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Press release from GlobeNewswire (a Nasdaq OMX company)

Descartes Reports Fiscal 2012 Second Quarter Financial Results

Thursday, September 08, 2011

Descartes Reports Fiscal 2012 Second Quarter Financial Results03:00 EDT Thursday, September 08, 2011 Record Operating Performance Drives 30% Year-Over-Year Increase in Net Income WATERLOO, Ontario, Sept. 8, 2011 (GLOBE NEWSWIRE) -- Descartes Systems Group (Nasdaq:DSGX) (TSX:DSG), a global leader in logistics technology, announced financial results for its fiscal 2012 second quarter (Q2FY12) ended July 31, 2011. 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).Q2FY12 Financial Results As described in more detail below, key financial highlights for Descartes in Q2FY12 included: Revenues of $28.8 million, up 14% from $25.2 million in the second quarter of last fiscal year (Q2FY11) and up 6% from $27.1 million in the previous quarter (Q1FY12); Services revenues of $26.7 million, up 12% from $23.9 million in Q2FY11 and up 3% from $25.9 million in Q1FY12. Services revenues comprised 93% of total revenues for the quarter; Gross margin of 66%, consistent with Q2FY11 and compared to 67% in Q1FY12; Net income of $2.6 million, up 30% from $2.0 million in Q2FY11 and up 18% from $2.2 million in Q1FY12; Earnings per share on a diluted basis of $0.04, up 33% from $0.03 in both Q2FY11 and Q1FY12; Days-sales-outstanding (DSO) for Q2FY12 were 53 days, compared to 57 days in Q2FY11 and 53 days in Q1FY12; Adjusted EBITDA of $8.3 million, up 26% from $6.6 million in Q2FY11 and up 6% from $7.8 million in Q1FY12. Adjusted EBITDA as a percentage of revenues was 29% this quarter, up from 26% in Q2FY11, and consistent with 29% in Q1FY12; and Adjusted EBITDA per diluted share for Q2FY12 was $0.13, up 18% from $0.11 in Q2FY11 and up 8% from $0.12 in Q1FY12. 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 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 in millions except per share amounts):     Q2FY12 Q1 FY12 Q4 FY11 Q3 FY11 Q2 FY11 Revenues28.8 27.1 26.9 25.8 25.2 Services revenues26.7 25.9 25.0 24.7 23.9 Gross margin66% 67% 65% 67% 66% Net income*2.6 2.2 7.7 1.6 2.0 Earnings per diluted share*0.04 0.03 0.12 0.03 0.03 Adjusted EBITDA8.3 7.8 7.7 7.2 6.6 Adjusted EBITDA as a % of revenues29% 29% 29% 28% 26% Adjusted EBITDA per diluted share0.13 0.12 0.12 0.11 0.11 DSOs (days)53 53 48 53 57 * Net income and earnings per diluted share were positively impacted by income tax recoveries of $5.2 million and $0.1 million in Q4FY11 and Q2FY11, respectively. Net income was negatively impacted by income tax expenses of $1.6 million, $1.3 million and $1.0 million in Q2FY12, Q1FY12, and Q3FY11, respectively. Based on the location of Descartes' customers, the geographic distribution of revenues was as follows: $12.4 million of revenues (43%) were generated in the US; $6.5 million (23%) in Europe, Middle East and Africa ("EMEA"), excluding Belgium; $4.9 million (17%) in Belgium; $3.8 million (13%) in Canada; $1.0 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' six-month period ended July 31, 2011 (1HFY12) included: Revenues of $55.9 million, up 20% from $46.5 million in the same period a year ago (1HFY11); Services revenues of $52.6 million, up 19% from $44.1 million in 1HFY11. Services revenues comprised 94% of total revenues for 1HFY12; Gross margin of 67%, up from 66% in 1HFY11; Net income of $4.8 million, up 118% from $2.2 million in 1HFY11; Earnings per share on a diluted basis of $0.08 up 100% from $0.04 in 1HFY11; Adjusted EBITDA of $16.0 million, up 34% from $11.9 million in 1HFY11. Adjusted EBITDA as a percentage of revenues was 29% in 1HFY12, up from 26% in 1HFY11; and Adjusted EBITDA per share on a diluted basis for 1HFY12 was $0.25, up 32% from $0.19 in 1HFY11. The following table summarizes Descartes' results in the categories specified below over 1HFY12 and 1HFY11 (unaudited, dollar amounts in millions):     1HFY12 1HFY11 Revenues55.9 46.5 Services revenues52.6 44.1 Gross margin67% 66% Net income*4.8 2.2 Earnings per diluted share*0.08 0.04 Adjusted EBITDA16.0 11.9 Adjusted EBITDA as a % of revenues29% 26% Adjusted EBITDA per diluted share0.25 0.19   * Net income and earnings per diluted share were negatively impacted by income tax expenses of $3.0 million and $0.6 million in 1HFY12 and 1HFY11, respectively. "Our customers and partners continue to achieve success using our leading logistics technology, and our financial results reflect this," said Arthur Mesher, Chairman and Chief Executive Officer at Descartes. "Descartes is the leading logistics technology platform to drive results for customers because our employees and United by Design partners are dedicated to improving logistics operations. We're proud of the solutions we deliver to customers, and equally excited about the new logistics technology advancements we'll be sharing with them over the coming months."Q2FY12 Acquisition On June 10, 2011, Descartes acquired privately-held, Telargo Inc. ("Telargo"), a leading provider of telematics solutions. Telargo provides telematics solutions that help its clients monitor and manage mobile assets and help fleet owners comply with various domestic transportation regulations. To complete the acquisition, Descartes paid $9.3 million in cash, including $4.3 million to repay existing Telargo financial liabilities, plus incurred certain transaction expenses. Cash Position at July 31, 2011 As at July 31, 2011, Descartes had $70.8 million in cash comprised entirely of cash and cash equivalents. The largest use of cash in the first half of 2012 was $9.3 million of cash used to complete the acquisition of Telargo. As at January 31, 2011, we had $69.6 million in cash and cash equivalents. "The addition of Telargo further enhances our ability to deliver superior operating results," said Stephanie Ratza, CFO at Descartes. "Telargo is an example of acquisition opportunities that can be completed using our strong balance sheet and cash generated from operational excellence." The table set forth below provides a summary of cash flows for Q2FY12 and 1HFY12 in millions of dollars:  Q2FY12 1HFY12 Cash provided by operating activities 4.6   9.9 Additions to capital assets (0.7)   (2.0) Business acquisitions, net of cash acquired* (5.0)   (5.0) Issuance of common shares 0.3   1.5 Repayment of financial liabilities* (4.3)   (4.3) Effect of foreign exchange rate on cash and cash equivalents (0.3)   1.1 Net change in cash and cash equivalents (5.4)   1.2 Cash and cash equivalents, beginning of period 76.2   69.6 Cash and cash equivalents, end of period 70.8   70.8         * Contributed to aggregate consideration paid in Telargo acquisition.  Appointment of Additional Director John J. Walker, a Certified Public Accountant with twenty-one years of experience as a chief financial officer with public companies, has been appointed to Descartes' board of directors and to Descartes' audit committee. Descartes' board of directors is now comprised of seven directors, including five independent directors. Mr. Walker served as chief financial officer and senior vice president of Bowne & Company, a New York Stock Exchange-listed provider of services to help companies produce and manage their investor and business communications, from 2006 until its acquisition by R.R. Donnelley & Sons in 2010. Prior to Bowne, Mr. Walker was an executive with Loews Cineplex Entertainment Corporation, then the 4th largest motion picture theatre exhibition chain in the world, including 16 years as chief financial officer. Prior to Loews, Mr. Walker served as controller of Corporate Property Investors, then one of the largest REITs in the United States. Mr. Walker was qualified as a Certified Public Accountant with Price Waterhouse.  "We're very pleased to welcome someone with John's extensive experience and credentials to our board," said Mr. Mesher. "We look forward to John's contributions and guidance to Descartes in extending its position as a leader in global logistics technology."Descartes Named Top Transportation Management Provider On September 7, 2011, Descartes announced that ARC Advisory Group, a leading industry analyst firm, named Descartes as the leading global supplier of transportation management systems in its 2011 benchmark report, Transportation Management Systems Worldwide Outlook - Market Analysis and Forecast through 2015.Descartes Evolution 2011 – Global User & Partner Conference On September 6, 2011, Descartes announced that Michael Schaecher, Executive Vice President and Head of Global Airfreight for DHL Global Forwarding, is scheduled to be the keynote speaker at Descartes' "Evolution 2011" Global User & Partner Conference in Fort Lauderdale, Florida on November 9, 2011. The Evolution 2011 conference is the premier event where Descartes users and partners from around the world come together to meet with other members of the Descartes Global Logistics Network community."Power of the Platform" Event On August 8, 2011, Descartes announced that it is scheduled to host its "Power of the Platform" launch event at noon New York time on Thursday, September 22, 2011 at the Westin New York at Times Square located at 270 West 43rd Street, New York, New York 10036. At the "Power of the Platform" event, Descartes is scheduled to unveil its new Logistics Technology Platform, feature live technology demonstrations, and present Logistics Technology Platform customer success stories.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. Toronto time on September 8. Designated numbers are +1-888-812-2278 for North America or +1-706-679-7394 for International, using conference ID number 83562437. 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 in two formats and accessible from September 8, 11:00 a.m. Toronto time until September 15, 23:59 p.m. Toronto time by dialing +1-855-859-2056 or +1-404-537-3406 and using conference ID number 83562437. An archived replay of the webcast will be available at www.descartes.com/company/investors.About Descartes Descartes (TSX:DSG) (Nasdaq:DSGX) is a global leader in logistics technology, providing Global Trade Compliance, Supply Chain Execution and Mobile Resource Management services. Enabling these services is The Global Logistics Network (GLN), the world's most extensive multi-modal business network with over 35,000 trading partners connected. The GLN and its services unite global and local businesses and trading partners, allowing them to connect and collaborate in a cost effective way and maximize their productivity and efficiency. GLN members include ground carriers, airlines, ocean carriers, freight forwarders, third-party providers of logistics services, customs house brokers, freight payment agencies, manufacturers, retailers, distributors, mobile services providers and regulatory agencies. Descartes is headquartered in Waterloo, Ontario, Canada and has offices in North America, EMEA and Asia-Pacific. More information and industry updates are available at http://www.descartes.com  and http://blog.descartes.com. The Descartes Systems Group logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4065Safe 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 FY11. 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 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 seven 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 Q2FY12, Q1FY12, Q4FY11, Q3FY11 and Q2FY11, which we believe are the most directly comparable GAAP measures.(US dollars in millions)Q2FY12 Q1FY12 Q4FY11 Q3FY11 Q2FY11           Net income, as reported on Consolidated Statements of Operations2.6 2.2  7.7  1.6  2.0  Adjustments to reconcile to Adjusted EBITDA:          Income tax expense (recovery)1.6 1.3 (5.2) 1.0 (0.1) Depreciation expense0.6 0.6 0.7 0.6 0.6 Amortization of intangible assets2.9 3.1 3.1 3.1 3.0 Amortization of deferred compensation, stock-based compensation and related taxes0.2 0.3 0.3 0.3 0.3 Acquisition-related expenses0.3 0.3 0.2 -- 0.5 Restructuring charges0.1 -- 0.9 0.6 0.3Adjusted EBITDA8.3 7.8 7.7 7.2 6.6           Weighted average diluted shares outstanding (thousands)63,358 63,194 63,181 62,849 62,718Diluted earnings per share0.04 0.03 0.12 0.03 0.03Adjusted EBITDA per diluted share0.13 0.12 0.12 0.11 0.11 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 1HFY12 and 1HFY11, which we believe are the most directly comparable GAAP measures.(US dollars in millions)1HFY12 1HFY11     Net income, as reported on Consolidated Statements of Operations4.8 2.2 Adjustments to reconcile to Adjusted EBITDA:    Investment income-- (0.1) Income tax expense2.9 0.6 Depreciation expense1.2 1.1 Amortization of intangible assets6.0 5.2 Amortization of deferred compensation, stock-based compensation and related taxes0.5 0.6 Acquisition-related expenses0.5 1.4 Restructuring charges0.1 0.9Adjusted EBITDA16.0 11.9     Weighted average diluted shares outstanding (thousands)63,275 62,745Diluted earnings per share0.08 0.04Adjusted EBITDA per diluted share0.25 0.19  THE DESCARTES SYSTEMS GROUP INC.CONSOLIDATED BALANCE SHEETS (US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED)       July 31, January 31, 2011 2011ASSETS    CURRENT ASSETS    Cash and cash equivalents70,785 69,644 Accounts receivable    Trade17,096 14,417 Other4,850 3,967 Prepaid expenses and other2,719 1,968 Inventory482 -- Deferred income taxes10,475 11,457 Deferred tax charge197 197  106,604 101,650 CAPITAL ASSETS8,189 7,309 GOODWILL64,075 56,742 INTANGIBLE ASSETS42,537 40,703 DEFERRED INCOME TAXES37,707 34,667 DEFERRED TAX CHARGE99 198  259,211 241,269LIABILITIES AND SHAREHOLDERS' EQUITY    CURRENT LIABILITIES    Accounts payable4,494 4,992 Accrued liabilities12,925 11,342 Income taxes payable536 471 Deferred revenue7,008 6,310 Other liabilities81 67  25,004 23,182 DEFERRED REVENUE1,697 1,665 INCOME TAX LIABILITY2,922 2,468 DEFERRED INCOME TAX LIABILITY11,186 8,267 OTHER LIABILITIES144 172  40,993 35,754 SHAREHOLDERS' EQUITY    Common shares – unlimited shares authorized; Shares issued and outstanding totalled 62,311,610 at     July 31, 2011 (January 31, 2011 – 61,741,702)90,444 88,148 Additional paid-in capital452,022 452,300 Accumulated other comprehensive income7,715 1,822 Accumulated deficit(331,963) (331,626)  218,218 205,515  259,211 241,269THE DESCARTES SYSTEMS GROUP INC.    CONSOLIDATED STATEMENTS OF OPERATIONS     (US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; US GAAP; UNAUDITED)           Three Months EndedSix Months Ended  July 31, July 31,July 31, July 31,  2011 20102011 2010        REVENUES28,841 25,24955,917 46,535COST OF REVENUES9,783 8,55318,697 15,940GROSS MARGIN19,058 16,69637,220 30,595EXPENSES       Sales and marketing3,339 3,1316,621 5,721 Research and development4,691 4,4389,209 7,997 General and administrative3,588 3,3827,027 6,650 Other charges335 899666 2,326 Amortization of intangible assets2,913 3,0036,050 5,235  14,866 14,85329,573 27,929INCOME FROM OPERATIONS4,192 1,8437,647 2,666INTEREST EXPENSE(2) (3)(5) (3)INVESTMENT INCOME52 3796 119INCOME BEFORE INCOME TAXES4,242 1,8777,738 2,782INCOME TAX EXPENSE (RECOVERY)       Current221 82596 618 Deferred1,381 (228)2,350 (51) 1,602 (146)2,946 567NET INCOME2,640 2,0234,792 2,215EARNINGS PER SHARE       Basic0.04 0.030.08 0.04 Diluted0.04 0.030.08 0.04WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)       Basic62,221 61,48162,054 61,457 Diluted63,358 62,71863,275 62,745  THE DESCARTES SYSTEMS GROUP INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED)        Three Months EndedSix Months Ended  July 31, July 31,  July 31, July 31,  2011 20102011 2010OPERATING ACTIVITIES       Net income2,640 2,0234,792 2,215 Adjustments to reconcile net income to cash provided by operating activities:       Depreciation609 6041,159 1,093 Amortization of intangible assets2,913 3,0036,050 5,235 Amortization of deferred compensation-- 111 6 Stock-based compensation expense237 256512 542 Gain on sale of investment in affiliate --  (20)-- (20) Loss from investment in affiliate-- 25-- 19 Deferred tax expense (recovery)1,381 (228)2,350 (51) Deferred tax charge49 4998 98 Changes in operating assets and liabilities:        Accounts receivable        Trade(353) 1,198(1,296) 877  Other440 260142 871  Prepaid expenses and other(425) 302(649) 95  Inventory13 --13 --  Accounts payable(1,841) (39)(1,660) 638  Accrued liabilities(418) (441)(1,250) (2,842)  Income taxes payable(77) (597)44 (431)  Deferred revenue(598) (384)(433) (275) Cash provided by operating activities4,570 6,0129,883 8,070INVESTING ACTIVITIES       Maturities of short-term investments-- ---- 5,071 Additions to capital assets(734) (365)(2,035) (760) Proceeds from the sale of investment in affiliate-- 487-- 487 Acquisition of subsidiaries, net of cash acquired and bank indebtedness assumed(5,002) (3,312)(5,002) (43,862) Cash used in investing activities(5,736) (3,190)(7,037) (39,064)FINANCING ACTIVITIES       Issuance of common shares for cash362 621,490 266 Repayment of other liabilities(4,287) (229)(4,304) (307) Cash used in financing activities(3,925) (167)(2,814) (41) Effect of foreign exchange rate changes on cash and cash equivalents(311) (223)1,109 (4)Increase (decrease) in cash and cash equivalents(5,402) 2,4321,141 (31,039)Cash and cash equivalents, beginning of period76,187 56,08369,644 89,554Cash and cash equivalents, end of period70,785 58,51570,785 58,515CONTACT: Descartes Investor Contact: Laurie McCauley (519) 746-6114 x 2358 investor@descartes.com