The Descartes Systems Group, Inc. Q1 FY2025 earnings call

• Record first quarter results with 11% growth in total and services revenues, 16% increase in adjusted EBITDA. - Acquired OCR Services and ASD (Thyme) in the quarter. OCR complements global trade intelligence with sanctioned party screening and export compliance, leveraging AI. ASD enhances customs services in Europe and air cargo visibility. - Organic growth drivers include global trade intelligence, real-time visibility, routing and scheduling, and e-commerce. - Strong operating leverage from services revenue growth contributing to gross margin improvement.

Total revenues for the first quarter ended April 30 were $153.1 million, an increase of approximately 11% from $136.6 million in Q1 of the previous year. Services revenue increased 11% to $137.8 million, consistent at 91% of revenue. License revenue was $500,000, down from $1.4 million in the prior year. Professional services and other revenue was $13.0 million, or 9% of revenue, up 17% from the same period last year. Gross margins for the first quarter were 77% of revenue, up slightly from 76% in the prior year. Adjusted EBITDA was $67.0 million, up 16% from $57.7 million in the prior year's first quarter.

• Long-term plan is to grow adjusted EBITDA 10%-15% annually through organic growth and acquisitions. - Baseline revenues for Q2 2025 are estimated at approximately $136 million, baseline operating expenses at $84 million, resulting in baseline adjusted EBITDA of approximately $52 million. - Expect to operate in an adjusted EBITDA margin range of 40%-45%.

• Geopolitical, trade, and economic uncertainty may impact business. - Foreign exchange fluctuations can affect results. - Integration risks related to acquisitions, similar to the GroundCloud experience.

Q: Justin Long asked about the moderation in organic growth and impact of acquisitions on margins.

A: Allan mentioned a few extra revenues in the prior year affected growth this quarter. Ed stated acquisitions like OCR and ASD are below margin levels currently but expected to improve over time.

Q: Paul Treiber inquired about ocean volumes translating to domestic volumes and impact on baseline.

A: Ed said ocean volumes picking up should translate to domestic volume increases eventually, but baseline reflects visible and recurring revenue at the start of the quarter.

Q: Dylan Becker asked about positioning to monetize potential recovery and leverage of acquisitions.

A: Ed said subscription services are selling well and acquisitions like OCR have capabilities to expand and improve margins.

Q: Daniel Chan asked about cost synergies from acquisitions.

A: Ed said there are opportunities to bring acquired businesses up to margin levels and consolidate data, though not the primary focus of acquisition.

Q: Stephanie Price asked about e-commerce and Amazon Logistics.

A: Ed said e-commerce is growing, small and medium-sized retailers are a key customer base, and Amazon Logistics's growth is fine for their business.

Q: Steven Li asked about growth rates of acquisitions OCR and ASD.

A: Ed said they are in high single-digits to low double-digits, consistent with the company's business areas.

Q: Kevin Krishnaratne followed up on e-commerce and customs filings.

A: Ed said the government's scrutiny on customs filings is an opportunity, and NetCHB's business is expected to benefit long-term.

Q: Scott Group asked about M&A activity and impact of ocean spot rates and USPS changes.

A: Ed said the company has bandwidth for more acquisitions, ocean spot rate increases are a capacity-focused sign, and changes at USPS present opportunities for their e-commerce business.