Q3 2021 Descartes Systems Group Inc Earnings Call
Welcome to the day current 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, well conduct a question answer session. If you like EPS question. During today's presentation. Please press Star then one on your Touchtone phone. Please.
Please note. This conference is being recorded I'm not sure the collar Scott Pagan Scott Pagan you may begin.
[music].
Thanks, and good afternoon, everyone.
Joining me remotely on the call for their Ed Ryan CEO, and Allan Brett CFO I Trust that everyone has received a copy of our financial results press release 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 for those losses.
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.
Take our its operating performance financial results from condition.
The current gross margins in any growth in those gross margin.
Cash flow and use of cash business outlook baseline revenues baseline operating expenses and baseline calibration.
Anticipated and potential revenue losses from gains anticipated recognition and expensing of specific revenues and expenses.
Total 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 for descartes to differ materially from the anticipated results performance or achievements implied by such forward looking statements.
These factors are outlined in the press release and in the section entitled certain factors that may affect future results in documents filed and furnished with the FCC. The O S C and other securities commissions across Canada, including our management's discussion and analysis filed today.
We provide forward looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future.
You are cautioned that such information may not be appropriate for other purposes.
We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward looking statements to reflect any change in our expectations for.
For any change in events conditions assumptions or circumstances on which any such statements based except as required by law.
With that let me turn the call every day.
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 are now an outspend our whole team is doing a pretty good job growth.
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'll, then hand, it over to Alan who will go over the Q3 financial results in detail I'll, then come back and provide some 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.
Let's get to it.
We had a great quarter due in large part to the continued hard work of our Dick Clark 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 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 served.
For the logistics and the role we play in helping our customers rise to the distribution 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% or with the same period last year, we had an adjusted EBITDA margin of 42% and we had very high cash conversion.
Cash from operations at 91% of adjusted EBITDA.
We believe that our ability to deliver quality financial results in these tough market conditions. There's also a testament to how we calibrate our business those who have followed our business for some time now 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 it's going to happen with our business in this way when there's 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.
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 for 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 were just six 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 in a great position to succeed let.
Let me touch on five areas of opportunity and related uncertainty that were seen in the market and how were positioning ourselves therein.
[noise] vs ecommerce.
Just come off the U.S. Thanksgiving and Black Friday, you've probably seen the news the online sales rose 22% over last year in 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 in various stages of lockdown being able to shop remote.
There is no longer the convenience and is now a customer expectation and necessity will.
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 are gone theyre ongoing questions around how to best distribute and warehouse goods, how much to insource vs outsourced 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.
For the cart, we've been deliberate in our approach to ecommerce we're focused on domestic and international ecommerce warehousing and distribution, we structured our business for the international ecommerce focused and aligned our solutions and a new ecommerce pillar weve.
We've made ecommerce for priority for investment with business and serving ecommerce distribution like ship Rush Philosophy Mountain scan code and E Commerce, enablement, and warehousing like Pixie and people box.
And recently, we've invested even further when we combine 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 in both involve that high volume small parcel shipped.
The non 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, which is a fast growing business with ship track recently, having been recognized as a company to watch invoice 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 shipwrecked team.
Second as U.S. policy changes with the schedule changes in the White House, we expect that there will be some shifts in the U.S. approach to foreign policy.
Typically the logistics and supply chain industry sees those shifts through new trade agreements changes in 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 about certainty about how when.
With what countries those changes will show up for.
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 for 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 training 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.
Third Big issue is our vaccine distribution I'm sure. We've all been eagerly monitoring the development and approvals of cobot vaccines 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 for distribution, what amounts to which countries and distribution requirements in particular for the logistics industry different vaccines have different temperature distribution requirements with at least one vaccine requiring 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 in 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 new tracking shipment using our technology for monitoring the temperature of shipments in transit in particular, the time sensitive nature of vaccine shipments, we anticipate the air and truck modes of transportation will benefit from Tel.
Wins at some customers may leverage our air cargo temperature monitoring solutions from a recent acquisition of ours core.
The fourth is Brexit.
Moving on January 1st 2021, UK and you enter a 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 be there's also a separate northern Ireland protocol, which will have northern Ireland filing following you customs roles we've.
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.
For Dick card. This is something we've been 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 for 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 in for control.
System security filings, we like everyone else are uncertain about the timeline in volumes that we see in this new regime as well as the adjustments that will be made were needed on an ongoing basis, but we know that our customers are looking to us to help them deal with something new for something that the supply chain and logistics industry didnt need to deal with and tool.
Very 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 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 in the corporate world going for.
The current business had 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 an online event instead, our marketing dollars have been shifted from trade show events to more emphasis.
Just 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 to 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 Alan 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 or our own team members countless people into including debt carts on team members have made tremendous sacrifice an effort to help preserve the health and wellness of our families and communities we are that metric.
Mendis better credit to our.
Our debt car 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 debt 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. The current will focus on what it does best helping our.
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 I'm 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 for the third quarter and again up nicely approximately 3% sequentially from the second quarter for this year as various parts of our business continued to steadily improve.
Professional services and other revenue came in at 9.3 million for 10% of revenue in the third quarter. This year and that's an increase of around 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 for Q3.
Bullet will remain.
Small percentage of our overall revenue, we do expectable 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% in the.
Third quarter last year.
Similar to the past number of quarters, we continue to have strong cost control our operating expenses as.
As reductions across many expense categories, including travel and marketing costs, resulting 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 for the come with the acquisitions, we have recently completed.
So with some solid growth in revenue and continued cost control. We are pleased to see strong adjusted EBITDA growth of approximately 16% to a record $36.4 million reported 1.6% of revenue per quarter, when compared to 31.5 million for 38.0% of revs.
In the same quarter last year.
As a result for the strong operating results cash flow generated from operations came in at $33.1 million for approximately 91% of adjusted EBITDA for the 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 in the can decrease from cash taxes paid during the quarter.
And as we've said in the past operating cash flow will be subject to quarterly fluctuations from Ali operated above 90% conversion rate in the past two quarters for the most part we expect to see operating cash flow conversion can to continue in our more typical range of 80% to 90% of adjusted EBITDA in the quarters of debt.
From a GAAP earnings perspective, net income came in at $13.3 million or 15 cents per diluted common share in the third quarter up sharply from net income of 9.7 million or 11 cents per diluted common share in 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 from 32.5 million over the cash balance at the end of the second quarter.
As previously announced.
Just after the end 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 line of credit we continue to have plenty of capital capacity to allow us to consider all acquisition opportunities in our market consistent with our business plan.
So as we look for the fourth quarter of this year, we should note. The following as outlined in the outlook section of our Mdna.
After incurring approximately 2.9 million and capital additions in the first nine months of the year, we expect to incur an additional 500000 to $1 million. It 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 adjustment for 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 for being the range of 25% to 30% of our pretax 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 grants or for market share growth stock options or share units that happened this quarter.
And with that I'll turn it back over to Ed for 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 for school year. So let me recap some of the principles for use in planning and executing 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 for the 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 all 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 in cash an 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 provided comprehensive.
Description of baseline revenues baseline calibration and their limitations in our quarterly report.
That we file 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 $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.
The $29.5 million for the fourth quarter of 2021 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 net 35% to 40% operating 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.
The 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 an acquisitive business like ours is in a great position to meet these challenges and build an 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.
The specs phone or virtual meeting and we hope sometime sooner rather than later in person.
That I will turn the call back to the operator for Q1 day.
Thank you well now begin the question and answer session.
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And our first question comes from right now from French how 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 quarter. There are some positive data points roundup potential rebound in some of the areas that were harder hit for the pandemic.
So did the performance this quarter come from more for rebound and trade or continued strength in areas like digital compliance ecommerce little.
A little bit of both.
Thanks strength, a little bit of both.
As I mentioned some of the things that are driving.
The growth in the business right now and some of the for 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 net file.
From William Blair. Your line is open.
Hey, guys. Thanks for taking my question and just to follow up on that last remark relative to the air Ocean and tracking.
Volume Sweat where is the volume add on the network growth relative to where we are at debt pre kobin.
Hi, well immediately.
In the Ocean and air space to pick your your your sorry in 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.
Meter business it took a pretty big headwind cobot started not because the lease a problem with air cargo actually air cargo divisions of airlines were all doing quite well.
The rates were up.
In the beginning or quadrupled and they're probably still running about level because there's less capacity right now all these passing you plan to get taken out.
Of service.
[music].
You lose the capacity management moving on our past the point that the decline so while you see and if you look for the new interest you, let her on putting planes back in service and I think that's part of the come back that we're seeing right now on air.
No not back to normal levels.
Some of that being offset by the ecommerce growth in our business and that the trade content in.
In a business intelligence data that we sell.
Is.
The book those two areas of book doing very well for US right now and making up for you for 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 this benefit.
That you're receiving right now it is perhaps one time and some of it may be permanent, but but I guess from from your guys perspective.
Are we should we sort of be thinking that next year will probably be Bakken net 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 now we're not commenting on next year. So much. We're just telling you right now we're not moving it up even though we were beaten 40, the last few quarters, we will.
We are not prepared to moving back up because we don't know whats been happening is a little more uncertainty out there than it normally is you're right. We are benefiting from.
Decreased marketing expenses decreased travel expenses.
And our business starting to perform blighted used to pre pandemic with some areas that are really seeing accelerated growth.
With all that uncertainty were reluctant to move the range, just yet and by the way if you look at our history.
Usually burst bust through the number a couple of times before we actually move to.
The total.
Moving on to another couple of points so.
Stay tuned we'll see we'll see what happens, but the business is certainly performing very well right now and we'll see what happens.
In the coming quarters.
Great I appreciate you guys, taking my questions. Thanks.
Thank you Matt.
And the next question comes from Paul Treiber from RBC capital.
Okay. Thanks, very much moving just in regards to ship track and.
Since we added significant contingent consideration either disclose the knee.
And the Mdna the isn't mix of cash upfront to contingent consideration in a higher than at the co acquisition and if so what style what's the reason for that.
Yeah, I'll start with this ad.
Yes, Paul I think you are right. It is a little bit bigger from a from a contingent consideration that we normally see in our deals.
Obviously.
We get into these deals and we'll try to price appropriately will use the contingent consideration to bridge any any valuation gaps. These guys have some big growth plans day accomplish that we'll be happy to pay that that contingent consideration, but the price up for that reflects the business today and at the contingent consideration reflects the business that it can be debt down the road 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 an 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 for more money if thats the big hit all the numbers will be happy to do that.
And shifting to another acquisition several years ago, obviously, the macro points, it's been overshadowed in the last year with an endemic but has been macro point being tracking add this year in terms of adoption and usage and could you provide an update on the trials.
Capacity matching how thats been doing.
Yes, the macro point in general is doing very well, it's a little bit of hit we actually right as the pandemic started there was a whole lot of trucking going on to ship stuff around customer shortage is everywhere and for a couple of weeks, maybe a month there was.
A lot more trucking going on in the country as a lot of stuff was moving around.
I'm going to pandemic kind of set in mid April may trucking took a bit of a hit and demand for it goes along with this way we've got enough exposure for the whole trucking industry in North America that we kind of go up and down with it.
Other than its occupants growing quite a bit so it kind of sometimes at growth its growth overshadows. Those so this is.
Industry wide events.
But since then you know starting in about June and start to really pick up truck market and its its going very well right now.
For its our grad showing up for sure in our core visibility applications, but now also in capacity matching.
I was talking to someone earlier this week.
Volume the snack pointed its.
It's picking up in the last couple of months because.
Capacity matching sales people find trucks and Theres a shortage of trucks right now and so were you give me. An example of a customer that was doing 30 40 loads a day.
Month with US couple of months ago on 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 telematics business.
With the increase in omni channel and E Commerce and non home delivery. How are you seeing a pipeline emerge for that where customers are managing their own fleets are you seeing more customers willing to do that or is it still using AG a small parcel AG carriers for that well I mentioned this may be due to the cash.
I see it going both ways right now that a clear answer emerged in I'm not sure whether at one ever will I think for certain companies. It's a guy have to own that process and there's other companies et cetera, I don't want to own that process and get these third party guys to do it and.
Thanks for enough, we have solutions to serve both of them.
Our routing and mobile.
Applications help people that on their own truck fleets.
And if you are using third party carriers, we can sell those applications for those third party carriers and also give our customer the ability to manage those.
Those shipments with our transportation management tools that would help them manage to third party fleet.
So for US, we don't really care, which way. It goes so book, we want to make sure that we're helping them provide the solution.
To operate more efficiently either way.
Okay Thats helpful. Thanks.
Thank you book.
And the next question comes from Jeff Lang from Stephens. Your line is open.
Thanks, and good afternoon.
I wanted to start with a question on organic growth as 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 seen just is cove. It is become an eye opening experience for a lot of your customers.
Yes.
I talked about this a little more length from the last call, but but from believed distinct 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 online or from a phone.
And.
That that was the.
Acceptable answer before April of this year a lot of companies did it manual phone calls faxes emails stuff like that all of a sudden in April that became unacceptable and.
We've seen a drive for customers trying to automate these things and that's that's something that is going to help our business now 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 in the pipeline level of activity with kind of big deals small deals and maybe what you're seeing from a valuation standpoint as well.
It has lots of stuff for sale right now built it's changed from over the last couple of quarters.
Was surprising to US you know there was maybe a month when everything stopped selling assets.
I'd say April but things started come back up for sale now, it's I'd say, it's a hot market for things to sell.
Especially for high quality business.
They are selling at multiples that are.
At times shocking to us.
We we are very careful to to still make some 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 the bigger end, where those bankers involved private equity firms volume that are well tuned 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 not.
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 from loans you only care about the price you don't care from buys it we don't care what they do afterwards anything like that a lot of the smaller tuck ins that we buy.
They're owned by individuals 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 for them, because we're willing to pay a reasonable price and we're going to operate the business in a way that will be satisfactory for the owners, who maybe have worked with these employees per 10, or 20 years and older friends not only just employees and they want to make sure the right thing happens and we certainly position ourselves.
A good choice in that circumstance you can see the success Weve had doing it over the over the years.
Pride ourselves of being able to go into your guidance small businesses that were the best home for their day.
Makes sense I'll leave it at that I appreciate the time.
Thank you very much just appreciate it.
And your next question comes from Paul steep.
Your line is open.
Great Hey, Hey.
Can you talk a little bit you mentioned earlier in your comments about making E commerce and new pillar of the business could you just talk about any changes to the org structure or go to market. There obviously closed income.
Whether on deal five or six in terms of adding to that suite, maybe talk to tighten that up.
Yes.
Sure from an organizational structure, it's not a big difference we operate all in anything we buy we we we merge into our business and died at operates as one our operations team is divided up by product. They operate all of our products. Our sales team has a divided up the 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 in 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. The there tended to be a lot of cross sell opportunities. There's also tended to be a lot of.
The 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're starting to put them together. So we can go on to a customer with the whole suite of services to help them.
Solve for ecommerce problems so.
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 will 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 in context for us as to the impact of past changes as I recall for the last few years some of it.
The changes have been more incremental this sounds like again, one of the larger changes we have likely seen in lines.
And our figures east.
It's what yet it is it's like the world just added another country because you didnt have to.
Filing the paperwork to cross the border index.
Into that comes from 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 coming out or were not going to speculate.
How big an opportunity for us it will be but.
If you want to kind of put it in perspective, it's like another significant sized onshore coming now not going to materially change our are good.
The look of our company, but it is going to.
To show up and we're one of the better providers out there.
We will.
For the best provider out there.
To provide these services so we're looking to take advantage of them.
I am 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 G. Allen simple similar to prior deals or do we think it's sorta.
Layers in a little bit over for early 21. Thanks.
I think it will be low.
Largely a step function in assuming it goes live on January Onest.
The revenue pickup.
However, it's going to pick up you'll see a pickup right around that and maybe we'll take a little bit of time for all the volume to come on but probably not much.
Great. Thank you guys.
Thank you Paul.
And next question comes from cash groups from Health research.
Hey, Thanks afternoon, guys just on that last point and I assume there is nothing that assumed.
Assumed in the calibration for that right.
No. There is nothing there is nothing extra in the calibration for that do for only has a month of it anyway. So it probably would be significant even for work.
Can you talk about on ship track is sort of the revenue run rate and the growth rates that that.
This has been sales.
I don't think we broke out the revenue but.
You could probably tell by the purchase price.
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, we think our customers would benefit from and we're looking to take advantage that.
You can see they have a bigger one 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 in the call. We hope we hope debt pay that are now.
And we'll see what happens, but it's not a gigantic growth at the moment, but but it certainly has the opportunity to be especially if you layer in the cross sell opportunities with that car.
Okay.
Moving now that you've got a bunch of deals here total size of the ecommerce platform and lastly, just any updated views on non.
On the supply chain shifts that you're seeing out there for customers.
Moving postcode.
Thank you.
Sure.
It's around 10% ecommerce pillar of our business. So that gives you some sense.
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As far as supply chain shifts a minute.
The same thing we've been seeing for a bunch of years with ecommerce.
Has.
Maybe accelerated a bit in.
In coated but if you think of it at a macro level.
For 10 years ago, we estimate buying stuff online.
The premise used to be for.
Got it to your store and I'll come all combined from you would drive it home myself.
And you know all of a sudden with Amazon and others like them coming from people started don't pay habits, you bring right to my house and now despite on the computer here and you bring it to me and you can imagine net debt changes a lot about how people supply chain work for you probably if you listen to you to warehouse management companies.
On.
And are there any of that or public it with some of their 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 it if you recall that.
Where will ship from store and they use for stores is virtual warehouses all over the country.
And those things all impact supply chain and impact the software that we provided supply chain.
EPS make the investments in Pixie and people box 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 online and becoming fairly substantial businesses now.
Now on and have a new way of managing the supply chain and book Pixie in.
People box for right in the middle of add one to provide the warehouse management solutions to a much broader set of customers. That's why we made those investments.
Okay. Thanks for the time guys appreciate it.
Hey, Thanks and Scott.
And your next question comes from Deepak half from.
Okay.
Hey, guys. Good evening. Thanks for taking my question a couple if I may.
First Ed given a banner year for online shopping.
GAAP Friday.
Expected to come from the credit quality.
Yes, you're ready for net of what kind of constraints you anticipate for are you seeing so far and how does this impact for the increased revenue increased cost of goods competition, how should we think about debt capacity to deal with on that.
Well you can see it in some of the newspaper average iridium.
Order your stuff now if you want to buy Christmas.
And I.
I don't think debt threat spin out there you have got to get really uses it.
With Oh, yes revenue hit.
Hi, I got to Golar Arctic effect.
Exactly exactly.
This is the reason that is is because there is only so many trucks to deliberate stuff and there's only there's only so much stuff out there and if more people are rewarded in this form or fashion.
Thats going to put strains on that.
Logistics and supply chain.
See our customers gearing up for to make that plants for it I'm sure you're still going to see some problems.
But they are certainly all aware of it and doing their best to deal with that but.
You can only buy so many trucks right now and you are reluctant to buy them for.
Just for the Christmas holidays in the pandemic year right. So.
Now, we see it a little bit in 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 I don't have a crystal ball, but.
I suspect that the same kind of increases we've seen over the course for the year are going to hold off because it just you just saw black Friday up 22%, which is about what we see volume.
Volume is up in the last several months.
Kind of started up.
40% in April May and then kind of went back down to the mid Twentys and Black Friday was kind of consistent with that and with the 22% for that kind of saw the headlines on Saturday morning online.
Our 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.
Got it but on a net basis, we'll need from currency positive for you guys for a bit.
Revenue per second more or neutral or.
No I think so usually when people have problems meant managing their their logistics and supply chain operations, we benefit from that.
They go Hey, look lets make sure that doesn't happen again.
And they buy more software from us for they use our network more efficiently operating more efficiently.
So well see what happens here, but but I think that 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 them operate more efficiently in the future to to help them get over these problems and make sure that won't happen again.
Got it got it thank you for that and my second question is around.
Co the day, and we anticipate transaction distribution.
Given your experience in the industry for position the.
Supplier hadn't expected to evolve from centralizing.
Centralizing the material down turn for the economic.
Moving to you will be most optimum where did the net off cash.
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 in the in the increased volume by 5 billion more things that need to get shipped around the world that need to be chip yesterday boost things require urgency and special handling that.
That puts.
More challenges into the supply chain, Hey, it's got to be kept at negative 75 degrees. That's.
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 being done on time to our core like solutions tagging temperature monitoring where they need to make sure that they would this this.
Vaccine maintained a certain temperature the entire route and we have solutions to help them deal with things like that so.
You know look let's see what happens in the coming in the coming weeks and months book.
Could it be a big tailwind for us.
Okay, great. Thank you for taking my questions.
Great. Thanks, Steve.
And this concludes the question answer session I will now turn the call back cover.
For presenters for final remarks.
Great. Thanks, everyone. Appreciate all the time you gave us today and look for to talk to you again next quarter have a great net.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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