Q3 2021 Descartes Systems Group Inc Earnings Call

[music].

Welcome to the Descartes quarterly results call. My name is Adrian and I'll be your operator for today's call.

At this time all participants are in a listen only mode. Later, we'll conduct a question answer session.

If youd like to ask a question during the today's presentation. Please press Star then one on your touched on phone. Please.

Please note. This conference is being recorded I will now turn the call or Scott Pagan Scott Pagan you may begin.

Thanks, and good afternoon, everyone.

Joining me remotely on the call today are at Ryan and CEO, and Allan Brett CFO and they trust and everyone has received a copy of our financial results press release that was issued earlier today.

Portions of todays 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 and those laws.

These forward looking statements include statements related to our assessment of the current and future impact of the code of 19 pandemic on our business and financial condition.

Descartes operating performance financial results and condition.

Descartes gross margins and any growth and 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 and 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 on the section entitled certain factors that may affect future results and documents filed and furnished with the SEC the OFC and other securities commissions across Canada, including our management's discussion and analysis filed today.

We provide forward looking statements solely for the purpose and providing information about management's current expectations and plans relating to the future your.

You are cautioned that such information may not be appropriate for other purposes. We.

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 on our expectations or any change and events conditions assumptions or circumstances on which any such statements are based except as required by law and with that let me turn the call over to Ed.

Hey, great. Thanks, Scott and welcome everyone to the call similar to past calls each of Scott Alan and I are in remote locations. Our whole business has been operating remotely for some time and as you'll see from today's results announced announcement our whole team is doing a pretty good job of it.

Similar to past calls here's a roadmap for the rest of this call.

Ill start with some opening comments, primarily focused on what happened over the last quarter and some of the opportunities and uncertainty we've seen.

I'll, then hand, it over to Alan who will go over the Q3 financial results and detail ill then come back and provides and perspective on how we're calibrated and looking at the current quarter and we'll then open it up to the operator to coordinate the Q and a portion of the call. So.

So let's get to it.

We had a great quarter due in large part to the continued hard work of our DIC heart team members. We're a business that focuses on making our customer successful we hope that by doing that it will benefit our own business. Despite working unique working circumstances. Our team has continued to keep our customers needs front and center, we pride ourselves on being part of the essential service.

On the logistics and the role we play it and helping our customers rise to the distribution and business challenges they face this year.

And our own business, we've been able to post record financial results. We had record revenues of $87.5 million record adjusted EBITDA of $36.4 million ahead of our expectations and plan and up 16% over the same period last year.

We had an adjusted EBITDA margin of 42% and we have very high cash conversion with cash from operations at 91% of adjusted EBITDA.

We believe that our ability to deliver quality financial results and these tough market conditions. There's also a testament to how we calibrate our business those will follow on our business for some time that we put a lot of emphasis on calibration.

For us this means ensuring that we set our cost base and a level that considers what we're confident is going to happen with our business and this way when there is uncertainty we're not crossing our fingers and hoping that something's going to happen. Our planning approach is to plan for what we're confident in and execute to deliver more we.

We believe this has served us well and that this is illustrated through our steady predictable historical growth. We also believe that now more than ever it positions us well from the market ahead of US a market that has tremendous opportunities for logistics and supply chain and lots of uncertainty as to how and when those opportunities will resolve themselves.

In short right now logistics and supply chain markets have tremendous opportunity and uncertainty we.

We believe our well calibrated business with a history of superior execution and ample capital is and a great positions and succeed.

Let me touch on five areas of opportunity and related on certainty that were seeing in the market and how were positioning ourselves therein.

First and ecommerce.

As we've just come off the U.S. Thanksgiving and Black Friday, you've probably seen the news that online sales rose, 22% over last year and the United States with many people not spending money on travel and related experiences people may even have may have even more money to spend than in past years, especially with large parts of the world and various stages of lockdown being able to shop or.

Totally is no longer and convenience it is now a customer expectation and necessity.

And we believe that this is a permanent shift and the cobot related lockdowns have been a catalyst to accelerate this move but the shift is not without uncertainty, especially as it relates to logistics and supply chain there.

There are gone theyre ongoing questions around how to best distribute and warehouse goods, how much to in source versus outsource for distribution governmental intervention and oversight for the security and taxation of international shipments and the balance retailers will have in their own businesses between traditional selling methods and ecommerce.

Predict heart, we've been deliberate and our approach to ecommerce we're focused on domestic and international ecommerce warehousing and distribution, we structured our business with an international ecommerce focused and aligned our solutions and a new ecommerce pillar weve.

We've made ecommerce a priority for investment with businesses, serving ecommerce distribution like ship Rush velocity mail and scan code and E Commerce, enablement, and warehousing and like Pixie and people box.

And recently, we've invested even further when we combined with ship track.

Subtract provides ecommerce final mile solutions, when we look at the big beneficiaries of further moves too small parcel being shipped we believe the courier companies are leading the way should track have sophisticated tracking and mobile research management solutions that are ideal to help carrier and other businesses and involved and high volume small parcel ship.

And and delivery, particularly for the last mile of home delivery, they make ecommerce deliveries easier and more transparent for everyone involved and delivery from the shipper to final mile carriers and the consumers. This is a fast growing business with ship track recently, having been recognized as a company to watch and towards fast 50 technology companies. We're excited.

To have them join our team and we're already seeing traction with some joint customers. So welcome to the entire ship tracking.

Second as us policy changes with the schedule changes in the White House, we expect that there will be some shifts in the us approach to foreign policy typically.

Typically the logistics and supply chain industry sees those shifts through new trade agreements changes and tariffs and duties by countries and commodities changes and sanctioned foreign parties and controls on specified exports and financial support to particular industries, but like many things with us election, Theres, a bunch of uncertainty about how when and.

And with what countries those changes will show up per.

Credit card, we don't set up our business to count on any particular change happening in general there are changes and it's good for our business. This is because our customers rely on us when they need to adapt their logistics and supply chains that come to us for tariff and duty information to understand and leverage trade agreements to establish automated relationships with new trading partners and to me.

Monitor their trading and shipping relationships for continued compliance with applicable sanctions our job is to react quickly to these changes to minimize disruption and maximize opportunity for our customers. So in short we expect the new administration will us or in some foreign policy changes.

Change is generally been good for us and our business.

While we don't know where predict what the changes will be will be ready as we have been in the past.

Third big issue is a vaccine distribution im sure revolve and eagerly monitoring and development and approvals of Kobe vaccine that could help us.

Get out of the various stages of worldwide locked down and restrictions over the past month, we've seen several announcements from vaccine manufacturers about positive trial results final stages of regulatory approval and the preparation for distribution.

There are huge uncertainties around dates of distribution, what amounts to which countries and distribution requirements in particular and for the logistics industry different vaccines have different temperature distribution requirements with at least one vaccine require and cold chain distribution, maintaining temperatures at lower than seven negative 70 degrees Celsius.

In general anytime someone said they need to distribute $5 billion of something that hasn't been shipped before that's going to be a tailwind to the logistics industry. Our customers will play a critical role and distribution and considering the lifesaving potential the vaccine are taking their roles very seriously.

We anticipate our customers will be leveraging our solutions as part of this distribution, whether it will be using the global logistics network for communication, managing and tracking shipment using our technology. We're monitoring the temperature of shipments and transit in particular, the time sensitive nature of vaccine shipments, we anticipate the air and truck modes of transportation will benefit from the tail.

On wins that some customers may leverage our air cargo temperature monitoring solutions from a recent acquisition of ours core.

The fourth is Brexit.

Beginning on January 1st 2021, UK, and you enter and new customers regime with UK, leaving the EU as of now there is no new UK free trade agreement and there is uncertainty as to whether or not they're ever will but there's also a separate northern Ireland protocol, which will have northern Ireland filing following you customers Rolls Royce.

Also a new UK customs system, replacing the historical chief system during the logistics and supply chain industries, It's like a brand new country has been established for the purposes of import and export filings with a bunch of uncertainty about how it will all work, whether even more changes are forthcoming and new systems to deal with.

Predict card. This is something we've been busy getting ready for for a while we have historically been one of the more influential UK customs preparation and filing providers we.

We were we were then the first.

Solutions provider to be able to file to the new.

UK CBS customs declarations service, we've been hosting numerous webinars and information sessions for our customers on the new regime and how we can help them, we anticipate that our customers will use our UK custom solutions look for us to.

Look to us for updated tariff and duty information and use us for UK import control systems security filings, we like everyone else are uncertain about the timeline and volumes that will be seen and this new regime as well as the adjustments that will be made or needed on an ongoing basis, but we know that our customers are looking to us to help them.

So with something new and something that the supply chain and logistics industry didnt need to deal with until very recently.

The fifth is per.

Pandemic working conditions.

Pandemic is cause businesses to change how they work employees are working from home medians have shifted to online video conferences business travel has all book been eliminated and marketing spends have shifted from physical trade show events to maximizing online presence as every day goes by and I think more and more people are wondering whether those are temporary or more permanent changes.

There is uncertainty about what real estate footprints travel and marketing will look like in the corporate and world and the corporate world going forward.

The cards business has been no exception to this as part of our restructuring efforts earlier in the year, we close certain offices, where employees can permanently work from home and will undoubtedly have a critical eye on our physical office footprint going forward our own physical user conference was cancelled and we held on online event and stay on our marketing dollars have been shifted from trade show events to more emphasis.

And on search engine optimization, our travel spend is almost nothing at this point.

Over the longer term. We believe this is an opportunity for us to operate our business more efficiently. While there is uncertainty about how and when travel and other business practices could turn back towards three pandemic normal we believe the lessons learned during the pandemic and how we've performed as a business through it will open avenues for us to use our resources, even more effectively to serve.

Our customers and deliver results to stakeholders before.

Before I turn the call over to Al and I just want to do again express my thanks to the many people going above and beyond during the pandemic. These have not been easy times for businesses communities on our own team members countless people and do including debt cards on team members have made tremendous sacrifice and effort to help preserve the health and wellness of our families and communities. We are then metro.

And it's better gratitude our.

Our Descartes contribution has been to help our customers keep food medicine and other supplies moving while vaccines and treatments were developed we are hopeful we're all on the cost of making a meaningful bent and the spread of the virus that will allow us to all feel that things are a bit more normal until then as we all deal with this period of uncertainty to cart will focus on what it does best helping on.

Customers calibrating, our business appropriately, making targeted investments looking for opportunities and most important delivery to our plan I will now turn the call over to Alan to go through our Q2 financial results in more detail now.

Sure. Thanks, Ed as indicated on and a lot to walk you through our financial highlights for the third quarter ended October 31.

We are pleased to report record quarterly revenues of 87.5 million this quarter up 5% from revenues of 83.0 million in Q3 of last year and also up just over 4% sequentially from the second quarter of this current year.

Our revenue mix continues to be very strong with service revenue, increasing 7% to a record $77.6 million or 89% of total revenue in the third quarter and again up nicely approximately 3% sequentially from the second quarter of this year as various parts of our business continued to steadily improve.

Professional services and other revenue came in at $9.3 million or 10% of revenue and the third quarter. This year and that's an increase of 4% from the third quarter last year.

License revenue continues to be quite small coming in at 600000 or less than 1% of our total revenue in Q3.

And our goal it will remain.

Book small percentage of our overall revenue, we do expect that will fluctuate quarter to quarter.

Gross margin was once again strong at 74% of revenue in the third quarter, which is up slightly from gross margin of 73% and the.

Third quarter last year.

Similar to the past number of quarters, we continue to have strong cost control our operating expenses.

As reductions across many expense categories, including travel and marketing costs resulted in a slight decrease in operating expenses in the quarter when compared to the third quarter last year.

Despite the impact of increased headcount and costs that come with the acquisitions, we have recently completed.

So with some solid growth and revenue and continued cost control. We are pleased to see strong adjusted EBITDA growth of approximately 16% to a record $36.4 million or 41.6% of revenue in the third quarter, when compared to $31.5 million or 38.0% of red.

And.

On the same quarter last year.

As a result of the strong operating results cash flow generated from operations came in at $33.1 million or approximately 91% of adjusted EBITDA and quarter up 20% compared to operating cash flow in Q3 last year.

Operating cash flow this quarter was aided by strong collections from customers as well as and the decrease in cash taxes paid during the quarter.

And as we've said in the past operating cash flow will be subject to quarterly fluctuations and while we've operated above 90% conversion rate in the past two quarters for the most part we expect to see operating cash flow conversion could to continue in on more typical range of 80% to 90% of adjusted EBITDA in the quarters ahead.

From a GAAP earnings perspective, net income came in at $13.3 million or 15 cents per diluted common share in the third quarter ups.

Up sharply from net income of 9.7 million or 11 cents per diluted common share and the same period last year.

Overall, we are certainly pleased with the way the business has performed as we manage through the current pandemic and the resulting economic climate.

If you look at the balance sheet, our cash balances totaled $114.4 million at the end of the third quarter.

That was an increase of 32.5 million over the cash balance at the end of the second quarter.

As previously announced share.

Just after the and at the end of after the end of the third quarter. We completed the acquisition of ship track using approximately $19 million of our cash balances to complete this acquisition.

With our meeting cash balances a $1 billion shelf prospectus in place.

And our unused $350 million on our credit we continue to have plenty of capital capacity to allow us to consider all acquisition opportunities and our market consistent with our business plan.

So as we look to the fourth quarter of this year, we should note. The following as outlined in the outlook section of per Mdna.

After incurring approximately 2.9 million and capital additions and the first nine months of the year, we expect to incur and additional 500000 to 1 million and further capital additions for the balance of this year as our capital equipment needs remain very modest.

We expect amortization expense will be approximately $13.6 million for the balance of EPS by 21 with this figure being subject to the adjustment for on exchanges and future acquisitions.

Our income tax rate came in at approximately 28.4 for the first three quarters of this year.

For the fourth quarter, we expect our income tax rate will be in the range of 25% to 30% of our pre tax income, although as always we should add that our tax rate may fluctuate from one time items that may arise as we operate internationally across multiple countries.

And finally, we expect that stock based compensation will be approximately 1.5 to 1.7 million for the fourth quarter and this will be subject to any additional clients or store could share with stock options or share units that happened quarter.

With that I'll turn it back over to Ed will wrap up with some comments on the quarter, including our baseline calibration.

Hey, Thanks, Alan I mentioned earlier that our focus is on delivering to our plan as we enter Q4, we also start turning our mind to our planning process for the next fiscal year. So let me recap some of the principles, we use and planning and executing on our business.

We plan for our business to grow adjusted EBITDA, 10% to 15% annually, we plan to growth through a combination of organic growth and acquisitions. When we over perform we expect to reinvest that over performance back into our business, we focus on recurring revenues and establishing relationships with customers for life. We.

We thrive on operating and predictable business that allows us forward visibility to our revenues and our investment paybacks.

Establish our plans with a view to be able to pursue opportunities without placing undue risk on our business. We believe that the way. We've grown historically is the right pace for our business, we see other shoot for the Moon and blow up on the weighted there we plan on getting there with steady sustainable profitable growth.

This doesn't mean, we won't look at larger investment opportunities as we continue on our journey, because we have and we do.

Our job is to put our company in a position where it has the capital structure to do to do these deals if it makes sense at October 30, Onest, we had more than $110 million and cash and Undrawn $350 million line of credit and the ability to upsize. It by a further $150 million to $500 million. We also have a share.

Prospectus that enables us to raise up to $1 billion over the next two years, we have a stable platform and over 15 years of acquisition execution and integration experience. If it makes sense for us to get it done for our business and stakeholders, we can and we will.

Turning to calibration, we provided comprehensive.

Description of baseline revenues baseline calibration and their limitations and our quarterly report.

We filed today, but to summarize how we saw things at November six 2020. Once we've combined with ship track. We are using foreign exchange rates of 70 cents 77 cents to the Canadian dollar.

$1.19 to the Euro and.

And $1.31 to the pound, we estimate that our baseline revenues for the fourth quarter of 2021 are approximately $83 million and our baseline operating expenses are approximately $53.5 million. We consider this to be our baseline calibration of approximately $29.5 million for the fourth quarter of 2020.

On one or approximately 36% of our baseline revenues as at November six 2020.

We've indicated previously that the targeted adjusted EBITDA operating margin range for our business is 35% to 40% as mentioned our actual results for Q3 had us at about 42%, it's possible that we exceed that 35% to 40% operating to operating range again in Q4, as we continue on our commitment to 10% to 15% adjusted EBIT.

The growth, but we don't yet see this as a permanent change in our preferred operating range. We'll look at this again at year end and if we have more stable environment and provides better revenue predictability will provide it.

And uncertain environment out there, but there is lots of opportunity, particularly for logistics and supply chain technologies, we believe that a well calibrated well capitalized experienced and acquisitive business like ours is in a great position to meet these challenges and build and even stronger business. Thanks to everyone for joining us on the call today as always we're available to talk to you about our business.

By phone or virtual meeting and we hope sometime sooner rather than later and person.

And with that I will turn the call back to the operator for QNX.

Thank you well now begin the question and answer session.

If you have a question. Please press Star then one on your Touchtone phone.

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Once again and a question please press star and one.

And you touched on time.

And our first question comes from Rhinos on franchise from Barclays. Your line is open.

Hey, guys. This is Frank on for IMO. So this is the second quarter and around that you beat on the topline just wondering what drove that specifically this quarter I know earlier in the quarter. There are some positive data points roundup potential rebound and some of the areas that were harder hit from the pandemic.

So did that performance this quarter come from more of a rebound and trade or continued strength in areas like digital compliance and ecommerce little.

A little bit of both.

Thanks, shrink a little bit of both.

I mentioned some of the things that are driving.

The growth and the business right now and and some of the strong results that you're seeing but I think we had.

A couple of businesses like ecommerce really continuing to drive.

You know.

Better than than than than prior performance and then you had the areas of our business that were maybe impacted slightly with the pandemic start to come back on truck on.

Our ocean businesses are coming on strong right now and the air business is coming back, perhaps a little better than we had hoped for.

Great. Thanks, Ed.

Thank you.

And your next question comes from Matt file.

From William Blair. Your line is open.

Hey, guys. Thanks for taking my question and just a follow up on that last remarks relative to the air Ocean and and tracking.

Volume Sweat where is the volume add on the network gum relative to where we are at debt pre kobin.

Hi, well immediately.

And the Ocean and air Space, I think here, you're you're sorry, and the ocean and truck spaces that you are back on track and maybe even.

With a little bit of growth.

We might have expected to see by now anyway and.

The air business and took a pretty big headwind cobot started not because the lease a problem with air cargo and actually air cargo divisions of airlines were all doing quite well on track.

The rates were up.

In the beginning or quadrupled and they're probably still running about level, because there's less capacity right now and all these passenger planes and taken out.

Of service.

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You lose the capacity on wasn't money on our past deploying the declines so while you see and if you look at the news and July on putting planes back and service and I think that's part of the come back that we're seeing right now and share so.

Still not back to normal levels.

Some of that being offset by E commerce growth and our business and that the trade content.

Business intelligence data that we sell.

Is.

This does two areas of book do very well for US right now and making up for you the losses, we had another errors.

Got it and then when do you follow up on on some of the margin commentary. So obviously.

Some of that benefit.

That you're receiving right now is perhaps one time and some of it may be permanent, but but I guess from from your guys perspective.

And we should we sort of be thinking that next year will probably be back and that 35% to 40%.

Margin range for for EBITDA margin as as things open back up or how are you guys thinking about your cost structure going forward.

We're not commenting on on next year. So much we're just telling and right now we're not moving it up.

Even though we beat and 40 the last few quarters we.

We are not prepared to move it back up because we don't know whats going to happen is a little more uncertainty out there than it normally is you're right we're benefiting from decreased.

Decreased marketing expenses decreased travel expenses.

And our business, starting and performed like it used to per pandemic with some areas that are really seeing accelerated growth.

With all that on certainly were reluctant to move the range just yet and by the way. If you look at our history, we usually burst busting and a number of couple of time before we actually move that.

The on road move it up another couple of points so.

Stay tuned on through let's see what happens, but the business and certainly performing very well right now and see what happened in the coming quarters.

Great I appreciate you guys, taking my questions. Thanks.

Hey, Thank you Matt.

And the next question comes from Paul Treiber from RBC capital.

Hello, and thanks, very much moving just in regards to ship track and this seems to be as significant on a contingent consideration on that disclosed and the and the mdna isn't mix of cash upfront to contingent consideration and a higher than at the co acquisition and if so what's the what's the reason per line.

Yeah, I'll start with us add on.

Paul I think you are right. It is a little bit bigger from a from the contingent consideration that we normally see and our deals.

Obviously.

We get into these deals and we'll try to price and appropriately and we use that contingent consideration to bridge any any valuation GAAP. These guys have some big growth plans at day accomplish that we'll be happy to pay that that contingent consideration, but the price up but reflects the business today and and the contingent consideration reflects that and so they can be debt down the relative okay.

I think I will say this is Paul we always think fit that works out for us in other words, we're happy to pay any earn out that we have with and acquisition because we always think thats going to be a big benefit to us if they actually hit those numbers. So.

While we would have to lay out and more money if thats if they hit all the numbers will be happy to do that.

And shifting to another acquisition and several years ago, obviously and macro points and I'd say.

And now overshadowed and last year with it and dynamic but has been knocked appointing tracking and this year engines and adoption and usage and could you provide an update on the trials on up.

Capacity matching and how thats been doing.

Yes, the microphone and generals doing very well it took a little bit of a hit we're actually right as the pandemic started there was a whole lot of trucking going on to ship stuff around per store shortages everywhere and for a couple of weeks maybe on a month there was a.

A lot more truck and going on on the country as a lot of stuff was moving around.

Then on the pandemic kind of said and when you know mid April may trucking took a bit of a hit and Microport goes along with this re we have enough explosion, all truck and industry in North America that we kind of go up and down with it.

[music].

Other than its maxpoint growing quite a bit so it's going to kind of sometimes a growth its growth overshadows those off this industry wide events.

But since then you know starting in about June and starting to really pick up truck market and it's it's doing very well right now.

For its our grad showing up for sure and our core visibility applications, but now also and capacity matching and.

On your stock and someone earlier this week and use and involved in this macro point and it's.

It's picking up in the last couple of months because.

Capacity matching sales people find trucks and Theres, a shortage and trucks right now and so were you give me. An example of a customer that was doing 30 40 loads a month with US couple of months ago and is now up over 700.

Just because they're having a hard time, finding drivers and thats on capacity match.

Helps them do.

Interesting and last one from me is on the mobile routing and telematics business on.

With the increase in omni channel and E commerce, and and our home delivery and how are you seeing a pipeline emerge for that where customers are managing their on fleet. So you're seeing more customers willing to do that or is it still using AG, a small parcel and carriers for that well I mentioned this move on to the call and I see it.

Going both ways right now that a clear answer emerge and and I'm not sure whether at one ever will I think there's certain companies and think I have to own that process and as other companies et cetera on a one on that process is going to be third party guys to do it and.

Thank you and enough we have solutions and serve both of them.

Our our routing and mobile.

Applications helped people that on their on truck fleets.

And if you are using third party carriers, we can sell those applications to this third party carriers and also give our customers the ability to manage those.

Those shipments with our transportation management tools that will help and managed to third party fleet.

So for US you know, we don't really care, which weighted goes so what we want to make sure that we're helping them provide the solution.

To operate more efficiently either way.

Okay. That's helpful. Thanks.

Thank you book.

And the next question comes and Jeff Long from Stephens. Your line is open.

Thanks, and good afternoon.

I wanted to start with the question on organic growth and you think about this pandemic and hopefully when we come out of it at some point next year kind of looking out over the next three to five years is your view that the organic growth profile of the business could accelerate versus what you've historically.

And Kwiecien just is cove it is become a and high opening experience for a lot of your customers.

Yes, and I talked about this a little more length from the last call, but but believe the same things today.

I think everyone just realized in April that it's no longer acceptable to have processes that are automated you have people managing shipments that aren't able to do it on line or from a phone and.

That that was a.

Acceptable answer before April of this year, a lot of companies did it manually phone calls faxes email and stuff like that all of a sudden and April that became unacceptable and.

Well, we've seen a drive for customers to try and automate these things and that's that's something that is going to help our business now and and probably more so over the coming years.

Okay, and secondly, I wanted to ask about acquisitions could you just give an update on what you're seeing and the pipeline level of activity with kind of big deals small deals and maybe what you're seeing from a valuation standpoint as well.

And has lots of stuff for sale right now nothing's changed from over the last couple of quarters.

It was surprising to us if there was maybe a month when everything stopped selling.

And say April, but things start to come back up for sale and now it's I'd say, it's a hot market for things to sell.

Especially if you have a high quality business.

They are selling and multiples that are.

And at times shocking to us and.

We we are very careful to to still makes on investment decisions. When we see that but because people are paying up for stuff to now you've seen a lot of stuff come up for sale, especially on the bigger and where those bankers involved and private equity firms involved that are well attuned to those things in our market.

Most of our deals are smaller tuck ins this things aren't really the main drivers of that they don't have bankers than that.

They're not big enough to to to take advantage of some of the things that maybe a larger acquisition might and at the same time, we probably care about different things to write a private equity firm on you you only care about the price you don't care and buys it we don't care what they do afterwards anything like that one of the smaller tuck ins that we buy.

Sure you know owned by on individual or two or three people and they care deeply what happens to the business after.

We buy.

And as a result, we become a very attractive choice the debt because were willing to pay a reasonable price and we're going to operate the business in a way that will be satisfactory and the owners, who maybe have worked with these employees per 10, or 20 years and know their friends not only just employees and they want to make sure. The right thing happens and we certainly position ourselves as a good choice and that.

Circumstance you can see the success Weve had doing it over the over the years.

Kind of pride ourselves and being able to go and instruments small businesses that were the best home for their baby.

Makes sense I'll leave it at that I appreciate the time.

Okay. Thank you very much just appreciate it.

And your next question comes from Paul steep from Scotia. Your line is open.

Great and can you talk a little bit you mentioned earlier and your comments on me.

Seeking E commerce, and new pillar of the business could you just talk about any changes to the org structure and go to market. There, obviously closed inc. Whether on deal five or six and terms, adding to that suite, maybe talk about that and then again going forward.

Sure I would and from an organizational structure, it's not a big difference we operate all in anything we buy we re merge into our business and died and operates as one our operations team is divided up by product. They operate all of our products. Our sales team is divided up and product. They sell all of our products. So I think from a go to market perspective.

And the way we operate things internally it's.

It's not a it's not a change it is a change and the way we describe it too.

To our customers and to shareholders, who want to understand how our business works.

It's also as we buy more and more of these E commerce solutions that there tended to be a lot of cross sell opportunities. There's also tended to be a lot of.

Opportunity for those products to work together to provide a much broader footprint or solution to our customers and we're trying to take advantage of those things as well Reagan and we we started with one with one ecommerce platform and now we have six or seven and we're starting to put them together. So we can go on to a customer with a whole suite of services to help and solve.

Ecommerce problems. So we're looking to take advantage that we know from other parts of our business and when we do that effectively we sell more stuff.

Were more attractive to the customers when we offer a more complete solutions. So we.

We're lining up to do that ecommerce.

As we speak perfect.

That's great and then the clarification is just around the compliance business respecting the fact that you.

He said Hey, this is really hard to call on Brexit I'm wondering if you can just give us and clearly the business is substantially larger, but maybe put it and context for us as to the impact of past changes as I recall for the last few years. Some of the changes have been more incremental this sounds like again, one of the larger changes we have likely seen and.

Yes, 10 or figures debt.

It's what yet it is it's like the world just added another country because you didnt have to.

Finally paper worked across the border into that country for a long time, and it's a fairly substantial trading partner for a lot of countries right now a lot of stuff moves through the UK.

And so.

We're looking forward to.

And now and we're not going to speculate yet on on on how big an opportunity for us it would be but you know if you want to kind of put it in perspective, it's like and other significant size puncher coming out not gonna material change our.

The look of our company, but it is going.

To show up and we're one of the better providers out there that that on might say well, we're the best provider out there on.

To provide these services so we're looking to take advantage of them.

I'm going to stretch to hear more head normally we've seen like a step function on lift when those come on is there anything I don't know how far close we are on the requirement is it going to be like a straight volume lift on the GE on similar similar to prior deals or do we think it's sorta.

Layers and a little bit over early 21. Thanks.

I think it will be.

Largely a step function and assuming it goes live on January Onest, you'll see group.

The revenue pickup.

Whatever it's going to pick up you'll see a pickup right around that and then maybe it'll take a little bit of time for all the volume to come on but probably not much.

Great. Thank you guys. Thanks.

Thank you book.

And our next question comes from Scott Group from growth research.

Hey, Thanks afternoon, guys just on that last point and I assume there's nothing no.

Assumed in the calibration for that right.

No. There is nothing there is nothing next year and the calibration for that and Q4 only has a month of it anyway. So it probably wouldn't be significant even if the work on that.

Can you talk about on should track to sort of the revenue run rate and the growth rates that.

And this has been saying and what.

And that.

And when we broke out the revenue but you.

You could probably tell by the purchase price and.

Good day.

It's the smaller tuck in for US, we think there's a lot of opportunity for us to sell their solutions into our customer base and they have a bunch of mobile handheld solutions and I think our customers would benefit from and we're looking to take advantage of that.

You can see they have a bigger on out there. So they think they have the potential for for for large growth, we'll see if they get there as I said earlier on the call. We hope we hope to pay that are now.

And we'll see what happens, but it's not it's organic growth or at the moment, but it but it certainly has the opportunity to be especially if you layer and the cross sell opportunities with that car.

Okay and then.

Moving now that you've got a bunch of deals here total size of the ecommerce platform and then lastly on just any update.

On the supply chain shifts that you're seeing on other customers.

During growth code.

And.

Sure it's around 10% ecommerce pillar.

Of our business. So that gives you some sense.

As far as supply chain shifts and and the same thing we have been seeing for a bunch and years with ecommerce.

It has maybe accelerated a bit in.

In total, but if you think of it at a macro level.

10 years ago, we estimate by and stuff on line the premise used to be.

And your store and outcome all combined from you and driving home myself.

And you know all of a sudden with Amazon and others like them coming and people started going pay how much you great rates and my house and on despite on the computer here and you bring it to me and you can imagine that debt changes a lot about how people Splotch and work you probably if you look and then you to warehouse management companies.

On on.

Are there any of that are public and some of their conference call. There. They have all different ways of handling that theres, the Amazon way of doing it there's a maybe like a best by way of doing and if you recall that.

Where will ship from store and they use their stores as virtual warehouses all over the country.

And those things all impact on supply chain and impact the software that we provided the supply chain and you see us make the investments and Pixie and people box over the last couple of years that was directly aimed at and trying to take advantage of these small and mid sized retailers and retailers that are coming on line and becoming fairly substantial businesses on.

Now on and have a new way of managing the supply chain and book Pixie and.

People box from right in the middle of AD and wanted to provide the warehouse management solutions to a much broader set of customers and that's why we made those investments.

Okay Thats it from guys appreciate.

Hey, Thanks and Scott.

And your next question comes from Deepak Ho from Stifel Group.

Hey, guys. Good evening. Thanks for taking my question was on a couple if I May force.

And well given a banner year for online shopping and.

On the Black Friday.

Thats expected to come from the Christmas holiday.

And the answer ready per day of what kind of constraints you anticipate or are you seeing so far and how does this in bucket and increase revenue and crude costs increased competition.

And we think about that capacity that you want on that well.

Well you can see it and some of the from newspaper articles are ready and regular.

Order your stuff now if you want to buy Christmas.

And I you know I don't think debt threats been out there and I got to go out and really with us and.

With Oh, yes.

Sorry, I got to go out and stop Okay, Yeah exactly exactly.

And listen the reason that is is because there is on so many trucks to deliver and stuff.

And there's only there's only so much stuff out there and more people are ordering and this form or fashion.

That's going to put a strain on the on on logistics and supply chain.

We see our customers gearing up for to make and plants word I'm sure you're still going to see some problems.

But they certainly all aware of it and doing their best to deal with that but.

You can only buy so many trucks right now on and you're reluctant to buy them for.

Just for the Christmas holidays in the pandemic year right. So.

We see it a little bit in our business and people ramping up the usage of their systems and the number of shipments on our network.

That's good for us.

How how bad will get how much stuff will people run out of I don't really know on on a have a crystal ball on that but.

I suspect that the same kind of increases we've seen over the course of the year going to hold off because it just you just saw black Friday up 22%, which is about what we see volume.

Volume was up in the last several months.

And have started up.

40% and April may and and kind of went back down to the mid Twentys and Black Friday was kind of consistent with that and with the 22% that are kind of saw the headlines on Saturday morning on.

Online sales being up 22% I think thats pretty consistent with what I saw the rest of the year.

So I suspect that trend will continue.

Not on a net basis, we'll need and drinking positive for you guys on on a business and revenue per second and or or neutral or.

And I think so usually when people have problems meant managing their logistics and supply chain operations, we benefit from that.

And they go Hey look from let's make sure that doesn't happen again.

And they buy more software from us or they use our network more efficiently to operate more efficiently.

So well see what happens here, but but I think this is bill generally good news for us and not only in the increased volume as we see today, but also in the opportunity to sell software that helps and operate more efficiently in the future to to help them get over these problems and make sure they don't happen again.

Got it got it thank you for that and my second question is around.

Coated and and we anticipate transaction distribution.

And given your experience and industry position and supplier.

How do you expect that to evolve and since.

Centralize and even trickle down to the economics.

When you think you'll be most active and where the business on option.

Well I mean, we think our customers going to be beneficiaries of this we have a lot of income into is talking to us about specific problems with that you have.

You know issues and the in the increased volume five 5 billion more things that need to get shipped around the world and need to get shipped yesterday, those things require urgency and special handling that.

That puts.

More challenges into the supply chain has got to be kept that negative 75 degrees.

Thats a big deal.

And.

Puts more challenges on our customers and when they get those types of challenges they come and look for solutions from us like our tracking solutions to make sure and it's it's everything is being done on time to our core like solutions tags and temperature monitoring where they need to make sure that day. This this thanks.

Vaccine maintained a certain temperature the entire route and we have solutions to help them deal with things like this so.

You know look let's see what happens in the in the coming on in the coming weeks and months, but.

Going to be a big tailwind for us.

Okay, great. Thank you for taking my questions on.

Great. Thanks good.

Cash and this concludes the question answer session and I'll now turn the call back over to the.

Presenters for final remarks.

Great. Thanks, everyone. Appreciate all the time and gave US today and look forward to talk to you again next quarter average net.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.

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Welcome to the Descartes quarterly results call. My name is Adrian and I'll be your operator for today's call.

At this time all participants are in a listen only mode. Later, we'll conduct a question answer session. If you like EPS question during that today's presentation.

Please press Star then one on your touched on phone please.

Please note. This conference is being recorded I'll now turn the collar and Scott Pagan Scott Pagan you may begin.

Thanks, and good afternoon, everyone.

Joining me on remotely on the call for their and Ryan and CEO and Allan Brett CFO and I Trust that everyone has received a copy of our financial results press release that initiated earlier today.

Portions of todays 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 and those laws.

These forward looking statements include statements related to our assessment of the current and future impact of the COVID-19 pandemic on our business and financial condition.

Descartes operating performance financial results and condition.

Descartes gross margins and any growth and 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.

Potential acquisitions and acquisition strategy cost reduction and 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 on the section entitled certain factors on the impact future results and documents filed and furnished with the SEC 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 and providing information about management's current expectations and plans relating to the future.

You are cautioned that such information may not be appropriate for other purposes. We.

We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward looking statements to reflect and 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 and Ed.

Hey, great. Thanks, Scott and welcome everyone to the call similar to past calls each of Scott Alan and I are in remote locations. Our whole business has been operating remotely for some time and as you'll see from todays results and our announcement our whole team is doing a pretty good job of it.

Similar to past calls here's a road map for the rest of this call.

I'll start with some opening comments, primarily focused on what happened over the last quarter and some of the opportunities and uncertainty we've seen.

I will then hand, it over to Alan who will go over the Q3 financial results and detail I'll, then come back and provides and perspective on how we're calibrated and looking at the current quarter and we'll then open it up to the operator to coordinate the Q and a portion of the call. So.

So let's get to it.

We had a great quarter due in large part to the continued hard work of our debt cart team members. We're a business that focuses on making our customer successful, we hope that by doing that and will benefit our own business.

Despite working a unique working circumstances. Our team has continued to keep our customers needs front and center, we pride ourselves on being part of the essential service of logistics and the role we play in and helping our customers rise to the distribution and business challenges they face this year.

For our own business, we've been able to post record financial results. We had record revenues of $87.5 million record adjusted EBITDA of $36.4 million ahead of our expectations and plan and up 16% over the same period last year.

We had an adjusted EBITDA margin of 42% and we have very high cash conversion with cash from operations at 91% of adjusted EBITDA.

We believe that our ability to deliver quality financial results and these tough market conditions. There's also a testament to how we calibrate our business those will follow on our business for some time that we put a lot of emphasis on calibration.

For us this means ensuring that we set our cost base at a level that considers what we're confident is going to happen with our business and this way when there is uncertainty we're not crossing our fingers and hoping that something is going to happen. Our planning approach is to plan for what we're confident in and execute to deliver more.

We believe this has served us well and that this is illustrated through our steady predictable historical growth. We also believe that now more than ever it positions us well from the market ahead of US a market that has tremendous opportunities for logistics and supply chain and lots of uncertainty as to how and when those opportunities will resolve themselves.

In short right now logistics and supply chain markets have tremendous opportunity and uncertainty.

We believe our well calibrated business with a history of superior execution and ample capital is and a great positions and succeed let.

Let me touch on five areas of opportunity and related uncertainty that we're seeing in the market and how were positioning ourselves therein.

First and ecommerce.

Just come off the U.S. Thanksgiving and Black Friday, you've probably seen the news that online sales force, 22% over last year and the United States with many people not spending money on travel and related experiences people may even have may have even more money to spend than in past years, especially with large parts of the world and various stages of lockdown being able to shop remote.

He is no longer and convenience and is now a customer expectation and necessity.

We believe that this is a permanent shift and the kobin related lockdowns have been a catalyst to accelerate this move but the shift is not without uncertainty, especially as it relates to logistics and supply chain there.

There are gone theyre ongoing questions around how to best distribute and warehouse goods, how much to in source versus outsource for distribution governmental intervention and oversight for the security and taxation of international shipments and the balance retailers will have in their own businesses between traditional selling methods and ecommerce.

Pretty cart, we've been deliberate and our approach to ecommerce we're focused on domestic and international ecommerce warehousing and distribution, we structured our business with an international ecommerce focused and aligned our solutions and a new ecommerce pillar weve.

We've made ecommerce a priority for investment with businesses, serving ecommerce distribution like ship Rush philosophy mail and scan code and E Commerce, enablement, and warehousing and like Pixie and people box.

And recently, we've invested even further when we combined with ship track.

Subtract provides ecommerce final mile solutions, when we look at the big beneficiaries of further moves too small parcel being shipped we believe the courier companies are leading the way should track have sophisticated tracking and mobile resource management solutions that are ideal to help carrier and other businesses and involved and high volume small parcel ship.

And and delivery, particularly for the last mile of home delivery, they make ecommerce deliveries easier and more transparent for everyone involved and delivery from the shipper to final mile carriers and the consumers. This is a fast growing business with ship track recently, having been recognized as a company to watch and towards fast 50 technology companies. We're excited.

To have them join our team and we're already seeing traction with some joint customers. So welcome to the entire should track team.

Second as U.S. policy changes with the schedule changes and the White House, we expect that there will be some shifting the U.S. approach to foreign policy.

Typically the logistics and supply chain industry sees those shifts through new trade agreements changes and tariffs and duties by countries and commodities changes and sanctioned foreign parties and controls on specified exports and financial support to particular industries, but like many things with us election, there's a bunch of uncertainty about how when and.

And with what countries those changes will show up from.

Credit card, we don't set up our business to count on any particular change happening in general there are changes and it's good for our business. This is because our customers rely on us and they need to adapt their logistics and supply chains that come to us for tariff and duty information to understand and leverage trade agreements to establish automated relationships with new trading partners and to me.

Monitor their trading and shipping relationships for continued compliance with applicable sanctions our job is to react quickly to these changes to minimize disruption and maximize opportunity for our customers. So in short we expect the new administration will us or in some foreign policy changes.

James has generally been good for us and our business.

While we don't know where predict what the changes will be will be ready as we have been in the past.

Third big issue is a vaccine distribution I'm sure. We've all been eagerly monitoring and development and approvals of Kobe vaccine that could help us.

Get out of the various stages of worldwide locked down and restrictions over the past month, we've seen several announcements from vaccine manufacturers about positive trial results final stages of regulatory approval and the preparation for distribution.

There are huge uncertainties around dates of distribution, what amounts to which countries and distribution requirements in particular and for the logistics industry different vaccines have different temperature distribution requirements with at least one vaccine requiring culture and distribution maintaining temperatures at lower than seven negative 70 degrees Celsius.

And general anytime someone said they need to distribute $5 billion of something that hasn't been shipped before that's going to be a tailwind to the logistics industry. Our customers will play a critical role and distribution and considering the lifesaving potential the vaccine are taking their roles very seriously we.

We anticipate our customers will be leveraging our solutions as part of this distribution, whether it will be using the global logistics network for communication, managing and attracting shipment using our technology. We're monitoring the temperature of shipments and transit in particular, the time sensitive nature of vaccine shipments, we anticipate the air and truck modes of transportation would benefit from the tail.

Wins that some customers and they leverage our air cargo temperature monitoring solutions from a recent acquisition of ours core.

The fourth is Brexit.

Beginning on January 1st 2021, UK, and you enter and new customers regime with UK, leaving the EU as of now there is no new UK free trade agreement and there is uncertainty as to whether or not they're ever will but there's also a separate northern Ireland protocol, which will have northern Ireland filing following you customers Rolls Royce.

Also a new UK customs system, replacing historical chief system during the logistics and supply chain industries, It's like a brand new country has been established for the purposes of import and export filings with a bunch of uncertainty about how it will all work, whether even more changes are forthcoming and new systems to deal with.

Predict card this is something we'd be busy getting ready for for a while we've historically been one of the more influential UK customs preparation filing providers we.

We were we were then the first.

Solutions provider to be able to file to the new.

UK CBS customs declarations service, we've been hosting numerous webinars and information sessions for our customers on the new regime and how we can help them, we anticipate that our customers will use our UK custom solutions look for us to.

Look to us for updated tariff and duty information and use us for UK import control systems.

Systems Security filings, we like everyone else are uncertain about the timeline and volumes that will be seen and this new regime as well as the adjustments that will be made or needed on an ongoing basis, but we know that our customers are looking to us to help them deal with something new something that the supply chain and logistics industry didnt need to deal with and tool.

We recently.

The fifth is pandemic working conditions.

Pandemic is cause businesses to change how they work employees are working from home medians have shifted to online video conferences business travel has all book been eliminated and marketing spends have shifted from physical trade show events to maximizing online presence as every day goes by and I think more and more people are wondering whether those are temporary or more permanent changes.

There is uncertainty about what real estate footprints travel and marketing will look like in the corporate and world and the corporate world going forward.

The cards business has been no exception to this as part of our restructuring efforts earlier in the year, we close certain offices, where employees can permanently work from home and we're on data we have a critical eye on our physical office footprint going forward our own physical user conference was cancelled and we held on online event and stay our marketing dollars have been shifted from trade show events to more emphasis.

And on search engine optimization, our travel spend is almost nothing at this point on.

Over the longer term. We believe this is an opportunity for us to operate our business more efficiently. While there is uncertainty about how and when travel and other business practices could turn back towards three pandemic normal we believe the lessons learned during the pandemic and how we performed as a business through it will open avenues for us to use our resources, even more effectively to serve.

Our customers and deliver results to stakeholders before.

Before I turn the call over to Al and I just wanted to again express my thanks to the many people going above and beyond during the pandemic. These have not been easy times for businesses communities on our own team members countless people and do including debt cards on team members have made tremendous sacrifice and effort to help preserve the health and wellness of our families and communities. We are then mature.

And this debt of gratitude our.

Our Descartes contribution has been to help our customers to food medicine, and other supplies moving while vaccines and treatments were developed we're hopeful we're all on the cost of making a meaningful bent and the spread of the virus that will allow us to all feel that things are a bit more normal until then as we all deal with this period on uncertainty the cart will focus on what it does best helping on.

Customers calibrating, our business appropriately, making targeted investments looking for opportunities and most important delivery to our plan I will now turn the call over to Alan to go through our Q2 financial results in more detail now.

Sure. Thanks, Ed as indicated on going to walk walk you through our financial highlights for the third quarter ended October 31.

We are pleased to report record quarterly revenues of 87.5 million this quarter up 5% from revenues of 83.0 million in Q3 of last year and also up just over 4% sequentially from the second quarter of this current year.

Our revenue mix continues to be very strong with service revenue, increasing 7% to a record $77.6 million or 89% of total revenue from the third quarter and again up nicely approximately 3% sequentially from the second quarter of this year as various parts of our business continued to steadily improve.

Professional services and other revenue came in at $9.3 million or 10% of revenue and the third quarter. This year and that's an increase of 4% from the third quarter last year.

License revenue continues to be quite small coming in at 600000 or less than 1% of our total revenue in Q3.

And our goal it will remain.

Small percentage of our overall revenue, we do expect that will fluctuate quarter to quarter.

Gross margin was once again strong at 74% of revenue in the third quarter, which is up slightly from gross margin of 73%.

Third quarter last year.

Similar to the past number of quarters, we continue to have strong cost control our operating expenses.

As reductions across many expense categories, including travel and marketing costs resulted in a slight decrease in operating expenses in the quarter when compared to the third quarter last year.

Despite the impact of increased headcount and costs that have come with the acquisitions, we have recently completed.

So with some solid growth and revenue and continued cost control. We are pleased to see strong adjusted EBITDA growth of approximately 16% to a record $36.4 million were 41.6% of revenue and third quarter, when compared to 31.5 million or 38.0% of red.

In the same quarter last year.

As a result of the strong operating results cash flow generated from operations came in at $33.1 million or approximately 91% of adjusted EBITDA and quarter up 20% compared to operating cash flow and Q3 last year.

Operating cash flow this quarter was aided by strong collections from customers as well as and it can decrease and cash taxes paid during the quarter.

And as we've said in the past operating cash flow will be subject to quarterly fluctuations and I'll leave operating above 90% conversion rate in the past two quarters for the most part we expect to see operating cash flow conversion can to continue and are more typical range of 80% to 90% of adjusted EBITDA and the quarters ahead.

From a GAAP earnings perspective, net income came in at 13.3 million or 15 cents per diluted common share and the third quarter upstream.

Up sharply from net income of 9.7 million or 11 cents per diluted common share and the same period last year.

Overall, we are certainly pleased with the way the business has performed as we manage through the current pandemic and the resulting economic climate.

If we look at the balance sheet, our cash balances totaled $114.4 million at the end of the third quarter.

That was an increase of 32.5 million over the cash balance at the end of the second quarter.

As previously announced share.

Just after the and at the end of after the end of the third quarter. We completed the acquisition of ship track using approximately $19 million from our cash balances to complete this acquisition.

With our meeting cash balances a $1 billion shelf prospectus in place.

And our unused $350 million on credit we continue to have plenty of capital capacity to allow us to consider all acquisition opportunities and our market consistent with our business plan.

So as we look to the fourth quarter. This year, we should note the following as outlined in the outlook section of per Mdna.

After incurring approximately 2.9 million and capital additions and the first nine months of year, we expect to incur and additional 500000 to 1 million and further capital additions for the balance of this year as our capital equipment needs remain very modest.

We expect amortization expense will be approximately $13.6 million for the balance of that why 21 with this figure being subject to the adjusted for FX changes and future acquisitions.

Our income tax rate came in at approximately 28.4 for the first three quarters of this year.

For the fourth quarter, we expect our income tax rate would be on the range of 25% to 30% of our pre tax income, although as always we should add that our tax and they may fluctuate from one time items that may arise as we operate internationally across multiple countries.

And finally, we expect that stock based compensation will be approximately 1.5 to 1.7 million for the fourth quarter.

And this will be subject to any additional grants or store kutcher with stock options or share units that happened this quarter.

With that I'll turn it back over to Ed will wrap up with some comments on the quarter, including our baseline calibration.

Hey, Thanks, Alan I mentioned earlier that our focus is on delivery to our plan as we enter Q4, we also start turning our mind to our planning process for the next fiscal year. So let me recap some of the principles, we use and planning and executing on our business.

We plan for our business to grow adjusted EBITDA, 10% to 15% annually, we plan to growth through a combination of organic growth and acquisitions. When we over perform we expect to reinvest that over performance back into our business, we focus on recurring revenues and establishing relationships with customers for life.

We thrive on operating and predictable business that allows us forward visibility to our revenues and our investment paybacks.

Establish our plans with a view to be able to pursue opportunities without placing undue risk on our business. We believe that the way. We've grown historically is the right pace for our business, we see other shoot for the Moon and blow up on the way there we plan on getting there with steady sustainable profitable growth.

This doesn't mean, we won't look at larger investment opportunities as we continue on our journey, because we have and we do.

Our job is to put our company in a position where it has the capital structure to do to do these deals if it makes sense at October 30, Onest, we had more than $110 million and cash and Undrawn $350 million line of credit and the ability to upsize. It by a further $150 million to $500 million. We also have a share.

Prospectus that enables us to raise up to $1 billion over the next two years, we have a stable platform and over 15 years of acquisition execution and integration experience. If it makes sense for us to get it done for our business and stakeholders, we can and we will.

Turning to calibration, we provided comprehensive.

Description of baseline revenues baseline calibration and their limitations and our quarterly report.

We filed today, but to summarize how we saw things at November six 2020. Once we've combined with ship track. We are using foreign exchange rates of 70 cents 77 cents to the Canadian dollar.

A $1.19 to the euro and.

And $1.31 to the pound, we estimate that our baseline revenues for the fourth quarter of 2021 are approximately $83 million and our baseline operating expenses are approximately $53.5 million. We consider this to be our baseline calibration of approximately $29.5 million for the fourth quarter of 2020.

And one were approximately 36% of our baseline revenues as at November six 2020.

We've indicated previously that the targeted adjusted EBITDA operating margin range for our business is 35% to 40% as mentioned our actual results for Q3 had us at about 42%, it's possible that we exceed that 35% to 40% operating to operating range again in Q4, as we continue on our commitment to 10% to 15% adjusted EBIT.

The growth, but we don't yet see this as a permanent change in our preferred operating range. We'll look at this again at year end and if we have more stable environment provides better revenue predictability will provide it.

And uncertain environment out there, but there is lots of opportunity, particularly for logistics and supply chain technologies, we believe that a well calibrated well capitalized experienced and acquisitive business like ours is in a great position to meet these challenges and build and even stronger business. Thanks to everyone for joining us on the call today as always we're available to talk to you about our business.

By phone or virtual meeting and we hope sometime sooner rather than later and person.

And with that I'll turn the call back to the operator for Q index.

Thank you well now begin the question answer session.

If you have a question. Please press Star then one on your Touchtone phone.

If you wish to be and this and the queue. Please press the pound sign and where the ASCII.

It will be delayed from the first question is going on.

And for using Speakerphone, you may need to pick up to assets first the flow pressing the numbers.

I'm forgetting and a question please press star and one.

And you touched on fine.

And our first question comes from Rhino from franchise from Barclays. Your line is open.

Hey, guys. This is Frank on for Ryan, though so this is the second quarter growth at you beat on the topline just wondering what drove that specifically this quarter I know earlier in the quarters and positive data points roundup potential rebound and some of the areas that were harder hit from the pandemic.

So did the performance this quarter come from more of a rebound and trade or continued strength in areas like digital compliance and ecommerce little.

A little bit of both.

Thanks rank a little bit of both.

I mentioned some of the things that are driving.

The growth and the business right now and and some of the strong results that you're seeing but I think we had.

A couple of businesses like ecommerce really continuing to drive.

You know.

Better than than than than prior performance and then you had the areas of our business that were maybe impacted slightly with the pandemic start to come back or truck. Our ocean businesses are coming on strong right now and the air business is coming back perhaps a little better than we had hoped for.

Great. Thanks, Ed.

Thank you.

And your next question comes from Matt Pfau.

From William Blair. Your line is open.

Hey, guys. Thanks for taking my question and just to follow up on that last remarks relative to the air Ocean and tracking.

Volumes, where is the volume add on the network relative to where we were at debt pre kobin.

Hi, well immediately.

And the Ocean and air Space, I think you're you're on sorry in the ocean and truck space and that you're you're back on track and maybe even.

With a little bit of growth.

We might have expected to see by now anyway.

On the air business and took a pretty big headwind cobot started not because really a problem with air cargo and actually air cargo divisions of airlines were all doing quite well.

Like the rates were up.

In the beginning or quadrupled and they're probably still running about level, because there's less capacity right now and all these passenger planes and taken out of service.

Lou the capacity when was that moving on I pass deplete. These lines. So while you see and if you look at the news just your letter on putting planes back and service and I think that's part of the come back that we're seeing right now and share so.

Still not back to normal levels.

Some of that being offset by E commerce growth and our business and that the trade content.

Business intelligence data that we sell.

Is.

Those two areas of book do very well for us right, now and and making up for either the losses, we had another errors.

Got it and then when do you follow up on on some of the margin commentary. So obviously.

Some of that benefit.

That you're receiving right now is perhaps one time and some of it may be permanent, but but I guess from from your guys perspective.

And we should we sort of be thinking that next year will probably be back and that 35% to 40%.

Margin range for for EBITDA margin as as things open back up or how are you guys thinking about your cost structure going forward.

We're not commenting on on next year. So much. We're just telling you right now we're not moving it up.

Even though we we beat and 40 the last few quarters we.

We are not prepared to move it back up because we don't know whats going to happen is a little more uncertainty out there than it normally is you're right. We're benefiting from the decreased marketing expenses decreased travel expenses.

And our business, starting and performed like it used to pre pandemic with some areas that are really seeing accelerated growth.

With all that on certainly were reluctant to move the range just yet and by the way. If you look at our history, we usually burst bust through the number a couple of times before we actually move that.

The total move it up another couple of points so.

Stay tuned on through let's see what happens, but the business and certainly performing very well right now and see what happens in the coming quarters.

Great I appreciate you guys, taking my questions. Thanks.

Hey, Thank you Matt.

And the next question comes from Paul Treiber from RBC and all.

Okay. Thanks, very much moving just in regards to ship track and this year. He is moving on a contingent consideration on that disclosed and knee and and the Mdna isn't mix.

Cash up front to contingent consideration and a higher than at the co acquisition and if so what's the what's the reason put on.

Yeah, I'll start with this add on.

Paul I think you are right. It is a little bit bigger from a from the contingent consideration that we normally see in our deals.

Obviously.

We get into these deals and we'll try to price and appropriately and we use the contingent consideration to bridge any any valuation GAAP. These guys have some big growth plans day accomplish that we'll be happy to pay that to that contingent consideration, but the price up but reflects the business today and and the contingent consideration reflects that and so they can be debt down the relative okay.

I think I will say this is Paul we always think fit that works out for us and other which we're happy to pay any earn out that we have with and acquisition because we always think thats going to be a big benefit to us if they actually hit those numbers. So.

While we would have to lay out and more money. If that's if they hit all the numbers will be happy to do that.

And shifting to another acquisition and several years ago, obviously and macro point and I'd say.

And now overshadowed and last year with it and dynamic but has been back and pointing tracking and this year in terms of adoption and usage and could you provide an update on the trials on up.

Capacity matching and how thats been doing.

Yes, the microphone and generals doing very well it took a little bit of hit we're actually right as the pandemic started there was a whole lot of truck and going on to ship stuff around the store shortages everywhere and for a couple of weeks maybe on a month there was a.

A lot more trucks and going on on the country as a lot of stuff was moving around.

Then on the pandemic kind of set in mid April May truck, we took a bit of a hit and democracy and goes along with this re we have enough explosion and all trucking industry and North America that we kind of go up and down with it.

Other than its Mexico, and growing quite a bit. So can you kind of sometimes a growth its growth overshadows those off this industry wide events.

But since then you know started and about June and starting to really pick up truck market and it's it's doing very well right now.

For its our grad showing up for sure and our core visibility applications, but now also and capacity matching and financed.

And I was talking to someone earlier this week and use and involved in this and our appointed and it's.

It's picking up in the last couple of months because.

Capacity matching and people find trucks and Theres, a shortage and trucks right now and so were you give me. An example of a customer that was doing 30 40 loads a month with US a couple of months ago and is now up over 700.

Just because they're having a hard time, finding drivers and thats what capacity match.

Helps them do.

Interesting and last one from me is on the mobile routing and telematics business on.

With the increase and omni channel and E Commerce, and and now on delivery. How are you seeing a pipeline emerge for that where customers are managing their on fleet. So you're seeing more customers willing to do that or is it still using a lag a small parcel and carriers for that well I mentioned this move on to the call I see and.

Going both ways right now that a clear answer emerge and and I'm not sure whether at one ever will I think there's certain companies and think I have to own that process and there's other companies et cetera on a one on that process is going and third party data to do it and.

And I still enough, we have solutions and serve both of them.

Our our routing and and mobile.

Applications helped people that on their on truck fleets.

And if you are using third party carriers, we can sell those applications to this third party carriers and also give our customers the ability to manage those.

Those shipments with our transportation management tools that would help and managed to third party fleet.

So for US you know, we don't really care, which way. It goes so what we want to make sure that we're helping them provide the solution.

To operate more efficiently either way.

Okay. That's helpful. Thanks.

Thank you book.

And the next question comes and Jeff Long from Stephens. Your line is open.

Thanks, and good afternoon.

I wanted to start with a question on organic growth and you think about this pandemic and hopefully as we come out of it at some point next year kind of looking out over the next three to five years is your view that the organic growth profile of the business could accelerate versus what you've historically.

On a kwiecien just is cove it is becoming an eye opening experience for a lot of your customers.

Yeah.

I talked about this a little more length from the last call, but book believed the same things today.

I think everyone just realized in April that it's no longer acceptable to have processes that are automated you have people managing shipments that aren't able to do it on line or from a phone and.

That that was a.

Acceptable answer before April of this year, a lot of companies Didnt manual phone calls faxes emails stuff like that all of a sudden and April that became unacceptable and.

Well, we've seen a drive for customers and try and automate these things and that's that's something that is going to help our business now and and probably more so over the coming years.

Okay, and secondly, I wanted to ask about acquisitions could you just give an update on what you're seeing and the pipeline level of activity with kind of big deals small deals and maybe what you're seeing from a valuation standpoint as well.

And there is lots of stuff for sale right now nothing's changed from over the last couple of quarters.

Surprising to us.

Maybe a month when everything stopped selling and.

I'd say April but things start to come back up for sale and now it's I'd say, it's a hot market for these to sell.

Especially if you have a high quality business.

They are selling and multiples that are.

At times shocking to us and.

We we are very careful to to still makes on investment decisions. When we see that but because people are paying up for stuff. You know you've seen a lot of stuff come up for sale, especially on the bigger and where those bankers involved and private equity firms involved that are well attuned to those things in our market.

Most of our deals are smaller tuck ins this things aren't really the main drivers of that they don't have bankers than that.

They're not big enough to to to take advantage of some of the things that maybe a larger acquisition might and at the same time, they probably care about different things to write a private equity firm and you only care about the price you don't care, who buys it you don't care what they do afterwards anything like that one of the smaller tuck ins that we buy.

They're owned by and individuals or two or three people and they care deeply what happens to the business. After we.

We buy and as a result, we become a very attractive choice to them because we're willing to pay a reasonable price and we're going to operate the business and a way that will be satisfactory and the owners, who maybe have worked with these employees per 10, or 20 years and know their friends not only just employees and they want to make sure the right thing happens and we certainly position ourselves.

A good choice and that circumstance you can see the success Weve had doing it over the over the years.

On a pride ourselves and being able to go into your guidance small businesses that were the best home for their baby.

Makes sense I'll leave it at that I appreciate the time and.

Thank you very much just appreciate it.

And your next question comes from Paul steep from Scotia. Your line is open.

Great Hey, Hey.

Can you talk a little bit you mentioned earlier and your comments about making E commerce and new pillar of the business could you just talk about any changes to the org structure and go to market. There obviously closed Inc.

Whether on deal five or six and terms, adding to that suite, maybe talk about that and they got.

One quick follow up.

Sure and from an organizational structure, it's not a big difference we operate all and anything we buy we re merge into our business and and operates as one our operations team is divided up by product. They operate all of our products. Our sales team has and divided up by product. They sell all of our products. So I think from a go to market perspective and.

The way, we operate things internally.

It's not a it's not a change it is a change and the way we describe it to to our customers and to shareholders, who want to understand how our business works.

It's also as we buy more and more of these E commerce solutions that there tended to be a lot of cross sell opportunities. There's also tended to be a lot of.

Opportunity for those products to work together to provide a much broader footprint or solution to our customers and we're trying to take advantage of those things as well right. We started with one with one E Commerce platform and now we have six or seven and we are starting to put them. Together. So we can go on to a customer with a whole suite of services to help them solve.

Ecommerce problems. So we're.

We're looking to take advantage that we know from other parts of our business when we do that effectively we sell more stuff.

Were more attractive to the customers, where we offer a more complete solutions. So.

We're lining up to do that ecommerce.

As we speak perfect.

That's great and then the clarification is just around the compliance business respecting. The fact that you said Hey, this is really hard to call on Brexit, but I'm wondering if you can just give us and clearly the business is substantially larger, but maybe put it and context for us as to the impact of past changes as I recall for the last few years some of the.

The changes have been more incremental this sounds like again, one of the larger changes we have likely seen and last.

And our figures east.

It's what yet it is it's like the world just added another country because you didnt have to.

File and the paperwork to cross the border into.

Into that country for a long time, and it's a fairly substantial trading partner for a lot of countries right now a lot of stuff moves through the UK and so on.

We're looking forward and coming out and we're not going to speculate yet on on on how big an opportunity for us it would be but.

If you want to kind of put it and perspective, it's like and other significant size puncher coming out and I can material change our our group.

The look of our company, but it is going to.

To show up and we're one of the better providers out there on might say well, we're the best provider out there on.

To provide these services so we're looking to take advantage of them.

I'm going to stretch to hair more head normally we'd seen like a step function lift when those come on is there anything I don't know how far close we are on the requirement is it going to be like a straight volume lift on the GL and so similar to prior deals or do we think it's sorta.

Layers and a little bit over early 21. Thanks.

I think it will be moving well.

Largely a step function and assuming it goes live on January Onest, you'll see we've.

The revenue pickup.

Whatever it's going to pick up you'll see a pickup right around that and on maybe it'll take a little bit of time for all the volume to come on but probably not much.

Great. Thank you guys.

Thank you book.

And our next question comes from Scott Group from growth research.

Hey, Thanks afternoon, guys just on that last point and I assume there is nothing that cash.

Assumed in the calibration for that right.

No. There is nothing there is nothing next year and the calibration for that and Q4 only has a month and have it anyway. So it probably wouldn't be significant even in the world.

Can you talk about on the ship track to sort of the revenue run rate and the growth rates that that business has been seeing and.

And that.

I don't think we broke out the revenue but.

You can probably tell by the purchase price and.

Good day.

It's the smaller tuck in for US, we think there's a lot of opportunity for us to sell their solutions into our customer base and they have a bunch of mobile handheld solutions and we think our customers would benefit from and we're looking to take advantage that.

You can see they have a bigger and out there. So they think they have the potential for large growth, we'll see if they get there as I said earlier on the call. We hope we hope to pay that are now.

And we'll see what happens, but it's not it's organic growth or at the moment, but it but it certainly has the opportunity to be especially if you layer and the cross sell opportunities with that car.

Okay and.

Tom maybe now that you've got a bunch of deals where total size of the E. Commerce platform and then lastly, just any update.

On the supply chain shifts that you're seeing on their customers.

During postcode.

[music].

Sure it's around 10% ecommerce pillar.

Of our business. So that gives you some sense.

As far as supply chain shifts and that the same thing we've been seeing for a bunch and years with ecommerce.

Has maybe accelerated a bit in.

In total, but if you think of it at a macro level.

10 years ago, we estimate by and stuff on line the premise used to be debt.

And your store and outcome all combined from you and drive it home myself.

And you know all of a sudden with Amazon and others like them come and people started going pay how much you bring on rights and my house and on despite on the computer here and you bring it to me and you can imagine that debt changes a lot about how people Splotch and work you probably if you look and then you to warehouse management companies.

On it.

And are there any admit are public and some other conference calls there they have all different ways of handling that there's the Amazon way of doing it there is maybe like a best by way of doing and if you recall that.

Where will ship from store and they use their stores as virtual warehouses all over the country.

And there's things on pack and supply chain and impact the software that we provided the supply and you see us make the investments and pixie and people boxes over the last couple of years that was directly aimed at trying to take advantage of these small and mid sized retailers.

And retailers that are coming on line and becoming fairly substantial businesses.

Now on and have a new way of managing and supply chain and book Pixie and.

People box, we're right in the middle of add one to provide the warehouse Max and solutions to a much broader set of customers and that's why we made those investments.

Okay. Thanks for the time guys appreciate it hey.

Hey, Thanks and Scott.

And your next question comes from Deepak Ho from Stifel Group.

Hey, guys. Good evening, Thanks for taking my question.

A couple if I may.

Ed.

Given a banner year for online shopping.

As a black Friday, and what's expected to come from the Christmas holiday.

And yet you're ready for that and what kind of constraints you anticipate or are you seeing so far and how does this and bucket and increase revenue and crude costs increased competition, how should we think about that capacity that went on there.

Well you can see it and some of the newspaper average iridium.

Order your stuff now if you want to buy Christmas.

And I you know.

I don't think that threat spin out there and I got to go out and really this is it.

With Oh, yes I'm.

Oh I got to go on and stuff.

Exactly exactly.

And this is the reason that is is because there is on so many trucks to deliver and stuff.

And there's only there's only so much stuff out there and have more people are ordering and this form or fashion.

That's going to put a.

Strains on the on on.

Logistics and supply chain.

We see our customers gearing upwards and making plans for it I'm sure you're still going to see some problems.

But they certainly are aware of it and doing their best to deal with it but.

You can only buy so many trucks right now and you are reluctant to buy them for.

Just for the Christmas holidays, and pandemic year right. So.

We see it a little bit and our business people ramping up the usage of their systems and the number of shipments on our network.

That's good for us.

How how bad will get how much stuff will people run out of I don't really know and have a crystal ball that but.

I suspect that the same kind of increases we've seen over the course of the year going to hold off because you. Just you just saw black Friday up 22%, which is about what we see volume.

Volume was up in the last several months.

Kind of started up.

40% and April may and and kind of went back down to the mid Twentys and Black Friday was kind of consistent with that and with the 22% to that kind of saw the headlines on Saturday morning on.

On sales being up 22% and that's pretty consistent with what I saw the rest of the year. So I suspect that trend will continue.

Got it but on a net basis.

And we'll need concurrency positive for you guys on on a business and revenues this quarter and we're on.

On neutral or.

And I think so usually when people have problems meant managing their their logistics and supply chain operations, we benefit from that.

And they go Hey look lets make sure that doesn't happen again.

And they buy more software from us or they use our network more efficiently now operating more efficiently.

So well see what happens here, but but I think and still generally good news for us not only in the increased volume as we see today, but also in the opportunity to sell software that helps and operate more efficiently and future to to help them get over these problems and make sure they don't happen again.

Got it got it thank you for that and my second question is around.

Coated and and we anticipate transaction distribution.

And then given your experience and the industry and position the.

Supplier, how do you expect that to evolve and central.

Centralize and it may trickle down economic growth.

When you think you'll be more stock and on where the benefit on opportunity.

Well I mean, we think our customers going to be beneficiaries of this we have a lot of income and two is talking to us about specific problems with that you have.

You know issues and the in the increased volume about 5 billion more things that need to get shipped around the world that didnt need to bid ship yesterday, those things require urgency and special handling that.

That puts.

More challenges into the supply chain, Hey, it's got to be kept that negative 75 degrees and.

Thats a big deal.

And.

Puts more challenges on our customers and when they get those types of challenges they come and look for solutions from us like our tracking solutions to make sure that it's it's everything's been done on time to our core like solutions tags and temperature monitoring where they need to make sure that they that this this thanks.

Vaccine maintained a certain temperature the entire route and we have solutions to help them deal with things like that so.

You know, what let's see what happens in the coming in the coming weeks and months, but.

Going to be a big tailwind for us.

Okay, great. Thank you for taking my questions all day.

Great. Thanks, Steve.

And this concludes the question answer session and I'm not trying to call back over to.

And presenters for final remarks.

Great. Thanks, everyone. Appreciate all the time you gave us today and look forward to talk to you again next quarter and I have a great net.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.