Descartes Reports Fiscal 2014 Third Quarter Financial Results Record Quarterly Revenues and Operating Performance WATERLOO, Ontario, Dec. 4, 2013 (GLOBE NEWSWIRE) -- The Descartes Systems Group Inc. (TSX:DSG) (Nasdaq:DSGX) announced financial results for its fiscal 2014 third quarter (Q3FY14) ended October 31, 2013. 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). "We're pleased with the company's performance during the third quarter, which led to record results and continued strong growth in revenues and cash flow," said Edward Ryan, Descartes' CEO. "Our success continues to be driven by strong execution against our buy and build strategy, as well as our focus on delivering business value to the members of the Global Logistics Network. Our focus on customer success enables our business to thrive, and we remain optimistic about Descartes' future as we continue to see strong demand for our SaaS-based solutions that drive the largest collaborative logistics community in the world." Q3FY14 Financial Results *Revenues of $38.8 million, up 19% from $32.7 million in the third quarter of fiscal 2013 (Q3FY13) and up 2% from $38.2 million in the previous quarter (Q2FY14); *Services revenues of $35.6 million, up 20% from $29.7 million in Q3FY13 and up slightly from $35.5 million in Q2FY14. Services revenues comprised 92% of total revenues for the quarter; *Cash provided by operating activities of $9.2 million, up 77% from $5.2 million in Q3FY13 and down from $11.2 million in Q2FY14; *Net income of $2.2 million, down from $3.1 million in Q3FY13 and up from $1.7 million in Q2FY14. Net income was impacted by $0.6 million in restructuring charges in Q3FY14 ($1.1 million in Q2FY14) related to Descartes' ongoing integration of its acquisition of KSD Software Norway AS ("KSD") on May 2, 2013, and $0.3 million of interest on the acquisition line of credit; *Earnings per share on a diluted basis of $0.03, down from $0.05 in Q3FY13 and consistent with Q2FY14; *Adjusted EBITDA of $11.4 million, up 15% from $9.9 million in Q3FY13 and up 6% from $10.8 million in Q2FY14. Adjusted EBITDA as a percentage of revenues was 29%, down from 30% in Q3FY13 and up from 28% in Q2FY14; *Adjusted EBITDA per share on a diluted basis of $0.18, up 13% from $0.16 in Q3FY13 and up 6% from $0.17 in Q2FY14; and *Days-sales-outstanding (DSO) for Q3FY14 were 47 days, down from 59 days in Q3FY13 and down from 49 days in Q2FY14. 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, amortization, stock-based compensation (for which we include related fees and 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, other than per share amounts, in millions): Q3 Q2 Q1 Q4 Q3 FY14 FY14 FY14 FY13 FY13 Revenues 38.8 38.2 34.0 33.8 32.7 Services revenues 35.6 35.5 30.1 30.1 29.7 Gross Margin 67% 66% 69% 68% 68% Net income* 2.2 1.7 2.8 7.8 3.1 Earnings per diluted 0.03 0.03 0.04 0.12 0.05 share* Cash provided by 9.2 11.2 9.6 14.1 5.2 operating activities Adjusted EBITDA 11.4 10.8 10.4 10.3 9.9 Adjusted EBITDA as a % 29% 28% 31% 30% 30% of revenues Adjusted EBITDA per 0.18 0.17 0.16 0.16 0.16 diluted share DSOs (days) 47 49 52 55 59 * Net income and earnings per diluted share were negatively impacted by $0.6 million and $1.1 million in restructuring charges in Q3FY14 and Q2FY14, respectively, relating to the integration of KSD. Net income and earnings per diluted share were positively impacted by the release of valuation allowance for deferred tax assets of $5.3 million in Q4FY13. Based on the location of Descartes' customers, the geographic distribution of revenues was as follows: *$17.3 million of revenues (45%) were generated in the US; *$8.7 million (22%) in Europe, Middle East and Africa ("EMEA"), excluding Belgium and Netherlands; *$3.8 million (10%) in Belgium; *$3.8 million (10%) in Netherlands; *$3.7 million (10%) in Canada; *$1.3 million (3%) in the Asia Pacific region; and *$0.2 million (0%) in the Americas, excluding the US and Canada. Cash Position At October 31, 2013, Descartes had $49.3 million in cash, comprised entirely of cash and cash equivalents, and $17.2 million of debt outstanding on an acquisition line of credit. Cash and cash equivalents increased by $8.4 million from the end of last quarter due primarily to cash generated from operations. The table set forth below provides a summary of cash flows for the three and nine-month periods ended October 31, 2013 in millions of dollars: Three Months Nine Months Ended Ended October 31, October 31, 2013 2013 Cash provided by operating activities 9.2 30.0 Additions to capital assets (0.5) (1.5) Acquisition of subsidiaries, net of cash acquired -- (32.4) Proceeds from borrowing on debt facility -- 19.8 Payment of debt issuance costs -- (0.7) Repayments of debt (1.0) (2.8) Issuance of common shares 0.2 0.4 Settlement of stock options -- (1.4) Effect of foreign exchange rate on cash and cash 0.5 0.3 equivalents Net change in cash and cash equivalents 8.4 11.7 Cash and cash equivalents, beginning of period 40.9 37.6 Cash and cash equivalents, end of period 49.3 49.3 Q3FY14 Business Events / Announcements In line with Descartes' strategy to build leading product offerings and expand its global network of customers and trading partners, Descartes made the following announcements and/or participated in the following events since September 5, 2013: *Identified as the leading provider of SaaS-Based Transportation Management Solutions by ARC Advisory Group Research; *Announced that Restoration Hardware, Sears Holdings Corporation, and other leading retailers around the world are adopting Descartes' updated Advanced Home Delivery Solution; *Announced new customer successes with Goto AZ Planning, Trans-Border Global Freight Systems and JVCKENWOOD; *Unveiled same-day delivery optimization technology to address retailers' and distributors' need to improve same-day delivery productivity and performance; *Signed an alliance agreement with InfoSky to streamline logistics messaging for the Chinese air cargo industry; *Hosted a Global User and Partner Conference, Evolution 2013, in Miami, Florida with record attendance; and *Hosted an Omni-Channel Retail and Home Delivery Summit in London, England. Conference Call Members of Descartes' executive management team will host a conference call to discuss the company's financial results at 8:00 a.m. ET on December 4, 2013. Designated numbers are +1 866 551-3680 for North America or +1 212 401-6760 for international, using Participant PIN Code 49970739#. The company simultaneously will conduct an audio webcast on the Descartes web site at www.descartes.com/descartes/investor-relations. Phone conference dial-in or webcast log-in is required approximately 10 minutes beforehand. Replays of the conference call will be available immediately afterwards, and until December 11, 2013, by dialing +1 866 551-4520 or +1 212 401-6750 and entering Conference Playback Reference 290718#, followed by Participant PIN Code 49970739#. An archived replay of the webcast will be available at www.descartes.com/descartes/investor-relations. About Descartes Descartes (TSX:DSG) (Nasdaq:DSGX) is the global leader in providing on-demand, software-as-a-service solutions focused on improving the productivity, performance and security of logistics-intensive businesses. Descartes has over 171,000 parties using its cloud based services. Customers use our modular, software-as-a-service solutions to route, schedule, track and measure delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in the world's largest, collaborative multi-modal logistics community. Our headquarters are in Waterloo, Ontario, Canada and we have offices and partners around the world. Learn more at www.descartes.com. Safe Harbor Statement This release contains forward-looking information within the meaning of applicable securities laws ("forward-looking statements") that relates to Descartes future and demand for its solutions; 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 and the transition of our executive management team; 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 in addition to the Debt Facility 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 FY13. 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, amortization, stock-based compensation (for which we include related fees and 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 seven acquisitions since the beginning of fiscal 2012, 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 Q3FY14, Q2FY14, Q1FY14, Q4FY13 and Q3FY13, which we believe are the most directly comparable GAAP measures. (US dollars in millions) Q3FY14 Q2FY14 Q1FY14 Q4FY13 Q3FY13 Net income, as reported on Consolidated Statements of 2.2 1.7 2.8 7.8 3.1 Operations Adjustments to reconcile to Adjusted EBITDA: Interest expense 0.3 0.3 -- -- -- Income tax expense (recovery) 2.1 1.5 2.0 (3.6) 1.6 Depreciation expense 0.9 0.8 0.8 1.1 0.7 Amortization of intangible 4.6 4.6 4.0 4.0 3.7 assets Stock-based compensation and 0.5 0.6 0.5 0.5 0.6 related fees and taxes Acquisition-related expenses 0.2 0.2 0.3 0.3 -- Restructuring charges 0.6 1.1 -- 0.2 0.2 Adjusted EBITDA 11.4 10.8 10.4 10.3 9.9 Weighted average diluted shares 64,301 64,183 64,024 63,910 63,793 outstanding (thousands) Diluted earnings per share 0.03 0.03 0.04 0.12 0.05 Adjusted EBITDA per diluted 0.18 0.17 0.16 0.16 0.16 share THE DESCARTES SYSTEMS GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEETS (US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED) October January 31, 31, 2013 2013 ASSETS As Revised* CURRENT ASSETS Cash and cash equivalents 49,266 37,638 Accounts receivable (net) Trade 20,111 20,640 Other 9,045 5,655 Prepaid expenses and other 3,788 3,412 Inventory 1,214 812 Deferred income taxes 13,341 12,978 96,765 81,135 CAPITAL ASSETS 9,186 10,236 DEFERRED INCOME TAXES 20,235 25,142 INTANGIBLE ASSETS 83,132 71,297 GOODWILL 100,086 88,297 309,404 276,107 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 5,964 6,113 Accrued liabilities 15,404 12,373 Income taxes payable 2,005 2,354 Current portion of debt 3,825 -- Deferred revenue 7,895 7,638 35,093 28,478 DEBT 13,387 -- INCOME TAX LIABILITY 4,881 3,770 DEFERRED INCOME TAXES 11,031 5,620 64,392 37,868 COMMITMENTS, CONTINGENCIES AND GUARANTEES SHAREHOLDERS' EQUITY Common shares – unlimited shares authorized; Shares issued and outstanding totaled 62,771,090 at October 31, 2013 (January 31, 93,251 92,472 2013 – 62,654,284) Additional paid-in capital 451,475 451,434 Accumulated other comprehensive income 1,092 1,869 Accumulated deficit (300,806) (307,536) 245,012 238,239 309,404 276,107 *The condensed consolidated balance sheet, as at January 31, 2013, has been revised to increase deferred tax assets and reduce the accumulated deficit by $1.2 million. 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 Ended Nine Months Ended October 31, October 31, October 31, October 31, 2013 2012 2013 2012 REVENUES 38,763 32,685 110,989 93,084 COST OF REVENUES 12,748 10,432 36,255 31,598 GROSS MARGIN 26,015 22,253 74,734 61,486 EXPENSES Sales and marketing 4,142 3,695 12,181 9,941 Research and development 6,835 5,225 19,196 15,354 General and administrative 5,043 4,661 14,762 11,212 Other charges 784 225 2,401 1,831 Amortization of intangible 4,612 3,735 13,220 10,182 assets 21,416 17,541 61,760 48,520 INCOME FROM OPERATIONS 4,599 4,712 12,974 12,966 INTEREST EXPENSE (283) (1) (649) (32) INVESTMENT INCOME 18 14 37 67 INCOME BEFORE INCOME TAXES 4,334 4,725 12,362 13,001 INCOME TAX EXPENSE Current 732 441 1,782 1,695 Deferred 1,419 1,169 3,850 3,098 2,151 1,610 5,632 4,793 NET INCOME 2,183 3,115 6,730 8,208 EARNINGSPER SHARE Basic 0.03 0.05 0.11 0.13 Diluted 0.03 0.05 0.10 0.13 WEIGHTED AVERAGE SHARES OUTSTANDING (thousands) Basic 62,737 62,599 62,706 62,530 Diluted 64,301 63,793 64,197 63,838 THE DESCARTES SYSTEMS GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (US DOLLARS IN THOUSANDS; US GAAP; UNAUDITED) Three Months Ended Nine Months Ended October 31, October 31, October 31, October 31, 2013 2012 2013 2012 OPERATING ACTIVITIES Net income 2,183 3,115 6,730 8,208 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 861 699 2,423 1,815 Amortization of intangible 4,612 3,735 13,220 10,182 assets Stock-based compensation 503 441 1,454 804 expense Deferred tax expense 1,419 1,169 3,850 3,098 Changes in operating assets and liabilities: Accounts receivable Trade 645 (2,767) 3,014 (3,432) Other 155 (500) 1,858 (725) Prepaid expenses and other (28) 15 (36) 177 Inventory 35 206 (402) (511) Accounts payable 8 (441) (529) (343) Accrued liabilities 1,096 1,263 709 (1,516) Income taxes payable 666 374 347 333 Deferred revenue (2,920) (2,069) (2,638) (1,885) Cash provided by operating 9,235 5,240 30,000 16,205 activities INVESTING ACTIVITIES Additions to capital assets (547) (869) (1,567) (2,536) Settlement of acquisition -- -- -- (590) earn-out Acquisition of subsidiaries, -- -- (32,419) (37,596) net of cash acquired Cash used in investing (547) (869) (33,986) (40,722) activities FINANCING ACTIVITIES Proceeds from borrowing on the -- -- 19,795 -- debt facility Payment of debt issuance costs -- -- (692) -- Repayments of debt (984) (51) (2,827) (60) Issuance of common shares for 192 113 418 546 cash Settlement of stock options -- -- (1,361) (1,525) Cash (used in) provided by (792) 62 15,333 (1,039) financing activities Effect of foreign exchange rate changes on cash and cash 452 434 281 396 equivalents Increase (decrease) in cash 8,348 4,867 11,628 (25,160) and cash equivalents Cash and cash equivalents, 40,918 35,520 37,638 65,547 beginning of period Cash and cash equivalents, end 49,266 40,387 49,266 40,387 of period CONTACT: Descartes Investor Contact: Laurie McCauley (519) 746-6114 x202358 email@example.com company logo
Descartes Reports Fiscal 2014 Third Quarter Financial Results
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