The Descartes Systems Group Inc. Q1 FY2026 earnings call

• Key Highlights: The company reported strong first - quarter revenues and adjusted EBITDA growth in challenging market conditions. Total revenues were up 12%, services revenues up 14%, income from operations up 9%, and adjusted EBITDA up 12% with a margin increase to 45%.
• Acquisitions: Paid $115 million plus restructuring costs to acquire 3GTMS. 3GTMS has a domestic transportation management system on a modern cloud architecture and strength in parcel shipping. Also, the acquisition of MyCarrierPortal enhanced the transportation management solution stack.
• Business Segments: In transportation management, MacroPoint real - time visibility saw growth despite declining domestic truck moves in the US. The Global Trade Intelligence business benefited from tariff changes. Customs and regulatory compliance had growth drivers but was also affected by de minimis shipment alterations. Restructuring: A 7% workforce reduction was completed in May to prepare for market challenges.

Total revenues for the quarter were $168.7 million, a 11.5% increase from $151.3 million in Q1 of the previous year. Services revenue rose 13.6% to $156.6 million, accounting for 93% of total revenue. License revenues were minimal, less than 1% of revenue. Professional services and other revenue was $11.8 million, or 7% of revenue, down 9% from the prior year period. Gross margin for the first quarter was 76.4% of revenue, slightly lower than the 76.6% in the prior year. Adjusted EBITDA grew 12.1% to $75.1 million, or 44.5% of revenue. Net income was $36.2 million, up 4% from the prior year. Cash flow from operations was $53.6 million, down from $63.7 million in the prior year. Total revenues were up 12% year-over-year, with services revenues up 14%, income from operations up 9%, and adjusted EBITDA up 12%, while the adjusted EBITDA margin increased 1 point to 45%.

• Baseline Calibration: As of May 26, baseline revenues for Q2 fiscal 2026 were approximately $150.5 million, baseline operating expenses were around $92.5 million, and baseline adjusted EBITDA was roughly $58 million. The company expects to operate in an adjusted EBITDA range of 40% to 45%.
• Growth Commitment: Committed to growing adjusted EBITDA by 10% to 15% despite global trade uncertainty. Anticipates annual cost savings of approximately $15 million from the Q1 operating expense run rate after the Q2 restructuring charge.

• Geopolitical and Economic Uncertainties: Tariffs between the US and China, EU, and other trade - related uncertainties create a volatile environment. The global trade uncertainty paralyzes customer decision - making. Several domestic economies show recessionary statistics, impacting shipment volumes and customer behavior.

Q: Curious about the workforce reduction, including areas cut and future levers?

A: The reduction was generally across the board, affecting functional areas and geographically, with about under 200 people cut. It was done to have a healthier business and prepare for market uncertainty.

Q: Organic services growth, identifying headwinds and softer segments?

A: Uncertainty led to significant fluctuations in transaction volumes. Ocean was down, truck was in a depressed state, and some areas of truck messaging performed poorly. However, MacroPoint and content businesses showed good performance.

Q: Change in renewal rates or sales pipeline conversion?

A: Not much change has been seen yet, but changes might be anticipated if uncertainty persists. There has been continued good sales momentum with subscription deals.

Q: 3GTMS contribution and its inclusion in baseline?

A: 3GTMS contributed $2.4 million in the quarter. It is conservatively incorporated into the baseline as the company gets to know the business better.

Q: Comparison of the current downturn with previous ones?

A: Currently, it feels less severe, but there is more uncertainty. People are unsure of future developments. It's hard to determine if a recession is ongoing, and customers are in a state of indecision regarding their business strategies.

Q: Appointment of new Chief Commercial Officer and sales organization changes?

A: The new CCO was already grooming for the role, and no major changes in sales effectiveness are expected.

Q: Thoughts on consolidation in the industry and the competitive environment?

A: The WiseTech - E2open deal is an indication of market trends. The company is in a good position with cash and debt capacity to make acquisitions as prices become more favorable.

Q: Domestic vs international freight volume correlation?

A: The company is exposed to both domestic and international freight. While tariff changes impact the international space, it is doing well in the domestic market despite its weaker state. It aims to expand domestic success overseas.

Q: Organic growth profile for Q2 and beyond?

A: It is uncertain, but the company plans to operate its business well regardless. It hopes that tariff situations will be settled to boost revenue growth.

Q: Cost reduction and EBITDA growth target reconciliation?

A: The cost reduction effort is to be in a position to achieve the 10% - 15% EBITDA growth target. It may become incremental if growth rates increase as tariffs are resolved.

Q: De minimis and transactional business breakdown?

A: There was an influx of activity in de minimis before the tariff exemption expired. Larger foreign e - commerce vendors paused, but then resumed under traditional import measures. The company picked up business from competitors due to better service.

Q: GTI solution growth, including tariffs, duties, sanctioned parties, and bills of lading?

A: The GTI solution is strong in tariffs and duties, with growth approaching 20%. Sanctioned parties business is stable. The Datamyne business is also performing well.

Q: 3GTMS acquisition integration, cross - sell, upsell, and pricing?

A: It is largely a subscription business. The company is restructuring to align cost structures. Already, 3G is being sold bundled with MacroPoint and MyCarrierPortal.

Q: Acquisition pipeline, areas of focus, and valuations?

A: The acquisition market is favorable. Prices are decreasing. Private equity is less aggressive. The company is well - positioned to make acquisitions with cash flow and profits.

Q: Customer breakdown by SMB vs enterprise and changes?

A: Specific breakdown by SMB vs enterprise is not available, but customers are still signing contracts and paying bills, with no major changes observed yet.

Q: MacroPoint share gains, visibility, and customers?

A: The company is picking up 3PLs, freight brokers, and business from consolidating customers. Better data and a track rate of almost 90% are leading to share gains.

Q: Customer minimums on transaction revenue and pricing pressure?

A: Customers are not hitting minimums, and no significant pricing pressure or renegotiation of minimums has been seen.