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 touch-tone phone. As a reminder, this conference is being recorded. I will now turn the call over to Scott Pagan. Scott, you may begin.

Thank you, and good afternoon, everyone. Joining me remotely on the call today are Ed Ryan, CEO, and Alan Brett, CFO. I trust that everyone's 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. And 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 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 placed. Acceptance 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 an excellent third quarter and first nine months 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. 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 Q3 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 we'll then open it up to the operator to coordinate the Q&A portion of the call. So with that, let's get started by looking at Q3. As it has been for years, our principal target each quarter is to grow adjusted EBITDA 10% to 15% a year, regardless of market conditions. And this quarter was no exception. We achieved this goal once more. We had record adjusted EBITDA of $54.5 million, up 13% from a year ago, driven by double-digit organic growth in our recurring services business. We had record high services revenues that were up 13% and total revenues that were up 12% from a year ago. We generated $50.9 million in cash from operations, or 93% of our adjusted EBITDA. Our adjusted EBITDA as a percentage of revenues was 45%. All of these metrics were consistent with our plans, so a very strong financial quarter for us. These results happened in a very challenging FX environment. Our revenues would have been $5 million higher if we'd used last year's FX rates, up 16% from the same quarter last year. Our adjusted EBITDA would have been approximately $1 million higher using last year's FX rates, up 15% from the same quarter last year. Alan will go into this in more detail later. However, strong results that might have been even stronger in a different foreign exchange environment. At the end of the quarter, we had $237 million in cash and were debt-free with an undrawn $350 million line of credit that we just extended the term on. We remain well-capitalized, cash-generating, debt-free, and ready to continue to invest in our business. We believe a company like ours is well-positioned to continue to thrive in market conditions like these. I'd like to address two areas about last quarter before handing it over to Alan. The first is where our business performed well, and the second is acquisition contributions. 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. The first is global trade intelligence. Our global trade intelligence solutions touch on three principal areas. The first is tariff and duty content that helps power global trade intelligence systems. The second is sanctioned party screening that helps customers ensure their shipments and business relationships are compliant with the numerous international and domestic financial and trade sanctions imposed on countries, commodities, companies, and individuals. And third, historical research tools that enable our customers to monitor trade sourcing, and logistics trends for their competitors and the industry in general. Descartes' business as a whole is designed to help make things a little less complex for our customers in a very complex world. As things get more challenging or complex, we generally found our customers relying on us more and more, and that's certainly the case right now. Just some comments on each of the areas that I just described. In the tariff and duty area, there have been changes in governments and administrations in various countries around the world. This continues to fuel changes in trade tariffs and duties as countries seek to spur growth or alter relationships with their trading partners. The second is sanctioned party screening. We continue to see sanctions being rolled out in connection with the war in Ukraine and related parties involved in the conflict. We've also seen a tension on sanctions with increased challenges in Western relationships with China, for example, with solar panels and component parts, and with heightened tensions in Iran. And the third is trade research. Lead times for replenishing inventory or otherwise securing goods remain long, in part due to continued sourcing challenges from Asia Pacific and China in particular, and the limitations of port infrastructure. Our customers remain keenly interested in how competitors are sourcing and the timeliness of getting goods in factories or stores. The second is market-leading real-time visibility solutions. Last quarter, we talked about the success our business was having in the real-time visibility space. Unlike other vendors, our strength is in helping our customers with visibility across multiple transportation modes and geographies, global multimodal visibility. A big component of our services is our MacroPoint business, which now forms part of the global logistics network. We continue to see strength in our real-time visibility business with record volumes, tracking events, and end-to-end visibility success. As I mentioned earlier, lead times in the supply chain remain challenging to predict, which makes our value proposition for visibility that much more important. This heightens as our customers go into the peak portions of the year for retail sales. The real-time visibility market can be competitive, but our solution reach, security, and stability have made us a solution of choice. And the third is customers looking for cost-efficient supply chain and logistics. As customers become concerned about potential economic weakness, we saw focus increase on removing or controlling supply chain and logistics costs. Our customers saw some broader help in this regard as logistics costs for international shipments came down from record pandemic highs, particularly in the ocean space. However, customers also looked within their own operations for opportunities, driving increased demand for optimization solutions. In short, our optimization solutions help customers deliver premium service to their clients with less delivery resources. As you can imagine, this is a very attractive proposition especially in an environment where fuel costs have increased and there are inflationary pressures on wages. So those are some of the areas that we were strong in our organic business last quarter. The second area I wanted to address was the contribution of recent acquisitions. Specifically, I'd like to touch on XPS, Foxtrot, and NetCHB. As I described last quarter, XPS joined us as part of our ongoing investments into the e-commerce space. We continue to believe that e-commerce will be a big driver for supply chain and logistics growth in the future. even with growth rates coming down from their pandemic highs. E-commerce also drives our customers to become better and better at last-mile deliveries, both in terms of how things are delivered and their timeliness. XPS specifically helps our customers with partial shipments, allowing us to offer a broad range of last-mile delivery help to our customers, regardless of delivery size. XPS contributed well with our ship rush and other e-commerce investments, and as I said, we remain bullish about its future contributions. The next is Foxtrot. With the increased focus on last mile deliveries, we made incremental investments into our optimization solutions. The better the information we can put into our solutions, the better the quality of results that will be produced, allowing our customers to have more efficient, timely, and cost-effective deliveries. Our investments in Foxtrot were consistent with this. As Foxtrot helps our customers leverage more data points from vehicles in the field and use advanced machine learning to produce better route quality. Foxtrot has paired well with our routing solutions to be an immediate contributor to the quarter. And finally, NetCHB. There is a definitive trend towards digitization in the logistics services provider industry. Garner the days of large paper-based price books or delays in waiting for logistics service providers to get back with a quote. To be competitive, logistics service providers have to be able to respond quickly and transparently. We've made various investments to help our customers with this digitization. including containers and portraits. NetCHB was another investment in this area by helping logistics service providers automate and digitize the import process into the United States. As mentioned earlier, our third quarter saw strong imports, and this drove NetCHB to be a good contributor to our success. So let me just summarize as I hand it over to Alan to give the full financial details on the quarter. We had another record financial quarter. We had excellent organic contributions from our global trade intelligence, transportation management, and optimization solutions. Our recent acquisitions complemented our existing business and were immediate profitable contributors to the quarter and year. We ended the quarter with $237 million in cash, $350 million in available credit, and a market opportunity where we can continue to grow the business for our customers both organically and through acquisitions. We remain focused on profitable growth so that we can continue to ensure that our customers have a secure, stable, and growing technology partner that can help them with their challenges well into the future. My thanks to all 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, who can go through our Q3 financial results in more detail. Alan?

Sure. Thanks, Ed. As indicated, I'm going to take you through the financial highlights of our third quarter, which ended on October 31st. We are pleased to report quarterly revenue of 121.5 million this quarter, an increase of 12% from revenue of 108.9 million in Q3 last year. The impact of a stronger U.S. dollar compared to the other currencies that we operate in, mainly the euro, the British pound, and the Canadian dollar, has had a significant negative impact on our revenue again this quarter. As Ed mentioned earlier, excluding the impact of FX changes, our revenue would have been approximately $5 million higher, and our growth rate on an FX neutral basis would have been closer to 16% over the same period last year. Sequentially, the impact was also quite large from FX, with almost a $2 million negative impact from foreign exchange from the second quarter to the third quarter this year, which is the largest sequential impact we've seen in our business. While revenue from new acquisitions, including a full quarter from the XPS acquisition completed earlier in Q2, contributed nicely to this growth, similar to the past few quarters, our growth in revenue from new and existing customers were the main drivers of growth again this quarter when compared to last year. Looking at our revenue details further, our revenue mix in the quarter continued to be very strong, with services revenue increasing 13% to $110.1 million, compared to $97.2 million in the same quarter last year, increasing to 91% of total revenue in the quarter, compared to 89% of revenue in Q3 last year. Again, looking at FX on a constant currency basis, we would estimate that our growth in services revenue from new and existing customers would have been just over 11% this quarter when compared to the same quarter last year. License revenue came in at $1.1 million, or less than 1% of revenue in a quarter, down from license revenues of $1.4 million in the third quarter last year, and also down from license revenue of $3.3 million in Q2, as we had a couple of unusually large license deals closed last quarter. Finally, professional service and other revenue came in at $10.3 million in both the third quarter this year, as well as the third quarter last year, as higher professional services revenue was offset by slightly lower hardware revenue this quarter. For the nine months of this year, revenue was $361 million, an increase of 16% from revenue of $312 million in the first nine months last year. Again, excluding FX, revenue growth for the first three quarters would have been closer to 19% over the same period last year. Gross margin came in at 77% of revenue for the third quarter, up slightly from gross margin of 76% in the third quarter last year. gross margin has continued to increase slightly with a strong growth in revenue from new and existing customers that we've experienced again this quarter, despite some negative FX impacts. Operating expenses increased by approximately 12% in the third quarter over the same period last year, and this was primarily related to the impact of recent acquisitions, but also from additional labor-related costs as we continue to invest in various areas of business. In particular, similar to the past few quarters, sales and marketing expenses were higher in Q3, increasing from 11% of revenue in Q3 last year to 12% of revenue in the current quarter as a result of the additional headcount that we have added in both of these areas. R&D as well as general and administrative expenses also saw some increases, but the increase in these expenses was lower than the growth in revenue that we experienced in the quarter. So as a result of both revenue growth, strong cost control, offset partially by our planned investments in the sales and marketing areas of the business, we continue to see strong adjusted EBITDA growth of 13% to a record 54.5 million or 44.9% of revenue, up from 48.2 million or 44.3% of revenue in the third quarter last year. And while we continue to be fairly naturally hedged to foreign currencies, with a sharp decrease in both the British pound and the euro to the US dollar in the third quarter, we did experience a negative impact on our adjusted EBITDA of approximately $1 million in the quarter compared to the same period last year. Without that negative impact from foreign exchange, our growth in adjusted EBITDA would have been approximately 15% or right at the upper end of our target range, as Ed mentioned earlier. For the first three quarters of the year, adjusted EBITDA has increased by 18% to $160 million from $136 million in the same nine-month period last year. With these strong operating results and strong AR collections, cash flow generated from operations came in at 50.9 million, or 93% of adjusted EBITDA in the third quarter, an increase of 18% compared to operating cash flow of 43.3 million in the third quarter last year. For the nine months year to date, operating cash flow has been 142 million, or 89% of adjusted EBITDA, up from $131 million in the same nine-month period last year. And we should mention, as always, subject to unusual events and quarterly fluctuations, we expect to continue to see strong cash flow conversion and generally expect cash flow from operations to be between 85% and 95% of our adjusted EBITDA in the quarters ahead. We should also note that the income tax expense for the third quarter came in at $9.0 million, or approximately 25% of pre-tax income, which is fairly close to our statutory or expected tax rate. But it is much higher than the tax expense of $2.1 million, or only 8% of pre-tax income that we experienced in the third quarter last year when we benefited from the reversal of certain valuation allowances. With our higher operating profits offset by the higher income tax expense, from a gap earnings perspective, net income came in at $26.5 million, or $0.31 per diluted common share in the third quarter, compared to $25.5 million, or $0.30 per diluted common share in the third quarter last year. Net income for the nine-month year-to-date period was $72.5 million, or $0.84 per diluted common share, compared to $67.1 million, or $0.78 per diluted common share last year in the first nine months. Again, with higher operating profits being partially offset with higher income tax expense. Overall, we are once again pleased with our quarterly operating results in the quarter, as strong organic growth and solid performance from our recent acquisitions resulted in strong growth in both revenue and adjusted EBITDA for the third quarter, despite some FX headwinds. And all the while, we continued to vest in several areas of our business. If we turn our attention to the balance sheet, as Ed mentioned, our cash balances totaled $237 million at the end of October, up from approximately $189 million at the end of the second quarter in July. The increase in cash was primarily related to the $51 million in cash flow generated from operations. And we should note that while we put in place a normal course issuer bid or NCIB program at the beginning of the second quarter, we were not active with the NCIB throughout the third quarter this year. Also, earlier today, we completed the extension of our credit facility, ensuring that we will have access to $350 million of capital with the ability to upsize this credit facility to $500 million, and this capital will now be available to us through to December 2027. As a result of the above, we still have $237 million of cash as well as $350 million in debt capacity available to us to deploy towards future acquisitions or the NCIB as conditions dictate. So we continue to be well capitalized to allow us to consider all options in the market consistent with our business plan. As we look at the fourth quarter, we should note the following. After occurring approximately 4.4 million in capital additions for the first nine months of the year, we expect to incur between one and two million in additional capital expenditures for the remainder of this year. After incurring amortization costs of $45.8 million so far this year. We expect amortization expense will be approximately $14.4 million in the fourth quarter, with this figure being subject to adjustment for foreign exchange changes and future acquisitions. Our income tax rate for the first three quarters of the year came in at approximately 26% of pre-tax income, which is very close to our blended statutory rate. Looking at the fourth quarter, we currently expect that our tax rate will continue to be in the range of 25 to 30% of our pre-tax income. However, as always, we should state that our tax rate may fluctuate quarter to quarter from one-time tax items that may arise as we operate internationally across multiple countries. And finally, after incurring stock-based compensation expense of 10.3 million for the first nine months of this year, we currently expect stock comp will be approximately 3.5 million for the fourth quarter, subject to any forfeitures of stock options or share units. And with that, I'll turn it back to Ed to wrap up with some closing comments and our baseline calibration for Q4.

Hey, great. Thanks, Alan. We're about a month into our next quarter and in the throes of the busy holiday shopping periods, but it seems like it's far from a business-as-usual environment right now. I wanted to share some things that we're hearing from our customers and seeing ourselves. The first is high inventory levels. For the first time in a few years, retailers have full shelves as they entered the holiday season. Because of the challenges with supply chains during the pandemic, retailers were nervous and ordered goods well in advance of the holiday peak period. The challenge for retailers this season is not whether they have inventory, but whether they have the right inventory. The early ordering cycles caused lots of predictions and assumptions to be made about what consumers will want. We'll be watching with interest to see what the next replenishment cycles look like in terms of timing, content, and size. The second is there's still strong consumer demand. For North America, our customers have not seen a pullback in consumers' willingness to spend money. Rather, they've indicated consumers are still flush with cash and willing to spend if the right good is available. The early returns reported by others from a strong Black Friday sales period in North America are consistent with that. We think this will continue to drive strong last-mile delivery volumes, as at-home delivery is even a preferable option for those making purchases in-store. For Europe, we're hearing some pullback in consumer spending, through the late fall. We understand there's lots of incremental pressures on consumers from the increased energy costs in part resulting from the war in Ukraine. The third is replenishment lead times remain unpredictable. As we come through the holiday period, we're hearing there's still nervousness about the long lead times required to replenish inventory. Right now that nervousness isn't coming from the logistics side of things as previous backlogs seem to have worked their way through the logistics infrastructure. there are no longer boats backed up at U.S. seaports. However, the ability to source from China in particular is a question mark, especially in light of the various rolling lockdowns in China we've been seeing. Recent news suggests that China is scrapping its zero COVID policy, but given all of the uncertainty, we anticipate that businesses will continue to order early and that the logistics infrastructure has caught up enough to not be the bottleneck in any delays. The fourth is uncertainty causing lots of contingency planning. If you work in the logistics and supply chain space, you've gotten used to having to be on top of news cycles to see what latest developments will impact your business. Our customers have gotten used to contingency planning, whether it's alternative sourcing, alternative transportation, or alternative routing. Global geopolitical issues and economic issues have kept people on their toes, but so have recent U.S. issues such as potential rail strikes and port labor issues. Our customers expect they'll continue to operate with a lack of certainty for supply chain and logistics matters. And as a result, we expect they'll benefit from relationships with technology partners with a multimodal and global geographic reach. The fifth is cautiousness. The pervasive tone in what we hear from our customers is caution. To be clear, it's certainly not pessimism. It's caution in running their businesses, in part driven by the lack of certainty in supply chain and logistics that I just described. More broadly, economic factors like interest rates and inflation have put pressure on the cost side of many businesses, especially those who have leveraged their balance sheets. We have continued to see our customers invest in their businesses, but often with a view towards cost reduction and or automation. The next is ESG is a factor in our customers running their businesses. For more and more of our customers, environmental, social, and governance issues are becoming relevant to how they operate their businesses. We've seen heightened attention to customers wanting to reduce the environmental impact of the deliveries they make and receive, resulting in investments in optimization solutions and environmental consciousness being a factor in third-party transportation selection. We've also seen heightened attention on compliance matters, workplace driver safety, and diversity. Descartes published our own ESG report, which identifies how we help our customers with these types of matters, and we anticipate that it will be a continued area of investment for us into the future. So those are some of the things we're hearing from our customers and seeing in our business, things that also inform our calibration for the quarter. Our business is designed to be predictable and consistent. We believe that stability and reliability are valuable to our customers, employees, and our broader stakeholders. To deliver this consistency, we continue to operate from the following principles. Our long-term plan is for our business to grow adjusted EBITDA 10% to 15% annually. We grow through a combination of organic growth and acquisitions. We take a neutral party approach to building and operating solutions on our global logistics network. We don't favor any particular party. We run our business for all supply chain participants, connecting shippers, carriers, logistics service providers, and customs authorities. When we overperform, we try to reinvest that overperformance back into our business, and we focus on recurring revenues and establishing relationships with customers for life. And we thrive on operating a predictable business that allows us forward visibility to our revenues and investment paybacks. In our quarterly report, we provided a comprehensive description of baseline revenues, baseline calibration, and their limitations. As of November 1, 2022, using foreign exchange rates of 74 cents to the Canadian dollar, 99 cents to the euro, and $1.15 to the pound, we estimate that our baseline revenues for the fourth quarter of 2023 will are approximately $108 million, and our baseline operating expenses are approximately $67 million. We consider this to be our baseline calibration of approximately $41 million for the fourth quarter of 2023, or approximately 38% of our baseline revenues as at November 1, 2022. We've seen continued operating performance above our adjusted EBITDA operating margin range of 38% to 43%. In Q1 and Q2, we were at 44%, and in Q3, we were at 45%. Given the continued strong performance we've seen in the business and the current FX rate environment, we're increasing our adjusted EBITDA operating margin for Q4 to 40% to 45%, and currently anticipate that we will have the same range for fiscal 2024 starting in February. We're already very hard at work on helping our customers deal with these very complex times. We believe that if we focus on making our customers successful, it's our own best chance at achieving our own goal of being a strong and trusted business, delivering superior results for customers and shareholders. I want to thank everyone for joining us on the call today. As always, we're available to talk to you about our business in whatever manner is most convenient for you. And with that, operator, I'll turn it over to you for the Q&A portion of the call.

And if anyone has a question, you can press zero then one on your touchtone phone. Once again, if you have a question, it's zero one on your touchtone phone. And our first question comes from Matt Fowle from William Blair. Go ahead, Matt.

Yeah, great. Thanks for taking my questions, guys. I wanted to ask on your comments around customers being, you know, cautious with their own business. Is that driving any impact in terms of sales cycles or demand for your products or perhaps what products are purchasing?

No, it's more stuff that we're hearing them talk about. In fact, you've probably heard me say this over the past year, that supply chain and logistics have become a whole lot more important to everyone, really. And that trickles down to our customers and oftentimes ends up in technology investments as technology tends to have the best ROI. What we're seeing is while our customers are being cautious and they may be covering the brake on some other projects, that they continue in the logistics and supply chain space to make investments and continue the investments that they're already making. Our projects are rolling out. We continue to see a strong pipeline. And we think we may be unique in that regard in the business that we're in. That may be one of the few areas that they're continuing to have their foot on the gas, in other words. And that's what we're seeing right now.

Got it. And just the last one for me on acquisitions, maybe just some comments on what you're seeing in the market in terms of, you know, are there more deals coming into play, valuation expectations, and then competition for those deals?

Yeah, I think, you know, on the medium-smaller ones, you know, kind of our bread and butter, the tuck-ins that we normally do, you know, we're seeing – similar to that we have over the last couple of years, we're doing well in that area. Uh, we're able to, uh, to, to, to find acquisitions and, and, uh, bring them in, uh, in a, in a timely fashion and, uh, without a ton of competition, uh, on the larger stuff, we're starting to see a little bit of softening. I think there's private equity firms that are out there that are a little concerned about overpaying for stuff. And we're starting to see, uh, maybe more of those deals coming out and, and, uh, you know, we'll see what happens, you know, whether we, whether we jump into them or not, but, uh, we're starting to see that market kind of loosen up a little bit if it was tight for the last six months. Okay.

Great. Thank you. Appreciate it. Thank you, Matt. Yep.

And our next question comes from Justin Long from Stevens. Go ahead, Justin.

Thanks. Good evening. Alan, I think you said organic growth was around 11% in the quarter when excluding FX, but I wanted to make sure that I heard that correctly. And again, Is there anything you can share on the trend that you saw in transactional volumes in the quarter?

So, yes, I did say that on a currency neutral basis, services revenue growth was around 11%. And that's the most important thing that we look at. That's the recurring part of our business. From a transactional perspective, I think Ed hit it in his comments. I mean, we're seeing continued activity in the marketplace and a continued need for our services. So goods are flowing and no appreciable change there in the trends that we've seen coming into the quarter.

Okay, got it. And to follow up on the EBITDA margin outlook that you mentioned, Ed, the 40% to 45% range for the fourth quarter and the next fiscal year, As you think about fiscal 2024, what level of organic growth is needed to support that margin outlook, and are you assuming any pullback in transactional volumes versus where we are today?

Yeah, I mean, the main thing we focus on is 10% to 15% EBITDA growth. We think we're going to be able to hit those numbers in the future as well. It's certainly the way we try to run our business, and we believe we'll have the organic growth in our business to support that.

Understood.

Thanks.

Hey, thank you, Justin.

And our next question comes from Scott from Wolf Research. Go ahead, Scott.

Hey, thanks. Afternoon. Just a thought, that 11% X currency in services, is that inclusive of acquisitions or not? I'm just trying to get a sense of the real underlying organics.

No, that's our, again, just to keep in mind and just to repeat what Ed said, I mean, we run this business to grow EBITDA, and that's our primary focus. So that incorporates everything we do. We fully integrate the acquisitions. What I'm giving you there is our best guess, and it's just the best guess given the way we run the business, on the organic growth, so the growth from new and existing customers with our traditional services, our existing services, and that's around 11%.

Specifically, Scott, not including acquisition.

Perfect. Okay. I thought I just want to confirm. Okay. And then, Ed, when you guys have given us the EBITDA guidance over margin guidance over time, you typically have sort of raised it in bigger chunks. I guess you didn't this time. Any thoughts on why not?

I think the way we raised it this time was pretty consistent with how we've done in the past. We might have been a little slow to raise it over the last six, eight months because there was a lot of uncertainty. I think I was trying to call that out as we were doing that. We were saying 38 to 43, and we beat it the last two quarters with 44. So we may have been a little slow to do that, probably just because we're conservative operators and there's a lot of balls in the air. With FX moving around the way it is, we were wondering what was going to happen next. That could certainly impact those margins. But no, we think we're trying to be accurate when we give you that range, 40% to 45%. We know that we could have FX changing environments to lower it quickly. We're a very profitable company. We could have an acquisition or two come in that would lower it. And I want to be accurate with how we're – projected it to you. So that's why you're getting the 40% to 45%. And you think that's a pretty good number.

Okay. And then ultimately, you know, freight environment slowing, but you still feel, it sounds like you still feel quite good about the double-digit EBITDA growth again for next year.

Yeah. I mean, we run our business with a very strong focus on 10% to 15% EBITDA growth and doing our best to get it to 15%. You know, lots of things that can impact that. We can see what FX is doing to it right now. But, you know, we feel like we're making that promise to our shareholders, and we want to make sure that we get there.

Okay. Good stuff.

Thank you, guys. Appreciate it.

Yep. Thank you, Scott.

And our next question comes from Raimo Linshaw. Go ahead, Raimo.

Great. Thank you. This is Jeremy on for Raimo. I just wanted to ask on the sanctions business line, if you can speak a bit to what led to outperformance in the quarter there and maybe just like some of the different factors in the macro that you're seeing impact that segment of the business. Thank you.

Hey, thanks, Jeremy. Yeah, you know, you can just pick up the paper. You can kind of see what's causing it, right? Wars, threats of wars. You know, you see trouble brewing in Iran. You see trouble brewing in China. You see, you know, an all-out war with Russia and Ukraine. and those things tend to drive more people getting put on the sanction list, and the more people that are on the sanction list, the more companies have to pay attention to that and end up, you know, needing to buy a service to make sure that they can do it. It gets very complicated to, you know, these lists change every day, and there's 140 countries that are making changes every day. And if you ship to someone you're not allowed to ship to, you can get an awful big fine. And, you know, I didn't know was not a good answer for the government. And as companies become more and more aware of that and are worried about running afoul of those things, they have to do something about it. We're the leading solution provider in the world to provide that database because we have more countries than anybody else and we have more accurate data than anyone else. Got it. Thank you.

We have no more questions at this time. I'll turn it back to Ed Ryan for closing comments.

Hey, great, everyone. Thanks very much for your time, and we look forward to reporting back to you on Q4 in a few months. Have a great day.

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