The Descartes Systems Group Inc. Q3 FY2026 earnings call

• Record quarterly revenues and adjusted EBITDA; ahead of year-to-date plans. - Key metrics: Total revenues $187.7M (+11% y-o-y), services revenues $173.7M (+16% y-o-y), net income up 20% y-o-y, adjusted EBITDA $85.5M (+19% y-o-y), margin 45.6%. - Growth drivers: Global trade data/intelligence (chaotic tariff environment drives demand), foreign trade zones (heightened tariffs increase demand for FTZ solutions), e-commerce customs clearance (U.S. de minimis exemption removal drives need for new solutions), real-time shipment visibility (MacroPoint's market-leading tracking rate). - AI impact: Increases demand for data and decision-making tools, enables new services (e.g., agentic AI for MacroPoint) and more efficient internal operations. - CFO transition: Allan Brett to retire, Ed Gardner to take over as CFO in March 2026, with Allan staying on as an adviser.

Total revenues for Q3 were a record high of $187.7 million, up 11% from the previous year. Services revenue, which represents approximately 93% of total revenues, was $173.7 million, an increase of 16% from the same period last year. License revenue was $1.7 million (1% of revenue) in Q3, down from $3.5 million in the prior year's Q3. Professional services and other revenue was $12.1 million (6% of revenue), down from $15.6 million in the third quarter last year, mainly due to lower-margin hardware sales.

• Baseline revenues for Q4 2026 estimated at $161 million, baseline operating expenses ~$98.5 million, adjusted EBITDA ~$62.5 million. - Target adjusted EBITDA margin range 40%-45%, monitoring performance for potential adjustment. - Consideration of a normal course issuer bid to purchase shares in the open market over the next 12 months.

• Geopolitical trade, tariff, and economic uncertainty impacting business performance. - Uncertain public market conditions affecting valuation multiples of logistics and supply chain technology companies. - Potential challenges from new competitors or changes in customer behavior affecting revenue and margin projections.

Q: Chris Quintero from Morgan Stanley asked about organic growth rate and transaction volumes.

A: Edward Ryan mentioned market share gain from competitors, with AI helping, like MacroPoint's tracking rate at 90%.

Q: Dylan Becker from William Blair inquired about AI monetization and network defensibility.

A: Edward Ryan stated AI enables new services and efficient operations, and the network's scale and data collection make it hard for competitors to replicate.

Q: Paul Treiber from RBC Capital Markets asked about U.S. trucking regulations impacting domestic business.

A: Edward Ryan said they help customers comply with regulations and operate more efficiently.

Q: Kevin Krishnaratne from Scotiabank asked about e-commerce business growth.

A: Edward Ryan mentioned e-commerce business growth, with acquisitions like Finale enhancing capabilities.

Q: John Shao from TD Cowen asked about customer fatigue and spending.

A: Edward Ryan said subscription sales are steady, and they focus on customer satisfaction to drive spending.

Q: Lachlan Brown from Rothschild & Co. asked about organic delivery drivers.

A: Edward Ryan talked about cross-selling and customer focus driving growth, with price not being the main driver.

Q: Tim Greaves from Loop Capital asked about TMS replacement cycle.

A: Edward Ryan said they remain a leader in TMS with diversified solutions.

Q: Cole Couzens from Wolfe Research asked about pricing and customs complexity.

A: Edward Ryan discussed various pricing models and how customs complexity benefits their business.