The Descartes Systems Group Inc.

Welcome to the DCAR quarterly results call. My name is Adrienne, and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer session. During the question-and-answer session, if you would like to ask a question, please press star and 1 on your touch-down phone. Please note this conference call is being recorded. I'll now turn the call over to Scott Pagan. Scott Pagan, you may begin.

Thanks, and good afternoon everyone. Joining me remotely on the call today are Ed Ryan, CEO, and Allan Brett, CFO. And 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 our assessment of the current and future impact of the COVID-19 pandemic on our business and financial condition, Descartes operating performance, financial results and condition, Descartes gross margins and 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 when they call the actual results, performance, or achievements of day carpet different materially from the anticipated results, performance, or achievements implied by such forward-looking statements. These factors are outlined in the press release and in the section entitled Certain Factors That May Affect Future Results in Documents Filed and Furnished with the Securities and Exchange Commission, the Ontario Securities Commission 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. We caution that such information may not be appropriate for other purposes. We don't undertake or accept any obligation or undertakings released publicly in the updates or revisions to any four limiting 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. With that, let me turn the call over to Ed.

Hey, thanks, Scott, and welcome everyone to the call. We had an excellent second quarter financial results, and we have had a strong first half of the fiscal year. We'll walk you through those shortly. However, first, let me give you a roadmap for this call. I'll start with a summary of the financial results and some factors contributing to our performance. I'll then hand it over to Allan, who will go over Q2 financial results in detail. I'll come back and update on how our business is calibrated. And we'll then open it up to the operator to coordinate the Q&A portion of the call. So let's get right to it. In Q2, we had record revenues of $104.6 million. Ahead of our plans for the quarter and year to date, we had record income from our operations of $26.1 million. We had net income of $23.2 million. We had adjusted EBITDA of $45.9 million. Again, well ahead of our plan for the quarter and year to date. Adjusted EBITDA margin as a percentage of revenue was 44%. Cash provided by operating activities was $46.4 million. or 101% of our adjusted EBITDA for the quarter. These are the financial numbers that we track for our business. They were all very good for Q2. They were ahead of all of our plans. There's some Descartes-specific reasons why we performed well in Q2. We've continued to see some strength in our business, helping our customers with Brexit. Travel and marketing expenses have stayed low as pandemic recovery to attend in-person events has been slower than we originally planned. We've even had some expense recoveries from events that were canceled. And to the comparable quarter from a year ago, it was right in the middle of the pandemic when we were restructuring the business to address revenue uncertainties. So we're comparing this year's results to a challenging quarter a year ago. We've also completed three acquisitions in the first half of the year that have contributed well. But there's three other areas that contributed to our overperformance that I wanted to highlight. Many of our logistics service provider customers are doing very well right now. Second, many of our shipper customers, manufacturers, retailers, and distributors are facing extreme supply chain challenges, which are most efficiently managed with logistics and supply chain technology solutions. And third, our employees continue to work very hard in trying and remote conditions to ensure that our customers continue to get the high quality service that they expect. So let me provide some color in each of these areas. A good portion of our client base are logistics service providers. These are mostly vessel owner operators, ships, planes, trucks, etc., and intermediaries that help people make bookings on vessels, freight forwarders, 3PLs, NBOCCs, etc. They buy services from us like shipment tracking, customs and security filing, booking assistance, electronic messaging, and rate management. Many of these services are priced on a transactional basis. Generally, the stronger their businesses are doing, meaning the more shipments that are moving and the more vessels that are moving, The Better Our Business Does. Right now, logistics service providers are doing very well and pretty well every mode of transport. In the ocean industry, there's very little capacity on vessels. There are container shortages and space shortages. This has caused pricing for ocean moves to be extremely high, depending on commodities and timing, up to seven times higher than we typically see. This is a very profitable time for ocean carriers and intermediaries. In air, capacity has increased greatly from a year ago. Air carriers have seen the return of some passenger traffic resulting in additional capacity for cargo in the belly of planes. This capacity is in addition to capacity created over the past 18 months as carriers retrofit passenger planes into cargo freighters. Add on top of that, the air cargo has become a viable mode for high velocity e-commerce shipments, and it is a time where air carriers have seen strong demand and are catching up with the capacity to meet it. Truck movements, particularly in the U.S., are strong as well. It's a very competitive market with particular pressure for carriers because of driver shortages. However, for carriers with scale who can compete for drivers and meet the massive e-commerce and last mile delivery demand, these are very good business conditions. This is particularly so for those specializing in small package goods and otherwise last mile delivery. Rail has become more competitive as well. As trucks seize additional regulations on the horizon, including state-by-state regulations relating to fuel use, drivers, hours of service, and the move to electronic trucks, rail may become more and more a viable alternative for cross-state moves that were traditionally exclusively serviced by trucks. These are the favorable business conditions that a good chunk of our customers find themselves in. They rely on us to help them process additional transactions and enhance the service they can deliver to their own customers, particularly on the shipment visibility side. In Ocean, our customers look to our recent combinations with portraits and containers to see how we're committed to helping their business modernize, and are using their own current overperformance as an ideal time to invest in technology. In AIR, our booking, messaging, and tracking services, including for small package and postal tracking using Velocity Mail and container tracking using our core services, are relied on as mission critical. For truck, we have a vast menu of services that we offer, including our macro point tracking and capacity matching solutions to help with the ever-increasing truck shipment volumes we're seeing. In rail, our customers are relying on us for intermodal visibility and asset tracking. Our carrier and logistics intermediary customers have been through some tough times over the pandemic, particularly in the air cargo world. However, business conditions appear to be bouncing back, and most of our customers on this side of the shipment ledger appear to be seeing strong tailwinds to their businesses. So while these may be good times for carriers, this is a time of extreme supply chain challenges for our shipper customers. These are generally manufacturers, retailers, and distributors. They use us for a variety of solutions, including global trade management, transportation management, fleet management, and customs and security filing. Generally, shippers are dealing with shortages. There's a shortage in vessel capacity. There's a shortage in shipment containers. There's a shortage in port availability. There's a shortage of drivers for private fleets. There's a shortage in key supply components, such as chips for many electronics, that's impacting industries from technology to appliance to auto manufacturers. There's also a shortage of warehouses suitable for high velocity e-commerce moves. Extreme times often call for extreme measures. We've seen shippers try and forward book as much shipment capacity as they can get their hands on. We've seen shippers like Home Depot buy their own ships just to get that capacity, and we've seen other companies doing the same in air. IKEA is buying its own shipping containers and chartering ships to help with their shipments. We've seen manufacturers hoard components in anticipation of shortages, and we've seen importers in anticipation of shortages start their lead times for shipments for the end of holiday period as early as spring. Often extreme conditions can be a catalyst for larger investments in technology to help meet those challenges. We've seen strong demand, particularly for our solutions that help with global trade and transportation management. As you've probably heard me say in the past, our strength is in helping customers navigate supply chain and logistics complexity. Well, this is a very complex time. Right now, our shipper customers are looking for technology help. Existing customers are using our solutions more than ever to examine alternatives and manage shipments they can secure. New customers are looking at technology investment at a time where supply chain and logistics technology is no longer needed for their business to be ready for the future, but is needed for their business to be able to compete and survive right now. So to sum up, we've benefited in Q2 from seeing good technology demand from the shipper community and are seeing this continue so far in Q3. There isn't a business out there that hasn't had to adapt during the pandemic, and I don't think those changes will be temporary. I think all businesses will operate differently based on the lessons learned during the pandemic. For us, we've always been very fortunate to have passionate, hardworking team that cares about helping our customers. We're also a business where it wasn't unusual to be working remotely. Much of what we do is helping customers move goods from one remote location to another, and we provide technology solutions that help our customers manage those shipments remotely. Our team interacts with people all over the world in all types of different businesses. Being remote is nothing new for us here at Descartes. As the pandemic started, our team shifted to non-office work fairly seamlessly. If we were going to help our customers manage shipments from remote locations, we need to be ready to do the same. I think our results this quarter are a good reflection of how effective our team has been during this process. That's not to say it's been easy. Our team has dealt with similar challenges to many workplaces caused by 18 plus months of health and business uncertainty. But I'm very proud of how the Descartes team has pulled together, and all Descartes stakeholders should be equally proud of the job done. Our Descartes team has also done a great job of welcoming new team members to our business, even when there aren't opportunities to meet in person. For example, near the end of the quarter, we brought on several new team members as part of our acquisition of Green Mile. Green Mile specializes in mobile route execution solutions with particular historical strength and real-time visibility for the final mile of deliveries for food and beverage distribution companies. This is an important combination for us because it complements our existing routing solutions, enhances our mobile last mile visibility capabilities, and solidifies our position as one of the leading global routing and scheduling technology providers for private fleets. In addition, Green Mile has a strong presence in Brazil and Florida helping us expand our team and strengthen our operations for the Latin American markets. Special welcome to all of our new Descartes team members from Green Mile and thanks to the job that all Descartes team members have done in helping Green Mile with their remote integration into our company. So those were some key contributors to our success in Q2, a strong and resilient Descartes team that is eager to help our customers and new Descartes team members, a strong business environment for our logistics service provider customers, and an environment ripe for technology investment from our shipper customers. All of this has contributed to us being ahead of our financial plans for the first half of the fiscal year. I'll now turn the call over to Allan to go through our Q2 results and more to tell. Allan?