The Descartes Systems Group Inc.

Good afternoon, ladies and gentlemen, and welcome to Descartes Systems Group's quarterly results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press the star zero for the operator. This call is being recorded on Thursday, September 10, 2026. I would now like to turn the conference over to Scott Pagan. Please go ahead.

Thank you very much. Thanks and good afternoon, everyone. Apologies for the delay in starting. It was a slight technical issue with getting the press release out on the wire. Joining me on the call today are Ed Ryan, CEO, and Ed Gardner, CFO, and I trust that everyone has now received a copy of our financial results press release. 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 trade, tariff, and economic uncertainty on our business and financial condition, Descartes operating performance, financial results and condition, 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 of revenues and incurrence of expenses, potential acquisitions and acquisition strategy, cost reduction and integration initiatives, potential share purchases under a normal course issuer bid, 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. We 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, thanks, Scott, and welcome everyone to the call. Today, we're again reporting record quarterly financial results. We're ahead of our plan in Q2, which gives us even more room to make acquisitions, investments in AI, and other investments in our business. These are strong results that I'm looking forward to walking through in more detail. However, first, let me give you a word back for the call. I'll start by hitting some highlights of our last quarter, and I'll provide some comments on some investments we've been making. And then I'll hand it over to Ed Gardner, who will go over the Q2 year-to-date financial results in more detail. After that, I'll come back and provide an update on how we see the current business environment and how our business was calibrated for Q3. And then we'll open it up to the operator to coordinate the Q&A portion of the call. So let's get into Q2. Key metrics we monitor, including revenues, profits, cash flow from operations, operating margins, and returns on our investments. For this past quarter, we again had record performance in each of those areas. Total revenues were a record $201 million, up 12% from a year ago. Record high services revenues were up 13% from a year ago, and our continued focus on generating recurring revenues Record net income was up 32% from a year ago. Record income from operations was up 36% from a year ago. Record adjusted EBITDA was up 18% from a year ago. Our adjusted EBITDA margin is at a record high level of 47%. We generated over $81 million in cash from our operations, up 28% from a year ago. So strong record results across all of our key metrics. At the end of the quarter, we had over $400 million in cash. and we were debt free with an undrawn $350 million line of credit. This was before we completed some acquisitions in August, which I'll talk about shortly. We remain well capitalized, cash generating, growing and ready to continue to invest in our business. We also have a normal course issuer bid that allows us to purchase up to 8.6 million shares before December of this year. We've made some more purchases since we last reported and I'll allow Ed Gardner to give you those details. but especially in light of how the business performed last quarter, we remain optimistic about Big Heart's future and the normal course that you would be able to use to make further purchases. Wanted to touch on a few areas that helped our business perform well this quarter. Some of them are similar themes to previous quarters. The first is global trade intelligence. Global trade intelligence remains one of the larger contributors to our services revenue. We had good growth in the quarter compared to where it was a year ago. I think it's helpful to understand what's going on with global trade to understand why we've seen more demand from customers in this part of our business. There's three things going on in the world that are making it more challenging to move goods from point A to point B. The first is tariffs are still changing, and they're often changing rapidly. There's been lots of active resetting international trade agreements. Thank you for joining us. Also, businesses have become more active in researching ways to minimize their tariff burden. They're consulting more and more with trade professionals that are using research tools like Descartes' data mine tools to understand what business peers are doing. So, it has also influenced demand. Further, if you can't reduce tariffs, there's value in deferring your tariff burden. Leveraging available tariff mechanisms, such as foreign trade zones, has been another area that has increased customer demand for Descartes. The second is customs and export control enforcement has stepped up. Governments in particular in the U.S. have committed additional funding to customs and export control enforcement activities. This is in response to the perception that there is significant non-compliance worth pursuing, particularly on sanctioned parties and export controls. Sanctioned parties are where government will list entities or individuals with whom it is illegal to trade, These sanctions often come about because of military conflicts, economic disputes, or criminal activities. Trading with a prohibited entity can bring large penalties. For that reason, a key part of global trade compliance programs should include detailed sanction screening for shipments. The current sanction party screening business has seen stronger demand, and we don't expect increased enforcement to lower that demand. Export compliance is often at the commodity level of shipment, prohibitions, or licensing of goods exported from one country to another. These requirements can be because of militarily sensitive goods or ill-use goods or because of scarce valuable resources in a manufacturing process like semiconductors and chips. Our export compliance solutions, particularly in our OCR solutions, have seen heightened demand as enforcement of these rules has increased. And the third is compliance and audit burden has increased. Hand in hand with the increase in enforcement, the obligation to keep detailed, accurate, and auditable records on our global trade transactions has increased. So, for example, it's not enough to appropriately screen a transaction, but you also need the auditable proof of that screen available in the future for the third part of your review. The importance of global trade management systems has shifted from transactional execution to systems of record trade. This is particularly so with increased U.S. focus on train shipments as a mechanism that is potentially being used to avoid tariffs or sanctions. Train shipment is where goods are routed through one or more other countries before the final destination, often to avoid tariffs or sanctions that apply to the original country of origin. customers are compelled to have accurate and detailed records proving country of origin on shipped goods, something that is increasingly challenging in a complex world of international supply chains and multiple internationally sourced component parts and finished goods. We have seen good demand from people seeking new and more sophisticated trade management systems with reputable, stable partners that could support future audits. That's been a good demand driver for us as well. A rapidly changing tariff environment, increased resources dedicated towards trade enforcement, and detailed and audible record requirements extending into the future, a much more complex trade environment is what we're in today. With the number of changes that have happened in the trade environment over the past two years, we found that our customers are no longer waiting to see what's next. Many have accepted that volatility as the new baseline operating condition. Rather than accepting the stability of a trade rule and building a standard operating procedure to address that rule, we found that our customers are already focused on building agility, flexibility, and redundancy into their supply chains. They're preparing themselves to be ready for what they don't know is going to change. That approach has necessitated a higher level of investment and executive attention to supply chain and logistics issues than we've seen historically. We've seen the same trend with shipwreck booking capacity. More shippers are relying on spot rates and shorter-term capacity contracts. That investment has been supported by a one-time tailwind for some in the U.S. Some businesses have received sizable tariff refunds from the previous U.S. Supreme Court decision invalidating the International Emergency Economic Powers Act tariffs. Again, one time in nature, however, a stimulus for some supply chain investments. Second area where we've seen good growth is in their e-commerce entries. We continue to see overall growth in consumers embracing e-commerce, even with the elimination of the tariff-exempt Type 86 to Minimus program. Imports have continued to grow coming into the United States. We have a premier solution for handling e-commerce imports into the U.S. using our FCHB system, with particular strength in high volume and high velocity requirements. We're hoping Keybrokers meet the demands of importers and these bonds are contributing well to our revenue growth. We called this out in Q1, but we again saw strength in Q2. The third area is in transportation management. MacroPoint continues to be strong for us. MacroPoint provides real-time visibility to shipments. Brokers and shippers tell us the loads they want to track. It's our job to get the tracking information from onboard systems, transportation management systems, using our application for old-fashioned calls to drivers. Over past quarters, we've enhanced our system to have AI agents that interact with drivers to encourage adoption of our tracking app, helping us reach a segment of the market that was previously difficult to reach the scale. These agents have helped contribute to higher percentage of shipments tracked by our peers, which in turn drives more people to our network We're also competitively differentiated because we are tracking data from both phones and onboard devices, so we're able to compare those data sets and alert customers to discrepancies that may exist as they consider which carriers they'll use in the future. One of the particular strengths of our transportation management offerings is the combined solution that we can provide. We have full enterprise-grade transportation management system for shippers, borrowers, Real-time tracking of a shipment and fraud detection slash carrier screening with MyCarrierPortal. This combination has been well received by the markets, especially for brokers who need enhanced carrier screening tools in light of the U.S. Supreme Court decision imposing liability on brokers for reckless selection of unsafe carriers. A good growth guard for us with potential for further growth, which was a key inspiration for our recent investment in TIE, which I'll talk about later. And the last is athlete performance slash management and routing. to help customers manage their fleets of vehicles. In particular, we have routing and scheduling solutions that help companies figure out the most efficient way to make deliveries and reduce hours and miles driven to do that. There's always good demand for these solutions. However, the demand increases in periods like now where fuel costs increase. Running your fleet becomes more expensive, and customers look into solutions to reduce the amount of fuel they're using to make deliveries. Cost-consciousness for fleet owners is even higher given the inflation that exists in driver wages. This wage inflation is driven in part by driver shortages. New U.S. regulations have made it more difficult to train and qualify to be a driver. This demand in our business was supported by two recent investments we made. At the end of Q1, we combined with IDELIC. IDELIC is an AI-powered Driver Safety and Performance Management System. This was a timely investment as the U.S. court focused attention on driver safety and liability in accidents. This is our first full quarter with IDELIC and is prepared, has paired well with our graph-out solution to provide an excellent tool to enhance safety oversight of our existing private fleet customers. Then in the last month of Q2, Drive-In joined our day cart team, Latin America, has been a key expansion target for our routing solutions. There's a lot of opportunity for growth with our existing solutions portfolio, plus access to a broad base of delivery information in the region. We're joined by a great team with experience with delivery solutions in high-density urban environments. Drive-in was only here for about three weeks of Q2, but it has meshed well with our team, and we're looking forward to great things to come in Q3 and beyond. So overall, these were the items that contributed to strong growth and demand in Q2. That performance, we were able to continue to make investments in our business. One of the principal areas of investment continues to be in artificial intelligence technologies. And with that, let's talk about AI. We're investing in AI because it enables automation as supply chains and logistics becomes more and more complex. Managing sources of data, physical resources, human resources, payments, tariffs, duties, compliance, sanctions, fuel costs, vessel capacity, warehouses, all these are becoming too complex for humans to manage on their own. In making our investments, we have some core beliefs in mind about how AI will change our business over time. Our solutions will be used by AI through APIs and agents more than by users and with browsers. Our solutions will be used to generate outcomes for customers rather than to be licensed for access. Our solutions will be used to identify and prevent potential problems as much as to solve existing problems. We believe that human oversight decisions made by technology will still be critical. That the data on our network will provide critical context to both fuel and human and AI decisions. and finally that our broad solution set will integrate to provide our customers with a single source for unraveled outcomes. We've been very active in the designing our infrastructure workflows and commercial models to adapt to these inevitable changes. We've designed our agent control plane for agents to access our products. We've made it skills from our products available to agents via MCP and the agent control panel. We're undertaking comprehensive data graph to bring useful network effect context to decisions and we're designing a uniform workbench entry points for agents and humans to access the Descartes Global Logistics Network skills. We're very busy and tremendously excited by the value we can deliver to our customers using these AI capabilities. Our customers are also asking us for AI that removes work. are more interested in outcomes than workflows. With that in mind, we're developing and deploying AI agents, including agents that classify HS codes, model 2D exposure, and sourcing shifts, agents that diagnose customs and regulatory filing rejections and suggest remediation, agents that predict late loads and proactively rebook dock appointments, agents that rate and book across transportation modes, agents to forecast e-commerce demand, balanced stock and rate shop, sanctioned party screening triage to clear false positives, agents that screen for double brokering and identify fraud, agents that dynamically schedule to get delivery routes back on track, and finally fleet safety coaching. These aren't aspirational. Our customers are seeing real benefits from AI agents already. As I've been mentioning previously, our MicroPoint business is actively using agents to call drivers for location checks, gather proof of delivery information for billing purposes, get arrival and departure confirmation, get truck rates to help with carrier selection, and get insurance certificates for carriers. This helps our customers track and book more loads, We have AI agents that enable tracking on 26% more loads than they did in year one. As we deliver more value to customers, we get paid on delivering more outcomes. This has been a real benefit to us in the quarter and all due to AI. AI is an exciting part of our present and future. We're planning a comprehensive update on what we're doing with AI at our in-person innovation forum to be held October 6th through the 8th in Chicago. We're planning on showing practical and real examples of how our customers will get value from outcomes leveraging AI. This is a big event where attendees interact with customers, partners, and Descartes Realty members. A great event to learn from Descartes and others, but also to provide feedback on how we can help deliver more value. We're very excited to host everyone and share how excited we are about our future. Please see our website for more registration deals. and Ajit Thales and we look forward to seeing you there. So, in summary, strong Q2 with additional AI investments, two acquisitions that impacted Q2 and plans for more investments. I'm excited about how the business is performing and the opportunity we have in front of us. With that, I will turn the call over to Ed Gardner to go through the financial results in more detail. Ed?