues were comprised of services revenues of $181.8 million (89% of total revenues), professional services and other revenues of $19.1 million (10% of total revenues) and license revenues of $2.5 million (1% of total revenues). Services revenues were up 22% from $149.4 million in 1HFY21;
  • Cash provided by operating activities of $87.3 million, up 42% from $61.6 million in 1HFY21;
  • Income from operations of $49.5 million, up 61% from $30.7 million in 1HFY21;
  • Net income of $41.6 million, up 93% from $21.6 million in 1HFY21. Net income as a percentage of revenues was 20%, compared to 13% in 1HFY21;
  • Earnings per share on a diluted basis of $0.48, up 92% from $0.25 in 1HFY21; and
  • Adjusted EBITDA of $87.4 million, up 30% from $67.0 million in 1HFY21. Adjusted EBITDA as a percentage of revenues was 43%, compared to 40% in 1HFY21.

The following table summarizes Descartes’ results in the categories specified below over 1HFY22 and 1HFY21 (unaudited, dollar amounts in millions):

  1HFY22 1HFY21
Revenues 203.4 167.7
Services revenues 181.8 149.4
Gross margin 76% 74%
Cash provided by operating activities 87.3 61.6
Income from operations 49.5 30.7
Net income 41.6 21.6
Net income as a % of revenues 20% 13%
Earnings per diluted share 0.48 0.25
Adjusted EBITDA 87.4 67.0
Adjusted EBITDA as a % of revenues 43% 40%

Cash Position
At July 31, 2021, Descartes had $128.4 million in cash. Cash decreased by $9.7 million in Q2FY22 and decreased $5.3 million in 1HFY22. The table set forth below provides a summary of cash flows for Q2FY22 and 1HFY22 in millions of dollars:

  Q2FY22 1HFY22
Cash provided by operating activities 46.4 87.3
Additions to property and equipment (0.9) (2.5)
Acquisitions of subsidiaries, net of cash acquired (54.4) (90.3)
Credit facility and other debt repayments (1.1) (1.1)
Payment of debt issuance costs (0.1)
Issuances of common shares, net of issuance costs           0.9           1.5
Effect of foreign exchange rate on cash (0.6) (0.1)
Net change in cash (9.7) (5.3)
Cash, beginning of period         138.1         133.7
Cash, end of period 128.4 128.4

Acquisition of Portrix
On May 7, 2021, Descartes acquired all of the shares of Portrix Logistics Software GmbH (“Portrix”), a provider of multimodal rate management solutions for logistics services providers. The purchase price for the acquisition was approximately $25.2 million (EUR 20.7 million), net of cash acquired, which was funded from cash on hand.

Acquisition of GreenMile
On July 8, 2021, Descartes acquired all of the shares of GreenMile, LLC (“GreenMile”), a provider of cloud-based mobile route execution solutions for food, beverage, and broader distribution verticals. The purchase price for the acquisition was approximately $29.2 million, net of cash acquired, which was funded from cash on hand, plus potential performance-based consideration of up to $10.0 million, based on GreenMile 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 today at 5:00 p.m. ET, Wednesday, September 8. Designated numbers are +1 888 465-5079 for North America and +1 416 216-4169 for international, using Passcode 8565 668#.

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. A digital replay of the conference call will be available following the call from 8:00 p.m. ET, and until September 25, 2021, 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
[email protected]

Safe Harbor Statement
This release may contain forward-looking information within the meaning of applicable securities laws (“forward-looking statements”) that relates to Descartes’ 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 current and future potential impact of the COVID-19 pandemic 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; 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 current COVID-19 pandemic 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 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 ten 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 Q2FY22, Q1FY22, Q4FY21, Q3FY21, and Q2FY21, which we believe is the most directly comparable GAAP measure.

(US dollars in millions) Q2FY22   Q1FY22   Q4FY21   Q3FY21   Q2FY21  
Net income, as reported on Consolidated Statements of Operations 23.2   18.4   17.2   13.3   10.5  
Adjustments to reconcile to Adjusted EBITDA:                    
Interest expense 0.3   0.3   0.3   0.2   0.3  
Investment income (0.1 ) (0.1 ) (0.1 )    
Income tax expense 2.7   4.8   4.5   5.2   4.2  
Depreciation expense 1.3   1.2   1.3   1.5   1.4  
Amortization of intangible assets 15.0   13.8   14.1   14.0   14.1  
Stock-based compensation and related taxes 3.1   2.6   1.9   1.7   1.8  
Other charges (recoveries) 0.4   0.5   (0.6 ) 0.5   1.7  
Adjusted EBITDA 45.9   41.5   38.6   36.4   34.0  
                     
Revenues 104.6   98.8   93.4   87.5   84.0  
Net income as % of revenues 22 % 19 % 18 % 15 % 13 %
Adjusted EBITDA as % of revenues 44 % 42 % 41 % 42 % 40 %

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 1HFY22 and 1HFY21, which we believe is the most directly comparable GAAP measure.

(US dollars in millions) 1HFY22   1HFY21  
Net income, as reported on Consolidated Statements of Operations 41.6   21.6  
Adjustments to reconcile to Adjusted EBITDA:        
Interest expense 0.5   0.6  
Investment income (0.1 ) (0.1 )
Income tax expense 7.5   8.6  
Depreciation expense 2.5   3.0  
Amortization of intangible assets 28.8   27.8  
Stock-based compensation and related taxes 5.7   3.0  
Other charges 0.9   2.5  
Adjusted EBITDA 87.4   67.0  
         
Revenues 203.4   167.7  
Net income as % of revenues 20 % 13 %
Adjusted EBITDA as % of revenues 43 % 40 %

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

         
  July 31,   January 31,  
  2021   2021 (Audited)  
ASSETS        
CURRENT ASSETS        
Cash 128,358   133,661  
Accounts receivable (net)        
Trade 37,542   37,206  
Other 13,664   14,830  
Prepaid expenses and other 19,209   16,939  
Inventory 743   429  
  199,516   203,065  
OTHER LONG-TERM ASSETS 17,320   15,550  
PROPERTY AND EQUIPMENT, NET 11,448   12,089  
RIGHT-OF-USE ASSETS 10,921   12,165  
DEFERRED INCOME TAXES 11,920   15,216  
INTANGIBLE ASSETS, NET 264,129   239,992  
GOODWILL 616,783   565,177  
  1,132,037   1,063,254  
LIABILITIES AND SHAREHOLDERS’ EQUITY        
CURRENT LIABILITIES        
Accounts payable 7,966    7,955  
Accrued liabilities 47,985    38,879  
Lease obligations 4,165    4,168  
Income taxes payable 2,966    3,383  
Deferred revenue 55,563    49,878  
  118,645   104,263  
LONG-TERM DEBT    
LONG-TERM LEASE OBLIGATIONS 7,835   8,895  
LONG-TERM DEFERRED REVENUE 1,344   1,413  
LONG-TERM INCOME TAXES PAYABLE 9,380   8,230  
DEFERRED INCOME TAXES 32,022   29,385  
  169,226   152,186  
         
SHAREHOLDERS’ EQUITY        
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 84,625,566 at July 31, 2021 (January 31, 2021 – 84,494,658) 534,210   531,825  
Additional paid-in capital 468,381   464,102  
Accumulated other comprehensive income (loss) 2,293   (1,189 )
Accumulated deficit (42,073 ) (83,670 )
  962,811   911,068  
      1,132,037   1,063,254  

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,  
  2021   2020     2021   2020  
                   
REVENUES 104,570   84,045     203,408   167,748  
COST OF REVENUES 25,470   22,397     49,319   44,264  
GROSS MARGIN 79,100   61,648     154,089   123,484  
EXPENSES          
Sales and marketing 11,328   9,421     22,339   18,743  
Research and development 15,473   13,076     30,692   26,655  
General and administrative 10,855   8,331     21,861   17,068  
Other charges 414   1,671     934   2,454  
Amortization of intangible assets 14,911   14,085     28,746   27,798  
  52,981   46,584     104,572   92,718  
INCOME FROM OPERATIONS 26,119   15,064     49,517   30,766  
INTEREST EXPENSE (272 ) (312 )   (549 ) (632 )
INVESTMENT INCOME 61   19     124   63  
INCOME BEFORE INCOME TAXES 25,908   14,771     49,092   30,197  
INCOME TAX EXPENSE (RECOVERY)          
Current 4,732   (4,146 )   6,866   (331 )
Deferred (2,000 ) 8,375     629   8,939  
  2,732   4,229     7,495   8,608  
NET INCOME 23,176   10,542     41,597   21,589  
EARNINGS PER SHARE          
Basic 0.27   0.13     0.49   0.26  
Diluted 0.27   0.12     0.48   0.25  
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)          
Basic 84,566   84,316     84,534   84,237  
Diluted 86,128   85,753     86,066   85,585  

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,  
  2021   2020   2021   2020  
OPERATING ACTIVITIES        
Net income 23,176   10,542   41,597   21,589  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation 1,287   1,405   2,502   2,985  
Amortization of intangible assets 14,911   14,085   28,746   27,798  
Stock-based compensation expense 3,015   1,566   5,167   2,734  
Other non-cash operating activities 281   (27 ) 557   51  
Deferred tax (recovery) expense (2,000 ) 8,375   629   8,939  
Changes in operating assets and liabilities 5,704   (1,860 ) 8,082   (2,477 )
Cash provided by operating activities 46,374   34,086   87,280   61,619  
INVESTING ACTIVITIES        
Additions to property and equipment (941 ) (1,063 ) (2,596 ) (2,085 )
Acquisition of subsidiaries, net of cash acquired (54,418 ) (5,237 ) (90,278 ) (29,374 )
Cash used in investing activities (55,359 ) (6,300 ) (92,874 ) (31,459 )
FINANCING ACTIVITIES        
Proceeds from borrowing on the credit facility       10,196  
Credit facility and other debt repayments (1,068 ) (10,065 ) (1,068 ) (10,065 )
Payment of debt issuance costs     (60 ) (38 )
Issuance of common shares for cash, net of issuance costs 850   5,690   1,497   5,706  
Cash (used in) provided by financing activities (218 ) (4,375 ) 369   5,799  
Effect of foreign exchange rate changes on cash (576 ) 2,475   (78 ) 1,500  
(Decrease) increase in cash (9,779 ) 25,886   (5,303 ) 37,459  
Cash, beginning of period 138,137   55,976   133,661   44,403  
Cash, end of period 128,358   81,862   128,358   81,862  


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