Q4 2021 Descartes Systems Group Inc Earnings Call
Welcome to the 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 will conduct the question and answer session.
And if you like to ask the questions. During today's presentation. Please press Star then one on your Touchtone phone. Please note. This conference is being recorded and that's one of the color Scott Pagan Scott Pagan you may begin.
Yeah.
Thanks, and good afternoon, everyone. Joining me remotely on the call today are Ed Ryan CEO, and Allan Brett CFO and and trusted everyone's received a copy of our financial results press release that was issued earlier today.
Portions of today's call other than historical performance include statements of forward looking information within the meaning of the applicable securities laws.
These statements are made under the safe Harbor provisions of those laws.
These forward looking statements include statements related to our assessment of the current and future impact on the COVID-19 pandemic on our business and financial conditions and current operating performance financial results of the condition.
Descartes gross margins and any growth and those gross margins cash flow and use of cash business outlook baseline revenue baseline operating expenses and baseline calibration.
The anticipated and potential revenue losses, and gains anticipated recognition of and expensing of specific revenues and expenses and potential acquisitions and acquisition strategy.
Cost reduction and the integration initiatives and other matters that may constitute forward looking statements.
These forward looking statements involve known and unknown risks uncertainties assumptions and other factors that may cause the actual results performance or achievements of descartes to differ materially from the anticipated results performance or achievements implied by such forward looking statements.
These factors are outlined in the press release and in the section entitled certain factors that may affect future results 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 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 and the updates or revisions to any forward looking statements to reflect and change and our expectations or any change and events conditions and assumptions of circumstances on which any such statement is based except as is required by law and with that let me turn the call over to Ed.
Thanks, Scott and welcome everyone to the call.
Most of the past calls each of Scott Alan and I are in remote locations. So please excuse any brief pauses before we answer your questions later and the call.
<unk> got some great and of your financial results and I'm excited to walk you through but let's start with the roadmap for this call.
First of all start with some comments about our performance over the past quarter and year. Some of the things about our business that we believe have helped us to be successful I'll, then hand, it over to Alan who will go over Q4 and full fiscal year financial results and detail I'll come back and provide some perspective on how our business is calibrated as we look at the first quarter that we're already a month into.
And provide some insight into some factors that we think will help us this fiscal year.
And finally, we will open it up to the operator to coordinate the Q&A portion of the call.
Well, we've had another great quarter and fiscal year, especially considering the challenges of the business has had the rise up to and meet over the past 12 months. Our plans are always set on growing adjusted EBIT of 10% to 15% per year for Q4, we grew adjusted EBIT of 20% over Q4, a year ago and our adjusted EBITDA for the <unk>.
Full year grew 16% over last year.
We did that with record revenues record services revenues record income from operations record cash flow from operations and record adjusted EBITDA, We had cash from operations that was over 90% of our adjusted EBITDA by the metrics we focus on our results were very good.
The right words from me to you for me to be using here are we and our because of this is something that our entire business banded together and achieved.
We have a dedicated team working remotely and continuing to service our customers to the highest standards. Our team has remained committed to our goals and our plans that focus has kept the business growing and operating well even during turbulent times and.
And that's really what I wanted to emphasize and these opening comments the cartons. The resilient business. Our business was purpose built to be able to flexibly respond to challenges and continue to achieve our goals our business and designed to be able to grow through varied market conditions, including the extreme conditions that we saw over this past year.
So I just wanted to highlight some of the structural advantages that we have as we go to market.
First we're debt free well capitalized profitable and generate cash and you can see from the financial results that we reported today.
Solid financial structure and strong financial results as a result, when market conditions change, we don't find ourselves and bet. The company type of situations, we're not over leveraged and we're not reliant on additional capital to execute on the gross opportunities the changing market conditions can present.
We operate and plan our business with the view to balance sheet and operating strength. So we can weather storms and capitalize on opportunities.
Second we are of high degree of predictable recurring technology revenues.
Day, we reported recurring revenues for the quarter and year, 89% of our total revenues. We also have another 10% or so of our revenues that are fairly predictable professional services revenues.
It gives us great visibility and our business and allows us to proactively adjust our investments were expenses with the knowledge of the revenue base from period to period.
Third we serve multiple transportation markets, we provide advanced technology solutions that help with cargo moving from point a to point b, regardless of the method of transportation used.
The Ocean markets rail markets are markets and road transportation and all of its various forms from full and less than truckload, the private fleets carriers and last mile deliveries. We believe that serving all of these transportation modes, it's critical for our customers, especially since many freight moves involved multiple modes of transportation and <unk>.
Diversity also serves us well when market circumstances may impact the particular mode of transportation such as how the past year has impacted air cargo.
Fourth we serve multiple customer types.
We've purposely design solutions that can help all parties to of cargo move where the dispute the carriers that own the ships planes and trucks moving the goods manufacturers retailers distributors and service providers that need goods to move or the numerous numerous logistics intermediaries like forwarders brokers and third party logistics providers that helped.
The shippers and carriers connect and execute and and inefficient and specialized way.
This broad approach to serving customers gives us an excellent view as to the needs of each group. So we can hone our solutions to remove inefficiencies and freight movement.
It also protects us as particular customer groups experienced ebbs and flows and the supply and demand and the transportation markets.
Fifth we have multiple products.
And when you're serving multiple transportation markets and customer groups, you are undoubtedly going to need and expansive solution set to meet a range of needs like all businesses different products, we'll see fluctuations in demand. However for us with the diversity of solution sets. We are confident that we will experience more revenue consistency and a company that might be single threaded and of spin.
Civic product or solution.
Our predictable recurring revenue is also give us good visibility into demand for particular solutions. So that we can adjust our investments accordingly.
Sixth we of broad exposure to international markets.
As we've seen over the past year, it's become less important where your offices are physically located when you're successful technology services provider.
Instead, when Youre looking at the company's international footprint, we believe that understanding of the companys exposure to different geographic markets is more relevant for us that means understanding where cargo was originating and being delivered and we're the world's largest parties involved and logistics operator.
We found that over time, one country's downturn and logistics activities, most likely ends up with and opportunity for and other geographic market.
Given that our diverse geographic customer base and involvement and logistics transactions originating or ending all over the world helps us.
And it helps insulate us from particular changes and any individual geography.
Seventh we have scale.
Since we serve the ocean community Jabbar sailing metaphor is the big difference between the abilities of of small dengue and of substantial vessel to weather. The storm, we believe that our growth over the past years has created a strong seaworthy business. Other smaller startup businesses of may struggle with the scale needed to get them safely to the next port.
And finally, we grow our business organically and by acquisition the.
And the card has grown organically and by acquisition, we plan to keep doing that he believes that a technology company in the supply chain and logistics space needs to be able to do both to be successful over the long term and part distance because changing market conditions will influence your ability to generate growth by either of those particular methods by focusing on total growth both.
The organic and acquisition our business remains focused on what matters and strengthening the business for our customers. We want to remain innovative for what our customers need regardless of whether the innovation comes from what we've designed internally or from combining with the leading successful company. That's got something unique that the market wants Theres No better example of the company.
Innovative technology.
Like that then the quest of web acquisition that we completed this week.
The web as the leading provider of foreign trade zone, or FPV solutions, and customs compliance solutions foreign trade zones of our specialty cordoned off areas, where commercial merchandise gets customs treatment as if it was outside the U S. Internationally, there is sometimes called free trade zones.
There are about 250 of them and the United States in an hour drive of various ports of entry FTC is very specialized market with very few technology providers able to master the intricacies of what customers need.
FTC is something that our customers have been actively asking for the of a broad roster of logistics intermediaries brokers and forwarders, who will love to have this available over the global logistics network and integrated to their forward or back office systems.
I think this is going to be of great combination and part because of our customers told us before we bought it that it would be of great combination.
This combination is even more important for our logistics service service provider customers. When you combine it with other innovative technologies such as our online booking tool that recently joined us as part of the containers acquisition.
Further evidence of how much the logistics service provider community means to Descartes and is an important part of our investment strategy.
So a warm welcome to the quest of web team as we immediately get to the task of integrating our solutions on the global logistics network.
Just to reiterate we believe it's important for successful technology companies and our space to focus on growing organically and by acquisition. Some businesses that are designed to only be acquisitive and where valuations start increasing the must unreasonably push what they're prepared to pay to compete for deals to continue to grow.
For Descartes, we've kept the consistent approach to acquisitions, we're disciplined on price we're focused on generating profits. We focus on businesses that can integrate with what we already do for our customers, we add geographic reach and functionality that our customers have asked for and we unlike other companies arent limited to home run large scale deals, we often find the best.
Yields for our business and our shareholders are smaller deals where the continued satisfaction of customers and employees may be as important to the seller as price.
Overall, the card is a resilient business its resilient because it was designed that way we've got structural benefits that we believe distinguish us from many out there and position us to be able to grow and good times and and bad.
When there are challenges like the word this past year, the Descartes business and our team has proven itself ready willing and able to respond and with that I'll turn the call over to Alan to go through our Q4 and full year financial results in detail and.
Okay.
Okay. Thanks, Ed has indicated and then ill walk you through our financial highlights for our fourth quarter and year ended January 31.
We are pleased to report record quarterly revenues of $93 4 million this quarter that's the.
And increase of 11% from revenues of $84 2 million and Q4 of last year.
Our revenue mix and the quarter continued to be very strong with services revenue, increasing 12% to $82 7 million or <unk> 89 percentage of total revenue and the fourth quarter.
Compared to $73 7 million and 14 eight percentage of revenue and the same quarter last year.
Continuing with the long standing trend to decrease the emphasis and onetime revenue license revenue came in one $4 million or just over 1% of revenue in the quarter.
Down from $2 5 million or two percentage of revenue and Q4 of last year.
While professional services and other revenue came in at $9 3 million or 10% of revenue up.
Up nicely from 8.0 million or 10% of revenue and Q4 of last year.
For the year revenue came in at $348 7 million up 7% from revenue of $325 8 million in the previous year.
Revenue in the mix for the year remained fairly consistent with roughly 89% services revenue of.
One 5% license revenue and approximately 95% of revenue from professional service and professional services.
Gross margin for the fourth quarter increased to 75% of revenue for the quarter up from gross margin of just over 73% and the fourth quarter last year.
For the year gross margin was very consistent with the previous year at 74%.
Operating expenses and the fourth quarter and for the year ended January 31st decreased sorry increased primarily related to the impact of recent acquisitions.
While those increases were partially offset by several items, including the impact of restructuring efforts that we completed earlier in the year.
From cost efficiencies gained as we successfully integrated past acquisitions and identify cost over the life of opportunities to.
And finally also from cost savings, we continue to see some of the impact of the pandemic, particularly in the area of travel and marketing costs and.
And facility costs.
As a percentage of revenue the increase in each category of our operating expenses was lower and the increase in revenue for the second year in a row as we benefit from the operating leverage leverage as we grow.
As a result with revenue growth and continued strong cost control. We continue to see strong adjusted EBITDA growth to a record of $38 6 million or 41, 3% of revenue and the fourth quarter.
And that's up 20%.
From $32 2 million of 38, 2% of revenue and the fourth quarter of last year.
While adjusted EBITDA for the year came in at 142.0 million per 47 percentage of revenue up 16% from adjusted adjusted EBITDA of 122 6 million of 37, 6% of revenue last year.
As a result of the solid operating results.
Cash flow generated from operations came in at $36 5 million or approximately 95% of adjusted EBITDA and the fourth quarter of this year and that's up 38% from operating cash flow of $26 4 million of <unk>.
82% of adjusted EBITDA, and the fourth quarter of last year.
For the year cash flow from operations was a record $131 2 million or <unk>, 92% of adjusted EBITDA up 26% from $104 3 million or <unk>, 85% of adjusted EBITDA last year as a result of lower interest expenses as well as lower cash taxes and fiscal 'twenty one.
Going forward subject to unusual events and quarterly fluctuations, we expect to continue to see strong operating cash flow conversion of approximately 85% to 90% of our adjusted EBITDA and the periods ahead.
From a GAAP earnings perspective, net income came in at $17 2 million up 51% from net income of <unk>.
11, 4 million and the fourth quarter last year.
For the year net income was $52 1 million or <unk> 61 per diluted common share up 41% of 37.0 million or <unk> 45 per diluted common share last year.
Overall, we're very pleased with these operating results and the fourth quarter and for the fiscal 2021 year and strong cost controls and allowed us to weather through the impact of the pandemic on our business, while we still managed to achieve 16% growth and adjusted EBITDA.
And 26% growth and cash flow from operations.
If we turn our attention to the balance sheet, our cash balances totaled $133 7 million at the end of January 2021, and.
And we did not have any borrowings outstanding under our credit facility at the end of it.
Subject to the subsequent to year end on Monday of this week, we announced that we used approximately $36 million of our existing cash balances to complete the quest of web acquisition, which had described and some detail of them earlier.
As a result, we currently have approximately $100 million and cash balances as well as our $350 million line of credit available to draw a line for future acquisitions. So we clearly continue to be low capitalized to allow us to consider and all opportunities and our market consistent with our business plan.
If we look ahead to fiscal 2022, we should note the following.
After incurring approximately $3 8 million and capital additions in fiscal 2021, and we expect to incur between five and 7.0 million and additional capital expenditures this coming year.
We expect the amortization expense will be approximately $53 9 million for physical 2022 with the.
This figure being subject to adjustment for foreign exchange and contract positions.
As a result of a few unusual tax recoveries our income tax rate in Q4 came in at 21% of pretax income.
<unk> and the tax rate for the year of approximately 26% and fiscal 'twenty one.
Slightly lower than our statutory tax rates and candidate and glass.
Going forward, we would expect that our tax rate will continue the trend in the range of 25% to 30% of our pretax income for fiscal 'twenty two.
Although as always we should and we should add that our tax rate may fluctuate from quarter to quarter from onetime items that may arise and we operate internationally across multiple countries.
And finally <unk>.
After incurring stock based compensation expense of $6 3 million and the past year. We currently expect stone stock based compensation.
On the and approximately six six to $6 8 million for fiscal 2022 subject to any forfeitures of stock options of course share.
I'll now turn it back over to Ed to wrap up with our baseline calibration.
Hey, great. Thanks, Alan talked earlier about some of the advantages of how the card of structured the structure gives us a solid base for planning for the future. We've just gone through our planning cycle for fiscal 2022.
And I wanted to remind you of some of the principles, we use and planning and executing and our business principles that are the same as in past years, we plan for our business to grow adjusted EBIT of 10% to 15% annually, we plan to grow through a combination of organic growth and acquisitions. When we over perform we expect to reinvest that over performed.
And back into our business, we focus on recurring revenue and establishing relationships with customers for life and we thrive on operating and predictable business that allows us forward visibility to our revenues and investment paybacks.
With these principles, we calibrated our business for the upcoming financial year and.
Our quarterly report that Scott mentioned that we filed today, we provided a comprehensive description of baseline revenues baseline calibration and their limitations typically we calibrate as of February 1st being the beginning of our fiscal year. This year. However, we're calibrating as of February 26, being the date of the quest of web acquisition.
So as of February 26, and using foreign exchange rates of 79 to the dollar Canadian dollar one.
$1 21 to the euro and of $1, 39% of the pound, we estimate that our baseline revenues for the first quarter of 2022 or approximately $86 8 million and our baseline operating expenses are approximately $56 million. We consider this to be our baseline calibration of approximately $30 8 million for the.
First quarter of 2022 or approximately 35% of our baseline revenues.
At February 26th 2021.
We've indicated previously that the targeted adjusted EBITDA operating margin range for our business and 35% to 40% as mentioned and our actual results for Q4 and FY.
FY 'twenty, one had us at about 41%.
Possible that we exceed that 35% to 40% operating range again in Q1, but we don't yet see this as a permanent change and our preferred operating range.
And we'll look at this again is to start of Q2 starts based on market stability, including continued global progress towards vaccination and and in the current pandemic.
We expect that the growth that we'll have in FY 'twenty two will be a combination of organic and acquisition growth have you seen as you've seen with the quest of web acquisition.
And we announced earlier this week, we expect to continue to be acquisitive. This year. The acquisition market is competitive with higher valuations, prompting many people to explore the market. The sale market. We believe there are still acquisitions that meet our financial and strategic criteria and that continued focus.
And diligent efforts will guide us on the acquisition front.
On the organic front, where we see the opportunity to capitalize on some market tailwind, we'll be preparing our business for higher levels of organic growth for us that means focus and three ways, one selling more of what we have to existing customers to selling our products and services to customers, who may be new to the global logistics network.
And three continuing to enhance service delivery quality to reduce any revenue attrition and our business from our perspective. This is especially important coming off of year. That's caused many customers to reexamine, who their technology service providers are so they are best positioned for a post pandemic world.
Preparing for higher levels of organic growth is the logical when you see market tailwind I outlined earlier some of the structural benefits our business has and comparison to our peers and competitors. However, there are some other factors that we believe are increasingly in our favor.
First we have a broad range broad roster of customers. The number of parties that are connected to our global logistics network and using our technology continues to grow and it's the big competitive differentiator, we believe that most of the world shipments and Bob our customers and one way shape or form and Thats, a big attraction for new customers to join the global logistics.
Network or existing customers to expand what they do with us.
Second we have a broad range of partners prepared to recommend us over many years, we've developed relationships with some of the world's leading technology providers strategic integrators industry professionals and analysts are consistent delivery of quality service and stability has made us and easier referral of recommendation for those and the know about logistics.
Third we of the public size and scale of the customers are looking for.
Customers have a broad range of choice and technology service providers from venture funded startups. The publicly traded multinational technology companies. We believe that we have the size and scale of the customers are looking for and making their decisions. We have solid financial metrics. So the customers can be sure we're going to be around for the long run we're publicly traded.
And so customers can easily monitor our financial status. Unlike other privately owned companies where financial engineering interest of the owners may otherwise hamper what the business can accomplish and.
We have been we of the capital and scale to invest and things that smaller businesses may not take as seriously as we do like corporate security and environmental and social governance issues.
Fourth our solutions have a positive impact on the environment.
<unk> has long recognized the connection between the value of of our solutions and their impact on the environment.
Many of the benefits of our customers receive using the cards logistics and supply chain solutions directly and positively impact the environment for.
And reducing driving distance for fleet operators to automating and logistics and customs clearance processes to eliminate paper Descartes solutions reduce the global carbon footprint and a number of ways and we're very proud of that.
Fifth we can recruit extremely talented people.
Mentioned in the past the where the perfect work home for people, who eat sleep and brief logistics.
We're now also of great home for people, who want to be attached to a business focused on repeatable and long term success. We continue to be impressed with the quality of people who want the joined the Descartes team and help us on our mission our people have been the driving force for getting us to where we are and we expect that they will be what continues to drive us to even greater heights.
Sixth we of market tailwind as I mentioned on our last call. We believe there are some good market tailwind for us as we start FY 'twenty two with.
And with the recent Brexit departure of the U K from the EU, we have seen good traction from customers, who come to us to help them.
Electronic customs and security filings in the U K brand new filings that never needed to be made before Brexit and our customers continue to be intimately involved and vaccine distribution and the broader supply chain pushing them.
To rely to reliance on technology solutions to help the process proceed on the tight timelines the governments and the pipe of lists are demanding.
And E Commerce continues to have our customers seek new and more efficient mechanisms of controlling inventories and distribution of these.
Just a few of the factors that we think will contribute to our performance in fiscal 'twenty. Two we've got structural and other advantages to promote growth for us and FY 'twenty. Two we have a long list of good decision to choose from that's of great position for our employees customers and shareholders to be and and one we have no doubt many of our competitors and peers NV.
To everyone for joining us and the call today as always we're available to talk to you about our business by phone or virtual virtual meeting and we hope sometimes sooner rather than later and person with that I'll turn the call over to the operator for questions.
Thank you you will now begin the question and answer session.
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Okay.
Okay and our first question comes from Paul steep from Scotia Capital. Your line is open.
Great.
And just elaborate a little bit of of what your expectations might be and maybe run customs and compliance in terms of the uplift that you're sort of expecting out of the shoots on the that Brexit the share and then I've got one quick follow up clarification.
Sure. Thanks, Paul Yeah, I mean, we're early days, yet and Brexit, we know we've signed up a good portion of the market. We think we're the market leader and that business right now.
There is still and informed compliance phase, which means that they are the government is not finding anyone yet for for not making these filings I think they have announced that they have six months to to get and compliance. So.
We think it can be good for our business, we think it's going to be.
The somewhat impactful to our business are not at a point right now where we're gonna start guests and about just how much but hopefully.
Hopefully and the next two quarters, we'll have a lot more.
The foreign perspective on that and let's say.
Fair enough and then just the clarification just one of them in the MD&A here of that.
You've always call day sort of a 4% to 6% range on the annual recurring revenues in terms of potential attrition you changed the last bit of the wording thing you thought it might be a hair higher or somehow higher than historic and assuming that just relates to concerned around the pandemic or the things and nothing else there.
Linda clarifying and yeah.
And I wouldn't read too much into that I mean, you're you're right and we probably did change that because of the pandemic and maybe some of the uncertainty that that's created but are not really seeing a bit of a material change to and at the moment, So who you know well see what happens and the future but are.
And at the same time and you have a lot of things going on a go and our way and so whatever happens with attrition and I expect that we would if it was higher than normal we would be making up for it with some of the higher growth that we're seeing right now.
And I guess the other can also call it as he called it the actually true relative to the last couple of quarters, you had actually seen the uptick in volume due to the pandemic, maybe just where you have seen that uptick and I'll I'll pass the one thinks yeah.
Sure. Thanks, Paul Yeah, I mean, certainly our data content businesses are booming right now as governments around the world of changed a whole bunch of tariff rates because of the pandemic. The they basically made a whole group.
Broad range of products tariff and duty free for some period of time that means more and more companies need access to our database of two.
Figure out of properly classify their goods to take advantage of those.
Reduced rates or eliminated rates.
Our ecommerce business has done very well, you've probably heard us say that in the past but.
And the pandemic drove a whole bunch of people on line and.
Because of our exposure to e-commerce, not only directly serving the small and medium size E. Tailers, but also doing deliveries for a lot of the delivery service agents that are.
And delivering these packages of the home, it's been a real tailwind for us and it.
It seems like it was the big step function up and continues to this day, so we're pretty happy about that.
Okay.
And <unk>.
Thank you Paul.
And the next question comes to Paul Treiber from RBC capital markets. Your line is open.
Thanks, very much and good afternoon.
Just wanted to follow up and the last question just in terms of the outlook going forward for organic growth I mean, as you think through where you are opening them you know what do you see obviously you know the there's there'll be big tailwind I think the volumes, but how do you think about those areas that you saw a strong uptick and me.
Locked down and how do you think you know, particularly in the E Commerce, how do you see those businesses progressing as we get through the reopening.
I think I think E. Commerce is gonna be range strong Ah I think grips and some business areas that are that are up for the long run.
E Commerce.
We're also seeing some of the businesses that we saw suffer in the pandemic like air cargo and start to come back now and I know, it's a I would say air cargo is not all the way back, but it's certainly the volumes have picked up considerably and probably more like 5% to 10 per cent down versus the the 25 per cent, we solved down six.
The six eight months ago.
And there's more planes are going back and the sky and people start to travel more and governments are subsidizing cargo only flights.
And vaccines are being distributed around the world largely on planes.
It's all been and are.
Helpful of the airline business and the recovery and helpful to us as they are recovering on the and Theres a bunch of other areas and our business that the.
And that remain.
And a bit of of boom, so, let's see what happens in the coming months, but we think we've got a lot of things go on and our direction.
And looking at baseline the I guess, the delta between baseline and the actuals of last couple of quarters. It has widened out and what do you think theres been the reason for that and then do you anticipate that trend continuing into Q1 and beyond.
Yeah I mean.
And our organic growth rates are certainly picking up steam right now and we're happy about that.
Yeah, the things I mentioned and the beginning of the call right.
There's a lot of things going on and our direction right now and and our customers need help dealing with this and the pandemic probably highlighted that to them and and as you might see and the broader technology market.
Push them towards technology to solve those problems and we were a logical kind of day to do that I would always say this you know quite simply to someone who's not in our business, but just kind of a friend or something that wants to understand what's going on is that the whole world just figured out that they need to be able to manage their shipments electronically from their home on a phone or a laptop.
And that plays into our hand.
And that's what we do for people and.
There were days just a couple of years ago. When people. When you know we can do this manually and we can pick up the phone and call. These carriers manage the shipments and other.
So we don't have to use technology to do that all of a sudden the pandemic hits, everyone gets at home and and everyone. Good day, that's off the window and you have to do this electronically and you know because thats. Our business you know we were beneficiary of that.
Thanks, that's helpful. Just one.
One more for me and you mentioned the the acquisition pricing environment and multiples are increasingly it's still finding value can you just speak to the purchase multiple on quest of web how compares to other acquisitions that you've done in the past.
And we thought.
We were not because of the competitive situation and I can get into the name of the actual multiples but.
It's maybe a little more than we would've paid of couple of years ago for a business like this but as you've seen us do with a lot of businesses, where we're kind of <unk>.
Forced to pay up a little bit of or maybe get out of our normal range.
With quest of web we saw of high quality business with a lot of opportunity to grow and.
And the thought we got a good deal on it and at the end of the day and you know.
And when prices go up.
And.
And we're very cost conscious of his you know who we were this is the true we ever calculators out of every deal trying to figure out how are we going to get the money back for our shareholders.
One of the ways you can do that is just the buy higher quality assets day, if I'm gonna be forced to pay the higher price for something that's fine let me gets up and that's high quality and you know.
Because of our time amount of time that we've all been doing this and the amount of time that are you know.
Tenured of employees have been around looking at companies and assets and our space. We think we're better positioned and a lot of our competitors to find the right assets. The ones that are going to grow and if were forced to pay a little more for them at least for buying an asset that we think is going to be worth it and the long run.
Alright, thank you.
And your next question comes the Nashville from William Blair. Your line is nothing.
Hey, guys. Thanks for taking my question.
First I had wanted to you drill into the organic growth acceleration a bit more and maybe you've already hit on this a little bit, but what product specifically.
Are you expecting to drive that acceleration and you just sort of wondering as you know is that acceleration how dependent is it upon economic.
Economic recovery versus just sort of you know other tailwind that you're seeing and your business that maybe arent as dependent upon of recovery.
Yeah, and I'm, not I'm, not specifically thinking about the recovery and this process.
So I think that will help.
We've certainly seen a big uptick and our customers and security.
Finally, the business because of Brexit.
I think that's going to continue as Brexit continues to rollout.
We are seeing our trade compliance and I just mentioned.
Uh huh.
A little earlier with the.
And it's showing up and the data content businesses that we have.
As people want more access to tariff and duty information so they can save money there.
They are turning to us as the.
Provider of choice to do that and that's true that's been great for us.
And of.
A bunch of our network business is ecommerce and some of the other.
Beneficiaries of ecommerce like moves and the trucking space macro point things like that.
Have a.
Really moved up and I think we'll continue to the the comment I made to Paul earlier about people needing to manage shipments electronically now that the none of that all of our employees had to work from home.
That's the here to stay and and I think that really plays into our hand and has not only been on some of the birth of you've seen in the past couple of quarters, but but the.
And what you might see and the future.
Got it that makes sense and then wanted to ask about the the commentary on EBITDA margins.
And you know I appreciate that the depending upon what type and size of acquisitions you make.
It could it could have an impact on that but you know and excluding acquisitions I guess why would you expect the margins to potentially go down throughout the year of you're planning on doing a bunch of of hiring or of certain organic investments to drive that just maybe help better understand the the commentary around the the margins.
Well, you've known us for a while we're pretty conservative.
So we would.
Always choose to under promise and over deliver and we think we're in pretty good shape to do these things, but there's a lot of turmoil going on and the market right now right a lot of our expenses have changed and the past year and you saw we were conservative and operating the business last year and cutting our cost to line up with some of the the reductions we saw and the pandemic.
And.
We understand that some of those costs may come back that will be certainly one of the issues that goes on.
We as you as you mentioned and I kind of mentioned and in my prepared comments.
May be choosing to invest in some areas and our business, where we see opportunities for growth as we see our organic growth rates growing and.
And more.
More.
Our intense focus on logistics.
And so is probably puts and opportunity in front of us to invest more and our business and take advantage.
Vantage of that and the long run and we look at that as the conservative approach of things, even though we're spending money to do that right.
We see an opportunity that we know is going to work. That's when you see us kind of pounds and and that could happen again.
But I think overall this is probably just the you know our conservative nature of such the total until we're positive that that's going to happen and not going to you're not going to see if the <unk>.
And things.
Makes sense and I appreciate you taking my questions.
Hey, Thanks, Matt.
And the next question comes and Deepak Oshaf and.
The include JMP Your line is open.
Oh, Hey, good evening guys. Thanks for taking my questions I've got a couple.
And at first first of all one question and it sounds like you described it as a pretty niche market and the U S.
But having gross opportunities can you talk a little bit about where you can see the gross for that and and.
And what the non U S opportunities for that business might.
Might look like and how you get there.
Yeah.
Well of members of its companies from all over the World and take advantage of the Street Foreign trade zone in the U S.
And if you're going to buy a global solution you need to be able to handle that of your company uses foreign trade zone, you need to have.
Have a solution for that to handle that and.
And.
We see it as we have and a lot of our acquisitions and I always say, we're buying and our next door neighbors property.
With every acquisition.
We have a lot of investments and the Florida broker space you see us.
During the containers deal the ship track deal of these things are all related and people that buy those pieces of functionality of our back office for the system back up with brokerage system container solutions.
Also need to handle and are in and a lot of cases for a free trade zones and.
And.
You know we wanted to make sure that we had of the solutions that the customers want them and we think of ourselves as buying and building.
And and state and the logistics technology space, and we thought free trade zone was a big part of that and when we saw quest of web come up for sale I mentioned, there's not many companies out there out there the handle this well and when we.
We saw them come up for sale, we thought we should we should go get that because that's what our customers want.
Got it and is it something that you can export to other countries and Theres a journal.
Well.
The concept doesn't exist exactly know the countries the countries in the world there are a lot of.
Foreign companies, though that that also operate free trade zones, and United States, So we might be selling it.
Overseas, maybe more effectively than the smaller quest of web did on their own because we are of a broader footprint of salespeople out on the street.
But.
As you kind of pointed.
Pointing out it's the U S focused set of functionality.
But bought by people all over the world that we might have more access to so.
Yes, if you understood my God.
The intricacies of my answer.
Got it no. That's helpful. Thank you I appreciate that migrates around the other parts of it.
One of Us protocol.
And I I did want to follow up on the phone.
And a follow up on some of you mentioned around attrition.
And he talked about improving and enhance quality and to reduce attrition.
And you know in general.
There could be some sort of vendor consolidation accelerate post COVID-19 and what it can kind of going on and tech for a while non U.
Most of the rest of and opportunity for you guys because it's hard to see.
Major of big players that could be.
The preferred consolidators.
As a supplier.
Of course of Descartes, and what you guys offer it to the table.
How do you think how should we think of that in terms of ethics.
Think of it as an opportunity right.
I'm quite sure, it's gonna be and opportunity for us, but that doesn't mean that the we don't have to.
Part of being in the lead all the time as you know.
It's being able to look over the shoulder and go who.
And who might catch me here and how and what am I going to do to prevent that from happening and we don't spend a ton of time looking over our shoulder, but we certainly are aware of where we are and the market and where we might need to improve to make sure that we're always the best and every area that we operate and.
As we get bigger and we want to make sure that our brand is a continuing known as someone that is.
Providing the best service for the best price and in the market and are a.
Part of that is delivering the best functionality and and being on top of that so.
No I well I can answer your question I sit at the big opportunity for us.
And certainly I think that.
In fact that we're getting bigger and it makes it easier for bigger companies to do business and stuff, but at the same time I want to be mindful of the fact that you know I gotta have good functionality for them or they're not going to want to do everything with me. So.
A little of both.
Got it and when we think of your partners like Oracle and SAP here I remember just a couple of years ago of the Big you know.
And transportation management, what's kind of the status of those partnerships.
How big of or all of it.
The couple of years.
Bigger than ever I mean, they're growing and growing probably bigger than ever and growing faster than ever.
And it's been great partnerships for us.
We continue to expand with them they continue to get more and more traction with the transportation management solutions and the global trade management solutions and every time, they do that they're using the global logistics networks, and that's been great for us and hopefully great for them and their customers as well.
Okay, Great. That's helpful. Thanks for taking my questions are part of them.
Great. Thank you very much deep.
And the next question comes from Ryan Lynch of Barclays. Your line is open.
Hey, this is Frank on for Raimo. Thanks for taking my question I had one of your conversations with customers and ER.
And there's still be early days here, but as we continue to reopen and that's more of vaccines get distributed has there been any sort of inflection yet and these conversations the customers compared to prior quarters, and there's no vaccine approved it and reopening and employ more distant.
Yeah.
I don't know if that's specifically has changed things for us and I.
And if it has and I haven't really seen that yet and we continue to sell.
Very effectively and this pandemic and ive been and it's one of the big surprises to me and this pandemic is the ER in the early days of it that we were selling as effectively as we as we were proud of the pandemic and and.
The surprise to me and the last couple.
A couple of quarters is that we are.
The sold more stuff than we've ever sold before coming.
Coming into the year.
And let's say in the at the height of the pandemic in the last six months or so.
As companies.
And I have decided to buy you know more and more of logistics functionality to deal with these problems I think it's probably largely you know.
The World just found out because of this pandemic with logistics, there's a little more important than they thought it was and that puts pressure on our customers to perform it gives them a lot of opportunity and.
And they need technology to help them do it and and you know we've been a beneficiary of that and of our sales guys. Even though they haven't been able to travel to see customers are in a year I've been selling more than ever and that's been great news for us and I think it's gonna be good news to come.
Great. That's really helpful. Thank you and then one more if I kind of and the acquisition of it.
This builds and a bit of of pattern on acquiring interest growth areas like compliance and E. Commerce, how should we think about M&A going forward considering that when youre in the market is there a bit more of a focus or there is specifically are you really looking for the right net asset regardless.
And we look at we'll look at anything.
You know you over the last 20 years, you've seen us buy stuff, that's shrinking and the day, we bought it and you've seen us buy stuff that's not profitable of the day, we bought it.
But and the last five or six years and I kind of touched on this earlier on the call as as prices have gone up.
No.
We've thought of.
And is relatively cheap and we thought hey, you know going to overpay for something that's got some issues of one over care of something that's been a very good position and well if I'm gonna be forced overpay I'd like to overpay for something that's a.
The growing rapidly and well positioned because I think you know in those circumstances when they get the right company like of macro point I go I don't think I'm going to care about the purchase price 10 year and the last about the purchase price of 10 years ago, even though the day I bought it at some very expensive Debra.
And are you know, we went out and got that that company and you know here. We are a couple of years later and we're going to use that purchase price will be a bargain and today's and today's market.
And I think that's driven us towards you know.
As you said that the the higher growth areas and that's part of it.
The easier for us to buy these things that are growing rent that theres less problems right and and the problems that they have are the ones that were bad.
<unk> prepared to deal with you know they go Hey, I've got this great product I want to get it out to all of these people, but I don't know those people and we go well I do and so if I buy your company are you know we of couple of hundred and salespeople out there the but no those customers. We can go out and attack the more aggressively than you might've been able to do and your own just as an example, and.
That makes the.
The acquisition worth more to us and most other players in the market certainly the then two of private equity firm, who is it going to bring anything else to the table out of the money.
Thanks, that's really helpful color and I'll pass the line and.
Thank you Frank.
And your next question comes from <unk>.
Justin long from Stephens Your line is open.
Thanks, and congrats on the quarter.
So with that investment.
Appreciate it.
No problem and I wanted to circle back to organic growth clearly, there's been an acceleration, but I was wondering if you could put some more numbers around it.
Just based on the way you calculate organic growth can you speak to the acceleration that you saw and the fiscal fourth quarter and then going forward you know coming out of this pandemic you gave a lot of reasons why you think organic growth can accelerate but and I think you've historically talked about this 3% to 6% growth range has.
The the framework changed and if so what do you think that could look like the next few years.
Well yeah.
Yeah, I think we're above that right now this quarter, but above that three of 6% range.
And you heard me talk about the the growth and that you gave at the margin and a range. So.
And as being conservative about making make of future predictions about it but.
We think that we see it's up right now we see a lot of runway for that to continue and you know and I don't know, where it's going to go yet, but we like the way we're positioned that's kind of what I was highlighting on the call.
We certainly can feel it right now but it's.
It's as good as we've seen it.
And the long time, if not ever and Oh, I'm hopeful that continues but I I don't know that for sure and it probably would make the future predictions about it and until onshore so.
I'll leave it at that.
Yeah.
Okay, and then and I wanted to circle back secondly to the penetration and at your customer of your customer base could you just speak high level, where you see the the most opportunity on that front and whether that's a specific customer base. If that's the specific set of products, where do you see the Eaton and the most opportunity to increase.
And that penetration rate.
Well, we still across the whole bunch of different products that we have where and and you can see it and almost every acquisition. We do I mean these acquisitions our.
Two and uninformed observer and it might seem like Theyre all over the place they're they're not the these are things that you know.
And I always think of this as like the bottom of the Amazon page of people that bought this should also by this and this and this.
And you know when we're buying companies and that's what we're thinking about and I was thinking of.
But you know product a b and C from Descartes wouldn't I love to have product the over here, we should make that part of our portfolio who's the best Guy and that space, how do I get them to selling my company. The company because we think we can take advantage of that and and we think that's up and our customers want us to do and will better position them.
And to operate their business and.
And the pandemic made of accelerated some of that as more and more people realize the technology is and.
Increasingly important part of solving logistics and supply chain problems and.
That's played right into our hands and not.
And I think that's behind some of the organic growth that the that you've mentioned in the past and and behind some of the excitement of you're hearing and our voices today about the future.
Okay, Great I'll leave it at that thanks for the time thank.
Thank you Justin.
Canada next question comes true Scott Group of Wolfe Research Your line is open.
Hey, Thanks afternoon guys.
Hey, Scott how are you doing most of it.
And when and when you talk about service quality of I Wonder are there opportunities to maybe get some additional pricing and then.
If organic growth is accelerating the does that change how you think about the 10% to 15% for EBITDA growth.
We are we always operate our business. The 10 to 15 per cent I hope to come back 10 years from now and will still be saved hundreds of 2%.
See we beat that number all the time.
We're trying to be conservative when you say that.
And the people.
I'm, sorry could you repeat the first part of the question and I.
And the second part.
Yes, you were talking earlier about our service quality and and I'm wondering if you see opportunities to on.
And the pricing side.
Oh, Yeah I mean.
That's not a place we normally go right I mean.
One of the one of the questions earlier mentioned.
The concept of cross selling and selling more stuff to two existing customers. We are cross selling numbers continue to rise every quarter I want that to continue to be the case, where we're constantly buying companies and two to.
To actually drive the cross selling and.
And.
And we're doing that and we want them to see us as very reasonable guys. The deal with right. So.
So we have tried to keep our prices are consistent and not a you know when we have of customer over of barrel not.
Get them to spend more money by getting.
And getting them to by charging them.
More per per drink, but but get them to spend more money because they like the solution and they want to roll it out further and it benefits of their business and as a result, they end up by and more stuff from us and.
And we've chosen the latter every time and and we'll continue to write and we want to be seen in this market, where we're selling you know a fedex or DHL, the 20th of 'twenty, one and 22nd products.
And we have a big complex relationship with them, we don't want them ever thinking that were unreasonable people because we checked the price was up just because we could and so we'll take that goodwill and use it to get them to buy more products instead of getting the few more sense out of the per transaction.
Okay makes sense and just lastly, all of this port congestion that we're seeing these delays on the ocean is that good for you bad for you and no impact.
I mean, you know listen the that stuff's, all going to move and there's congestion and that's that's generally the good news and that means there's a lot of demand for our customers and that means our customers are doing well and that means that.
We're probably going to do well too because we charge them by the transaction.
So that's that's good for us the otherwise you know the actual congestion and itself doesn't need a whole lot of those.
Okay makes sense. Thank you guys.
Thank you Scott.
And that concludes our question and answer session I'll turn the call back over for final remarks.
Great. Thanks, everyone. We look forward to reporting back to you on Q1 in May and.
Otherwise have a great day.
Thanks.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.
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