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Press release from GlobeNewswire (a Nasdaq OMX company)

Descartes Reports Fiscal 2012 Third Quarter and Year-to-Date Financial Results

Thursday, December 01, 2011

Descartes Reports Fiscal 2012 Third Quarter and Year-to-Date Financial Results03:00 EST Thursday, December 01, 2011 Record operating performance driven by 17% increase in year-to-date revenues WATERLOO, Ontario, Dec. 1, 2011 (GLOBE NEWSWIRE) -- Descartes Systems Group (TSX:DSG) (Nasdaq:DSGX) announced financial results for its fiscal 2012 third quarter (Q3FY12) ended October 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).Q3FY12 Financial Results As described in more detail below, key financial highlights for Descartes in Q3FY12 included: Revenues of $28.5 million, up 10% from $25.8 million in the third quarter of fiscal 2011 (Q3FY11) and compared to $28.8 million in the previous quarter (Q2FY12); Services revenues of $26.2 million, up 6% from $24.7 million in Q3FY11 and compared to $26.7 million in Q2FY12. Services revenues comprised 92% of total revenues for the quarter; Gross margin of 67%, compared to 67% in Q3FY11 and up from 66% in Q2FY12; Cash provided by operating activities of $6.6 million, up 43% from $4.6 million in each of Q3FY11 and Q2FY12; Net income of $2.7 million, up 69% from $1.6 million in Q3FY11 and up 4% from $2.6 million in Q2FY12; Earnings per share on a diluted basis of $0.04, up 33% from $0.03 in Q3FY11 and compared to $0.04 in Q2FY12; Days-sales-outstanding (DSO) for Q3FY12 were 53 days, consistent with Q3FY11 and Q2FY12; Adjusted EBITDA of $8.5 million, up 18% from $7.2 million in Q3FY11 and up 2% from $8.3 million in Q2FY12. Adjusted EBITDA as a percentage of revenues was 30% this quarter, up from 28% in Q3FY11 and 29% in Q2FY12; and Adjusted EBITDA per diluted share for Q3FY12 was $0.13, up 18% from $0.11 in Q3FY11 and compared to $0.13 in Q2FY12. 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):              Q3FY12 Q2 FY12 Q1 FY12 Q4 FY11 Q3 FY11 Revenues28.5 28.8 27.1 26.9 25.8 Services revenues26.2 26.7 25.9 25.0 24.7 Gross margin67% 66% 67% 65% 67% Cash provided by operating activities6.6 4.6 5.5 7.3 4.6 Net income*2.7 2.6 2.2 7.7 1.6 Earnings per diluted share*0.04 0.04 0.03 0.12 0.03 Adjusted EBITDA8.5 8.3 7.8 7.7 7.2 Adjusted EBITDA as a % of revenues30% 29% 29% 29% 28% Adjusted EBITDA per diluted share0.13 0.13 0.12 0.12 0.11 DSOs (days)53 53 53 48 53 * Net income and earnings per diluted share were positively impacted by an income tax recovery of $5.2 million in Q4FY11.           Based on the location of Descartes' customers, the geographic distribution of revenues was as follows: $12.5 million of revenues (44%) were generated in the US; $5.7 million (20%) in Europe, Middle East and Africa ("EMEA"), excluding Belgium; $4.6 million (16%) in Belgium; $3.6 million (13%) in Canada; $1.7 million (6%) in the Asia Pacific region; and $0.4 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, 2011 included: Revenues of $84.4 million, up 17% from $72.3 million in the same period a year ago; Services revenues of $78.8 million, up 15% from $68.8 million in the same period a year ago. Services revenues comprised 93% and 95% of total revenues for the nine-month periods ended October 31, 2011 and 2010, respectively; Gross margin of 67%, up from 66% in the same period a year ago; Cash provided by operating activities of $16.5 million, up 31% from $12.6 million in the same period a year ago; Net income of $7.5 million, up 97% from $3.8 million in the same period a year ago; Earnings per share on a diluted basis of $0.12, up 100% from $0.06 in the same period a year ago; Adjusted EBITDA of $24.5 million, up 28% from $19.1 million in the same period a year ago. Adjusted EBITDA as a percentage of revenues was 29%, up from 26% in the same period a year ago; and Adjusted EBITDA per share on a diluted basis was $0.39, up 30% from $0.30 in the same period in 2011. The following table summarizes Descartes' results in the categories specified below over the nine-month periods ended October 31, 2011 and 2010 (unaudited, dollar amounts in millions):       Nine Months Ended  October 31, 2011 October 31, 2010 Revenues84.4 72.3 Services revenues78.8 68.8 Gross margin67% 66% Cash provided by operating activities16.5 12.6 Net income7.5 3.8 Adjusted EBITDA24.5 19.1 Adjusted EBITDA as a % of revenues29% 26% Adjusted EBITDA per diluted share0.39 0.30 "Our record operating performance was fueled by both the power of our Logistics Technology Platform and by our ability to accelerate the pace at which we delivered results to customers," said Art Mesher, Descartes Chairman and CEO. "Our mission of uniting business in commerce, and making the world more safe, secure and productive, continues to gain momentum as more and more companies join us on our journey to automate and secure the backbone of world commerce."Cash Position As at October 31, 2011, Descartes had $76.2 million in cash comprised entirely of cash and cash equivalents, a $6.6 million increase since January 31, 2011. The largest use of cash in the nine months ended October 31, 2011 was $9.3 million of cash used to complete the acquisition of Telargo. Since October 31, 2011, on November 2, 2011, Descartes announced that it had used approximately $13.7 million in net cash to complete its acquisition of InterCommIT BV, a Netherlands-based provider of business-to-business integration services. The table set forth below provides a summary of cash flows for the three- and nine-month periods ended October 31, 2011, in millions of dollars:  Three Months EndedNine Months Ended  October 31, 2011October 31, 2011 Cash provided by operating activities 6.6 16.5 Additions to capital assets (1.2) (3.3) Business acquisitions, net of cash acquired -- (5.0) Issuance of common shares 0.1 1.6 Repayment of financial liabilities -- (4.3) Effect of foreign exchange rate on cash and cash equivalents (0.1) 1.1 Net change in cash and cash equivalents 5.4 6.6 Cash and cash equivalents, beginning of period 70.8 69.6 Cash and cash equivalents, end of period 76.2 76.2 "Our results this quarter again illustrate Descartes' ability to profitably grow its business and maintain a strong balance sheet. Following strong first and second quarters, these results show consistent, solid performance across our different geographies, products and industry segments," said Stephanie Ratza, CFO at Descartes.Q3FY12 and Subsequent 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 8, 2011: Launched its breakthrough Logistics Technology Platform at Descartes' Power of the Platform event held in New York on September 22, 2011; Hosted its Global User and Partner Conference in Fort Lauderdale, Florida with record attendance, including keynote executive speakers from leading freight forwarders and the US Federal Motor Carriers Safety Administration; Announced that its Global Logistics Network had achieved SAP Certification as powered by NetWeaver™; Announced customer successes with Core-mark and Joseph Cory on Descartes' leading mobile resource management applications, available on Descartes' Logistics Technology Platform; and On November 2, 2011, announced its acquisition of InterCommIT BV, a Netherlands-based provider of business-to-business integration services, for approximately $14.3 million in cash.Conference Call Members of Descartes' executive management team will host a conference call to discuss the company's financial results today, December 1, at 8:00 a.m. Toronto time. Designated numbers are +1-888-812-2278 for North America or +1-706-679-7394 for International, using conference ID number 24080923. 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 today, December 1, 11:15 a.m. Toronto time until December 8, 2011 23:59 p.m. Toronto time by dialing +1-855-859-2056 or +1-404-537-3406 and using conference ID number 24080923. 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 logistics technology. If logistics is critical to your business, Descartes connects the people and technology to put your organization in motion. We extend the command of logistics operations, helping the world's largest and most connected logistics community to quickly reduce costs, improve service and comply with customs and transportation regulations. Descartes' Logistics Technology Platform uniquely combines the power of The Global Logistics Network, the world's most extensive multi-modal network, with the industry's broadest array of modular and interoperable web and wireless logistics applications. At our core, Descartes' team of industry-leading logistics experts is dedicated to delivering innovative solutions while working closely with our customers to help ensure their success. Descartes is headquartered in Waterloo, Ontario, Canada and has 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=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 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 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 eight 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 Q3FY12, Q2FY12, Q1FY12, Q4FY11 and Q3FY11, which we believe are the most directly comparable GAAP measures.            (US dollars in millions)Q3FY12 Q2FY12 Q1FY12 Q4FY11 Q3FY11Net income, as reported on Consolidated Statements of Operations2.7 2.6 2.2 7.7 1.6 Adjustments to reconcile to Adjusted EBITDA:          Income tax expense (recovery)1.7 1.6 1.3 (5.2) 1.0 Depreciation expense0.6 0.6 0.6 0.7 0.6 Amortization of intangible assets2.9 2.9 3.1 3.1 3.1 Amortization of deferred compensation, stock-based compensation and related taxes0.2 0.2 0.3 0.3 0.3 Acquisition-related expenses0.4 0.3 0.3 0.2 -- Restructuring charges-- 0.1 --  0.9 0.6Adjusted EBITDA8.5 8.3 7.8 7.7 7.2           Weighted average diluted shares outstanding (thousands)63,408 63,358 63,194 63,181 62,849Diluted earnings per share0.04 0.04 0.03 0.12 0.03Adjusted EBITDA per diluted share0.13 0.13 0.12 0.12 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 the nine-month periods ended October 31, 2011 and 2010, which we believe are the most directly comparable GAAP measures.     Nine Months Ended(US dollars in millions)October 31, 2011 October 31, 2010Net income, as reported on Consolidated Statements of Operations7.5 3.8 Adjustments to reconcile to Adjusted EBITDA:    Investment income-- (0.1) Income tax expense4.6 1.6 Depreciation expense1.8 1.7 Amortization of intangible assets8.9 8.3 Amortization of deferred compensation, stock-based compensation and related taxes0.7 0.9 Acquisition-related expenses0.9 1.4 Restructuring charges0.1 1.5Adjusted EBITDA24.5 19.1     Weighted average diluted shares outstanding (thousands)63,317 62,779Diluted earnings per share0.12 0.06Adjusted EBITDA per diluted share0.39 0.30    The Descartes Systems Group Inc.Condensed Consolidated Balance Sheets (US dollars in thousands; US GAAP; unaudited)       October 31, January 31, 2011 2011ASSETS    CURRENT ASSETS    Cash and cash equivalents76,231 69,644 Accounts receivable    Trade16,818 14,417 Other5,504 3,967 Prepaid expenses and other2,553 1,968 Inventory476 -- Deferred income taxes8,211 11,457 Deferred tax charge197 197  109,990 101,650 CAPITAL ASSETS8,555 7,309 GOODWILL62,801 56,742 INTANGIBLE ASSETS38,907 40,703 DEFERRED INCOME TAXES37,356 34,667 DEFERRED TAX CHARGE50 198  257,659 241,269 LIABILITIES AND SHAREHOLDERS' EQUITY    CURRENT LIABILITIES    Accounts payable4,376 4,992 Accrued liabilities12,633 11,342 Income taxes payable653 471 Deferred revenue5,843 6,310 Other liabilities76 67  23,581 23,182 DEFERRED REVENUE1,527 1,665 INCOME TAX LIABILITY2,868 2,468 DEFERRED INCOME TAX LIABILITY11,035 8,267 OTHER LIABILITIES125 172  39,136 35,754      SHAREHOLDERS' EQUITY    Common shares – unlimited shares authorized; Shares issued and outstanding totaled 62,398,910 at October 31, 2011 ( January 31, 2011 – 61,741,702)90,651   88,148 Additional paid-in capital452,184 452,300 Accumulated other comprehensive income4,927 1,822 Accumulated deficit(329,239) (336,755)  218,523 205,515  257,659 241,269    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 EndedNine Months Ended October 31,October 31,October 31, October 31,  201120102011 2010        REVENUES28,502 25,78784,419 72,322COST OF REVENUES9,495 8,57928,192 24,519GROSS MARGIN19,007 17,20856,227 47,803EXPENSES       Sales and marketing3,091 3,0409,712 8,761 Research and development4,703 4,43413,912 12,431 General and administrative3,609 3,49410,636 10,144 Other charges346 5711,012 2,897 Amortization of intangible assets2,848 3,1078,898 8,342  14,597 14,64644,170 42,575INCOME FROM OPERATIONS4,410 2,56212,057 5,228INTEREST EXPENSE(2) (3)(7) (6)INVESTMENT INCOME44 42140 161INCOME BEFORE INCOME TAXES4,452 2,60112,190 5,383INCOME TAX EXPENSE        Current460 4491,056 1,067 Deferred1,268 5363,618 485 1,728 9854,674 1,552NET INCOME2,724 1,6167,516 3,831EARNINGS PER SHARE       Basic0.04 0.030.12 0.06 Diluted0.04 0.030.12 0.06WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)       Basic62,350 61,52662,154 61,480 Diluted63,408 62,84963,317 62,779    The Descartes Systems Group Inc.Condensed Consolidated Statements of Cash Flows (US dollars in thousands; US GAAP; unaudited)        Three Months EndedNine Months Ended  October 31, October 31,October 31, October 31,  2011 20102011 2010OPERATING ACTIVITIES       Net income 2,724  1,6167,516 3,831 Adjustments to reconcile net income to cash provided by operating activities:       Depreciation638 6481,797 1,741 Amortization of intangible assets2,848 3,1078,898 8,342 Write-off redundant assets-- 417-- 417 Amortization of deferred compensation-- 111 7 Stock-based compensation expense229 266741 808 Gain on sale of investment in affiliate-- ---- (20) Loss from investment in affiliate-- ---- 19 Deferred tax expense1,268 5363,618 485 Deferred tax charge49 49147 147 Changes in operating assets and liabilities:       Accounts receivable       Trade249 1,114(1,047) 1,991 Other(904) (967)(762) (96) Prepaid expenses and other131 (140)(518) (45) Inventory4 --17 -- Accounts payable(42) (331)(1,702) 307 Accrued liabilities436 87(814) (2,755) Income taxes payable130 (366)174 (797) Deferred revenue(1,186) (1,476)(1,619) (1,751) Cash provided by operating activities6,574 4,56116,457 12,631INVESTING ACTIVITIES       Maturities of short-term investments-- ---- 5,071 Additions to capital assets(1,226) (468)(3,261) (1,228) Proceeds from the sale of investment in affiliate-- ---- 487 Acquisition of subsidiaries, net of cash acquired and bank indebtedness assumed-- (1,127)(5,002) (44,989) Cash used in investing activities(1,226) (1,595)(8,263) (40,659)FINANCING ACTIVITIES       Issuance of common shares for cash140 2971,635 563 Repayment of other liabilities(20) (27)(4,324) (334) Cash provided by (used in) financing activities120 270(2,689) 229 Effect of foreign exchange rate changes on cash and cash equivalents(22) 1,0491,082 1,045Increase (decrease) in cash and cash equivalents5,446 4,2856,587 (26,754)Cash and cash equivalents, beginning of period70,785 58,51569,644 89,554Cash and cash equivalents, end of period76,231 62,80076,231 62,800CONTACT: Descartes Investor Contact: Laurie McCauley (519) 746-6114 x 2358 investor@descartes.com