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?