The Descartes Systems Group Inc.

Welcome to the Descartes Systems Group Quarterly Results Call. My name is Darrell and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press 01 on your touchtone phone. As a reminder, this conference is being recorded. I will now turn the call over to Scott Pagan. Scott, you may begin.

Thanks and good afternoon everyone. Joining me on the call today are Ed Ryan, CEO, and Alan 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 our assessment of the current and future impact of geopolitical and economic uncertainty on our business and financial condition, 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 achievement 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 required by law. And with that, let me turn the call over to Ed.

Hey, great. Thanks, Scott, and welcome everyone to the call. We had an excellent second quarter and first half of the year with record financial results. We're excited to go over those with you and give you some perspective about the business environment we see right now. But first, let me give you a roadmap for this call. First, I'll start with highlighting some aspects of our financial results and speak to how our business performed in the last quarter. I'll then hand it over to Alan, who will go over the Q2 financial results and some corporate finance matters in more detail. I'll then come back and provide an update on the current business environment and how our business is calibrated. And finally, we'll open it up to the operator to coordinate the Q&A portion of the call. So let's get started by looking at Q2. We had record high revenues of $123 million, up 18% from a year ago. Net income was $22.9 million. Adjusted EBITDA was a record high of $54 million, up 18% from a year ago. We generated $46.4 million in cash from operations, or 86% of our adjusted EBITDA. And this number could have been higher, but was reduced since 5.3 million in earn out consideration from past acquisitions was classified as cash used in operations. Our adjusted EBITDA as a percentage of revenue is up 44%. Was that 44%, excuse me. All of these metrics were ahead of our plans, so a very strong financial quarter for us. And these results happen in a very challenging FX environment. Our revenues would have been $3.9 million higher if we'd used last year's FX rates or $1.7 million higher if we'd used last quarter's FX rates. Alan will go into this in more detail later. However, strong results that would have been even stronger in a different FX environment. At the end of the quarter, we had $189 million in cash and were debt free with an undrawn $350 million line of credit. We remained well capitalized, cash generating, debt free, and ready to continue to invest in our business. I'd like to address three areas before handing over to Alan. The first is what parts of our business did well during this past quarter. The second is some focus for running our business. And thirdly, acquisitions. On the first point, our focus at Descartes remains on building a consistent, predictable, and sustainable business that is resilient to changes in market conditions. We're operating our business for the long term and strive to keep customers for life. When we look at our business last quarter, there were a few notable areas of performance to call out. First is market-leading real-time visibility solutions. Several years ago, we invested in bringing MacroPoint's real-time visibility solution into Descartes' global logistics network. By combining MacroPoint's historical strength with the broker and forwarder community for trucks with Descartes' multimodal international strength in gathering and processing information about the real-time status of shipments, we've built a powerful offering that's been recognized by customers as the solution of choice. As supply chain challenges have heightened over the past few years, knowing the locations of goods in transit has become even more critical, regardless of mode of transport or geography. Location information is now key input for critical decisions being made by businesses every day looking to build efficient, flexible, and resilient supply chains. Our real-time visibility solutions perform very well on the quarter, as they continue to expand and strengthen by mode and geography. We're thrilled that we have so many supportive customers who've committed their present and future to the Descartes MacroPoint real-time visibility solution. The second is strong demand for optimization solutions. We've long been a leading provider of market-leading delivery optimization solutions. Whether customers have their own fleet of vehicles or are using third-party transportation, we have solutions to make the most efficient use of limited resources. These optimization solutions allow our customers to plan deliveries while considering what's most important to their business and customers. It can be the lowest cost deliveries, deliveries within a certain time window, deliveries that avoid driver overtime, routes that use the least amount of mileage, choosing transportation providers who have the most environmentally friendly footprint, or any combination of those types of items. We generally find when fuel costs go up and economic times become potentially more challenging, that demand for these types of solutions goes up. We saw good support for these solutions in the quarter, and they contributed well to our results. And finally, the need for global trade intelligence solutions. As I've commented on the past calls, how geopolitical conflicts like the war in the Ukraine can drive demand for our global trade intelligence solutions. When there's conflict, countries start imposing trade sanctions on other countries, people and or goods being shipped For businesses to comply with an increasingly complex world of sanctions, they need a restricted party stringing solution, a solution that allows them to check shipments before they happen to determine compliance with up-to-date international sanction lists. Another consequence of sanctions is that businesses need to research and alter their supply chains to find businesses and companies that may continue to supply still economically viable. When businesses are doing this kind of research, they're often relying on our tariff and duty database and calculators and looking at our inventory of historic trading activity to determine their alternatives. We continue to see a complex and changing international trade environment right now, which is driving more and more customers to use our global trade intelligence solutions. So those are some of the areas that were strong in the business last quarter. The second area I wanted to address were some of the focus areas in running the business. One of the mantras that our customer success team uses in helping our business is retention, growth, and advocacy. I thought that was a good way to look at our focuses from last quarter. First with retention, as I mentioned last quarter we've made a concerted effort to invest in the customer success function. This investment has been made with a view to both improving customer retention while also expanding our wild share by introducing complementary solutions. We want to operate our business with the goal of customers for life. We run our business for the long term We invest in our products for the long term. We want to be the long-term home for our customers. To do this, we've invested in customer success to regularly interact with our customers and ensure that they're able to take full advantage of the comprehensive functionality of the Global Logistics Network. We've invested in our own infrastructure and security. We've implemented solutions to make it easier for our customers to work with us, be a customer supporter billing, And we've been forward-looking in developing our solutions so that our customers get the advantage of evolving technologies and assurance of compliance with new trading standards. We want customers for life. We want them to serve today, tomorrow, and every day after that. And finally, growth. As Alan will describe in more detail soon, our results this quarter show continued growth in our business from our past investments. Specifically, we've made technological and people investments into sales and marketing functions in the company. We go to market in a customer-centric way by understanding our customers' challenges, ensuring knowledgeable personnel are available on both a geographic and solution basis, and leveraging our vast network of customers to provide reliable best practices, both from an industry perspective and in using Descartes solutions. Overall, this approach has resulted in more customers choosing Descartes and using our solutions. Given these results, I anticipate you'll see continued investment focus from us in these areas to drive future growth. And then advocacy. We've stepped up our advocacy for our business and what we can do to help our customers. We're fortunate to have many talented people within our business, many with expertise in different geographies, modes of transportation, or logistics functions. We've heard from our customers that they want more information from Descartes. our views on the industry, our perspectives on emerging trends and regulations, how we're contributing to sustainability and logistics and supply chains, and our successes with customers solving logistics challenges. We've increased our efforts in publication, we've held tailored virtual online customer events, we've revamped our methods of communication, and we've restructured our communication style to be even more customer-centric. We're getting the message out about how Descartes can help its customers. So those are some of the things that we're focused on in our organic business. However, we haven't taken our eye off also growing our business through acquisitions. Acquisitions remain a core part of what we do. We've probably acquired three to four businesses a year historically, and we've already combined with three this fiscal year. Our goal is to operate a business that has the capital and people resources to be able to complete acquisitions that complement our primary goals of profitable growth and customers for life. We have the resources to be acquisitive, We have a strong balance sheet with almost $190 million in cash, a $350 million undrawn line of credit, and an unlimited shelf perspective that can be leveraged if additional capital is needed. We also have a track record of successfully finding, executing, and integrating acquired businesses. We have a passionate employee base who often have either joined or participated in our prior acquisitions. We're an ideal home for technology businesses that care about logistics. XPS acquisition that we completed this past quarter is reflective of that. We continue to believe in the growth and future of e-commerce, so the acquisition of XPS was logical for us. XPS is a multi-carrier shipping platform, much like the ShipRush platform that we currently operate. You can import order information, check the rates from various carriers who could move that package, select carriers, print shipping labels, and track your order. XPS has technology solutions for all sizes of shippers and even has solutions for logistics service providers. It also integrates with major e-commerce marketplaces, ERP providers, and supply chain platforms. With XPS, the global logistics network is even more scale in e-commerce solutions. XPS contributed well to our profits within the partial quarter, and we anticipate the same going forward. A hearty welcome to all the XPS customers and employees. To wrap up my preliminary comments, we had a great financial quarter. We've had good success in multiple areas of our business. However, we're still focused on investing financially and culturally to drive future growth. Right now, we're having good success driving both organic and inorganic growth. My thanks to all the Descartes team members for everything they've done to contribute to a great financial quarter and continuing to have the business in an enviable position for future success. With that, I'll turn the call over to Alan to go through Q1 financial results in detail.