Q4 2020 Earnings Call
Okay.
Welcome to the quarterly results call. My name is Garland I'll be your operator for today's call. At this time all participants are in I'll listen only mode.
Right.
Eight or we will conduct a question and answer session. If you have a question just press Star then one on your Touchtone phone. Please note that this conference is being recorded I would now turn the call over to Scott Pagan Scott you may begin.
Thanks, and good afternoon, everyone. Joining me in the call today or add Ryan CEO and Allan Brett CFO and trust that everyone is received a copy of our financial results press release. It was issued earlier today.
Portions of today's call other than historical performance include statements of forward looking information within the meaning of applicable securities laws. These statements are made under the safe Harbor provisions of those laws.
These forward looking statements include statements related to Descartes's operating performance financial results in condition Descartes's gross margins and 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 in expenses.
We have specific revenues and expenses potential 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 statements.
These factors are outlined in the press release and in the section entitled certain factors that may affect future results in documents filed in the 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 are cautioned that such information may not be appropriate for other purposes.
We don't Undertaker, except 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 statement is based except as required by law and with that let me turn the call over to add okay. Great. Thanks, Scott Good after afternoon, everyone and welcome to.
The call. Thanks for joining us today as you'll see from our results. We had another great quarter to finish off another great year here at the cart really happy with how the business performed and we're very happy that and less certain times like these we've got a business that has a good degree of visibility stability.
Our business is diversified by geography mode of transportation and parts of the logistics and supply chain that we serve our business has grown over each of the past 15 years by setting and achieving a consistent growth target we've targeted growth in adjusted EBITDA.
And a 15% a year last year, we grew more than that about 30% because we added the larger visual compliance business, but our longer term plan remains to grow the adjusted EBITDA in our business, 10% to 15% per year through a combination of organic growth and complimentary acquisitions.
Thats certainly becomes a bigger challenge any particular year when logistics and supply chains are faced with unique market circumstances. The current market uncertainty relating to Corona virus presents a bigger challenge to our customers our partners than we've seen in several years at this time, it's impossible for any of us to know the full impact current virus will have on the market and for how long.
But we know that we feel to solve business that we believe is better able to handle this uncertainty that other technology providers in our market.
Thats why we believe a long term adjusted EBITDA growth target of 10% to 15% per year makes sense, regardless of what happened in any particular here Im sure people will be looking for updates on what impact were seen in our own network and I'll come back to that in a minute, but in the meantime, I'd like to take a minute to reemphasize some of the things we've been talking about for the last few years.
Dick card, we help isolate customers from complexity, the regulatory environment and changing customer buying expectations have been driving complexity over the last few years and now the Corona virus has the potential to magnify that complexity.
We're already seeing examples of it for instance, with factories going down in China for a few weeks businesses had to adapt quickly and think about whether the change suppliers, which can be tricky in the short run and whether alternative ways to move their goods so as to minimize the disruption to their supply chain.
In order to be agile flexible you need to have access to timely information to understand changes in real time and to calculate the cost of alternative courses of action. Furthermore, you need to be pre connected to a network of alternative suppliers and transportation providers to quickly execute any potential changes. This is what we've been building over the last 20 years of Dick cart hub for shippers care.
Carriers logistic service providers and government authorities to connect and collaborate for the seamless movement of goods worldwide.
And when things are changing that's when our customers need us both.
So I can't tell exactly what will happen next with the current of ours, but I believe our business will be able to handle it better than most our customers will need us more than ever and we'll be there to help them through a comp back to talking about what we're seeing in the market in a minute and after that Alan will then provide a detailed overview of our financial results and then I'll finish up the call talking about our calibration for Q1 and our.
Operating plans for fiscal 2021.
But first let's start by going over some of the key financial highlights in the fourth quarter fiscal 2020.
We had another outstanding quarter of operating results and we're 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 Q4 of last year coming in at $84.2 million. Our adjusted EBITDA continues to grow nicely for the quarter, we generated $32.2 million of adjusted EBITDA, an increase of 29% over Q4 of last year.
There is we'll compliance continues to contribute nicely to this growth growth. It ended up ahead of our plan of mid to high Twentys adjusted EBITDA grew.
Growth for the fiscal year compared to the previous fiscal year, we continue to convert our EBIT to into cash generating 26.4 million of cash in the quarter and consistent with our long term operating plants, we've been investing cash back into the business through focused R&D investments and combining with complementary businesses.
We combined with four businesses and F. Why 20, we just completed another acquisition in February that I've talked to in a minute.
All in all other great quarter to cap off another great year here to cart, we have a predictable cash generating business and we have a solid balance sheet with financial capacity to continue to acquire complementary businesses.
While we're on the topic of complementary businesses I'd like to spend a minute talking about our most recent acquisition people box.
People box service direct to consumer ecommerce customers around the world. The web based E WMS and ecommerce fulfillment solutions help customers seamlessly connect to a web shop front ends translate order information into a mobile driven pick and pack process within the warehouse and then fee parcel delivery systems for shipment execution.
Like our investments in odds Pixie and ship Rush people box add density in domain expertise to what is an increasingly important area of our business ecommerce.
Whether you are large retailer a small retailer or something in between in order to satisfy your customers' expectations you need to know how much inventory you have and where it is at all times need to be able to effectively fulfill your orders and you need to be able to understand the delivery costs and execute those deliveries as seamlessly as possible.
Successful ecommerce supply chains need to be flexible to scale up and down during peak periods, while maintaining connections with complex ecosystems of sales and delivery channels, it's hard enough on a good day.
When you think of this through Tomorrow's lends a potential uncertainty work today may not work tomorrow, and if you're going to be agile you need to have timely access to reliable data to help you make better decisions about sourcing and transportation costs and need to be pre connected to a network of both sales and delivery channels.
By combining people box with our existing suite of E. Commerce solutions, we're in a better position to help our customers manage the direct to consumer market market that has been growing consistently.
We maybe see some short term boosting growth if consumers put a heavier emphasis on home delivery versus going to the mall or grocery store.
With this latest investment we have a good density of ecommerce solutions in our portfolio going forward you can expect to these commerce solutions will form a bigger part of how we go to market, including in our marketing materials.
Commerce is truly becoming another business pillar here at cart.
I'd like to welcome the people box employees customers and partners to the Descartes community.
And with that let's talk a little bit about what we're seeing on the network over the last few weeks.
Historically, we havent comment on network volumes for the current quarter on our results call, but given the uniqueness of the current market situation. We thought we provide some very preliminary additional color as to what we're seeing on our global logistics network. We typically see volumes dipped a bit in February due to the certain number of business days in the month as well as the impact of Chinese lunar new year.
This year Chinese new year fell in January but as a result of the current a virus impact on Chinese manufacturing.
We solve that slowdown continue for a bit longer than usual in particular, we saw an extended impact on air volumes in China After Chinese new year, but we've since seen the volumes recover in the region. Specifically, we are hearing reports that China supply chain activities have largely resumed and we are seeing that in our network.
Due to too early for us to see what if any impact there will be in EMEA in North America as those regions start deal with the virus, we only have the dip and subsequent slow recovery of China.
In China to guide Us at this point.
More generally as we looked across the globe to our customs filing volumes, which.
Give a pretty broad overview of the multi modal freight movements. We saw typical seasonal dip in February but nothing that alarms us so far.
When analyzing the us domestic market, we see truck volumes ecommerce activity still looking quite healthy.
Before handing 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 thanks to our employees for all the hard work they put in to make sure. Our customers get results are customers continue to get results and Thats why we have a successful business.
Thank you to our customers continue to place confidence in Descartes as their network of choice, whether you're a shipper logistics intermediary carrier, even a government agency, thanks for connecting and helping our community grow and thanks for your continued engagement.
Thank you to our partners for helping US continue to expand the go system and thank you to our shareholders, both new and long standing for continued have confidence in big carbon supporting us with your capital and with that I'll turn the call over to out.
Okay. Thanks, Ed as indicated I'm going to walk you through our financial highlights for the fourth quarter and year ended January 30, Onest 2020.
We are pleased to report record quarterly revenues of 84.2 million this quarter up 19% from revenues of 71.0 million in Q4 of last year.
Our revenue mix in the quarter continued to be very strong with services revenue, increasing 17% to 73.7 million or 88% of total revenue in the fourth quarter.
Compared to 62.9 million or 89% of revenue in the same quarter last year.
With a couple of larger deals in the quarter license revenues came in at $2.5 million or just under 3% of revenue in the quarter up from 1.1 million or 1% of revenue in Q4 last year, while professional services and in other revenue came in at 8.0 million or 9% of revenue up from 7.0 million.
Or 10% of really a 10% of revenue in Q4 last year.
For the year revenue was 325.8 million up 18% from revenue of 275.2 million in the previous year.
Our revenue mix for the year remained fairly consistent at roughly 88% services revenue, 2% license revenue and approximately 10% of revenue from professional services and the other category.
Gross margin for the fourth quarter was steady at 73% of revenue for the quarter consistent with the gross margin percentage in the fourth quarter last year.
For the year gross margin increased slightly to 74% compared to 73% for the whole year in F whitening team.
Operating expenses in the fourth quarter and for the year ended January 30, Onest increased primarily related to the impact of recent acquisitions, while those increases were partially offset.
By cost efficiencies as we are successfully successfully integrated these past acquisition and identified cost overlap opportunities.
As a percentage of revenue the increase in each category of our operating expenses was lower than the increase in revenue. This year, a further sign of our operating leverage.
So as a result with revenue growth and continued strong cash cost control. We continue to see strong EBITDA growth of 29% to 32.2 million or 38.2% of revenue in the fourth quarter compared to 25.0 million or 35.2% of revenue in the fourth quarter last year.
Sure.
Adjusted EBITDA for the year came in at $122.6 million or 37.6% of revenue up from up 31% from adjusted EBITDA of $93.9 million or 34.1%.
Percentof revenue last year.
As a result of these solid operating results cash flow generated from operations came in at $26.4 million or approximately 82% of adjusted EBITDA in the fourth quarter. This year up 21% from operating cash flow of $21.8 million or 87% of adjusted EBITDA in the fourth quarter of last year.
For the year cash flow from operations was $104.3 million or 85% of adjusted EBITDA up 80 up up from $78.1 million or 83% of adjusted EBITDA last year.
Going forward subject to unusual events in quarterly fluctuations, we expect to continue to see strong operating cash flow conversion of approximately 80% to 90% of our adjusted EBITDA in the periods ahead.
From a GAAP earnings perspective, net income came in at 11.4 million in the quarter, 44% from net income of 7.9 million in the fourth quarter last year.
For the year net income was 37.0 million or 45 cents per per diluted common share up 18% from $31.3 million or 40 cents per diluted common share last year.
Overall, we're pleased with the solid operating results in the fourth quarter and for the year in F. Why 20 as strong revenue growth allowed us to make continued investments in the business, while achieving greater than 30% growth in adjusted EBITDA and producing strong cost cash flow from operations.
If we turn to the balance sheet, our cash balances totaled 44.4 million at the end of January 2020.
And we did not have any borrowings under our credit facility at the end of our fiscal year.
Subject to our year end leased some of our existing cash balances and in addition, drew just over 10 million us dollars on our credit facility to complete the people people box acquisition late in February.
As a result, we currently have approximately $340 million us dollars available to us to draw on under the credit facility for future acquisitions.
So we clearly continue to be well capitalized to allow us to consider all acquisition opportunities in our market consistent with our business plan.
As we look to the current year, our fiscal 2021, we should note the following.
After incurring approximately 4.9 million in capital additions last year, we expect to incur between 5.0 and 7.0 million in additional capital expenditures this coming year heavily focused on improvements in our network security.
We expect amortization expense will be approximately $53 million for fiscal 2021, with this figure being subject to adjustment for FX changes and future acquisitions.
As a result of a few unusual tax income tax recoveries, our income tax rate in Q4 came in at 14.0% of pretax income.
Resulting in a tax rate for the year of 23.0% in F. Why 20.
Going forward, we would expect that our tax rate will continue to trend into the range of 24% to 27% of pretax income for our fiscal 2021.
Though.
As always we should add the tax our tax rate may fluctuate from quarter to quarter from onetime tax items that may arise we operate internationally across multiple countries.
And finally, we should expect stock based compensation to be approximately 4.0 to 4.2 million for fiscal 2021 subject to any forfeitures of stock options for share units.
And with that I'll turn it back over to add to wrap up.
Okay, great. Thanks, Alan So, let's get right into our calibration for F. Why after Q1 after 2021 or we're doing this as of February 21st the data we book people box.
Similar to previous quarters, we don't provide guidance, but we use our baseline calibration as a key metric related to the ongoing health and strength of our business. Our calibration for Q1 assumes the following exchange rates, a 76 cents Canadian dollar.
1.09 Euro to us dollar and 1.29 GBP to us dollar.
Our calibration for Q1 is 81.3 million in visible recurring contracted revenues our baseline revenues.
We typically see negative seasonality impact as we transition from Q4 into Q1 on the flip side. The additional people box from February 20, Onest positively impacts this calibration on top of all that much like everyone else in this call. We don't know the exact impact of Corona virus. So we haven't adjusted our calibration to reflect any adverse impact from that other than what we took.
Typically seasonally our baseline operating expenses are 55.3 million. This gives us baseline calibration of $26 million for adjusted EBITDA for Q1.
Some other key points related to how we're positioned for fiscal 2001.
We have a solid financial footing, we have a healthy business thats well calibrated with a high degree of visible recurring revenues and we have a healthy balance sheet.
We are profitable and cash generating we have low capital needs within our organic business and as you've seen from recent historical financial results, we continue to grow our organic business.
Our primary uses of capital or for continued use in acquisitions, we've completed 46 acquisitions since 2006.
And we have access to additional capital quickly should we needed following the people box acquisition, we had a small draw on our $350 million line of credit and we have the ability to expand that line of credit to $500 million if needed we.
We also have a preliminary shelf prospectus for up to $750 million of which just over $500 million remains unused.
To raise capital by other mechanisms in case there needed in short we have good capacity for our planned acquisition activity.
Because of abroad acquisition pipeline continues to be a lot of industry activity right now with consolidation continued in our market with our 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 or community of participants on our network. We continue to see a lot.
Interesting opportunities out there to continue or even accelerate our pace of profitable growth, we're seeing both larger and smaller opportunities and while review everything that comes our way we're not buyers for buyer stake. The fact that we have an acquisition line of credit a cell phone in place.
Doesnt change, how we view acquisitions, we intend to continue to be prudent evaluation, but we're confident in our ability to deploy capital effectively. We're also watching with interest to see how recent market events will impact valuations and a willingness of some sellers to sell their business in this market.
Looking ahead to fiscal 2021.
We've completed our planning process as we do every year around this time as we've said in the past our belief for sustainable growth long term is it 10% to 15% growth in adjusted EBITDA and that remains our plan, we've been very transparent and how we plan to run our business and we will continue to do so.
We don't have a crystal ball to protect exactly how corona buyers will unfold, but we feel we're well positioned to weather any potential storm as in the past, we intend to invest any overperformance back in the business.
Our growth this plan to come from a combination of organic and inorganic activities in acquisitions are not incremental to our plan.
We tend to continue to focus on recurring revenue in deemphasize onetime license sales and given the current performance of the business and mindful of the FX environment. Our plant operating margin range remains in the 35, 40% range, but please keep in mind. This could vary if we buy other businesses that need fixing up or if the FX environment changes significantly both of which.
Would impact that metric in the short run.
And finally as always we'll continue to make ourselves available shareholders to answer any questions. We believe we've got a great business, we want to be available to help people learn about that business will continue to spend time and resources to get the word out and we hope you'll do the same and so with that let's open up the calls to your questions. Operator, if you could start to unit.
And once again, if you have a question. Its star then one on your Touchtone phone and our first question comes from Matt Pfau from William Blair, So had Matt.
Hey, guys. Thanks for taking my questions and maybe helpful. So you just go over remind everybody. How your business is impacted by transaction volumes and when volumes have been under pressure in the past.
How thats impacted the growth of your overall business.
Yes sure.
You know.
We're a little under 90% recurring revenue little under half of that is transactional the other half is.
Seats are users or.
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Non transaction recurring revenue, let's say.
In the in the past, we've done pretty well in these in these environments and active to eight or nine we continue to grow our network.
Through a downturn I don't expect this is quite in that category, but theres an unknown here that we haven't seen this spread around the world yet.
What we did see in China alluded to a few minutes ago was somewhat encouraging.
You are reading the newspaper reports in United States. I think you you might think China completely shut down for a couple of weeks during that period of time, we still saw shipments moving over our network.
And we were pleasantly surprised by how fast it came back once.
What is China put people back to work in the last several weeks so.
We don't know what can happen next but we think we're pretty well positioned to deal with whatever it is.
Got it and then on the on the people Voxx acquisition. It seems like you, obviously hinted that ecommerce is going to be.
Big focus for you guys moving forward, maybe help us understand how people voxx fits into the over overall WMS market, who are the target customers here and maybe a peek into what the broader ecommerce vision is.
Yes, sure well you know you've seen us with the acquisitions ship Russian either pixie.
And now people box.
We have started to realize that this ecommerce markets.
A great business to be in people box focuses on WMS solutions for midsize and smaller retailers and Etailers, that's a very rapidly growing market.
These guys are getting their business is off the ground quickly and 80 help in the transportation management and warehouse management spaces.
We bought Pixie a few years ago, we like that quite a bit and we had the chance to too.
Look at one of their competitors people box.
Who has done a very good job of spreading that solution around the world and we thought it would be a great additions to our network.
Great.
Ill pass the line things like guys for answering my question. Thanks, Thanks, Matt.
And our next question comes from Justin Long from Stephens go ahead Justin.
Thanks, and good afternoon.
So I wanted to ask first about fiscal 2021 AD I know earlier, you said that EBITDA growth target of 10% to 15% is unchanged, but is your expectation that you'll be within that range. This year and maybe you could also talk about the level of organic growth you're expecting.
During this year versus what you saw in fiscal 2000.
A tough tough for us to call on the organic growth.
We think we have a good business, we think it's going to continue to grow organically.
Why there's a lot of uncertainty out there. So I don't know exactly what that number is going to being nor would I.
Try to guess right now.
But you know where we think.
With that.
We think that.
The business will continue to grow organically, there, we're going to bind decent acquisitions to add to that over the years just like we have in the past you know I don't know what can happen Corona virus I'm encouraged by what I saw in China, and how quickly it came back but I really don't know house can impact the rest of world or is it going to spread around of the rest of the road are they going to be just minor companies into countries impacted or maybe.
There were none of that's either clear to US right now I don't think it's clear to anybody else in this call. So I don't want to.
Yeah.
Speak to it too much sooner or make guesses, because I really don't know.
But the 10% to 15% organic growth or sorry growth in EBITDA.
As a number we've been saying for the last 10 or 12 years, and I think youre going to see us continue with that this year.
Okay. That's helpful and secondly to follow up on some of the commentary you add on acquisitions in the pipeline. It sounds like there's still a lot of activity, but just given some of the macro uncertainties in different moving pieces with the election Corona virus et cetera have you seen that.
Number of sellers increase I'm, just curious if the pipeline as kind of picked up in the last few months and also would love to get your thoughts on valuations and if we've seen any.
Kind of tapering of valuation multiples in the market too.
Well, it's tough to say when we certainly have seen at picking up in the last several months a lot of stuff for sale right now and really in the last several years been lost our for sale.
A lot of times, we think that a lot of those deals go down at a at a.
At a very high price, maybe maybe higher than normal Bryce.
It's always concerning to us and gives us pause and we're looking at these these businesses to see if we should buy into them or not you know as a result were forced to look a little harder in trying to find good deals for for our company and for our shareholders.
Yep.
We haven't seen any impact in the last couple of weeks on it nothing related to krona virus.
I would say that have grown to buyers had any impact on the economy that would obviously impact prices that people pay.
Bluntly said people been paying too much for several years now for businesses as a private equity has come in with access to.
Capital.
You know.
We're waiting for that bubble burst I don't know one of going to but if this was the start of it will be happy about it.
Makes sense I'll leave it at that I appreciate the time.
Hey, Thanks, Justin Purdue.
And our next question comes from Paul Treiber from RBC go ahead Paul.
That's very much and good afternoon, just wanted to clarify your comments in baseline you Didnt mention that it's as of February 21st then you also mentioned that Theres you may know adjustment for krona virus. So should we take that as you're assuming no.
No adjustment beyond have your 20, France, but you've taken into account we've seen to date up to February 21st for sure I, just you know with with the.
With Chinese new year going down at the same time Corona virus. If you think about what really happened the Chinese government told everyone to stay home during Chinese new year and that May have gone up a week or so cash Chinese new year, but you know in January we're always expecting to see that in the numbers for the quarter is.
Really weren't any significant impacts the quarter in other words, if I were looking at Q4 I wouldn't know there was the Corona virus problem unless someone told me if I were looking at our numbers.
It.
Wasn't a big deal.
We were surprised at how fast China got back to work and how quickly we saw that shipping volumes recover.
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We knew all that as of February 20, Onest, So I guess, yeah thats in there.
What happens beyond this.
It depends what happens in these individual countries and how they react too.
We don't know what that is so we didn't put it into calibration going on on what's going to happen could be no big deal at all could be a you know some impact that we knows.
And at a high level in terms of the way you arrive at and calibration than the methodology or the conservatism that you use it.
This is my prior quarters.
Yes.
Okay. That's that's great.
And then the.
E Commerce, Alright, Ve like are you seeing a stronger pickup in E. Commerce generally as you get more entrenched in that in that space.
And in maybe in last couple of weeks related to crunchy bars ceasing some pick up there.
I have.
No I mean, you might speculate that could happen, we we've talked about that I haven't noticed in the numbers.
But.
You know ecommerce has been a big thing for us in the last couple of years, it's really driven a lot of growth in our business and I.
I think is a lot of these etailers get bigger and they start to realizing these systems. You know we want to be there to provide them with those systems and I think we've done a nice job of.
Rounding out a bunch of solutions in the logistics and supply chain space that would work for them and as a result realizes that a business we want to continue to try and focus on and grow.
You know.
What happens from here I don't know, but but we're pretty happy we got our hands on people box and we think it's going to be very complimentary to our network and the as and Pixie businesses and shipper us businesses that were already and so we look forward to growing that portion of our business consistent with how we have done in the in the past.
Okay, great all on past one.
Thanks, Bob.
And our next question comes from Remo Rancho from Barclays.
Hey, guys. This is Mike on for right now and thanks for taking my question I, just wanted to dig into kind of the people locks and some of this direct to consumer E Commerce stuff, you're looking at now that you've kind of added that into the fall. They are are you seeing anything that may be like continued gaps in the in the product offering that you guys have where you you look.
To address moving forward now after you kind of like rolled out and as that becomes a bigger portion of your business is there some areas that you maybe focusing on.
No and we're focusing on putting all those things together, making them work better for our customers as one cohesive solution and selling a whole lot more of it.
Similar to what we've done over the past few years.
See really nice growth in those businesses I'm really happy we got into the space space. We have a lot of customers in that space that are doing very well and the real happy about our solutions in rolling them out as their businesses expand and I think you'll see as do more of the same there.
With regard to are there any holder, none none none that I see.
Okay. That's helpful. I appreciate it and then just a follow up on.
Some of the transactional revenue flow that you see who who is like the typical customers that are using that transactional versus having having more of the subscription setting is is it usually like the larger customers that.
Have a subscription, but then are adding on additional transactional revenue or is it more kind of lower end to the market. That's that's working on that on that more transactional level no. It's the other way rather almost every customer in our business is a network customer.
It's oftentimes our customers start with us they they start with a network and by subscription services.
Core customers of the network are the Big Airlines Ocean carriers trucking companies into a lesser extent railroads and all of the people that want to communicate with them.
Uh huh.
Primarily.
The biggest group of there's logistics services providers is the you too.
Crude inaugural DHL, Fedex, GPS DSV Schenker panel peanut type companies and.
And then the customers that higher than the big retailers and manufacturers.
It's very typical for someone to join our network and then by a whole bunch of.
Subscription based value added services over time as they want to help make better decisions about what's moving over that network.
Got it Okay. That's helpful. I appreciate it thanks, Mike.
And our next question comes from.
Scott Group from Wolfe Research.
Hey, good afternoon, guys, it's Rob salmon on for Scott.
Just kind of tying a bow on the credit virus discussion can you give us a sense of how much of your business is tied to China.
And then when we're thinking about here kind of a second part of that question for you guys agnostic as it moves in kind is if the volume moves in passenger belly space or cargo.
Yes, Rob its Alan here just to quickly touch on so from a firm.
From a reporting perspective, you can look in our financials, you'll see that 4% of our revenue comes from from Asia and a subset of that is from China. That's not the entire picture, we get paid as transactions movements as trucks, we factories in China through to the Port in Hong Kong through two in North America Europe, we are getting paid.
It is a part of our transactional volumes.
That said try to give you some metrics that's a portion of our of our recurring revenue our services revenue business.
And exactly how much of China.
We don't know, but we know we are impacted in that and get paid from some of those transactions.
That thing for them I know your second part the questions you repeated.
Yeah, I mean, if we're seeing kind of more volumes. We then kind of freighter capacity as opposed to passenger belly space is there you guys have a difference in terms of exposure there.
From an economic perspective, no we do business with just about every major passenger airline that that puts cargo inability to their planes and just about every cargo airline in the world that that has full plane full of cargo.
I understand from talking to some customers there were some switches there when they shut down the.
Passenger traffic in China cargo traffic didnt necessarily shutdown either for ocean or air.
Which maybe.
Behind some of the results of that kind of said they're located.
China shut down for a period of time, but it came back and it didnt looked at bad us on our network I think thats up.
I think thats part of it right that the logistics and supply chain operations kept move even though a lot of other things in the country stopped for a period of time.
Understood and then when we're thinking about kind of the air freight component. If we're seeing higher pricing is that something you guys get leverage Stuart is benefit from one we're seeing kind of more of the volume run through the network.
Yes, I didn't hear segment.
It's mostly volume related for us in air we don't we don't charge more when our customers charge more however.
It is usually pretty good for us when our customers do better so they have ways to make more money and end up doing better as a result that usually ends up benefiting us as well, but no. We were typically judging by the transaction.
Other matter to us what they charge for the ship.
Got it and it Wasnt just to kind of close off the discussion in terms of Corona and just trying to figure out the impact.
When we look it is that totaling.
Just in the baseline revenue or should we think about whatever we have that we've seen to date.
It would be kind of been baseline or would be kind of the premium that you guys typically generate from a from a revenue relative to that premium.
Oh I'm not exactly sure to answer the question, but I would say that as of February 20, Onest. We told you everything that we could see as of that date on our network.
We've assumed from there going forward that it's largely business as usual I understand that could change.
But I don't know what those changes are so I didnt want to start guessing in our calibration as to what might happen.
In the coming months I will just to reiterate one more time I did notice that in China. It was not nearly as big an impact as one might have thought when one going into it right.
Was down for a couple of weeks and operations did not stop during that period of time.
They get slowdown as people were told not to go to work, but we were pleasantly surprised at how fast they got back and how quickly the supply chains got back to nearly full movement again.
I appreciate the color thanks, guys.
And our next question comes from Deepak cash so from Stifel.
Oh, Hey, guys. This is deepak asking for Deepak I got a couple of.
Questions, sorry to ask about Corona virus again, but I will.
So when you mentioned, 50% of your 90% recurring is transaction related are you able to par so what have not transaction portion as it relate to global trade volumes versus domestic kind of E commerce fulfillment.
And the relative sensitivities are those to kind of some like a disruption global trade like like crossovers I don't think we break that out.
We don't.
I'd be guessing that give you a number so I probably shouldn't.
I would tell me whether it be more than 50, 50 or less Oh, we have significant operations at both let me say that way.
Domestic North America market is a big deal to us obviously.
But.
We do business with every big airline and Ocean carrier and all our customers. That's also pretty big part of our network.
Got it so if we just say that their 50 50 would it be safe to say that the portion that's related to North American.
E Commerce kind of domestic parcel is more resilient to global disruption in in in shipping volumes or are they really not integrated that they're both impact in the same level, how much depends what happens right I don't know what's going to happen.
Look like it Wasnt, China I think about people were still going to work there were just there we're just being.
Cautious when they did I think there's certain jobs, where they just that we're not doing that job for a couple of weeks, a and I don't know what's going to happen in these other countries revenue still talking about.
Very small numbers of people infected with the virus. So I don't want to speculate that we're going to another child on our hands I don't know that that's the case I can tell you what I saw China Didnt look that bad from a volume perspective on our network.
But I'm not sure what's going to happen going forward.
I'd be speculating and I don't want to do that because I really don't know any better than anyone else, what's going to happen.
You know withdrawn virus rollout and spread around the world and when does it stop of the stuff in the summer under the continue in the ball I don't know any.
Answers any better than anybody else in this call soda.
Speculate through a tumor got got it and then so if we if we think back to 2008. When you did have a kind of an economic downturn that was big what kind of tactical adjustments.
Did you do and what we might think of that you can do to actually to take advantage or to mitigate.
The situation.
I don't know that these another these two things are the same category.
The global recession, we faced in in 2008 was pretty big run of ours is nowhere near that right now from an economic perspective, but in a way.
You saw so much the wet and took the breadth and scope of our network and brought that to bear with our customers in negotiations when they.
Well, they want to better pricing because they were facing tough times during that time.
We were saying stuff like hey.
By more products from Us Air here. This other product I want to sell you. If you want to discount by this for me through that other vendor out and use our service and I'll cut your cost of both services and we found that to be a very effective way too.
Not only grow our business in a challenging time, but.
But develop much closer tighter relationships with our customers.
The biggest thing that we saw that downturn was a prices of acquisitions, you know dropped precipitously.
Some of the best deals we got in terms of a dollar per EBIDTA made over the.
Coming years were during you know eight or 910 11.
And I don't know how far this is going to go I don't be surprised if it goes that kinda far but.
The effective theres a downturn in the economy or this I think some of the first people to go or the people that are overcharging for their companies when they are selling them right.
A bunch private equity firms that felt like for the last five years that could lose well that can't be true.
We'll be a day when they do.
And we want to be around on that data to buy up.
Good assets it is at a relatively fair price.
Got it. Thank you for that and then and then on on all people box just a quick one so you got Pixie you got all you got ship rationing of people like how much do you integrate the these products into a single day car branded products are these largely standalone and various geographies and they just all kind of do the same thing.
What to love no no no what level do you guys are all different businesses.
Sorry.
Yes.
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Yes.
You know they are not all the same business Pixie, if people box or similar businesses.
And I think you'll see us take advantage of that and help them.
Solve problems for customers more globally, because we have both of them now.
But.
As with most acquisitions, we look at them and say what needs to be integrated here to our existing network and the fact that we operate in network makes it pretty darn easy to integrate solutions together and have them start working together for the customers.
Straight out of the box because that's what our network does it helps to disparate software systems talk to each other.
And so.
Our job may be a little easier there than it is from both companies.
Okay, great well, thanks for taking my questions. This evening all season.
Thanks, Steve.
And our next question comes from Robert Young from Canaccord Genuity.
Hi, Good evening I will just maybe continuing in the last questions. There. After what you saw in 2008.
Was there an incentive for organizations that word on the network to get onto the network like you said that a little bit.
But maybe if you could just add some color to that and it.
Piece of that.
Let me a lot of changes in the regulatory framework around.
Shipping logistics after.
Some previous.
Issues in the past this is.
My perception of this is kind of iverson be more of an impact on movement of people, but do you see any impact on logistics that maybe we would recognize.
Well, okay. So in the Oh, we pick that one first so in that and the long run yeah. I mean, I think there's going to be some rules put around this little effect to the supply chain for short right down to to help prevent the spread of virus and things of that nature.
I think as we learn with each of these things you know what caused this and you start to figure it out I don't know that completely no the answer yet, but as they do I think they're going to start to shut down some of those practices and that you know the customs authorities are going to ask questions about these types of things when they find out what what what caused it.
As if you have seen with a lot of a global.
Issues of terrorism is the one that really comes to mind right, where they go Oh, that's how the terrorist at this okay, well, let's shut that down.
And one of the ways you shut it down at the is to look to logistics is watching companies to say.
What can you do about it and as for put rules in place to help them do that and you know one of the more successful parts of our business has been watching as these new rules come down and and and helping our customers address them.
And so I don't know, what's going to happen with this one but I suspect something like that may happen over time with new filings, we made and stuff like that as you.
Move goods around the world.
Your first part of the question you have people were obviously more effective than than than cargo.
Well the government told everyone not to go to work for a period of time out of an abundance of caution.
Yeah that can affect every business.
And the economy as a result, and obviously logistics and supply chain in part with that but.
Yeah, I alluded to it on the call earlier I think it's safer to do to go.
Using ecommerce site to order something that it might be to go to reverse store. If there is actually a virus in your in your area that somewhat widespread.
That's not really the case in many places outside of the we'll hand province in.
In China, but you know, we're all watching the new daily and going it could happen you know this things could spread to other countries and not just a couple of people, but larger amounts of people in if that were the case you know might we see more shift ecommerce for sure.
We may.
And if so that's helpful for our ecommerce business.
And in the past you have you seen a surgeon.
New prospects are new joins onto the network. After like this type of disruption or any kind of disruption.
I'm not new joins the people using our network to switch providers, yeah, one provider goes out they need to get to produce something elsewhere, we see our network as a convenient way to facilitate that remember most people in the supply chain or on our network already.
So.
Just a matter of how they use at their users connects or trading partners right now and something like this virus or maybe some other.
Larger issues.
Might impact you know who they use and.
Our network is convenient in that it.
It gives them the ability to make those changes quickly and get on with their business. So.
Yeah, I've seen that in the past and I suspect that could play a role here as well.
Okay, and just a little bit on people boxer me and my presumption is is that the the customers are people box I'd be smaller.
There is is there any opportunity for you to up sell the functionality into your larger customers are on the network and that's fine then.
Yes, I mean, maybe a little bit we always try and buy a solution. It's over the medium and small with customers, we try to move it up upstream overtime.
We believe most technology markets a road from the bottom so when we're selling to the small guys.
Can we make that up bigger over time, but that's not why we bought it we bought it because theres a lot of re smaller mid size etailers and retailers out there that have an increasingly large problem in need software to help deal with it and we thought we'd be.
You had a better position if we were able to sell that's off were over our network and get more and more these customers around the globe.
Which is which was our driver advice.
Okay. Thanks for that.
Okay.
And we have no more questions at this time.
Okay, great. Thanks, everyone. I. Appreciate your time. This afternoon, we look forward to reporting back to you next quarter with our Q1 results have a great day.
Yeah. Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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