Q3 2020 Earnings Call
Welcome to the quarterly results call. My name is they train and I'll be your operator for today's call.
All participants are in listen only mode later, well conduct question and answer session.
If you like to ask a question during today's presentation. Please press Star then one and you touched on some.
No at this conference is being Acorda I'll now turn the call or Scott Pagan Scott Pagan you may begin.
Thank you good afternoon, everyone joining the call they read Ryan CEO and Allan Brett CFO I Trust that everyone is received a copy of our financial results press release. It was issued earlier today.
Portion of today's call other than historical performance include statements forward looking information within the meaning of applicable securities laws you.
These statements are made under the safe Harbor provisions are those laws.
These forward looking statements include statements related to take hurts operating performance financial results in condition. The cards gross margins at any growth in those gross margins cash flow and use of cash business outlook baseline revenues baseline operating expenses and baseline calibration anticipated and potential revenue losses and gains.
Anticipated recognition and expensing of specific revenues and expenses.
Central acquisitions and acquisition strategy cost reduction in integration initiatives and other matters that may constitute forward looking statements.
These forward looking statements involve known and unknown risks uncertainties assumptions and other factors that may cause the actual results performance or achievements of descartes to differ materially from the anticipated results performance or achievements implied by such forward looking statement.
These factors are outlined in the press release and in the section entitled certain factors that may affect future results and documents filed and furnished with the FCC the LSC and other securities commissions across Canada, including our management's discussion and analysis filed today.
We provide forward looking statements solely for the purpose of providing information about managements current expectations and plans relating to the future.
You're cautioned that such information may not be appropriate for other purposes, we don't 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 assumptions or circumstances on which any such statements based except as required by law and with that let me turn the call over that.
Hey, Thanks, Scott Good afternoon, everyone and welcome to the call. Thanks for joining us today.
We kept the momentum going from the first half of the year and had another great quarter here at the cart.
Total business to deliver predictable results, we focused first and foremost on delivering superior predictable results for our customers, which in turn helps us deliver superior predictable results for our shareholders.
Consistent delivery of these results for all stakeholders has helped us build credibility in the market that credibility as important across our entire business.
Our credibility with the customer community helps us build deeper relationships and creates opportunities to deploy more solution. Our credibility with the partner community helps us go to market more effectively with established global companies like Sep and Oracle Mapthree as well as emerging companies like Geotagging, our credibility as an acquirer in terms of logistics and supply chain market helped.
Opened doors for new opportunities.
It is an important factor with founders are contemplating where the best home for their businesses, our credibility as a neutral party and good stewards of data has been instrumental in helping us develop and maintain good access to updated trade data content from governments and institutions.
Our credibility of an employer helps attract and retain some of the smartest logistics and supply chain mines in the planet and our credibility with the Investor community Underpins our long term strategy as we continue our journey to become a leader in logistics and supply chain technology.
As we've said before we believe this is a long term game and we believe that we have the right strategy operating plan and credibility to be the winner in this market on today's call I'll talk a little bit about that strategy and our long term operating plans I want to talk about some of the trends we're seeing in the market and how we believe our network based approach gives our customers an edge on their competitors.
After my market update Alan will then provide a detailed overview of our financial results and then I'll finish up the call talking about our calibration Q4, and our operating plans moving forward.
First let's start by going over some of the key financial highlights for the third quarter fiscal 2020.
Another outstanding quarter of operating results and very happy with our key metrics fueled by our continued organic growth and our ability to successfully integrate acquisitions revenue for the quarter was up 19% from Q3 last year coming $83 million. Our adjusted EBITDA continues to grow nicely for the quarter, we generated $31.5 million adjusted EBIT.
An increase of 31% over Q3 of last year.
Theres will compliance continues to contribute nicely to this growth growth that remains ahead of our planet of the mid to high Twentys and adjusted EBITDA growth for this fiscal year compared to the previous fiscal year.
We continue to convert our EBITDA into cash converting 87% of EBITDA into cash and generating a record 27.5 million of cash in the quarter.
System with our long term operating plans, we've been investing cash back into our business through focused research and development investments and by combining with complementary businesses. We've combined with four businesses. So far in Aflac 20, you'll hear some.
Updates on some of those investments and just a few minutes all in all another great quarter here at the cart continuing the momentum from Q1 in Q2, we have a predictable cash generating business and we have a solid balance sheet with financial capacity to continue to acquire businesses and we're well positioned to continue our growth.
So, let's talk a little bit about the cart strategy and how our network has been set up to help customers deal with an increasingly unpredictable business environment.
The carts and connecting trading partners to more than 20 years to help them exchange information automate processes and move goods more efficiently.
We are in the information business and we always have been we're on a constant mission of the connect more parties collect more data and help us parties make use of that data.
The proliferation of Iot devices, and increasing demand for real time information is great news for us quite simply we can now collect more data and we can get our hands on a quicker than ever before.
But thats not an easy thing to do it takes years to build a network and a lot of domain expertise to constantly keep up with the new standards. While also maintaining old standards as not all customers move at the same pace logistics is a multi party multi process problem and when you cut across most geographies and industry verticals you end up with a lot of data protocols sources for data collection you all.
So end up with different data needs and semantics based on the type of supply chain participant the carrier will think about things differently than a shipper as well before and the government agencies that they need to connector.
So if you want to have all those parties on your network, we need to have solutions that meet the requirements, which mean solutions for shippers carriers and logistics intermediaries where than ever we believe that connectivity is key and increasingly is real time connectivity the customer demand.
Activities required across the supply chain, whether a customer consumer order or b to b or in order to be agile and react quickly to the opportunities are out there need to be connected to your customers. Your logistics partners clickable governments your inventory information and if you're moving goods internationally. You also need to be connected to updated content to understand total landed cost.
And regulatory requirements.
We're seeing this coming and have added to our network Accordingly, and we continue to invest in our network because the challenges for our customers are getting greater every day with the Amazon effect and the constantly changing regulatory environment.
We think about what's next we continue to invest to get good data quickly for our customers, which is where we think our long term strategy of connecting shippers carriers and logistics intermediaries, we'll continue to pay off.
Let's now take a step forward in terms of how our customers are making use of our network with access to real time information global trade content and connected trading partners and let's take a look at that through the lens of a shipper carrier and logistics intermediary for a few examples.
Last week with Black Friday, which is now a global phenomenon and productive presents challenges and opportunities for shippers carriers and logistics intermediaries from shipper perspective, the challenges and opportunities with Black Friday ecommerce and were generally can vary depending on the size of the company and their omni channel strategy.
Either way the expectations are the same consumers and now businesses well our conditioned to have goods available within short delivery times and they what real time visibility into the status of their orders, whether you're a large retailer small retailer or something in between in order to satisfy your customers' expectations, you'll need to know how much inventory you have and where.
It is at all times and you need to know your delivery capabilities and cost at the time of the or in today's world. If you don't deliver on your promises that can really hurt you as customers can be fickle and they have more choices than ever. We believe that connectivity is at the core of a successful ecommerce and omni channel strategy.
If you're a small retailer for instance, you need to be connected to your various self websites to display products, such as Amazon ebay and Magento.
We need to any connectivity to understand whats likely a distributed inventory situation.
Need to be connected to your logistics partners to seamlessly print labels and execute shipments and if you're sourcing or distributing goods internationally you need access to updated duties and tax information to accurately calculate the total landed cost of your purchases and your customers' orders.
This is exactly the kind of connectivity and ecosystem you get as a member of the global Logistics network. We expect to center will permit effort investing in our e-commerce tools for the SMB community over the past past few years, including acquisitions like.
Brush and Pepsi and we think there are more opportunities divestments to invest in this space moving forward. Similarly, if you're a large retailer developing or enhancing your omnichannel strategy. You may have a lot of similar pain points as a smaller guys, but on a larger scale and with some additional considerations, particularly if you operate your own fleet of vehicles.
The card has a long history of helping fleet owners transform the delivery operations moving from batch optimization to through real time optimization, which is critical to help customers understand the profitability and certainty of hitting maritime windows.
Continued to be the go to accompany for companies who are looking to distinguish their businesses based on the logistics operations, our customers to use our dynamic scheduling home delivery solutions to enhance their customer experience right from the online delivery appointment booking through to the mobile monitoring and delivery at the customer door.
So, let's switch gears and talk a little bit about how our connected network health carriers managed the complexities of today's dynamic market.
I'll start by emphasizing the fact that were a multi modal network. So we talk about serving our carrier community. It includes truck carriers air carriers rail carriers and ocean carriers, continuing the threat briefly on route optimization, we have a number of truck carrier customers that are using our route optimization solutions to help that differentiate themselves with higher service level for deliver.
Yes. This is a narrower niche in that market.
More broadly for the truck community, we continue to invest in our visibility capacity matching capabilities, which I'll come back to in a few minutes.
And we also have a number of other products that help truck carriers connect to their customers and improve efficiency.
Instance, we have dr. scheduling solutions that help trucking companies more efficiently schedule their time windows at the stop which makes the customer happy while also decrease in wait times, our Microport real time visibility solution also connex trucking companies to their customers, whether that's a freight broker or the associated shippers again, helping improve customer satisfaction.
While increasing efficiency.
From an airline perspective, we've been connecting airlines their customers and partners for years, we connect airlines the freight border community the ground handler community the shipper community and to the government agencies more recently, we enhanced our tool kit for air carriers with the acquisition of core.
LNG course, and network to accurately track International mail parcel and cargo shipments as well as us domestic mill and parcel shipments.
What's unique about cores that are leading edge aiotv solution for tracking you will these or unit LOE devices, which is the box or palette. The cargo is loaded into before it goes on a plane.
You will be management is difficult and by incorporating Bluetooth enabled technology course, helping air carriers better manage their pool of assets. We're looking to linked that data to individual shipment information on the geo and to provide even greater visibility the carriers orders and shippers. We've also been connecting ocean carriers to the customer for decades.
In fact, when I joined Deckard nearly 20 years ago. It was through the acquisition to be transport, where our work and our focus is on helping ocean carriers.
Published rates and connect with their customers, we have grown that area of our business considerably. Since then and now offer a number of advanced rate management systems for Ocean carriers, we help connect ocean carriers to government agencies for customs filing initiatives, we have tools to help ocean carriers better managed to land position Atlanta portion of their container moves and we help connect.
For orders and in view of Ccs to ocean carriers for the booking and execution of shipments.
Finally from a Ralph perspective, we connect to rail community systems to help our customers get visibility into shipment statuses and we also have tracking solutions available for those same rail customers again, it's important to us that we have all the participants and supply chain connected to on our network and Thats why we continue to invest in solutions across the board.
So, let's switch gears again and talk about how our connected network helps logistics intermediaries like freight forwarders and custom house brokers.
We continue to believe that freight forwarders, threepl customs brokers and Vlccs and other intermediaries will continue to play a key role in international trade into the future our strategies to support and serve that community not to displace compete or disintermediate as some technology based companies target.
As a result, we continue to expand the solutions. We offer this important group of industry players, we have targeted solutions for four orders and brokers that help them connect and collaborate with carriers other entering.
Intermediaries and their customers the shippers and they can also make use of a wider set of solutions on the global logistics network, such as our content tools and our ecommerce footprint.
We also continued to build out.
Our solutions for customers filings and security compliance as we've talked about on these calls before rules and regulations are constantly evolving and we have a team of people dedicated to staying on top of this and providing solutions that help isolate our customers from complexity in this ever changing landscape.
This area of our business is seeing strong growth over the last couple of years with the dynamic regulatory environment caused by trade award and geopolitical forces like Brexit.
Coming back to our investment in macro point and the capacity matching product. We remain excited about the opportunity to connect brokers and carriers to match freight capacity with demand.
Just to recap our capacity management solution is designed for free brokers and carriers to partner on an operating basis to share lane history and capacity to support better network alignment and utilization.
As I've highlighted before it isn't about Disintermediate logistic service providers from their customers. It's just the opposite it's a tool to help the logistics service providers and make them more successful, it's about helping logistic service providers respond to dynamic markets and self assemble to identify opportunities to connect to collaborate remove friction and respond to market forces.
That are threatening their business.
As we continue to enhance the capacity matching solution and add more users to the community, we see more and more opportunities to really make a difference for our customers year and help them thrive in today's market hopefully as we walk through these examples for shippers carriers and logistics intermediaries fee common theme connectivity to trading partners and data sources is key.
We believe that our multi modal network based approach is the right solution.
One last area that I'd like to comment on before moving on is the integration of visual compliance I just talked about the importance of having solutions for all the participants in supply chain. Some of our solutions are better suited for shippers some for carriers. Some for logistics intermediaries. However, some of our solutions are more universal and our true trade data.
Content solutions fit that bill with visual compliance our most recent investment in being our most recent investment in that space.
In order to stay on top of the changes to duties terrace taxes, and sanction list customers need access to timely reliable information and they viewed systems that can digest that information.
We will compliance provide software solutions content and services to automate customs trade in fiscal compliance processes with the process with a focus on denied in restricted party screening processes and export licenses.
I think visual compliance earlier this year not only gave us more scale in the denied party screening space, but also brought new functionality that we've been talking over that we've been taking the market over the last nine months.
Nine months into it and we're very happy with the results were seeing improvement in our data collection and processing as we now have a wider content team now working together.
We're also starting to work a product synergies for instance, leveraging those visual compliance offerings combined with our customs info solutions from go to market perspective, we continue to see good cross selling activities in Europe with our local team marketing and the products and landing deals and our North American content sales teams are now unified and from.
The financial perspective, we're really pleased with the continued growth of the recurring revenues of the business and the financial profile remains very healthy business continues to perform ahead of our plans, which has contributed to our aggregate growth being ahead of our planned range.
Before handing the call over to Alan to talk a little bit more about the financials I'd like to thanks and people that continued to contribute to the strength of our business. So.
Thank you to our employees for all their hard work, we put in to make sure our customers get results our customers continue to get results and Thats why we have a successful business.
Thank you to our customers continue to place confidence into card as their network of choice, whether you're a shipper logistics intermediary carrier we win a government agency, thanks for connecting and helping our community growth and thanks for your continued engagement.
Thanks to our partners, who are helping us continue to expand our ecosystem and thank you to our shareholders, both new and longstanding for continuing to have confidence and <expletive> cart and supporting us with your capital and with that I'll turn the call over to Alan.
Okay. Thanks, Ed as indicated I'm going to walk you through our financial highlight for the third quarter ended October 31.
We are pleased to report record quarterly revenues of 83 million this quarter.
Teen percent from revenues of 70.0 million in Q3 of last year.
This revenue result was achieved despite a foreign exchange headwind of approximately 1 million on revenue.
In the quarter compared to the third quarter last year.
Excluding FX revenue growth would have been just over 20% in the quarter.
Our revenue mix continues to be very strong.
Services revenue also increasing 19% to 72.6 million in the third quarter compared to 61.1 million and both consistent at 87% of revenue.
License revenues came in at 1.5 million or just over 2% of sales.
This quarter down very slightly from license revenue of $1.6 million are also 2% of sales in Q3 last year, while professional services and other revenue came in and 8.9 million or 11% of revenue up nicely from $7.3 million and again consistent at 11% of revenue in the third quarter last year.
As project activity remained very solid in the quarter.
Gross margin was steady at 73% of revenue for the quarter consistent with gross margin experienced in the third quarter last year.
Operating expenses increased primarily related to the impact of recent acquisitions offset partially by cost efficiencies as we integrate these acquisitions.
With revenue growth and continued strong cost control, we continue to see strong adjusted EBITDA growth of 31% to 31.5 million or 38.0% of revenue.
Compared to 24.0 million or 34.3% of revenue in the same period last year.
As a result of these solid operating results cash flow generated from operations came in at 27.5 million or approximately 87% of our adjusted EBITDA in the third quarter. This year and this is up 43% compared to operating cash flow of $19.2 million.
Or 80% of adjusted EBITDA in Q3 last year.
Going forward subject to unusual events in quarterly fluctuations, we expect to see continued strong operating cash flow conversion.
Between 80, and 90% of our adjusted EBITDA in the quarters ahead.
From a GAAP earnings perspective, net income came in at 9.7 million or 11 cents per diluted common share in the third quarter.
23% from net income of $7.9 million or 10 cents per diluted common share in the same period last year.
Overall, we're quite pleased with these operating results in third quarter as strong revenue growth has allowed us to continue to make investments in the business, while achieving greater than 30% growth in adjusted EBITDA and producing strong cash flow.
If we turn our attention to the balance sheet.
Our cash balances totaled 28.8 million at the end of the third quarter.
While borrowings under our existing revolving credit facility were $9.3 million for a net cash position of just under $20 million at the end of Q3.
During the third quarter.
We used cash flow from operations to repay approximately 25.5 million on the credit facility. While we also drew approximately 11.7 million on the credit facility to complete the best transport acquisition earlier in the quarter.
As a result, we currently have approximately $340 million available available to us to draw under our current credit facility.
And in addition, after using approximately 250 million in raise in issuing common shares earlier in the second quarter. This year. We're also able to offer just over 500 million of additional capital under the current $750 million based shelf prospectus that we have outstanding.
So clearly we can you continue to be very very well capitalized to allow us to consider all acquisition opportunities in our market consistent with our business plan.
As we look to the fourth quarter. This year, we should note the following.
After incurring approximately 3.9 million in the capital additions for the first nine months of the year, we expect to incur between one and 2 million in additional capital expenditures in the fourth quarter.
We expect that amortization expense from past acquisitions will be approximately $13.6 million for the balance.
This year, which the fourth quarter with this figure being subject to adjustment for FX changes and future acquisitions.
Our income tax rate came in at approximately 26.4 million to the first three quarters of the year, which is very close to our statutory tax rate in Canada in the U.S, our two largest markets.
Going forward, we would expect that our tax rate will continue to trend in the range of 25% to 28% to pre tax income in the fourth quarter, though as always we should add that our tax rate may fluctuate from quarter to quarter from onetime items that may arise as we operate internationally across multiple countries.
And finally, we expect stock based compensation will be approximately 1.2 to 1.4 million the fourth quarter. This year subject to any forfeitures of stock options or share units.
And with that I'll turn it back over to add to wrap up with our baseline calibration.
Hey, Thanks, a lot Alan before talking about calibration I just wanted to remind everyone. The registration is open for evolution 2020, our annual user partner conference.
Evolution 2020 will be held at the diplomat Beach resort Fort Lauderdale, Florida from Tuesday March 17th Thursday March 19th in 2020.
It's great opportunity to meet the people that build and deploy our solutions as well as the customers that use them you want to learn about the cart. It's a really good investment of your time and I would encourage you to book early.
Let's move on to calibration for Q4 EPS wide 20.
Similar to previous quarters, we don't provide guidance, but we use our baseline calibration as a key metric relating to the ongoing health and strength of our business.
Our calibration for Q4 soon to the following exchange rates 76 consent Canadian dollar 1.11 Euro to US dollar and 1.29 GBP to US dollar our calibration for Q4 is 73 point, sorry, 79.3 million in visible recurring contracted revenues.
Otherwise known as our baseline revenue and our baseline operating expenses are $53.9 million. This gives us a baseline calibration of $25.4 million for adjusted EBITDA for Q4.
Some other key points related to how we're positioned for fiscal 2020, we have a solid financial footing, we have a healthy business that is well calibrated and we have a healthy balance sheet, we are profitable and cash generating we have low capital needs within our organic business and have you seen from our as you've seen from our recent store financial results, we have solid growth in our.
Hi Tech business. Our primary uses of capital for continued use in acquisitions, we've completed 45 acquisitions since 2006.
And we have access to additional capital capacity quickly should we needed we have 9 million drawn on our $350 million line of credit and we have the ability to expand Atlanta credit to $500 million if needed.
We have preliminary shelf prospectus for up to $750 million of which just over $500 million remains unused to raise capital by other mechanisms in short we have good capacity for our planned acquisition activity.
We have a strong acquisition pipeline as well the continues to be a lot of industry activity right now with consolidation continuing their market with their capital capacity and our execution capabilities. There are still a number of acquisition opportunities to expand the geographic reach functional capabilities trade data and content, we're community or participants on our network.
We continue see lots of interesting opportunities out there to continue or even accelerate our pace of profitable growth, we're seeing both larger and smaller opportunities and while we review everything as it comes our way we're not buyers for buyers sick. The fact that we have an acquisition line of credit and a shelf filing in place doesn't change how we view acquisitions, we tend to continue to be proof.
On valuation, but we're confident in our ability to deploy capital effectively.
As a reminder, for our plans for the remainder of fiscal 2020 boost as we've said in the past our brief.
Our belief for sustainable growth in the long term is 10% to 15% growth in adjusted EBITDA. However, given the scale of visual compliance acquisition for fiscal 2020, we indicated we would grow in the mid to high Twentys, you'll see from our results. This quarter that were ahead of that plant has passed we intend to invest any overperformance back in the business.
Our growth is planned to come through a combination of organic and inorganic activities and as always acquisitions are not incremental through this plan.
And to continue to focus on recurring revenue and deemphasize onetime license sale given the current performance of the business and mindful of the FX environment. Our planned operating margin range remains 35% to 40%, but please keep in mind. This could vary by other businesses that needs fixing up where if the FX environment changes both of which would it.
Pack that metric in the short run.
And finally as always we'll continue to make ourselves available to shareholders to answer any questions. We believe we've got a great business, we want to be available to help people learn about our business. We continue to spend time and resources to get the word out and we hope you'll do the same.
So with that let's turn the call over to your questions. Operator, if you could open the lines.
Thank you, we'll now begin the question answer session.
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First question is now.
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Our next question.
Tolerances.
Operator, but what I'm looking at Alistair people on the line.
Okay.
I can take Rhino Ms. Sheila from Barclays.
Mike on for Raimo. Thanks for taking my question Congrats on the quarter I did have a question for you kind of on on the macro environment. There's been some players talking about in the in the software space talking about maybe seeing some weakness in Europe , others, others have been kind of saying no. We're not seeing any that are you seeing anything.
In terms of like macro environment, that's having an impact on your numbers in any way shape or form.
And then I do a follow up.
You are saying in Europe .
Yes, specifically in Europe , but then on the macro as a whole.
No I mean, we hear previous same newspapers, everyone else read that the people were filled fearful of that over the last couple of months, we didn't end up really seeing any of it in any of the numbers that we just reported.
Look pretty strong Europe continues to perform pretty well.
Last five or six years, North America is probably outpaced Europe , but.
In the last few Europe's kind of me to come back in our business, a little bit news performing a little better than than normal but.
No certainly method in the short term.
Okay. That's helpful and then I did want to call out.
You announced a partnership that you have with Microsoft on be Ian you. The Descartes analytics offering can you can you talk a little bit about a more about that offering and go into details on maybe some upper opportunities you see from that product.
Well we.
I mentioned this earlier in the alluded to it earlier in the call.
We have more and more data content available on our network and we're looking for more and more ways for our customers be able to slice and dice that information to be able to use it effectively in their business and part of that.
Partnership that you saw being announced there is to help find ways for our customers to do that and give them the ability to design their own reports and tools and things like that that would.
That would help them run their businesses more efficiently the bigger our network gets the more data it collects and customers commit uses that data to try and figure out what they should do next and.
The tools and Microsoft offers is plays a role in that and helping them configure the room reports.
Great Great. Thanks, guys and congrats on the quarter again.
Hey, Thanks, Mike.
Your next question comes just Scott Group from Wolfe Research Your line is open.
Hey, Thanks afternoon guys.
Hey, Scott I guess, so I wanted to ask.
What are you seeing from a peak season standpoint, and I just want understand how sensitive is your model in the fourth quarter, two a good or bad peak season, and as we think about a more compress peak between Thanksgiving and Christmas. This year is that good bad neutral for you guys.
Due to well.
It probably doesn't matter a ton but.
Certainly when its condense that puts more pressure on our customers.
Usually people are still a tenant by in the same map stuff.
And our customers just have to deliver a little faster.
That usually the being good for us because the more you have to do quickly.
As a customer as a provider in logistics space. The more pressure there is only to have tools like the tools that we provide to help you.
The more efficient and your operation and so.
Macro macro perspective thats helpful to us.
Otherwise without coming too much on future results.
Our customers seem to be performing well.
Okay, and then do you have any preliminary thoughts about next year in your confidence in doing that the longer term, 10% to 15% EBITDA growth do you think theres lineside potentially to that being better just any thoughts you can give us until next year.
Listen I, we've been saying, 10% to 15% for a bunch of years now I don't think youre going to hear us change that answer we outperformed.
From time to time.
But we think that that in the long run as the best way to run our business and I don't think you're going to hear us change at anytime soon.
Would you feel like you feel good about that 10 to 15 at least for next year.
I just I just said it like five minutes ago in the cost yes.
Okay, Great and then just lastly, I know you talked about no feel good about the acquisition pipeline does it feel like it's growing shrinking at all you look and focus more on larger deals smaller deals just any help there in terms of both.
For sure we continue to see large deals come through we.
Often pass on them because they are being full by private equity of bankers involved in.
Lots of bidders and.
Get too pricey for us.
We're looking to get a good return for our shareholders and if something is ever price, we usually walk away.
We've seen a lot out over last several years unexpected will continue for some time, our bread and butter is going after smaller.
Tuck in type acquisitions, most of our best acquisitions came from that space at the gift continue to see us.
Aggressively go after that market, we're looking to find good companies that want to sell their businesses, we often times.
And I've talked to them for a long time before we by the company and I don't think that's going to change anytime soon.
Okay, great. Thanks for the time guys.
Thank you.
Your next question comes from Deepak Shaw from GMP Securities. Your line is open.
Hey, guys. Good evening, thanks for taking my questions.
Just a quick follow up on on one of the previous questions and I have a couple more.
Just in terms of the dynamics with private equity players.
Am I understand we've heard some reports here in there that theres been some change in thinking around deploying capital in private equity for acquisitions.
Are you, saying that you're not seeing any changes there there is strong as ever and that's an expected the change in the coming years.
No I would comment in our our view of the world not necessarily theirs.
We see more for sale whenever which I think as the private equity community, perhaps going maybe maybe this parties coming to an end we should sell stuff.
We also see them raised a lot of money.
When they raise money if you know about how they operate they kind of half the deployed so they are out there looking around installed bidding on stuff, but I think they're nervous right now that they.
They are bubble may burst one of these days, but I don't have a ton of evidence of that either we have.
Some evidence of it but it's just in the last couple months I hear the same things that you hear on AG.
He is a true I'm not sure yet.
See some things that I.
I would think might point to the fact that they're getting nervous because they.
They have a lot of step up for sale right now but.
They continue to raise funds and I think when they raise those funds they have to put that into use are they at least have a lot of pressure on them to put them to use and.
I don't know, how that's going to go for them in the near future, but I do think they've been as it as a group overpaid for companies for for a long term.
Okay. Okay. Thanks Thats helpful.
Just on the visual compliance.
Just wondering if you can comment on on the competitive.
Landscape.
And the competitive dynamics of that sector now that you guys have combined your two businesses.
And are going to move together, our leading market share.
Glad degree of over.
Sorry go ahead immunotherapy.
Okay.
No.
We think we have a very competitive offering in the market.
I think we're very well positioned we think we have the best solution out there and we have one of the largest solutions out there and I think.
Some of the comments I made earlier in the call we're kind of trying to.
Indicate.
We think buying a company and combining of what we had already.
Not only in.
Party screen space, but also it's complementary business that the tariff and duty management business was a great I'd and I think.
Thats starting to bear fruits not only in growth in revenue in that business, but also in the profitability that business.
So were looking for that to continue.
Okay Thats axle and then one last question and it's the same question, but it's in a different part of your business.
Expected dynamics are largely different there in the U.S. backhaul capacity matching it's a nascent business and you're still.
Doing a lot to to pioneer in that market is my understanding.
What does the landscape look like there are there a lot of startups vying for market share is there any major players that stand up head and shoulders above the rest how can you contrast market dynamics in that part of the business.
Fixed going on as you see is you see two different types of approaches to at the one that we're taking which is to collect as much data as you can provide it out to everybody that we might need it to that they can make better decisions in their business and make more money.
As a result.
And then you have the other types of companies and the names, but the rubber freight to the world that have said hey, if I can get my hands on any of that data I am going to use it for myself to become a freight broker.
And I will try and be the other freight brokers.
Bye bye, knowing where trucks are in operating more efficiently using that type of information.
We think the approach that we're taking.
Is a better one we think that it certainly more healthy for the industry to serve.
We certainly have our hands on a lot more information about where trucks are going to be in the future. There than we believe anybody else in North America, and we're trying to bring that to bear to provide our customers with a great solution.
It's still early days in this market on this is by no means something that is.
You are going to notice in our numbers anytime soon.
It's still small business for us, but we think it's one that could be great.
We have a bunch of pilots that are going we kind of close those pilots right now we're working with those four year 50 customers to try to make the solution better and better and better so that as we roll it out in the coming years to a broader audience that we have the best solution on the market like macro point was.
When it started right. It spent a lot of time getting it right and then it win and.
Over a few years became a dominant player in that market, we hope to do the same with the capacity matching business.
The guys that are turning the other direction from us and saying I'm just going to be upgrade broker myself.
I hope there are customer of ours, one day, but in the meantime.
I would rather be on our side servicing.
A couple of thousand freight brokers, and then trying to be afraid broker myself.
Okay, and the 240 to 50 pilots that you mentioned.
I presume that most of those are done are you now serving them commercially on a post pilot basis or Oh, yes, yes, yes, no we have to pilot the pilot was never free.
And when I say pilot their initial customers that agreed to help us build out the product and they may have had.
Preferred pricing for doing that but.
They were paid from the get go.
And are they all continuing to use the this product.
Yes.
Okay excellent well, thanks for taking my questions I'll pass one.
Hey, Thanks depreciated.
Your next question comes to Matt.
William Blair Your line is open.
Hey, guys. Thanks for taking my questions.
Ed wanted to follow up in the capacity matching solution I believe the 40 or 50 or so brokers that you have on border are mainly medium sized broker is have you seen interest or have you been in discussions with larger brokers about then potentially leveraging the capacity matching solution.
We are.
It is.
It's tougher to get them and we're a little reluctant to get them until we have all the functionality of build out.
But.
We've certainly been in contact with them in the last few months some of our we do business with almost all of them already right and other Maxpoint solutions and we know we're now going to them talking about capacity matching and trying to shift the advantage.
Flushing trying to show them the advantage of.
Having access to all the information that we are able to gather on our network.
They have some concerns about the size of their network and not wanting to help smaller players than that.
We have some idea of how to how to kind of neutralize that for them, where they are only exposing the same amount of data that everyone sees about them.
They also have their own data because if you are largely one of the largest brokers around you have a lot of data on your own.
And I think some of their initial ideas was too was to up to two auditude as myself and we kind of went in with the argument.
Why would you just do it yourself if I can tell you where another 800000 trucks, our everyday when you look to know that too.
And I think that's the part where we're starting to to really make some progress with them when they're going here why wouldnt.
We use this <expletive> cart capacity matching solution when I'm ready to.
To supplement the information that I have.
We've kind of went made the argument you.
You can get a certain number of matches that your own network do it.
But why wouldn't you take advantage of the matches that I can get you beyond that and.
If every match saves you a couple of hundred boxes that charge at 10 forward or 15 for 24 or whatever.
It's a bit the monetary why not why not take advantage that and I think I think they're starting to two to see ITI with us on that.
Got it and on.
On macro 0.8 at year end user conference earlier this year one of the announcements was that there was a plan to roll that out in Europe .
Under and how Thats progressing if theres any update there.
Good we're proceeding cautiously in that area that a lot of concerns in Europe , but data privacy, there's certainly some language barrier concerns.
In Europe as well, we've stuck initially to the English speaking countries.
And obviously, it's privacy issues were proceeding cautiously and rolling it out.
You may have noticed on if you follow Geo tab of one of our big.
You will be partners Geo tab is just rolling out in the UK right now no more trucking companies that have yield devices.
The more efficiently our macro point service work, so we're kind of going in there.
Right behind them, saying, hey people that have the service.
It would be great users of the macro point solution, let's use that as kind of.
Starting point in the UK market. So I think we're proceeding cautiously we think it will be a nice business for us someday I don't have any hopes for that to be the next couple of months, but were.
We are certainly working for the long term and that business and expect that just like truckers in North America and their customers in North America want to have this.
Hi, Hi, and visibility solution, we think customers in Europe will eventually get there as well.
Great. That's it for me guys. Thanks, I appreciate it hey, thanks, Matt appreciate it.
Your next question comes and Justin long from Stephens. Your line is open.
Thanks, Good evening I appreciate you taking the questions.
I guess to start I know organic growth is tough to calculate but it seems like we saw a bit have a deceleration in the rate of change this quarter, maybe around 100 basis points are so if that math is right can you talk about what drove that deceleration and then how you're thinking about the direction of organic growth.
Going forward.
I'll, let Alan speak to it specifically, but I don't I don't think we agree was decelerating but.
Yes, no I think from from our perspective, it's similar this quarter to what has been the last number of quarter sensor that last year and a half to two years.
Yes for most media looking three to our financials, where we show the pro Formas there is a little bit of unusual.
Extra revenue in the the visual compliance numbers last year that throw it off a little bit, but we've been leading somewhere in that 5% to 6% range and were similar kind of range this quarter.
Okay. That's helpful Thats been it's been pretty stable.
Relatively yes, yes, okay, great and then as a follow up that wanted to circle back to visual compliance just because it seems like you continue to outperform in terms of integrating that deal but is there any color you can provide on the magnitude of that outperformance relative to.
What you expected when you bought the business and maybe you could speak to how much of the outperformance has been a function of the topline versus margin.
It's a little bit of both its.
It's doing well we.
We had high expectations for in the beginning.
Maybe even do a little better than we thought certainly making more money than we thought.
And we have a lot our hopes for it.
The long run we're service to customers come onboard more and more quickly.
Just in the past month or two we.
We signed the biggest customer they'd ever signed.
Big customer of ours big existing customer of ours that was cross sold.
Visual compliance solution I don't think that would happened if we didn't get the acquisition I think it would happen to them and I don't think it would happen to us.
As a result of the two companies come together, we're able to bring on a very large customer just as an example.
And maybe more importantly, we're excited for the prospects of the future that business. We think we're the market leader in that space now.
I think if you need that type of service you are going to choose us you'd be smarter choose us. We think that if you don't have that type of service right now in Europe Big player in logistics industry, you're going to realize you needed soon.
And so thats, all very exciting though.
Okay, Great. That's helpful. I appreciate the time.
Hey, Thanks, just appreciate it.
And our next question comes from Paul CIBC Your from RBC capital.
Thanks very much good afternoon, just one follow up on the last question just in regards to trade content strategy or the more of that the go to market strategy in marketing behind that how what's the strategy in place to raise awareness because I think would be obviously the tariffs environment.
There's a lot of focused on the changes there.
What we are you creating awareness.
On your customer base and then beyond your customer base you provide these types of services.
Hey, Thanks, Thanks, Paul I think the big the biggest helped us as the newspapers that keep talking about trade wars and.
Security issues and things of this nature, that's been great for us and it has been for a long time.
I think.
As with every acquisition that we've done in the past several years, we look we have 26 some thousand customers now.
Thats a lot of people that meet these types of services that we buy a company they might have 1000 or 2000 customers will be of 26000.
And cross selling has become a huge part of what we do.
Operationally, we've combined the MK data at the visual compliance and now the customs info businesses together as one group that goes to market.
And we think.
That helps get visibility with the customers that need those types of services.
The sales reps are out selling all of them together and we think in the long run that's the best way to run this business and we think we certainly have a tailwind going right now and that more and more people are realizing that they need to do this and I think thats only going to continue.
You can you elaborate a bit more on the cross sell strategy from a from a sales perspective, I mean, I'd put sales incentives in place to drive cross sales team are you building out like an inside sales force.
To try to harvest my revenue from them.
Next thing we've done so far as put those sales forces together.
And make them operate is one and I think that's paid benefits not only for our customers who.
Where it makes it easier for them to find and learn about the solutions, but also for the sales reps that.
That are making more sales as a result, right would you rather go try and convince someone has never heard of us to buy the solution or documents someone that's already doing business with us was as a guy that grew up in our sales organization I can tell you if they already have a contract with us and they're already doing business with us we have access to their executives, we have a contract and a master terms in place with them already it is.
A lot easier to sell that way and.
We are pushing ourselves that we do have sales incentives I don't want to get into those on the call, but we definitely have the ability to.
From time to time provide salespeople.
Increased incentives to sell certain products of ours.
It's not the main way, we do business, but but from time to time, we we take advantage.
Okay, and then just one for Alan here.
Alan They did performance obligations that are in 19, no. There is some variability quarter to quarter, but good year over year growth you just.
Walk through some of the moving parts that drives the variability there.
Sure. So what that is under the new revenue standard that is the.
The.
Contracted revenue, we have that we would debt receive overtime.
The number will fluctuate from time to time, a lot of our contracts, we sign the they'll be annual or or or multi year and as we go through a year you'll see.
And a lot times with annual renewals and so you'll see a fluctuation I should go through different parts of the year right they'll tend to be a little bit of that pop up but those early in a year. They may come off a little bit throughout the year because there is only a portion of the year left.
Three months left now at the end of the third quarter compared to nine months left at the on the first quarter, obviously that they are impacted by acquisition. So that number for us has increased with acquisitions throughout the year.
And then with that with not any significant acquisitions. This year, you'll see a bit of a drop off just simply that period of contracted.
Time left.
Pretty for these contracts so.
Small change.
And read too much into it simply it simply the remaining contracted life.
We have.
Is there is there any.
Seasonality in terms of the renewals or is it fairly.
Inconsistent or unit throughout the year.
Theres renewal throughout the year, there is a little seasonality you're going to see more renewals come at different times. We've got a couple large contracts that that that will have an impact through the year, but typically beginning of January January beginning of our fiscal year, you'll see a little little bit more renewals in the that January February timeframe.
When their annual they drop off throughout the year, so there's a little bit of that seasonality that you'll see.
Thanks for taking my questions.
Hey, Thanks appreciate it.
And the sensor question answer session I will now turn call back over for final remarks.
Great. Thanks, everyone. We look forward to reporting back to you.
In.
On Q4 next couple of months. Thanks for your time accepted.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
The.