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Descartes Reports Fiscal 2013 Third Quarter Financial Results

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Record Operating Performance Driven by 15% Increase in Year-Over-Year Revenues

WATERLOO, Ontario, Nov. 29, 2012 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (Nasdaq:DSGX) (TSX:DSG) announced its financial results for the fiscal 2013 third quarter (Q3FY13) ended October 31, 2012. All financial results referenced are in United States (US) currency and, unless otherwise indicated, are determined in accordance with US Generally Accepted Accounting Principles (GAAP).

Q3FY13 Financial Results

As described in more detail below, key financial highlights for Descartes in Q3FY13 included:

  • Revenues of $32.7 million, up 15% from $28.5 million in the third quarter of fiscal 2012 (Q3FY12) and up 7% from $30.5 million in the previous quarter (Q2FY13);
  • Services revenues of $29.7 million, up 13% from $26.2 million in Q3FY12 and up 1% from $29.3 million in Q2FY13;
  • Gross margin of 68%, up from 67% in Q3FY12 and 65% in Q2FY13;
  • Net income of $3.1 million, up 15% from $2.7 million in Q3FY12 and up 24% from $2.5 million in Q2FY13;
  • Earnings per share on a diluted basis of $0.05, up 25% from $0.04 in both Q3FY12 and Q2FY13;
  • Days-sales-outstanding (DSO) for Q3FY13 were 59 days, up from 53 days in Q3FY12 and 55 days in Q2FY13;
  • Adjusted EBITDA of $9.9 million, up 16% from $8.5 million in Q3FY12 and up 6% from $9.3 million in Q2FY13. Adjusted EBITDA as a percentage of revenues was 30%, consistent with 30% in both Q3FY12 and Q2FY13; and
  • Adjusted EBITDA per diluted share of $0.16, up 16% from $0.13 in Q3FY12 and up 7% from $0.15 in Q2FY13.

Adjusted EBITDA and Adjusted EBITDA per diluted share are non-GAAP financial measures provided as a complement to financial results presented in accordance with GAAP. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization (for which we include amortization of intangible assets, deferred compensation, stock-based compensation and related fees and taxes) and other charges (for which we include acquisition-related expenses and restructuring charges). These items are considered by management to be outside Descartes' ongoing operational results. We define Adjusted EBITDA per diluted share as Adjusted EBITDA divided by the number of diluted shares used to calculate the GAAP measure of earnings per share. A reconciliation of Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and earnings per share determined in accordance with GAAP, respectively, is provided later in this release.

The following table summarizes Descartes' results in the categories specified below over the past 5 fiscal quarters (unaudited; dollar amounts, other than per share amounts, in millions):

Q3 Q2 Q1 Q4 Q3
FY13 FY13 FY13 FY12 FY12
Revenues 32.7 30.5 29.9 29.6 28.5
Services revenues 29.7 29.3 27.7 26.9 26.2
Gross margin 68% 65% 65% 66% 67%
Net income* 3.1 2.5 2.6 4.5 2.7
Earnings per diluted share* 0.05 0.04 0.04 0.07 0.04
Adjusted EBITDA 9.9 9.3 8.7 8.5 8.5
Adjusted EBITDA as a % of revenues 30% 30% 29% 29% 30%
Adjusted EBITDA per diluted share 0.16 0.15 0.14 0.13 0.13
DSOs (days) 59 55 58 52 53
* Net income and earnings per diluted share in Q4FY12 were positively impacted by the recovery of deferred income taxes of $1.9 million.

Based on the location of Descartes' customers, the geographic distribution of revenues in Q3FY13 was as follows:

  • $17.4 million of revenues (53%) were generated in the US;
  • $6.8 million (21%) in Europe, Middle East and Africa ("EMEA"), excluding Belgium;
  • $3.8 million (12%) in Belgium;
  • $3.4 million (10%) in Canada;
  • $1.1 million (3%) in the Asia Pacific region; and
  • $0.2 million (1%) in the Americas, excluding the US and Canada.

Year-to-Date Financial Results

As described in more detail below, key financial highlights for Descartes' nine-month period ended October 31, 2012 included:

  • Revenues of $93.1 million, up 10% from $84.4 million in the same period a year ago;
  • Services revenues of $86.7 million, up 10% from $78.8 million in the same period a year ago. Services revenues comprised 93% of total revenues for both nine-month periods ended October 31, 2012 and 2011, respectively;
  • Gross margin of 66%, down from 67% in the same period a year ago;
  • Net income of $8.2 million, up 9% from $7.5 million in the same period a year ago;
  • Earnings per share on a diluted basis of $0.13, up 8% from $0.12 in the same period a year ago;
  • Adjusted EBITDA of $27.8 million, up 13% from $24.5 million in the same period a year ago. Adjusted EBITDA as a percentage of revenues was 30%, up from 29% in the same period a year ago; and
  • Adjusted EBITDA per share on a diluted basis was $0.44, up 13% from $0.39 in the same period a year ago.

The following table summarizes Descartes' results in the categories specified below over the nine-month periods ended October 31, 2012 and 2011 (unaudited, dollar amounts in millions):

Nine Months Ended
October 31,
2012
October 31,
2011
Revenues 93.1 84.4
Services revenues 86.7 78.8
Gross margin 66% 67%
Net income 8.2 7.5
Earnings per diluted share 0.13 0.12
Adjusted EBITDA 27.8 24.5
Adjusted EBITDA as a % of revenues 30% 29%
Adjusted EBITDA per diluted share 0.44 0.39

"We have a culture of serving customers and working together as one learning team," said Art Mesher, Descartes' Chairman and CEO. "Our collaborative approach and unbridled focus on helping customers achieve results has driven our own superior operating performance."

Cash Position

As at October 31, 2012, Descartes had $40.4 million in cash comprised entirely of cash and cash equivalents. Cash and cash equivalents have increased since July 31, 2012 by $4.9 million and decreased $25.1 million since January 31, 2012. The company has invested $37.6 million since January 31, 2012 to complete the acquisitions of Infodis B.V. (June 2012) and Integrated Export Systems Ltd (June 2012). Since October 31, 2012, on November 14, 2012, Descartes announced that it had used approximately $17.0 million in cash to complete its acquisition of Exentra Transport Solutions Limited, a leading UK-based provider of software-as-a-service (SaaS) driver compliance solutions for the European Union (EU).

The table set forth below provides a summary of cash flows for the three- and nine-month periods ended October 31, 2012, in millions of dollars:

Three Months Nine Months
Ended Ended
October 31, October 31,
2012 2012
Cash provided by operating activities 5.2 16.2
Additions to capital assets (0.8) (2.5)
Settlement of acquisition earn-out -- (0.6)
Acquisition of subsidiaries, net of cash acquired -- (37.6)
Issuance of common shares 0.1 0.6
Settlement of stock options -- (1.5)
Repayment of other liabilities -- (0.1)
Effect of foreign exchange rate on cash and cash equivalents 0.4 0.4
Net change in cash and cash equivalents 4.9 (25.1)
Cash and cash equivalents, beginning of period 35.5 65.5
Cash and cash equivalents, end of period 40.4 40.4

"We continue to deliver ahead of our plans despite a challenging economic environment," said Stephanie Ratza, Descartes' Chief Financial Officer. "As the economy remains uncertain, we're certainly well-positioned to handle the ups and downs with a healthy, well-calibrated business."

Descartes Recognized Among Most Admired Corporate Cultures in Canada

Descartes has been recognized by Waterstone Human Capital, one of Canada's leading retained executive search firms specializing in recruiting for fit and in cultural assessment, as one of Canada's 10 Most Admired Mid-Market Corporate Cultures of 2012. The award program recognizes best-in-class Canadian organizations for having a culture that has helped them enhance performance and sustain a competitive advantage.

Q3FY13 Business Events / Announcements

In line with Descartes' strategy to build leading product offerings and expand its global network of customers and trading partners, the company made the following announcements and/or participated in the following events since September 6, 2012:

  • Acquired Exentra Transport Solutions Limited, a leading UK-based provider of driver compliance solutions for the European Union;
  • Hosted its Global User and Partner Conference, Evolution 2012, in Fort Lauderdale, Florida with record attendance;
  • Unveiled Descartes Community, a new cloud-based service that gives members of the Descartes Community the flexibility to create multi-party communications and processes to extend their command of operations;
  • Announced it had worked as a strategic partner with IATA to develop an innovative technology bridge that helps air cargo messaging participants easily transition from legacy messaging procedures to the new Cargo-XML standards; and
  • New customer successes with Delta Mossel, TSC Container Freight, C1000, Mazda Motors Logistics Europe N.V. and Cabela's.

Conference Call

Members of Descartes' executive management team will host a conference call to discuss the company's financial results at 8:00 a.m. EST on November 29, 2012. Designated numbers are +1 866-200-6965 for North America or +1 646-216-7221 for international, using Participant PIN Code 95150866#.

The company simultaneously will conduct an audio webcast on the Descartes Web site at www.descartes.com/company/investors. Phone conference dial-in or webcast log-in is required approximately 10 minutes beforehand.

Replays of the conference call will be available immediately afterwards, and until December 6, by dialing +1 866-206-0173 or +1 646-216-7204 and using conference playback number 277719#. An archived replay of the webcast will be available at www.descartes.com/company/investors.

About Descartes

Descartes (TSX:DSG) (Nasdaq:DSGX) is the global leader in providing on-demand, software-as-a-service solutions focused on improving the productivity, performance and security of logistics-intensive businesses. Descartes' B2B network, the Global Logistics Network, integrates more than 35,000 trading partners to our cloud-based Logistics Technology Platform to unite their businesses in commerce. Customers use our modular, software-as-a-service solutions to route, schedule, track and measure delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in the world's largest, collaborative multi-modal logistics community. Our headquarters are in Waterloo, Ontario, Canada and we have offices and partners around the world. Learn more at www.descartes.com.

The Descartes Systems Group logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4065

Safe Harbor Statement

This release contains forward-looking information within the meaning of applicable securities laws ("forward-looking statements") that relates to the positioning of Descartes to provide value to customers and shareholders; and other matters. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements of Descartes, or developments in Descartes' business or industry, to differ materially from the anticipated results, performance or achievements or developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to, Descartes' ability to successfully execute on acquisitions and to integrate acquired businesses and assets, and to predict expenses associated with and revenues from the acquisitions; the ability to attract and retain key personnel and the ability to manage the departure of key personnel; changes in trade or transportation regulations that currently require customers to use services such as those offered by Descartes; the impact on Descartes' business of the global economic downturn; departures of key customers; the impact of foreign currency exchange rates; Descartes' ability to retain or obtain sufficient capital to execute on its business strategy, including its acquisition strategy; disruptions in the movement of freight; the potential for future goodwill or intangible impairment as a result of other-than-temporary decreases in Descartes' market capitalization; and other factors and assumptions discussed in the section entitled, "Certain Factors That May Affect Future Results" in documents filed with the Securities and Exchange Commission, the Ontario Securities Commission and other securities commissions across Canada, including Descartes' Annual Report on Form 40-F for FY12. If any such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price of our common shares could decline, perhaps materially. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. We do not 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 or circumstances on which any such statement is based, except as required by law.

Reconciliation of Non-GAAP Financial Measures - Adjusted EBITDA and Adjusted EBITDA per Diluted Share

We prepare and release quarterly unaudited and annual audited financial statements prepared in accordance with GAAP. We also disclose and discuss certain non-GAAP financial information, used to evaluate our performance, in this and other earnings releases and investor conference calls as a complement to results provided in accordance with GAAP. We believe that current shareholders and potential investors in our company use non-GAAP financial measures, such as Adjusted EBITDA and Adjusted EBITDA per diluted share, in making investment decisions about our company and measuring our operational results.

The term "Adjusted EBITDA" refers to a financial measure that we define as earnings before interest, taxes, depreciation and amortization (for which we include amortization of intangible assets, deferred compensation, stock-based compensation and related fees and taxes) and other charges (for which we include acquisition-related expenses and restructuring charges). Adjusted EBITDA per diluted share divides Adjusted EBITDA by the number of diluted shares used in calculating the GAAP diluted earnings per share, or diluted EPS, measure.

Management considers acquisition-related and restructuring activities to be outside the scope of Descartes' ongoing operations and the related expenses are not used by management to measure operations. Accordingly, these expenses are excluded from Adjusted EBITDA, which we reference to both measure our operations and as a basis of comparison of our operations from period-to-period. Management believes that investors and financial analysts measure our business on the same basis, and we are providing the Adjusted EBITDA financial metric to assist in this evaluation and to provide a higher level of transparency into how we measure our own business. However, Adjusted EBITDA is a non-GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA should not be construed as a substitute for net income determined in accordance with GAAP or other non-GAAP measures that may be used by other companies, such as EBITDA. The use of Adjusted EBITDA does have limitations. In particular, we have completed ten acquisitions within the past four fiscal years, and may complete additional acquisitions in the future that will result in acquisition-related expenses and restructuring charges. As these acquisition-related expenses and restructuring charges may continue as we pursue our consolidation strategy, some investors may consider these charges and expenses as a recurring part of operations rather than non-recurring charges and expenses that are not part of operations.

The table below reconciles Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and diluted earnings per share, respectively, reported in our unaudited Consolidated Statements of Operations for Q3FY13, Q2FY13, Q1FY13, Q4FY12 and Q3FY12, which we believe are the most directly comparable GAAP measures.

(US dollars in millions) Q3FY13 Q2FY13 Q1FY13 Q4FY12 Q3FY12
Net income, as reported on Consolidated Statements of Operations 3.1 2.5 2.6 4.5 2.7
Adjustments to reconcile to Adjusted EBITDA:
Income tax expense (recovery) 1.6 1.4 1.8 (1.3) 1.7
Depreciation expense 0.7 0.6 0.6 0.7 0.6
Amortization of intangible assets 3.7 3.4 3.1 3.0 2.9
Amortization of deferred compensation, stock-based compensation and related fees and taxes 0.6 0.3 0.2 0.5 0.2
Acquisition-related expenses 0.0 0.7 0.4 0.7 0.4
Restructuring charges 0.2 0.4 -- 0.4 --
Adjusted EBITDA 9.9 9.3 8.7 8.5 8.5
Weighted average diluted shares outstanding (thousands) 63,793 63,869 63,836 63,629 63,408
Diluted earnings per share 0.05 0.04 0.04 0.07 0.04
Adjusted EBITDA per diluted share 0.16 0.15 0.14 0.13 0.13

The table below reconciles Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and diluted earnings per share, respectively, reported in our unaudited Consolidated Statements of Operations for the nine-month periods ended October 31, 2012 and 2011, which we believe are the most directly comparable GAAP measures.

Nine Months Ended
(US dollars in millions) October 31, October 31,
2012 2011
Net income, as reported on Consolidated Statements of Operations 8.2 7.5
Adjustments to reconcile to Adjusted EBITDA:
Investment income -- --
Income tax expense 4.8 4.6
Depreciation expense 1.8 1.8
Amortization of intangible assets 10.2 8.9
Amortization of deferred compensation, stock-based compensation and related fees and taxes 1.0 0.7
Acquisition-related expenses 1.1 0.9
Restructuring charges 0.7 0.1
Adjusted EBITDA 27.8 24.5
Weighted average diluted shares outstanding (thousands) 63,838 63,317
Diluted earnings per share 0.13 0.12
Adjusted EBITDA per diluted share 0.44 0.39
THE DESCARTES SYSTEMS GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED)
October 31, January 31,
2012 2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents 40,387 65,547
Accounts receivable
Trade 20,973 16,858
Other 6,118 5,324
Prepaid expenses and other 2,799 2,814
Inventory 921 413
Deferred income taxes 9,398 12,420
80,596 103,376
LONG-TERM RECEIVABLE 561 296
CAPITAL ASSETS 10,168 9,287
GOODWILL 81,011 68,005
INTANGIBLE ASSETS 60,967 46,681
DEFERRED INCOME TAXES 31,462 31,279
264,765 258,924
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 4,657 5,250
Accrued liabilities 11,232 12,415
Income taxes payable 1,077 1,318
Deferred revenue 6,442 6,636
23,408 25,619
DEFERRED REVENUE 506 1,718
INCOME TAX LIABILITY 4,219 3,277
DEFERRED INCOME TAX LIABILITY 10,348 9,754
38,481 40,368
SHAREHOLDERS' EQUITY
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 62,618,334 at October 31, 2012 (January 31, 2012 – 62,432,727) 92,223 90,924
Additional paid-in capital 451,032 452,424
Accumulated other comprehensive income (450) (63)
Accumulated deficit (316,521) (324,729)
226,284 218,556
264,765 258,924
THE DESCARTES SYSTEMS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND WEIGHTED AVERAGE SHARE AMOUNTS; US GAAP; UNAUDITED)
Three Months Ended Nine Months Ended
October 31, October 31, October 31, October 31,
2012 2011 2012 2011
REVENUES 32,685 28,502 93,084 84,419
COST OF REVENUES 10,432 9,495 31,598 28,192
GROSS MARGIN 22,253 19,007 61,486 56,227
EXPENSES
Sales and marketing 3,695 3,091 9,941 9,712
Research and development 5,225 4,703 15,354 13,912
General and administrative 4,661 3,609 11,212 10,636
Other charges 225 346 1,831 1,012
Amortization of intangible assets 3,735 2,848 10,182 8,898
17,541 14,597 48,520 44,170
INCOME FROM OPERATIONS 4,712 4,410 12,966 12,057
INTEREST EXPENSE (1) (2) (32) (7)
INVESTMENT INCOME 14 44 67 140
INCOME BEFORE INCOME TAXES 4,725 4,452 13,001 12,190
INCOME TAX EXPENSE
Current 441 460 1,695 1,056
Deferred 1,169 1,268 3,098 3,618
1,610 1,728 4,793 4,674
NET INCOME 3,115 2,724 8,208 7,516
EARNINGS PER SHARE
Basic 0.05 0.04 0.13 0.12
Diluted 0.05 0.04 0.13 0.12
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)
Basic 62,599 62,350 62,530 62,154
Diluted 63,793 63,408 63,838 63,317
THE DESCARTES SYSTEMS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED)
Three Months Ended Nine Months Ended
October 31, October 31, October 31, October 31,
2012 2011 2012 2011
OPERATING ACTIVITIES
Net income 3,115 2,724 8,208 7,516
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 699 638 1,815 1,797
Amortization of intangible assets 3,735 2,848 10,182 8,898
Amortization of deferred compensation -- -- -- 11
Stock-based compensation expense 441 229 804 741
Deferred tax expense 1,169 1,268 3,098 3,618
Deferred tax charge 49 49 147 147
Changes in operating assets and liabilities:
Accounts receivable
Trade (2,767) 249 (3,432) (1,047)
Other (500) (904) (725) (762)
Prepaid expenses and other 15 131 177 (518)
Inventory 206 4 (511) 17
Accounts payable (441) (42) (343) (1,702)
Accrued liabilities 1,263 436 (1,516) (814)
Income taxes payable 325 130 186 174
Deferred revenue (2,069) (1,186) (1,885) (1,619)
Cash provided by operating activities 5,240 6,574 16,205 16,457
INVESTING ACTIVITIES
Additions to capital assets (869) (1,226) (2,536) (3,261)
Settlement of acquisition earn-out -- -- (590) --
Acquisition of subsidiaries, net of cash acquired -- -- (37,596) (5,002)
Cash used in investing activities (869) (1,226) (40,722) (8,263)
FINANCING ACTIVITIES
Issuance of common shares for cash 113 140 546 1,635
Settlement of stock options -- -- (1,525) --
Repayment of other liabilities (51) (20) (60) (4,324)
Cash provided (used) in financing activities 62 120 (1,039) (2,689)
Effect of foreign exchange rate changes on cash and cash equivalents 434 (22) 396 1,082
Increase (decrease) in cash and cash equivalents 4,867 5,446 (25,160) 6,587
Cash and cash equivalents, beginning of period 35,520 70,785 65,547 69,644
Cash and cash equivalents, end of period 40,387 76,231 40,387 76,231

CONTACT: Descartes Investor Contact: Laurie McCauley (519) 746-6114 x 202358 investor@descartes.com

Source:Descartes Systems Group