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 touch-tone phone. Please note this conference is being recorded. I 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 Alan 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 conditions. Descartes' operating performance, financial results and condition, 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 the 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 is required by law. And with that, let me turn the call over to Ed.

Hey, thanks, Scott, and welcome everyone to the call. We had some excellent first quarter results to kick off our 2022 fiscal year, and I'm excited to be able to talk with you about them here today. But first, let's start with the roadmap for this call. I'll start with some comments about our performance over the past quarter and what we think they may tell us about our business. I'll then hand it over to Alan, who will go over the Q1 financial results in detail and I'll come back then and update on how our business is calibrated and some things that we'll be watching in this fiscal year. And then we'll open it up to the operator to coordinate the Q&A portion of the call. So with that, let's get started. As the headline of the press release said, these were record financial results for us that are well ahead of our plans to start off the year. To get right to the point of why we're ahead on plan, Here are a few factors. So first, we had good new additional recurring revenues in our customs compliance pillar from our Brexit solutions. Second, we had better than planned performance from recent acquisitions. And third, we've seen a good bounce back from shipping volumes on our network as the U.S. has started to open up back up for business. So let me talk about each of these areas for just a little bit here. Let's start with Brexit. In Q1, we had great traction in helping our customers get ready for compliance with new UK Brexit rules. We've talked about this a bit on past calls. However, with UK leaving the EU, it's like you've established a brand new country for customs purposes for all trade between or passing through to and from the United Kingdom and the EU. That means that you've now got new UK customs rules for imports into and exports out of the UK. You've got new rules for imports into and exports out of the EU, and new security filings by mode of transport for all of these shipments. In addition, each of these rules is coming in on a phased-in basis, some with grace periods and others immediately. And exceptions to particular rules such as Ireland and Northern Ireland All in all, it's been a very complex situation for our customers to learn and manage. For Descartes, we've historically been one of the leading UK customs and security filers. This makes us an ideal company to help customers be ready for compliance with new rules. We've seen good early success in getting customers signed up better than we were initially planning on, and we remain active in getting customers signed up in advance of the end-of-year Brexit deadline when filings will become mandatory. And while we don't expect the same level of new customers that we had this quarter, we think it will still be a tailwind for the rest of the year. All in all, our team has done an excellent job in making sure we were ready to help our customers with timely filings, and that preparedness has been rewarded by customers choosing us with recurring revenue contracts to help them with ongoing UK customs compliance challenges. Second factor that I mentioned above was above plan for performance from some of our recently completed acquisitions. Those who followed our company for some time know it's no secret what we look for in buying companies. We listen to our customers about where to invest for the future. And as a result, our acquisition strategy is very much customer driven. From a financial perspective, we are very disciplined in our approach. We value recurring revenue businesses. We value companies that have an eye to profit. We value companies that are growing but also minding the bottom line. We value companies that have a good reputation with their customers. And we value companies that are distinctive and have a defendable market position in their space. We understand that others may take a different approach in looking for acquisition targets. Some acquirers are on a path of growth at any cost and are less concerned if a business can or will make money. They pay up for the pure revenue growth. Other acquirers are more focused on the financial engineering and contribution of a deal and less about the quality of the acquired company or how it will integrate for the benefit of customers. I'm sure there's merit to these other approaches. It's just not what we do. For a typical Descartes deal, we're establishing a conservative model for when an acquired business comes in. We want to initially focus on getting our combined team working together and while not missing a beat on customer delivery. We also want to get to executing on synergies quickly so we can immediately operate profitably as a cohesive business for the benefit of customers. The pandemic has not caused us to deviate from how we acquire or integrate businesses. Last year we bought three businesses and this year we've already bought two. We believe there continues to be a number of good quality profitable businesses that make sense to be a part of the global logistics network and that will be a big benefit to our customers. We believe combining with good businesses makes us a better company, and it will remain a large part of our plans going forward. Some of the businesses we bought last year had very good performance in the first quarter. Last year, we combined with ShipTrack, a business with particular strength in mobile and routing solutions for last-mile delivery companies. I mentioned on a previous call how we had immediate post-deal success with combined Descartes ShipTrack deals. With the big increases in e-commerce and, as a consequence, last-mile deliveries through the pandemic, there's been even more demand in ShipTrack's customer base for extended solution rollouts. So it's a great start to the year for that business. Also, last summer, we combined with Containers. You may recall the Containers business helps forwarders and transportation carriers with digital platform to interact with their customers. A key premise for us combining was that we believe that together we can reach more customers and give them confidence in what we can do. We're seeing that premise prove true as Containers continues to see good traction with customers with several recurring revenue sign-ups and go-lives that hit the first quarter. In part based on the success we saw with Containers in further serving the forwarder logistics intermediary community, we've completed two deals this year that help round out our forwarder solution footprint. The first was CuestaWeb in March that we talked about on our last results call. It's a business that provides brokers and forwarders solutions to help them manage their lifecycle of shipments, including some unique foreign trade zone functionality. Quest2Web is only part of our business for two months in the first quarter, but it's already having an impact. The teams have integrated well, and we've already worked together on various combined opportunities, including helping customers with joint duty drawback and duty recovery opportunities in Canada and the U.S. Truly a great start. And then right after the quarter ended, we completed the acquisition of Portrix. Portrix is a good example of where good decisions in the past help you make decisions in the future. Portrix was a partner of Containers, and so we already had experience successfully working with Containers and Portrix on joint opportunities with customers. Portrix is in the business of multimodal transportation rate management, primarily for forwarders and logistics intermediaries. Portrix provides a platform that allows these intermediaries to have digital rates for all the different contract permutations that intermediary has with its transportation carriers and then manage those rates to provide accurate and profitable quoting for complex moves that the intermediary makes for its own customers. In particular, when combined with the container digital front end and Descartes' existing forward or back office solutions, it's a powerful combined platform that gives an intermediary everything they need to run their business. Welcome to Henning and the entire Portrix team, and we look forward to doing great things together. So to sum up as it relates to acquisitions, we completed some acquisitions last year that performed very well in Q1. Then we added two businesses in the first part of the year that we're very excited about and we believe can provide very good value to our customers. Our plans are for them to profitably contribute to our business immediately, just like we've planned for with previous businesses we've acquired. If nothing has changed in our willingness to buy, how we buy or how those businesses will contribute. The third thing that contributed to a great Q1 operational performance was a general increase in shipping volumes that we saw in our global logistics network. The increase was driven by two main factors. The first was the general economic recovery we've seen as the U.S. opens back up for business, and the second factor was that customers are trusting us with more and more of their business. Our global logistics network is the foundation of our business. It connects all the parties to logistics transactions together, from transportation carriers to logistics intermediaries to the shippers and receivers of goods and the governments involved in the regulation and taxation of the movement of those goods. We do this all over the world and for every mode of transportation, making it a truly comprehensive global logistics network. Oftentimes, big events impacting shipping will operate as a bit of a zero-sum game, If shipments in one geography are down, say due to something like prohibitive tariffs, they'll often be up in other countries where it's now more economical to ship to and from. Or in other circumstances where a shipping lane is blocked due to weather, natural disaster, or other circumstance, you'll likely see pickups and volumes in other shipping lanes or modes of transportation. So when you have one of the world's largest logistics network that serves all the different modes of transportation and geographies, you're protected from many events that hit shipping. You often see shifts in where and how shipments are moving rather than across the board increases or decreases. Exceptions to this are where there are global recessionary or booming times. The proverbial rising tides raising all boats were the opposite. This is somewhat what we saw over the past pandemic year with decreased shipping volumes, in particular decreased international shipping volumes. The initial pandemic shocks impacted both shipping supply and demand, For example, in the air cargo world, much of the available shipping capacity was removed when passenger planes just stopped flying. Remember, those passenger planes were carrying cargo in their bellies, and demand for shipping services was also impacted as retailers didn't have in-store shopping hours that required quite as much replenishment. Through the latter half of last fiscal year, we saw slow signs that shipment volumes were coming back. These were in part driven by the resiliency of many of our customers when presented with obstacles about how consumers couldn't buy in store. Many quickly shifted focus to their e-commerce efforts. As we talked about on past calls, e-commerce volumes and the resulting last mile delivery continues to drive good results for our business. But in Q1, with the mass availability of vaccines in the U.S., we've seen a push to reopening. As restrictions have been lifted, more passenger planes are moving cargo in addition to the industry's move to retrofit planes for cargo-only freighters. Also, with physical stores now reopening, we're seeing warehouse and store replenishment as a legitimate factor in increasing shipment volumes. To sum up, we saw good volumes across our network in Q1 as things in the U.S. began to open up. When we add this to the fact that customers continue to trust us with more and more of their business, we've seen very healthy organic growth on our network. That was certainly a good sign for our business in Q1, and hopefully as vaccine rollouts advance around the world, also a good thing for global shipment volumes. So three main areas that contribute to record results for us in Q1, Brexit, acquisition performance, and rising shipment volumes. Those things contributed to record total revenues and service revenues, record income from operations, net income and adjusted EBITDA above our plans, with adjusted EBITDA up 26% from a year ago, a 42% adjusted EBITDA margin, and cash from operations at almost 99% of adjusted EBITDA. Each of these things were ahead of our plans, and I want to thank our entire Descartes team and our customer base for all their help in getting us there. With that, I'll now turn the call over to Alan to go through our Q1 results in more detail. Alan?

Okay, thanks, Ed. As indicated, I'm going to walk you through our financial highlights for our first quarter, which ended on April 30th. We are pleased to report record quarterly revenues of $98.8 million this quarter, an increase of 18% from revenues of $83.7 million in Q1 last year. While revenue from new acquisitions contributed nicely to this growth, as I mentioned, growth in revenue from new and existing customers, including for new Brexit-related custom filings in the U.K., were the main drivers in growth this quarter when compared to last year. We should note that the first quarter last year is a bit of a weaker comparable period as it did have a negative impact from lower transactional volumes at the outset of the global pandemic last year, really in the month of April last year. In addition, we should mention that there is a benefit to revenue from foreign exchange this quarter of approximately $3 million. As the US dollar was weaker compared to the Euro, the Canadian dollar, and British pound compared to the same period last year. As a reminder, the impact of foreign exchange on our adjusted EBITDA was once again quite minor, as we remained fairly naturally hedged to FX on a profitability or cash flow basis. Back to revenue, our revenue mix from the quarter continued to be very strong, with services revenue increasing 19% to 88.3 million, or 90% of total revenue, compared to $74.1 million, or 89% of revenue, in the same period last year. Services revenue was also up nicely sequentially, increasing 7% in the fourth quarter of last year. License revenues came in at $1.3 million, or just over 1% of revenue in the quarter, down from license revenues of $1.8 million in the first quarter last year. While professional services and other revenue came in at $9.2 million, or 9% of revenue, up 18% from $7.8 million in the same period last year. Gross margin for the first quarter increased to 76% of revenue, up strongly from gross margin of 74% in the first quarter last year. Gross margins continue to increase with a strong incremental growth from new and existing customers that we experienced in the quarter. Our operating expenses increased in the first quarter, and this was primarily related to the impact of the cost base from recent acquisitions. but also from additional labor-related costs as we continue to invest in our business. These cost increases were partially offset by savings that we continue to see in our business, such as the continued lower travel, marketing, and facilities costs related to the ongoing pandemic. As a result, we continue to see strong adjusted EBIT growth of 26% to a record $41.5 million, or 42.0% of revenue in the quarter. up from $33.0 million or 39.4% of revenue in the first quarter last year. With these exceptional operating results, cash flow generated from operations came in at $40.9 million or approximately 99% of adjusted EBITDA in the first quarter this year, up 49% from operating cash flow of $27.5 million or 83% of adjusted EBITDA in the first quarter last year. Going forward, subject to unusual events and quarterly fluctuations, we expect to continue to see strong cash flow conversion and generally expect cash flow operations to be between 85% and 95% of our adjusted EBITDA in the period ahead. From a GAAP earnings perspective, net income came in at $18.4 million, up 67% from net income of $11.0 million in the first quarter last year. Overall, as Ed said, we are really pleased with these operating results in the first quarter as a strong organic growth and solid performance from our recent acquisitions resulted in an 18% growth in revenue and, more importantly, a 26% growth in adjusted EBITDA for the quarter. If we turn our attention to the balance sheet, our cash balances totaled $138.1 million at the end of April. Subsequent to quarter end, we announced that we have used approximately $25 million of our existing cash balances to complete the Portrix acquisition, which Ed described in some detail a little earlier. As a result, we still have over $110 million in cash, as well as $315 million available to us to draw on under our credit facility for future acquisitions. So we continue to be very well capitalized to allow us to consider all acquisition opportunities in our market, consistent with our business plan. As we look at the balance of fiscal 2022, we should note the following. After incurring approximately $1.6 million in capital additions in the first quarter, we expect to incur approximately $4 to $5 million in additional capital expenditures for the balance of this year. After incurring amortization costs of $13.8 million in Q1, we expect amortization expense will be approximately $42.5 million for the balance of the year, with this figure being subject to adjustment for foreign exchange changes and future acquisitions. Our tax rate in Q1 came in at 21 percent of pre-tax income, lower than our statutory tax rate of 27 percent. And this was mainly as a result of recognizing certain benefits from previously unrecognized tax losses carried forward. Looking into Q2, we currently expect that our tax rate would be in the range of 8 to 15 percent of pre-tax income as a result of the expected reversal of valuation allowances on certain additional tax loss carry forward, as well as the reversal of some uncertain tax positions. As a result for the year, we currently expect our tax rate to be in the area of 15 to 20% of pre-tax income, before returning to our more expected range of 25 to 30% of pre-tax income in subsequent years. As always, we should add that our tax rate may fluctuate from one-time items that may arise as we operate internationally across multiple countries. And finally, after incurring stock-based compensation expense of $2.6 million in the past quarter, we currently expect stock compensation to be approximately $9 million for fiscal 22, subject to any forfeitures of stock options or share units. I'll now turn it back over to Ed, who will wrap up with some closing comments and our baseline calculations.

Hey, great. Thanks, Alan. One of the things we strive for at Descartes is consistency. We believe that consistency brings stability and reliability, things that we know are valuable to our customers and our broader stakeholders. To deliver this consistency, we operate from consistent business principles. We plan for our business to grow adjusted EBITDA 10% to 15% annually. We plan to grow through a combination of organic growth and acquisitions. When we overperform, we expect to reinvest that overperformance back into our business. and we focus on recurring revenues and establishing relationships with customers for life. Finally, we thrive on operating predictable business that allows us forward visibility to our revenues and investment paybacks. I just wanted to spend a minute hitting some of these principles, particularly in light of us performing ahead of our plans for Q1. We believe that when we overperform, we should look at investing that overperformance back into our business. We believe that overperformance presents an opportunity to invest to make the future of our business better, more predictable, and sustainable. It's how we can generate the forward visibility to revenues and investment paybacks that we crave. And we think that's the circumstance that we find ourselves in now. We have an opportunity to invest in our business to drive even more consistent organic performance in the future. Specifically, we intend to look at opportunities to both enhance our go-to-market infrastructure and also customer service specific goals of impacting future organic revenue growth and customer retention. So when we looked at calibrating our business for Q2, we keep that investment opportunity in mind because for us, overperformance is an opportunity to get better, not an opportunity to celebrate. So on to calibration. In our quarterly report that Scott mentioned we filed today, we've provided a comprehensive description of baseline revenues, baseline calibration, and their limitations. Typically, we calibrate as of May 1st, being the beginning of our fiscal quarter. This quarter, however, we're calibrating as of May 7th, being the date of the Portrix acquisition. So as of May 7th, and using foreign exchange rates of 82 cents to the Canadian dollar, $1.21 to the euro, and $1.409 to GBP pound, we estimate that our baseline revenues for the second quarter of 2022 are approximately $92 million dollars, and our baseline operating expenses are approximately $59 million. We consider this to be our baseline calibration of approximately $33 million for the second quarter of 2022, or approximately 36% of our baseline revenues as at May 7th, 2021. We've indicated previously that the targeted adjusted EBITDA margin range for our business is 35 to 40%. As mentioned, our actual results for Q1 had us at about 42% and we've been above 40% for each of the past four quarters. Given what we see, we're raising that range and we believe we'll operate in the 38 to 43% adjusted EBITDA range for the balance of fiscal 2022. Even with my comments about investing for future organic growth, our focus for the balance of the year will be to grow both organically and by acquisition. We anticipate good contributions from both Portrix and CuestaWeb in Q2 and we intend to continue to be active in the acquisition market. As I said last quarter, we believe there are still acquisitions that meet our financial and strategic criteria, and that continued focused and diligent efforts will guide us on the acquisition front. Last quarter, I described a few things that I think position us well to grow as a business. They included our broad range of customers, our dedication to driving success for our customers, our broad partner portfolio, the positive impact that our solutions have on the environment, our ability to recruit talented people, and market tailwinds. Nothing has changed about those factors from what I said last quarter, other than we're a bigger business with new acquisitions integrated and even better financial performance. But I do want to touch on some of the market tailwinds. As I described earlier, max vaccination efforts in the U.S. have enabled the U.S. to start the process of reopening. Similar efforts in the U.K. and Canada may soon put those economies in a position to begin to open up further as well. While that is positive news, there's still a long way to go with vaccination for many parts of the world. So while we expect the reopening in the U.S. and some other markets to be a tailwind, it's not necessarily going to be hurricane strength. There are many large economies that are still in the grips of the pandemic, and they're an important part of the global community. We need to continue to support our customers with logistics of vaccine distribution around the world so that we can all get back to some of the pre-pandemic freedoms that we were used to. When economies do reopen, things are never totally going back to the way they once were. For each of us, work conditions will change, how we interact with others will change, and our buying habits will change. We believe that some of those changes are sustainable tailwinds for our business, specifically the accelerated move to further automation in business and the continued move to e-commerce from traditional buying mechanisms. On the automation front, we believe that lockdowns and the resulting need to work remotely have convinced many that technology can have a meaningful impact on making our jobs easier to perform on a distributed or mobile basis. And that is especially so in supply chain and logistics where, by its nature, remote people are managing remote assets moving via remote transportation. We're seeing this in the demand for our solutions. Questions from customers are no longer, what if we wanted to do this remotely, and more, how do we do this remotely? On the e-commerce front, we believe that there's been a permanent and accelerated shift in people's comfort in purchasing online. In the future years, we'll see a shift go from business to consumer further into the business to business world. In short, we believe that e-commerce will make last mile deliveries even more important in the future, and that will drive demand for our solutions. To wrap up, we're happy with how the business is performing and believe that it provides a great opportunity for us to invest and make our business even better for the future, something that we know will be good for our customers and other stakeholders. And otherwise, we're going to stick to our business principles that I described earlier, because that's how we got this great opportunity that we have in front of us now. So thanks to everyone for joining us on the call today. As always, we're available to talk to you about our business by phone or virtual meeting, and we hope sometime sooner rather than later in person. And with that, operator, I'd like to turn it over to you for questions.

Thank you. We'll now begin the question and answer session. If you have a question, please press star then 1 on your touchtone phone. If you wish to be able to listen to the queue, please press the pound sign or the hash key. They'll be delayed before the first question is announced. If using speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then 1 on your touchtone phone. And our first question is from Paul Steep from Scotia. Your line is open.

Great. Thanks for all the details and the color. Can you just give us a little bit of a recap on the areas of investment? I noticed you mentioned go-to-market and customer service, and I'm assuming you're meaning like the incremental investment of the outperformance despite the bumped-up range. I didn't hear you call out anything around product. I'm just sort of curious, is there an area there of focus? And then I got one fast follow-up clarification.

I mentioned that. Yeah, sure, I mentioned that on the last call, and that's certainly one of the areas. We have some products that are hot that they were putting some more investment in as well. But I wanted to call out the new investment since we did even better this quarter.

I guess in terms of go-to-market, Ed, should we be thinking this is laying the groundwork for sort of 23 and maybe into 24 in terms of the magnitude of change that you're making here? And then the clarification as well would just be, could you just re-hit the calibration numbers? You went a little fast there, and then I'll pass the line. Thanks, Ed.

Yeah, give me a second. Yeah, the customer facing stuff, yeah, I expect it to be over the next couple of years. Give me one second. Let me just go back in my notes and I'll have to read the calibration.

You got it? Okay, perfect.

Calibrated revenue, $92.0 million, and calibrated adjusted EBITDA, $33.0. Perfect. Thanks. Good question. Thanks, Paul.

And our next question comes from Paul Tiber from RBC Capital. Your line is open.

Thanks very much. Good afternoon. I just want to follow up quickly on the last comment you had just on the products you said that are hot where you're putting more investment. Just can you elaborate on which areas you're seeing the greatest momentum right now?

Yeah, some of the ones I mentioned actually in the thing, the e-commerce businesses, there's a bunch of businesses in there that are doing well, both the shipment management and the warehouse management pieces of that business. Our global trade compliance business is doing very well. Herbie mentioned Brexit, you know, some of the regulatory issues. compliance areas that have been doing very well lately. We made a lot of investment for Brexit last year. You can see some of that paying off right now. Most of that Brexit work is done, you know, prior to the go live for Brexit. So that's awesome. Now we get to kind of reap the rewards of that business. And then maybe moreover, you know, with all the, you know, the e-commerce business is the direct beneficiary of all the last mile deliveries, but in the longer run, our mobile routing is, you know, tracking businesses, mobile handheld businesses all do well as less mile deliveries expand. So we see that opportunity unfolding over the next, you know, five to ten years as e-commerce volumes continue to grow.

And just at a high level, I mean, this past year has been extremely disruptive to supply chains and logistics, you know, probably culminated with the ship getting stuck in the Suez Canal. Steve, have you just seen a general rise in interest for customers to want to automate more and more of their supply chain? And then are you seeing that in the ability to cross-sell or up-sell, the ability for your customers to adopt more solutions from you?

Yeah, that's exactly what we're seeing. I mean, I think as the whole world realizes... that logistics and supply chain is more important than they thought it was. In fact, most of the world is coming just now to understand what that is. That puts pressure on the companies that they're buying stuff from to give them status messages and tell them where shipments are all along, and the trucks that deliver them to the warehouses even, you kind of need to know where all these things are to orchestrate faster and faster deliveries for the consumer. And that whole process puts a lot of pressure on our customers to have technology in place to deliver to those customer expectations and were one of the main places they would go to get that. And I think that's why, or at least part of why you're seeing us do very well right now and perhaps for some time to come into the future. All right.

Thanks for taking my questions.

Hey, thanks, Paul.

And our next question comes from Remo Lungetow from Barclays. Your line is open.

Hey, this is Frank on for Remo. I want to stay on the topic of e-commerce if I can. So it was a point of emphasis for you guys, especially around the pandemic, and it did really well. I want to ask how you're seeing the growth trending here as we continue to move into a post-pandemic world. Can you also frame the long-term potential here in growth?

We see it going back to growth levels that were probably what we were seeing pre-pandemic. I mean, what we saw was a big step function up in, you know, as the pandemic started and it started to – to slow, but to still pretty good levels. I think we were in the, in the twenties, uh, you know, since the, the big, you know, push that we got or the start of the pandemic where it really shut up, you know, upwards of 40% and we're seeing it now come back to a normal level of growth, but still quite good. Uh, you know, probably one of our fastest growing businesses. Uh, and I don't know how long that goes on in the future. I suspect it will go on for some time and we're, I just look around esoterically at things, talking to friends or whatever. It seems like people are more and more comfortable doing that and quickly look to order things online versus go to the store. I think the pandemic probably started that process. But once you're comfortable doing that, it's hard to go back.

Great. That's really helpful. And one follow-up, if I can. It was good to see the EBITDA target range raised. Could you talk a little bit about how much of that was scaling into business and operational improvement over the past few quarters versus any cost discipline that you learned in the pandemic world?

I mean, it was mostly, it was mostly growth in our business contributing to it. In the beginning of the pandemic, it was some cost discipline as, as our revenue went down, we cut costs in line with that. I think you've heard us talk about that in past calls last, you know, May, when we saw the April results down 5%, we kind of cut our costs 5%. We haven't, done anything like that since. In fact, we've probably been growing as our business has been growing since then. But most of that, what you're seeing now that's gotten us up into the 42% range has been our business growing and some of the dynamics that have always existed in our business. The last dollar in is almost all profit in most of our businesses because of the the network that we operate and the recurring revenue model that we operate.

Perfect. Thanks, Ed.

Hey, thank you, Frank.

And our next question comes from Dustin Long from Stevens. Your line is open.

Thanks, and congrats on the quarter. So I wanted to follow up on organic growth. Is there any way you could help us kind of ballpark the level of organic growth that you saw in the quarter? And I know we're comping against the initial stages of the pandemic on a year-over-year basis. So maybe, Ed, could you speak to the sequential trends you're seeing in organic growth as well?

Maybe I'll jump in so we get the numbers straight.

Yeah, so listen, strong quarter organically. I think if you look into the financial statements, you know, just over double-digit organic growth. But you remember, we run a business on a combined basis, so we're constantly integrating the business. As Ed mentioned in his prepared comments, some of those recent acquisitions are performing quite well for us. Is that organic growth or is that acquisition growth? Again, the way we operate, we plan this all together. Overall, for the three reasons Ed mentioned – these strong acquisitions, the, you know, Brexit, and then just a general recovery in trade and adaption of our products, all contributing to probably what's the best organic growth number we've seen for a while. Did I answer everything for you?

That's great, and then maybe the trends sequentially from an organic growth perspective as well?

Yeah, I mean, we're up 70% from a... sequentially in the business as far as adjusted EBITDA. And heavily, that's, again, it's going to be a mix of both that organic growth and new existing customers that are doing more volume with us. So, you know, 5% revenue growth sequentially, about a 7.5% EBITDA growth sequentially, and those are all, you know, a mix of both factors that are driving it.

Great. That's helpful. And just quickly to follow up on the comment around investing outperformance back in the business. Is there any way to put numbers around that comment as we think about the incremental investment we could see this year? And maybe you could speak to the organic growth environment that you're planning for over the balance of the year as you make that comment.

I don't know the exact numbers, and we'll just have to see how we go. We're going around our organization right now looking for areas where we think... you know, with the managers that run various groups in our business trying to find the best areas to invest where we think we can get the biggest bang for our buck. I don't think we've put anything out specifically about how much we're going to spend, but you can take us to the word that we mentioned there. We're going to invest the overperformance back in the business and with an eye towards getting results in the coming years for that effort. So I think I answered the first part of your question. What was the second part of the question? Can you repeat that?

the organic growth profile that you're assuming over the balance of the year?

Well, yeah, I mean, we assume 4% to 6% organic growth. We're doing pretty well right now. You know, chance we beat it, but we, as we've always stated, we're planning a 4% to 6% organic growth, and if we beat that, we'll reinvest it back in the business. You know, it's been going pretty well. Obviously, you can see the organic growth number was great this quarter. We hope that trend continues, but, you know, we've got to see how the economy performs in the coming months coming out of the pandemic.

Makes sense. I appreciate the time.

Hey, thanks, Justin.

And our next question comes from Scott Group from Wolf Research. Your line is open.

Hey, good afternoon, guys. It's Rob Salmon on for Scott. Hey, Rob, how you doing? To piggyback on a couple questions regarding the EBITDA margins and the investments, as we look out to later in the year, given the incremental investments you're planning on doing, should we be expecting EBITDA margins to be retreating in the near term from the levels that we're at in the first quarter?

No, I mean, listen, we just called out the range, 38% to 43%. We think we'll continue to operate in that range. We'd like to keep that number going up. There's a lot of factors that go into it, some of them outside of our control. But, no, we would like to keep it in the range that we mentioned. We plan on keeping it in the range that we mentioned.

Got it. And then, Ed, earlier in the call you had highlighted – the Brexit tailwinds that you've seen this past quarter and you expect them to continue to be tailwinds for the remainder of the year. How should we think about the Brexit revenue kind of scaling up over the course of 21? And will we be at full run rate, do you think, even at the end of the year? Or will this continue to be a tailwind looking out into fiscal 23?

Remember, it's all recurring revenue, right? So the people pay us per shipment and they're paying us monthly minimums and We expect that they'll do that with us forever or at least as long as they are customers of ours. As I mentioned in the past, these regulatory initiatives are step functions. I can't control demand. The government has to come in, tell our customers they have to comply with some regulation, and then we help our customers do that. We're fortunate in the Brexit scenario that it was already a business that we were very strong in that market. we then came up with what we think is the best solution in the market. And in the face of that, a bunch of our competitors kind of failed to deliver some or parts of that solution. So, you know, all that translated to us becoming the leader in that market. And, you know, you heard me on the call 20 minutes ago. I was kind of mentioning that there's a bunch of phases to this rule and that some of them are already in place and some of them are rolling out over the course of the year. It's not going to be mandatory, uh, in whole until the end of the year. So, uh, customers have some, uh, ramp up period to get in. We expect that's why we'll see a tailwind, you know, going over the course of the year. We think we'll continue to sign up some of the smaller medium sized players that have yet to do this yet. Uh, and that all of the players in the market will continue to ramp up their transactions through to the end of the year when they're supposed to be live. After that, theoretically, um, Everyone should be live at that point, and we may see increases, but they'll probably be more modest as international trade in and out of the U.K. grows. But otherwise, we'd expect that we've gotten most of the customers and their volumes that we'll get for Brexit by the end of the year. Because it's a recurring revenue business, I think we can expect to get this for a long time to come. At the same time, if we're going to have another substantial increase in our regulatory business, it's going to come from another jurisdiction.

Got it. And in terms of just the phase adoption through year end, is it really stair-stepped toward the very end of the year, or maybe you can kind of give us some sort of cadence that we should be thinking, I mean, we're at five, whatever the number is.

I don't know yet. I think we've picked up a good piece of the good chunk of the business. Uh, it's, it's not, uh, easy for us to figure out how much everyone might do, uh, by the end of the year. Uh, we know they're not doing everything that they can with us right now. Uh, but it's, it's hard for us to predict exactly, uh, what the increases are going to be over the course of the year and when they're going to occur. So we're just, as we always do, we're playing it conservatively and we're prepared for it. And, and, uh, we're prepared for whatever volume they might bring us. And, uh, We do expect that it will continue to rise. We don't know to what level yet.

Appreciate it. Thanks for the time, guys. Hey, thank you, Rep.

And this concludes our question and answer session. I'm going to call back over to the speakers for final remarks.

Hey, great. Thanks, everyone. We appreciate your time this afternoon. Look forward to talking to you soon. Next, I think it's early September for the Q2 results call. Appreciate your time today. Thanks, guys.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.