The Descartes Systems Group Inc.

Welcome to the quarterly results call. My name is Adrienne and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. If you'd like to ask a question during today's presentation, please press star, then 1 on your touchtone phone. Please note this conference is being recorded. I'll now turn the call over to Scott Pagan, Chief Operating Officer. Mr. Pagan, you may begin.

Thanks and good afternoon everyone. Joining me in the call today are Ed Ryan, CEO, and Allan Brett, CFO. I trust that everyone has received a copy of our financial results press release that was issued earlier today. Portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. These forward-looking statements include statements related to Descartes operating performance, financial results and conditions, Descartes gross margins and any growth in those gross margins, cash flow and use of cash, business outlook, baseline revenues, baseline operating expenses and baseline calibration, anticipated and potential revenue losses and gains, anticipated recognition and expensing of specific revenues and expenses, potential acquisitions and acquisition strategy, cost reduction and integration initiatives, and other matters that may constitute forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results, performance, or achievements of Descartes to differ materially from the anticipated results, performance, or achievements implied by such forward-looking statements. These factors are outlined in the press release and in a section entitled Certain Factors That May Affect Future Results in documents filed and furnished with the SEC, the OSC, and other securities commissions across Canada, including our management's discussion and analysis filed today. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. Your caution that such information may not be appropriate for other purposes. We don't 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, assumptions, or circumstances on which any such statement is based, except as required by law. And with that, let me turn the call over to Ed.

Hey, great. Thanks, Scott. Good afternoon, everyone, and welcome to the call. Thanks for joining us today. As you'll see from our results, we had a great Q1 to kick off our fiscal year. Our customers continue to benefit from our investments that have expanded the global logistics network with new technologies, content, and trading partners. Happy customers are more likely to buy more stuff, and we have lots of happy, engaged customers. For those of you that attended User Group, you would have had the chance to see that for yourself. Engaged customers are also more likely to share their ideas about how you can help them solve more problems, and we feel very fortunate to have customers that are passionate about sharing their ideas on acquisitions and enhanced solutions that can benefit the broader Global Logistics Network Community. I mention the broader GLN community on purpose because, remember, we're not just focused on one type of customer. We build solutions and tools for the entire community of participants in the supply chain, shippers, carriers, and logistics intermediaries, and we connect them to government agencies as well. Logistics is a multi-party, multi-process challenge, and if you want all the participants in the supply chain to join your network, you're going to have to be more successful. You're going to be more successful if you can add value with specific tools for each participant. We've had this vision for a while, and we continue to execute against our plans. As things get more complicated in the global trade landscape, customers increasingly see the need to collaborate with their trading partners in real time with automated tools that leverage reliable data and content to help them make better decisions. So I'd like to start today's call by thanking our customers for doing more stuff with us and for continuing to share their great ideas about where to invest for the future. I'll speak to some of those investments on the call, including an update on visual compliance, and I'll provide some comments on our latest acquisition core. Allan will then provide a detailed overview of our quarterly financial results and I'll then finish up the call talking about our calibration for Q2 and our operating plans moving forward. But first, let's start by going over some of the key financial highlights for the first quarter of fiscal 2020. We had another great quarter of operating results and we're very happy with our key metrics fueled by our continued organic growth and our ability to successfully integrate acquisitions. Our adjusted EBITDA continues to grow nicely. For the quarter, we generated $28.7 million of adjusted EBITDA, an increase of 30% over Q1 of last year. A partial quarter of visual compliance was a contributor. As many of you will recall, we earlier said that for the fiscal year, we expect to grow more than our longer term plan for 10% to 15% growth in adjusted EBITDA. Revenue for the quarter was up 16% from Q1 of last year, coming in at $78 million. We continue to convert our EBIT into cash, generating a record $23.4 million of cash in the quarter, and consistent with our long-term operating plans, we've been investing cash back into our business through focused R&D investments and by combining with complementary businesses. All in all, another great quarter here at Descartes to kick off the new fiscal year. We have a stable, cash-generating business, and we're well-positioned to continue our growth. So with that, let's talk about some of the investments our customers continue to encourage us to make. and how we believe these investments will help us build out our network for shippers, carriers and logistics intermediaries to connect to and collaborate with each other so that they can move goods efficiently and securely. I'd like to start with some comments around organic investments and the role that an engaged customer base can have to help set up your strategic direction. In late March, we held our annual user and partner conference in Florida at Descartes Evolution. It's an opportunity for our customers and partners to come down and share their ideas with each other, and while getting direct access to the team of domain experts from Descartes that build and support the products they use. Those of you that attended will have had a chance to see this person, but for those that weren't there, maybe I can provide a bit of color as to what you would have seen. You would have seen leading carriers, shippers, and logistics intermediaries engaged with each other, sharing ideas about how they leverage Descartes tools in their own business. but also sharing ideas more generally about the challenges and opportunities they face in their industries. We consistently hear from our customers that having a chance to meet with their peers and trading partners is extremely valuable. You would have seen a number of sessions where we had a great attendance and some with standing room only such as our macro point visibility and capacity matching sessions, our trade data content sessions including visual compliance and our sessions focused on e-commerce and omnichannel retailing. You would have seen an engaged partner community as part of these discussions and sessions. Our partners remain an important part of our go-to-market strategy. You would have also seen these customers and partners not just listening to our ideas, but engaging in discussions with Descartes personnel, sharing their ideas about areas to improve existing products and investment in new products. This feedback is critical for our ongoing investment strategy, but it's also important to note that it doesn't start and stop at user group. We are continually engaging with customers about product development and areas to strengthen our global logistics network. And as I mentioned off the top, these investment areas aren't just for our product development strategy, but also for acquisition targets. Our customers are a great source of acquisition ideas and sometimes even introductions. With their help, we've been able to build a robust pipeline of acquisition opportunities, and we're pretty excited about the landscape of opportunities in front of us today. So with that, let's talk about our two most recent acquisitions. I'll start with visual compliance, as I'm sure everyone is keen to hear about how things are going there. Let's start with a reminder as to what visual compliance does and how they fit within our global logistics network. Visual compliance provides software solutions, content, and services to automate customs, trade, and fiscal compliance processes, with a focus on denied and restricted party screening processes and export licensing. The acquisition followed other recent investments in trade content, including Datamine, CustomsInfo, and MKData, a business that was also focused on denied party screening. Adding visual compliance not only gave us more scale in the denied party screening space but it also complementary to our MK data solution as it adds new functionality for us to bring to market. MK data is very strong in supporting large batch screening and powering SAP and Oracle global trade management platforms whereas visual compliance offers a more robust transactional system which can be helpful in markets such as e-commerce. Looking at market dynamics, denied party screening is an area where we're excited to invest further in. You don't need to look too hard to find news about the latest trade agreements and disagreements, with lists of sanctioned companies and products changing literally every day. Denied and sanctioned party screening has become a critical must-have for companies for every business dealing that they have, whether it be for shipments of products abroad or relationships with new and existing customers, partners, suppliers, and employees. We anticipate that the future may include regulatory mandates on certain businesses to conduct these types of screening activities. In the meantime, those that don't have some sort of screening solution in place put themselves at risk. We're seeing demand for more screening services from our direct customer base as well as from our partners such as SAP and Oracle. Now that we're three months into the integration with Visual Compliance, we can provide a little color as to how things are going, and we're really pleased with where that business is at. From a financial perspective, We're really pleased with the continued growth of the recurring revenues of the business and the financial profile remains very healthy. We've come out of the gate strong and the business is performing ahead of our plans. But perhaps more importantly, as we look ahead, we're really pleased with how the integration is going and how that will set us up for further success in the market. From a go-to-market perspective, we've been working quickly to cross-train the sales teams on either side and we're seeing some early traction in a few areas, including solid demand for visual compliance in Europe. From an operations perspective, we've also made some good progress on our plans to bring the content teams together so we can align our processes and streamline content collection and normalization. By doing so, we can become more efficient and we can free up resources to create more content and product offerings to take to market. More generally, we're also really pleased with the attitude of the incoming team. They've been a pleasure to work with and we're really happy to have them as part of Descartes. More recently, in early May, we announced the acquisition of Core. So what does CORE do and how do they fit in? CORE is an electronic transportation network that provides global air carriers and ground handlers with shipment scanning and tracking solutions. Customers use CORE's network to accurately track international mail, parcel, and cargo shipments as well as U.S. domestic mail and parcel shipments. As U.S. domestic and international e-commerce continues to grow, more demands are being placed on carriers and their partners to deliver efficiently and report events in real time. The Core acquisition complements our recent investment in Velocity Mail, helping us to better serve the logistics service provider community, working with postal authorities around the world. In fact, we learned about Core as a result of the Velocity Mail acquisition, and that's something we see quite often when we combine with someone, in that it presents new opportunities for additional expansion. For instance, following our acquisition of Bearware a few years back, we then acquired another leading pool distribution software provider, PCS Tracks. We brought the two businesses together and combined the best of both worlds, and we've seen tremendous success in that space over the last couple years as a result. Looking ahead to the combination with Core, we're not only strengthening our position in the growing domestic and global e-commerce market by bringing two leaders together, Core solutions also extend beyond mail and parcel shipment tracking with air cargo tracking solutions. We will be adding these air cargo tracking capabilities to our global logistics network, which we believe will present a compelling opportunity for our global air cargo community to enhance real-time tracking and visibility of air shipments. It's still early days here with CORE, but we're excited about what they bring to the table, and I'd like to take this opportunity to welcome the CORE employees and customers to our global logistics network. Before handing the call over to Allan to talk a little bit more about the financials, I'd like to thank some people that continue to contribute to the strength of our business. So thank you to our employees for all the hard work they put in to make sure our customers get results. Our customers continue to get results, and that's why we have a successful business. For the second time on this call, thank you again to our customers who continue to place confidence in Descartes as their network of choice. Whether you're a shipper, logistics intermediary, carrier, or even a government agency, thanks for connecting and helping our community grow, and thanks for your continued engagement. I'd like to thank our partners for helping us continue to expand our ecosystem, and finally, thank you to our shareholders for continuing to have confidence in Descartes. And with that, I'll turn the call over to Alan.