The Descartes Systems Group Inc. Q3 FY2025 earnings call

• Record third quarter results with 17% revenue growth and 14% adjusted EBITDA growth. - Completed five acquisitions in 2024, including MyCarrierPortal in September and Sellercloud in October. - Acquired businesses like OCR (sanctioned party screening), ASD (European customs and security filings), BoxTop (shipment management for logistics providers) are performing ahead of plan. - Customers facing challenges from geopolitical, trade, and economic uncertainties, using Descartes' solutions to navigate tariffs, labor unrest, etc. - Diversified across transportation modes and seven solution pillars, serving over 26,000 customers globally. - Recent marketing activities like innovation forums had record attendance reflecting customer need for supply chain help.

Total revenues for the third quarter ended October 31 were $168.8 million, a 17% increase from $144.7 million in Q3 last year. Services revenue grew 15% to $149.7 million, representing approximately 89% of total revenues. License revenue was $3.5 million (2% of revenue), up from $1.5 million last year. Professional services and other revenue was $15.6 million, up 22% (9% of total revenue). Gross margin was 74.4% of revenue, down from 76.3% last year due to low-margin hardware revenues from GroundCloud. Excluding hardware revenues, gross margin would be similar to last year. Adjusted EBITDA was $72.1 million, up 14% to a record, with adjusted EBITDA margin at 42.7% of revenue.

• Baseline revenues for Q4 2025 estimated at $144.5 million, baseline operating expenses ~$89.5 million, baseline adjusted EBITDA ~$55 million. - Expect adjusted EBITDA margin in 40%-45% range. - GroundCloud's accelerated hardware replacement cycle is complete, no incremental hardware volumes expected going forward. - Long-term plan is for adjusted EBITDA growth of 10%-15% annually through organic growth and acquisitions.

• Geopolitical, trade, and economic uncertainties impacting customer supply chain operations. - Potential tariff impositions by the Trump administration and retaliatory measures. - Labor unrest at ports (e.g., U.S. East Coast and Gulf ports, Canada Post strike) affecting fulfillment operations. - Regulatory changes and uncertainties related to the new administration's policies.

Q: What are customers hearing from Descartes about navigating tariffs and what tools are they using?

A: Customers are using Global Trade Intelligence Solution to figure tariff impacts, and discussing shipping in advance. Descartes' network helps them ship goods.

Q: Talk about Sellercloud's potential to expand wallet share with customers?

A: Sellercloud's e-commerce solution set is being sold as a complete package with Descartes' solutions, leading to increased sales to a broader customer base.

Q: How to think about M&A integration timeline and margin trends?

A: Each acquisition is different; we work to improve margins through growth and cost control, with some deals taking a couple of quarters to a couple of years to reach company average margins.

Q: Color on North American trucking volume exposure and tariff impact?

A: Substantial trucking volume exposure, but uncertain how tariffs will play out; customers will need tools to navigate changes, and Descartes will help them execute.