Q4 2021 Descartes Systems Group Inc Earnings Call
[music].
Yeah.
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, we'll conduct a question and answer session.
If you'd like to ask the question during today's presentation. Please press Star then one on your Touchtone phone. Please note. This conference is being recorded ill now turn the color of Scott Pagan Scott Pagan you may begin.
Thanks, and good afternoon, everyone. Joining me remotely on the call today are Ed Ryan CEO, and Allan Brett CFO and the trusted everyone's received a copy of our financial results press release that was issued earlier today.
Portions of today's call other than the historical performance includes 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 of the COVID-19 pandemic on our business from financial condition day care.
The operating performance financial results of condition Descartes.
Descartes gross margins and any growth from those gross margins cash flow and use of cash business outlook baseline revenues baseline operating expenses and baseline calibration.
The anticipated and potential revenue losses and gains anticipated recognition of the expensing of specific revenues and expenses potential.
The 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 in documents filed and furnished with the SEC the OSC 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.
We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward looking statements to reflect any change in our expectations or any change of events conditions of 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 Allen and I are in remote locations. So please excuse any brief pauses before we answer your questions later in the call.
<unk> got some great end of year financial results that I'm excited to walk you through but let's start with the roadmap for this call.
First I'll 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 Allen, who will go over Q4 and full fiscal year financial results in 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.
Full year, especially considering the challenges of the business has had the rise up to meet over the past 12 months. Our plans are always set on growing adjusted EBITDA of 10 to 15 per cent per year for Q4, we grew adjusted EBITDA of 20% over Q4, a year ago and our adjusted EBITDA for the 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 in 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 teams remain committed to our goals and our plans that focus has kept the business growing and operating well <unk>.
The turbulent times.
And Thats really what I wanted to emphasize some of these opening comments the cognizant resilient business. Our business was purpose built to be able to flexibly respond to challenges and continue to achieve our goals. Our business is designed to be able to grow through varied market conditions, including the extreme conditions that we saw over this past year.
So I just want to highlight some of the structural advantages that we have as we go to market.
First we're debt free well capitalized the profitable and generate cash as you can see from the financial results that we reported today, we are of a solid financial structure and strong financial results as a result, when market conditions change, we don't find ourselves in bet. The company type situations, we're not over leveraged and we're not reliant on <unk>.
<unk> capital to execute on the growth 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 the capitalize on opportunities.
Second we are of high degree of predictable recurring technology revenues.
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. This gives us great visibility in our business and allows us to proactively adjust our investments were expenses with the knowledge of the revenue base from period to period.
Yes.
Third we serve multiple transportation markets, we provide advanced technology solutions that help of cargo moving from point a to point b, regardless of the method of transportation used reserve 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 free.
Moves involved multiple modes of transportation. This diversity also serves us well when market circumstances may impact the particular mode of transportation such as how the past year has impacted the 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 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 in an efficient 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 in freight movement.
It also protects us as particular customer groups experienced ebbs and flows in the supply and demand and the transportation markets.
Fifth we have multiple products when.
When you're serving multiple transportation markets and customer groups, you are undoubtedly going to need an 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 than a company that might be single threaded and of spin.
<unk> product or solution are predictable recurring revenues 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 has become less important where your offices are physically located when you're successful technology services provider.
Stead when Youre looking at the company's international footprint, we believe that understanding of the company's exposure to different geographic markets is more relevant.
For us that means understanding where cargo is originating and being delivered and we're the world's largest parties involved in logistics operator.
We found that over time, one country's downturn and logistics activities, most likely ends up as an opportunity for in other geographic market given.
Given that our diverse geographic customer base and involvement in logistics transactions originating or ending all over the world helps us.
Helps insulate us from particular changes in any individual geography.
Seventh we have scale.
Since we serve the ocean community to bar of 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 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.
The card has grown organically and by acquisition, we plan to keep doing that we believe that the 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 of this is 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 strengthening of 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 the web acquisition that we completed this week.
The web is a leading provider of foreign trade zone, or FPV solutions, and customs compliance solutions foreign trade zone, or especially cordoned off areas, where commercial merchandise gets customs treatment as if it was outside the U S internationally, there's sometimes called free trade zones.
There are about 250 of them of the United States with 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.
F. T Z is something that our customers have been actively asking for b 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 system. We think this is going to be of great combination in part because our customers told us before we bought it that it would be of great comp.
Yeah.
This combination is even more important for our logistics services service provider customers. When you combine it with other innovative technologies such as our online free booking tool that recently joined us as part of the containers acquisition.
Just further evidence of how much of the logistics service provider community means to Descartes and is an important part of our investment strategies.
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 in our space to focus on growing organically and by acquisition. Some businesses 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 growth.
For the card we've kept the consistent approach to acquisitions, we're disciplined on price we're focused on generating profit we focus on businesses that can integrate with what we already do for our customers.
Our 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 deals 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 of 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 in good times and in bad.
When there are challenges like the where this past year that the card 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.
Okay.
Okay. Thanks, Ed has indicated I'm going to 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.
The increase of 11% from revenues of $84 2 million in Q4 of last year.
Our revenue mix in the quarter continued to be very strong with services revenue, increasing 12% to $82 7 million or <unk> 89 percentage of total revenue in the fourth quarter.
Compared to $73 $7 million of 14, 8% of revenue in the same quarter last year.
Continuing with the longstanding trend to decrease the emphasis of onetime revenue license revenues came in at one $4 million or just over 1% of revenue a quarter.
Down from $2 5 million or two percentage of revenue in Q4 of last year.
While professional services and other revenue came in at $9 3 million or 10% of revenue of.
Up nicely from 8.0 million or 10% of revenue in Q4 of last year.
For the year revenue came in at $348 7 million up 7% from revenue of $325 8 billion in the previous year.
Revenue 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 from professional services.
Gross margin for the fourth quarter increased to 75% of revenue for the quarter up from gross margin of just over 72% in the fourth quarter of last year.
For the year gross margin was very consistent with the previous year at 74%.
Operating expenses in the fourth quarter and for the year end of 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 line of opportunities to.
And finally also from cost savings, we continue the seat from the impact of the pandemic, particularly in the area of travel marketing costs.
And facility costs.
As a percentage of revenue the increase in each category of our operating expenses with the lower than 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 three per cent of revenue in the fourth quarter.
That's up 20%.
From $32 2 million of 38, 2% of revenue in the fourth quarter of last year.
While adjusted on the EBITDA for the year came in at 142.0 million of 47% 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 in the fourth quarter of this year and that's up 38% from operating cash flow of $26 4 million of 82% of adjusted EBITDA in the fourth quarter of last year.
For the year cash flow from operations was a record $131 2 million or 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 physical.
<unk> '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 purchase of EBITDA in the periods ahead.
From a GAAP earnings perspective, net income came in at $17 2 million up 51% from net income of.
$11 4 million in the fourth quarter last year.
For the year net income was $52 1 million or <unk> 61 per diluted common share up 41% from 37.0 million or <unk> 45 per diluted common share last year.
Overall, we're very pleased with these operating results in the fourth quarter and for the fiscal 2021 year as strong cost control allowed us to weather through the impact of the pandemic on our business, while we still managed to achieve 16% growth of adjusted EBITDA.
And 26% growth in 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 we did not have any borrowings outstanding under our credit facility at the end of the year.
Subject to 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.
You had described in some detail of it earlier.
As a result, we currently have approximately $100 million of cash balances as well as our $350 million line of credit available to draw of them for future acquisitions.
So we clearly continue to be well capitalized to allow us to consider on all opportunities in our market consistent with our business line.
If we look ahead to fiscal 2022, we should note the following.
After the occurring approximately $3 8 million in capital additions in fiscal 2021, we expect to incur between 5.070 of million and additional capital expenditures this coming year.
We expect the amortization expense will be approximately $53 9 million for physical 2022, with this figure being subject to adjustment for foreign exchange and future acquisitions.
As a result of the few unusual tax recoveries our income tax rate in Q4 came in at 21% of pretax income, resulting in the tax rate for the year of approximately 26% the physical 'twenty one.
Slightly lower than our statutory tax rates in Canada the U S.
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 you should add that our tax rate may fluctuate from quarter to quarter from onetime items that may arise as we operate internationally across multiple countries.
And finally after incurring stock based compensation expense of $6 3 million in the past year. We currently expect stock based compensation.
What kind of an approximately.
Six six to $6 8 million for fiscal 2022 subject to any forfeitures of stock options of course share units.
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.
I wanted to remind you of some of the principles, we use in planning and executing in our business principles that are the same as in past years, we plan for our business to grow adjusted EBITDA, the 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.
<unk> back into our business, we focus on recurring revenues and establishing relationships with customers for life and we thrive on operating of 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.
Of our quarterly report that Scott mentioned that we filed today, we've 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 26th and using foreign exchange rates of 79 to the dollar Canadian dollar one.
$1 21 to the euro and $1 39 to 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 as at February 26, 2021.
We've indicated previously that the target of adjusted EBITDA operating margin range for our business is 35% to 40% as mentioned in our actual results for Q4 and FY 'twenty one had us at about 41%, it's possible that we exceed that 35% to 40% operating range again in Q1.
But we don't yet see this as a permanent change in our preferred operating range.
We will look at this again as Q Q2 starts based on market stability, including continued global progress towards vaccination and ending 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 debt.
We announced earlier this week, we expect to continue to be acquisitive this year the.
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 from.
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 in 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 in 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 logical when you see market tailwind I outlined earlier some of the structural benefits our business has the 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 of blood 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 involve our customers in 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.
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 an easier referral of recommendation for those in the know about logistics.
Third we have the public size and scale of the customers are looking for.
The customers have a broad range of choice of technology service providers from venture funded startups to 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.
So customers can easily monitor our financial status. Unlike on the privately owned companies where financial engineering interest of the owners may otherwise hamper what the business can accomplish and.
We have the we have the capital and scale to invest in things that smaller businesses may not take of 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 our solutions and their impact on the environment.
Many of the benefits our customers receive using the cards logistics and supply chain solutions directly and positively impact the environment.
From reducing driving distance for fleet operators to automating logistics and customs clearance processes to eliminate paper the card solutions reduce the global carbon footprint in a number of ways and we're very proud of that.
Fifth we can recruit extremely talented people I've mentioned in the past that we're the perfect work home for people, who eat sleep and breathe 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 to join 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.
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 our customers continue to be intimately involved in 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.
In E. Commerce continues to have our customers seek new and more efficient mechanisms of controlling inventories and distribution of.
These are 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 in FY 'twenty. Two we have a long list of good decisions to choose from that's of great position for our employees customers and shareholders to be in and one we have no doubt many of our competitors and peers NV.
Thanks to everyone for joining us from the call today as always we're available to talk to you about our business by phone or virtual virtual meeting and we hope sometime sooner rather than later in person.
With that I'll turn the call over to the operator for questions.
Yes.
Thank you you will now begin the question and answer session.
If you have a question please press the.
In line and you touched on the phone.
If you wish to be in listen the queue. Please press the pound sign and he asks does.
The delay for the first question is announced.
The speaker phone you may need to pick up the handset first before pressing the numbers. Once again. The question. Please press Star then one.
And you touched on from <unk>.
The standby once again of the questions.
Okay.
Yes.
Yeah.
Yeah.
And once again, if you'd like to enter the queue. Please press star one and we are now gathering questions.
It will be with you in one moment.
Yeah.
Yeah.
Okay and your first question comes from Paul steep with Scotia Capital. Your line is open.
Great.
Could you maybe just elaborate a little bit about what your expectations might be and maybe around customs and compliance in terms of the uplift that you're sort of expecting out of the shoots on that the Brexit.
Brexit the share and then I've got one quick follow up clarification.
Sure. Thanks, Paul Yeah, I mean.
We're early days yet of Brexit, we know we've signed up a good portion of the market. We think we're the market leader in that business right now.
They're still in the form 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 two get in compliance so.
We think it can be good for our business, we think it's going to be.
Uh huh.
Somewhat impactful to our business are not at a point right now where we're going to start guessing about just how much but.
Hopefully in the next two quarters level lot more.
The foreign perspective on that book.
Fair enough and then just the clarification or just one of them in the MD&A here of bike.
You've always called day sort of a 4% to 6% range on the annual recurring revenues in terms of potential attrition you change the last bit of the wording thing you'd thought it might be a hair higher or somehow higher than historic I'm, assuming that just relates to concerned around the pandemic or the thing nothing else there.
I wanted to clarify.
I wouldn't read too much into the out I mean, you're right, we probably did change that because of the pandemic and maybe some of the uncertainty that that's created but not really seen a bit of a material change to it at the moment, so well see what happens in the future but.
At the same time, we have a lot of things going or are gone our way. So whatever happens with attrition 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 it gets the other can also call. It as you called the 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 in all of our platform.
Sure. Thanks, Paul.
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 book.
Broad range of products tariff and duty free for some period of time that means more and more companies need access to our database to.
To figure out of properly classify their goods to take advantage of those.
Reduced rates or eliminated rates.
<unk>.
Our ecommerce business has done very well, you've probably heard us say that in the past, but the the.
The pandemic drove a whole bunch of people on line and because.
Because of our exposure to e-commerce, not only directly serving.
Small and medium size E tailers, but also doing deliveries for a lot of the delivery service agents that are.
Delivery of 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.
<unk>.
Thank you book.
And the next question comes from Paul Treiber from RBC capital markets. Your line is open.
Thanks, very much and good afternoon I just wanted to follow up on the last question just in terms of the outlook going forward for organic growth I mean, as you think through where you opening them you know what do you see the opposite the.
There'll be a big tailwind, but I think the volume, but how do you think about those areas that you saw a strong uptick admits to locked down 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 can keep the ecommerce is going to remain strong.
I think we have some some business areas that are that are up for the long run like.
E Commerce.
We're also seeing some of the businesses that we saw suffer in the pandemic like air cargo start to come back now.
I would say air cargo is not all the way back, but it's certainly the volumes have picked up considerably we're probably more like 5% to 10% down versus the the 25% was solved down.
Six eight months ago.
And the more planes are going back in 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.
That's all been.
Couple of the airline business in the recovery and helpful to us.
The recovering and Theres a bunch of other areas in our business that.
That remain.
One of bit of a boom, so let's see what happens in the coming months, but we think we've got a lot of things going in our direction.
And looking at baseline the I guess, the delta between baseline and 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.
All of our organic growth rates are certainly picking up steam right now and we're happy about that.
Yeah, the things I mentioned in the beginning of the Colorado.
There's a lot of things going in our direction right now and our customers need help dealing with this from the pandemic probably highlighted that the diamond and as you might see in the broader technology market.
The push them towards technology to solve those problems and we were.
A logical kind of day to do that I would always say this quite simply to someone who's not in our business, but just kind of.
A friend or something they want to understand what's going on is that the whole world just figured out what 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.
That's what we do for people and.
There were gains just a couple of years ago. When people. When you know we can do this many of whom you can pick up the phone and call. These carriers manage the shipments.
The way, we don't have to use technology to do that all of a sudden the pandemic hits, everyone gets at home and everyone. Good day, that's out the window.
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 from me.
You mentioned the acquisition pricing environment 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 we've done in the past.
Are we sort of a.
We're not because of the competitive situations, where we can get them the name of the actual multiples but.
It's maybe a little more than we would have paid a couple of years ago for a business like this book, 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 the thought we got a good deal on it and at the end of the day.
When prices go up.
And we're very cost conscious or hedging of Hulu.
The thing we ever calculators out of every deal trying to figure out how are we going to get our money back for our shareholders.
You know one of the ways you can do that is just the buy higher quality assets day, if I'm gonna be forced to pay a higher price for something that's fine let me gets up in the high quality.
Because of our time amount of time that we've all been doing this and the amount of time that our.
Tenured of employees have been around looking at companies and assets in our space. We think we're better positioned than 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 gonna be worth it in the wireline.
Alright, thank you.
And the next question comes from Matt Pfau from William Blair. Your line is open.
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 products specifically you know.
Are you expecting to drive that acceleration and you just sort of wondering as you know is that acceleration how dependent is it upon you know economic recovery versus just sort of other tailwind that you're seeing in your business that maybe arent as dependent upon the recovery.
Yeah, I'm, not specifically thinking about the recovery in this process.
Although I think that will help.
Yeah.
We're certainly seeing a big uptick in our customers of security.
Filing business because of Brexit.
I think that's going to continue as Brexit continues to rollout.
We are seeing our trade compliance that I just mentioned.
A little earlier with the.
It's showing up in the data content businesses that we have.
As people want more access to tariff and duty information so they can save money the.
They are turning to us as the.
Provider of choice to do that and that's true that's been great for us.
And you know of.
A bunch of our network businesses ecommerce and some of the other.
Beneficiaries of ecommerce like moves in the trucking space macro point things like that.
Have.
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 now that all of our employees had the work from home.
That's the here to stay and I think that really plays into our handling of has not only been on some of the growth of you've seen in the past couple of quarters book.
Behind what you might see in 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 are excluding acquisitions I guess why would you expect the margins to potentially go down throughout the year of your planning on a bunch 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 in the market right now right a lot of our expenses of changed in the past year. You saw we were conservative in operating the business last year of cutting our cost to line up with some of the of the.
Reductions we saw in the pandemic and we.
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 in my prepared comments.
The choosing to invest in some areas in our business, where we see opportunities for growth as we see our organic growth rates growing.
And more.
More.
Our intense focus on logistics.
It is.
It probably puts an opportunity in front of us to invest more in our business and take advantage.
Vantage of that in 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 that could happen again.
But I think overall this is probably just the you know our conservative nature of such the until until were positive the thats going to happen or not going to you're not going to see if the <unk>.
The things.
Makes sense I appreciate you taking my questions.
Hey, Thanks, Mike.
And the next question comes from Deepak <unk> from.
The include JMP Your line is open.
Oh, Hey, good evening guys. Thanks for taking my questions I've got a couple.
Ed first of all the top on quest, the west and it sounds like you described it as a pretty niche market in the U S.
But how the growth opportunities can you talk a little bit about where you can see the growth for that.
What the non U S opportunities for that business might look like and how you get there.
Well of members, but it's the companies from all over the world to take advantage of these breached barring trade zones in the U S.
And if you're going to buy a global solution he needed to be able to handle that of your company uses foreign trade zone do you need to have a solution for that to handle that.
We see it as we have a lot of our acquisitions I always say, we're buying an extra neighbor's property.
With every acquisition.
We have a lot of investments in 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.
So need to handle it.
And a lot of cases.
Free trade zones.
<unk>.
You know we wanted to make sure that we had the solutions that the customers want them and we think of ourselves as buying and building.
Two an end state in the logistics technology space and we thought.
Free trade zone was a big part of that and we saw quest of web come up for sale I mentioned theres not many companies out there the handled as well.
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 that something that you can export to other countries of Isabella.
Well.
The concept doesn't exist exactly the other countries the countries in the world there are a lot of.
Foreign companies, though debt that also operate free trade zones in 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 you're kind of pointing.
Pointing out is 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, you understood My God.
The the intricacies of my answer.
Got it yeah. That's helpful. Thank you I appreciate that margin right.
Zero.
Both of us.
Bob.
I I did want to follow up from.
Sort of follow up on top of you mentioned around attrition.
You talked about improving your enhanced quality of to reduce attrition.
General.
There could be kind of sort of vendor consolidation accelerate post COVID-19 kind of going on the attack for a while you'd see this as the rest of an opportunity for you guys because it's hard to see.
Major of big players that could.
We prefer the 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 because of that.
We think of it as an opportunity right.
I'm quite sure it's going to be an opportunity for us, but that doesn't mean that 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.
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 the time looking over our shoulder, but we certainly are aware of where we are in the market and where we might be to improve to make sure of that we're always the best in every area that we operate and.
As we get bigger we want to make sure that our brand is a continually known as someone that is.
Providing the best service for the best price in the market and the.
Part of that is delivering the best functionality and being on top of that so.
No I well I can answer your question I see that the big opportunity for us.
And certainly I think that.
In fact that were getting bigger it makes it easier for bigger companies to do business with us, 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.
Little book.
Part of it and when we think of your partners by car class. If you remember the a couple of years ago of the big.
Operating transportation management, what's kind of the status of those partnerships.
How did the whole of it.
The couple of years.
The bigger than ever I mean, the growing growing probably bigger than ever and growing faster than ever.
They've 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 network. So 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.
Great. Thank you very much.
And the next question comes from Ryan Lynch of from 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. It may still be early days here, but as we continue to reopen at the floor of vaccines get distributed has there been any sort of inflection yet in these conversations of customers compared to prior quarters, but there is no vaccine approved yet in reopening soon for more distant.
Yes.
I don't know if that's specifically has changed things for us.
And if it has I haven't really seen that yet I mean, we continue to sell.
Very effectively in this pandemic on average it's one of the big surprises to me in this pandemic is the in.
In the early days of it that we were selling as effectively as we as we were proud of the pandemic and.
Another surprise to me in the last.
A couple of quarters is that we are.
The sold more stuff than we've ever sold before coming.
Coming into the year.
So the at the height of the pandemic in the last six months or so.
As companies.
I have decided to buy you know more and more of logistics functionality to deal with these problems I think it's probably largely.
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 they need technology to help them do it and you know we've been a beneficiary of that in there our sales guys, even though they haven't been able to travel to see customers in a year I've been selling more than ever and that's been great news for US 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 the acquisition.
This builds on a bit of of pattern on the acquiring anticipate growth areas like compliance of E. Commerce, how should we think about M&A going forward considering that when you're in the market is there a bit more of a focus on growth areas. Specifically are you really looking for the right net asset regardless.
We looked at we'll look at anything.
You know you over the last 20 years, you've seen us buy stuff that's shrinking in the day, we bought it and you've seen us buy stuff that's not profitable of the day, we bought it but.
But in the last five or six years and it kind of touched on this earlier on the call as as prices have gone up.
We've thought of.
It's relatively cheap kind of thought hey, you know throwing overpay for something that's got some issues or on an overlay of something that's been a very good position well if I'm gonna be forced overpay I'd like to overpay for supplements.
That's a growing rapidly and well positioned because I think you know in those circumstances when I get the right company like of macro point I go I don't think I'm going to care about the purchase price of tenure I'm going to lap of the purchase price of 10 years ago, even though the day I bought it at seem very expensive debt.
And 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 would be of bargain in today's in 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 and the problems that they have are the ones that were.
<unk> prepared to deal with you know they go Hey, I've got the spray product I want to get it off of 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 have couple of hundreds of people out there that know those customers. We can go out and attack the more aggressively than you might have been able to do on your own just as an example.
That makes the.
The acquisition worth more to us than most other players in the market certainly the then two of private equity firm, who is it going to bring anything else from the table out of the money.
Thanks, that's really helpful color I'll pass the line.
Thank you Frank.
And your next question comes from <unk>.
Justin long from Stephens Your line is open.
Thanks, and congrats on the quarter.
Okay.
With this investment in Brazil.
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 in the fiscal fourth quarter and then going forward you know coming out of this pandemic you gave a lot of reason.
Why you think organic growth can accelerate but 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, I think we're above that right now this quarter about above that three of 6% range.
You heard me talk about the the growth you gave at the margin from that range. So.
As being conservative about making make of future predictions about it but.
We think that we see at the up right now we see a lot of runway for that to continue 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 that it's the right.
So it's as good as we've seen it.
In the long time of not ever and Oh, I'm hopeful that continues but I don't know that for sure and it probably would make future predictions about it until onshore so.
I'll leave it at that.
Yeah.
Okay, and then I wanted to circle back secondly to the penetration at your customer of your customer base could you just speak high level, where you see the the most opportunity on that front, whether that specific customer base. If that's the specific set of products, where do you see the Eaton and the most opportunity to increase.
That penetration rate.
Well, we see across the whole bunch of different products that we have where.
And you can see it in almost every acquisition we do I mean these acquisitions are.
To an uninformed observer it might seem like Theyre all over the place they're they're not the these are things that.
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 when we're buying companies that that's what we're thinking about value we're thinking of.
Avaya bought 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 in that space, how do I get into selling my company. The company because we think we can take advantage of that and we think that's something our customers want us to do and will better position them.
The operate their business and.
You know the pandemic may have accelerated some of that.
As more and more people realize the technology is.
Increasingly important part of solving logistics and supply chain problems.
That's played right into our hands and the.
But that's behind some of the organic growth that the.
You mentioned in the past and behind some of the excitement of you're hearing in our voices today about the future.
Okay, Great I'll leave it at that thanks for the time.
Thank you Justin.
Canada next question comes from Scott Group of Wolfe Research. Your line is open.
Hey, Thanks afternoon guys.
Hey, how you doing the pattern.
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% I hope to come back 10 years from now and will still be same kind of 15%.
You see we beat that number all the time.
We're trying to be conservative when you say that the people.
I'm, sorry could you repeat the first part of the question.
And the second part.
Yes, you were talking earlier about our service quality and I'm wondering if you see opportunities too.
On the pricing side.
Oh, Yeah I mean.
That's not a place we normally go right.
Right.
One of the one of the questions earlier mentioned the.
The concept of cross selling and selling more stuff to two existing customers.
Cross selling numbers continue to rise every quarter.
We want that to continue to be the case, where we're constantly buying companies to.
To actually drive the.
Cross selling.
And.
You know when we're doing that we want them to see us as as is very reasonable guys of the deal with right. So.
No. We have tried to keep our prices are consistent and not you know when we have a customer of our barrel not.
Get them to spend more money by Guinea.
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 the benefits of their business and as a result, they end up buying more stuff from us.
And we've chosen the latter every time.
We will continue to rise and we want to be seen in this market, where we're selling you know a fedex or DHL the 20th of 'twenty, one 'twenty second product.
And we have a big complex relationship with them, we don't want them ever thinking that were unreasonable people because we check the price is up just because we could and so we'll take that goodwill and you use it to get them to buy more products. Instead of just from a few more sense out of the per transaction.
Okay. It makes sense and just lastly, all of this port congestion that we're seeing these delays on the ocean is that good for you or bad for you no impact.
I mean, you know listen that's the.
That's all going to move when there's congestion. That's that's generally the good news that means theres a lot of demand for our customers and that means our customers are doing well and that means that the.
We're probably going to do well too because we charge them by the transaction.
That's good for US otherwise you know the actual congestion itself doesn't mean, a whole lot of those.
Okay makes sense. Thank you guys.
Thank you Scott.
And that concludes the question 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.
[music].