Q1 2022 Descartes Systems Group Inc Earnings Call
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David Brown from Idaho.
The business is calibrated.
We watching in this fiscal year.
<unk> and then we'll open it up the op.
The operator to coordinate the Q&A portion of the call.
So with that let's get started as the headlines of the press release said these were record financial results for us that are well ahead of our plans to start off the year.
To get right to the point of why we're ahead on plan.
Here are a few factors. So first we had a good new additional recurring revenues and our customers' compliance pillar from a Brexit solutions.
We had better than planned performance from recent acquisitions and third we've seen a good bounce back from shipment volumes on our network as the U S is starting to open up.
Back up for business.
So let me talk about each of these areas for just a little bit here.
Let's start with Brexit in Q1, we had a great traction and helping our customers get ready for compliance with the new UK Brexit rules, we've talked about this a bit on past calls however, with the UK, leaving the EU.
You've established the brand new country for customer purposes for all trade between or passing through to and from the United Kingdom and the EU.
That means that you've now got a new UK customers rules for imports into and exports out of the U K, you've got new rules for imports into in exports out of the EU, the new security filings by mode of transport for all of the shipments and.
In addition.
Each of these rules is coming in on a phased in basis somewhat grace periods, and others immediately and exceptions to particular rules, such as Ireland and Northern Ireland.
All in all it's been a very complex situation for our customers to learn and manage.
For Descartes and we've historically been 1 of the leading UK customs and security filers. This makes us an ideal company to help customers be ready for compliance with new roles. We've seen good early success and getting customers signed up better than we were initially planning on.
And we remain active in getting customers signed up in advance of the end of year of Brexit deadline with filings will become mandatory and while we don't expect the same level of new customers that we had this quarter. We think it will still be a tailwind for the rest of the year.
All in all our team has done an excellent job in making sure we were ready to help our customers with timely filings and that preparedness has been rewarded by customers choosing us with recurring revenue contracts to help them with the ongoing UK customs compliance challenges.
Second factor.
And above.
Was above planned for performance from some of our recently completed acquisitions, those who followed our company for some time now it's no secret what we look for in buying companies, we listened to our customers about where to invest for the future and as a result of our acquisition strategy is very much very much customer driven from.
From a financial perspective, we are very disciplined in our approach the value recurring revenue businesses, we value of companies that have an eye to profit value of companies that are growing but also minding. The bottom line the value of companies that are of good reputation with the customers and we value of companies that are distinctive and have a defendable market position in their space.
We understand that others may take a different approach and looking for acquisition targets. Some acquirers on a path of growth at any cost and are less concerned of a business can and will make money. They pay up for the pure revenue growth of the requires a more focused on the financial engineering of the contribution of a deal and less about the quality of the acquired company or how it went in.
Great for the benefit of customers I'm sure. There's merit to these other approaches its just not what we do.
For a typical of the cart deal, we're establishing a conservative model for wind and acquired business comes in we went to initially focus on getting our combined team working together and while not missing a beat on customer delivery. We also went to we are we also want to get.
2 executing on synergies quickly. So we can immediately operate profitably as the cohesive business for the benefit of customers.
Pandemic has not caused us to deviate from how we acquire or integrate businesses last year, we bought 3 businesses and this year. We've already bought too. We believe there continues to be a number of good quality profitable businesses that makes sense to be of part of the global logistics network and that will be a big benefit to our customers we believe combining with.
Good businesses makes us a better company and it will remain a large part of our plans going forward.
Some of the businesses, we bought last year had very good performance in the first quarter last year, we combined with ship track of business with particular strength in mobile and routing solutions for last mile delivery companies I mentioned on the previous call. How we had immediate post deal success with combined Descartes ship track deals with the big increases in ecommerce and as a consequence.
The last mile deliveries through the pandemic, there's been even more demand and ship tracks customer base for extended solution Rollouts. So it's a great start to the year for that business.
Also last summer, we combined with containers you may recall, the containers business helps for orders and transportation carriers with digital platform to interact with their customers keep premise for us combining was that we believe that together, we can reach more customers and give them confidence in what we can do.
Seeing that premise proved true as containers continues to see good traction.
With customers with several recurring revenue sign ups and go lives that hit the first quarter.
In part based on the success, we saw with containers and further serving the for logistics Intermediate me. The very community. We've completed 2 deals this year that help round out our border solution footprint the for.
First was quest of web in March that we talked about on our last results call. The business that provides brokers and border solutions to help them manage their lifecycle of shipments, including some unique foreign trade zone functionality.
The web is only part of our business for 2 months in the first quarter, but it's already having an impact the teams of integrated well and we've already worked together on various combined opportunities, including helping customers with joint duty drawback and duty recovery opportunities in Canada and U S truly a great start.
Yeah.
And then right. After the quarter ended we completed the acquisition of portraits portrait because of good example of where good decisions in the past help you make decisions in the future.
Purchased as a part of our partner of containers and so we're already had experience of successfully working with containers and portrait on joint opportunities with customers portrait is in the business of multimodal transportation rate management, primarily for for orders and logistics intermediaries portraits provides the platform that allows these intermediaries debt digital rates for all.
All of the different contract permutations that intermediary has with its transportation carriers, and then manage those rates to provide accurate and profitable quota for complex moves that the inter married media Aerie makes for its own customers.
In particular, when combined with the container digital front end and the carts existing board of back office solutions. It's a powerful combined platform that gives them the intermediary everything they need to run their business welcome.
Welcome to hanging in the entire portraits team and we look forward of doing great things together.
So to sum up as it relates to acquisitions, we completed some acquisitions last.
For combined platform.
The provision.
For them gives them the intermediary everything they need to run their business.
The year that we're very excited.
The thing in the entire portraits team and we look forward of doing great things.
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Plans are for them to profitably contribute to our business immediate.
Together.
The other acquisitions last.
For the previous businesses we've acquired.
The problem, we added 2 businesses.
Fire and our willingness to buy.
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About beat can provide very good value to a customer.
How.
Our plans are for them to profitably contribute to our business.
Operating.
We think for the previous businesses we've acquired.
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Wire because nothing has changed in our willingness to buy how we buy.
And by 2 main factors.
By the systems.
So as the general economic recovery, we've seen as the U S open back.
Systems attributed to a great Q1 are operational.
The customers of trusting us with more and more of the.
The business.
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And of course that we saw in our global logistics.
Pork is the foundation of our business.
The network the main factor.
All of the parties to logistics transaction.
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And the second factor was the customers for trusting us with more and more of the.
And taxation of the movement of.
Their best work is the foundation of our business.
Of those all over the world and for every mode of transportation.
Together.
It truly comprehensive global logistics.
Other intermediaries.
The network oftentimes big events impacting shipping will operate as a bit of a zero sum game.
Areas and taxation.
The 1 geography or down say due to something like prohibitive tariffs.
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This phenomenon.
The comprehensive global logistics.
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Networking will operate as a bit of a zero sum game.
Whether you'll likely see pickups in volumes in other shipping lanes.
It seemed like prohibitive tariffs.
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Tariffs up in other countries, where it's now more economical to ship.
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The fees Vince that hits shipping.
Weather or other circumstances.
Shipping gifts, and where and how shipments are moving rather than across the board increases or decreases.
Stan station.
Exceptions to this are aware of there are global recessionary of Blue.
For modes of transportation of geography.
Women are the proverbial rising tides.
The fees the hits ship.
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Shipping you often see shifts in where and how shipments are moving rather than across the board increases.
Shipping volumes in particular decreased international shipping volumes.
He says recessionary of Bruner.
Volume Smith.
Luminary booming.
The mix impacted both shifting supply and.
Times of raising all boats.
Man or cargo world much of the available shipping capacity was removed from the passenger planes just stopped.
Boats the shipping.
Flying for those passenger planes were carrying cargo on their bellies and demand for shipping services was also impacted as retailers didn't have in store shopping hours.
Boddington.
Hours, they require quite as much replenishment.
Of much of the available shipping capacity was removed from the passenger planes.
Management resources.
Just.
Sort of slow signs of shipment volume for coming back.
Just for bellies and demand for shipping services was also impacted as retailers.
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Taylor's that required quite as much replenishment.
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Shifting focus.
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For the latter half of last fiscal year, we saw.
They're called e-commerce volumes, and the resulting last mile delivery continues to drive good results for our <unk>.
The if many of our customers.
But in Q1 with the massive availability of vaccines in the U.
So.
The us pushed the reopening.
For focused.
Opening triptans have been lifted more passenger planes of moving cargo in addition to the industry's move to retro.
To the Smile delivery continues to drive good results for our.
Trophic also with physical stores now reopening, we're seeing warehouse and store replenishment.
Our business in the U.
The Smith exhibit factor in increasing shipment volume.
The us is restrictions have been lifted more passenger planes of moving cargo. In addition to the industry's move to retrofit.
Thanks.
Perfect.
When we add this to the fact that customers continue to trust us with more and more of their business.
<unk> been warehouse and store replenishment.
The net growth on our.
Smith factor in increasing shipment volume.
Network for our business in Q1, and hopefully as vaccine rollouts of advance around the <unk>.
Volumes in the U S began to open.
World Global shipment.
At this to the fact that customers continue to trust us with more and more of their busy.
Volume for Q1 Brexit.
The organic growth on our.
Rising shipment volumes.
The network and a good sign for our business in Q1, and hopefully of vaccine rollouts advance around the world.
Volumes record income from operations.
World.
<unk> net income and adjusted EBITDA above our plans.
Through to record results for us in Q.
<unk> from a year ago.
Q1 acquisition of performance and rising shipment volumes.
Go for.
Volume so this.
<unk> from operations at almost 99% of adjusted EBITDA.
Revenues.
EBITDA for each of these things were ahead of our plans and I want to thank our entire Descartes team and our customer base.
Adjusted EBITDA up 26% from a year ago.
With that I'll now turn the call over to Alan to go through our Q1 result.
At almost 99% of adjusted EBITDA.
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Though.
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Some of these things were ahead of our plans.
As indicated.
<unk> for our entire Descartes team and our customer.
Weighted for our first.
Base help in getting us.
Quarter for yet.
With that I'll now turn the call over to Alan to go through our Q1.
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Yes.
Detail.
Quarter, an increase of 18% from revenue.
So of anything.
For indicated.
Weighted I'm going to walk you through our financial highlights for our first.
The plan from new acquisitions contributed nicely to this growth.
The reported record quarterly revenue.
Mentioned been existing customers.
Revenues.
<unk>, including from new Brexit related.
For the 18 per.
The current.
Per cent.
The main drivers of.
Yes.
The growth.
In Q1 last year.
While revenue from new acquisitions contributed.
For free.
That's sort of the weaker comparable period.
The nice.
Nice.
For you did have a negative impact.
Both of the St.
Empowered transactional volume.
The customer new Brexit related.
Williams of the global pandemic last year.
The couple of the main drivers of.
The growth order from compared to last.
Last year, we should mention that there is a benefit.
Here, the first quarter last year.
This.
Or is it the comparable.
Quarter.
I think the 2 million.
Terrible.
The negative.
The U S dollar of this week.
Weaker compared for the year.
Debt of the global pandemic last.
Euro compared to the same period last.
Here.
As of.
As a reminder of the impact of foreign exchange on the adjusted EBITDA.
Once again.
Okay.
3 million.
We remain fairly naturally hedged.
The speaker.
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The car compared to the year.
Euro the Canadian.
Thank you for.
But as pounds compared to the same period last.
Our revenue mix for the quarter continued to be very strong.
You have the foreign exchange on the adjusted EBITDA.
From.
It was once again quite.
On the 88.
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The point.
The main from actually.
The percentage.
A sense of the revenue.
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Net profitability.
Revenue for <unk>.
Billy.
74, 1 million for 89% of.
Cost of revenue.
For the period last.
Revenue in the quarter continued to be very strong.
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The increasing.
The increasing 7%.
From a.
From the growth last.
88, 1 for 90%.
Last year this revenue.
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74, 1.
Volume, 1% of revenue in the quarter.
For the same period.
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Last year's revenue was also.
Also up nicely sequentially.
The financial services and other revenue.
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Revenue came in at $9.2 million for 9% of revenue.
Revenue of 18%.
<unk> 3 million for just over 1 percentage of revenue.
The last year.
And that's down from license revenues of $1.8 million.
First quarter increased.
Increased to 76 per cent of revenue.
1 of the services and other revenue.
Revenue from gross margin of 70.
Revenue of $2 million for 9 per.
75 per year.
Per cent of up 18%.
Margins continue to increase.
For Samsung.
Kris strong incremental growth from the then existing customers of the experience.
Gross margin for the first quarter increased to 70.
Yeah.
The 6.
No.
The increased in the first.
The gross margin.
And the related.
Margin of.
Related.
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For.
The second quarter.
Sales from recent acquisitions.
Margins continue to.
The additional labor related.
To incremental.
Turning to.
The investment.
The.
Growth, we experienced in the quarter.
These cost increases were partially offset.
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Net.
The path of the.
All of them.
The facilities.
Of.
Cost per.
Costs were ongoing.
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On the desktop.
The adjusted EBIT.
Our business cost increases were partially offset.
Growth of 1.5 million.
Set by senior.
42.0% of for.
And of the travel marketing.
Yeah.
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Zero.
Costs.
The 9.4% of revenue in the first quarter.
It's.
We continue to see strong adjusted EBITDA growth.
Lastly, the things exceptional operating results.
No.
So generated from.
Becker.
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For from for 42.0% of revenue.
The net approximately 99 per.
Percentage of adjusted EBITDA.
I think.
From.
1 of the.
39.
This year of 49.
During the first quarter.
Percentage.
Last.
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Last year with these exceptional operating results.
Thank.
Also generated from operations.
The Doctor.
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49 million.
The 2 unusual events and quarterly fluctuations.
EBITDA.
Sure.
We expect to continue the strong cash flow conversion.
The plan.
And generally expect.
Oh.
Cash.
All of them.
Evan.
She has to be between.
Right.
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The 90 per cent of it.
Each.
Interesting.
Yes.
First in the quarter last.
The dog Cat.
Going forward.
Forward, particularly unusual events and quarterly.
GAAP kind of came in at 18.
We expect to continue to see strong.
The 2.7% from net income of 11.
Cash from operations.
1.
For Asia.
The first quarter of last.
Between 85 to 95 per cent of.
Year all of that said, we're really pleased with these operating results in the first quarter is the strong word.
For adjusted.
Organic.
The net income came.
On the performance from our recent acquisitions resulted in the 18% growth in revenue.
In the 8 of 11.
Revenue.
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No.
The 6% growth.
The next.
And just for the quarter.
Overall as I've said, we're really pleased with these operating.
Balances.
Results of strong organic.
Total of 1 million at the end of April.
Organic costs from our recent acquisition.
April subsequent to year.
The quarter.
<unk>.
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And how can.
Revenue.
We had approximately 12.
$26 million of our existing.
Cash balances too.
If we turn our attention for the balance.
But what you have described.
Non sheet cash balances.
Right.
Total 38.
The result, we still have over 110 million of cash.
Subsequent to.
<unk> 300.
The 50 million available to us the draw.
Sure.
Under our credit for.
Okay.
So the heater acquisition.
Position.
Just to complete the portrait.
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The ZIP code as a result.
The markets.
We sold for 110 million of cash as.
When you look at the back.
Well isn't available.
<unk> 2022, we should.
The credit facility for future acquisitions.
Note the approximately 1 point.
Physicians continue to be very well capitalized.
6 of them from the first.
Life for all acquisition.
Quarter incur approximately for.
Operating.
For $5 million of additional capital expenditures for the balance.
Systems as we look for the balance of fiscal 2022, and we should.
Alex.
As of August 13.
No.
The to incurring approximately 1.
In fact, the MSA.
Amortization.
Clint.
But for additions in the first quarter.
The 42.
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Yeah.
The.
Great.
For the $5 million of additional cash.
Sure.
Capital kind.
The sales change.
The interest here.
So in future acquisitions.
After incurring amortization.
Tax rate in Q1 came.
Costs.
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We got the MSA.
1.1%.
That's what the.
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Scent of lower than our statutory.
The tax.
Without.
As of at least.
The year for this figure.
Numerous.
Good things for foreign exchange changes.
All of that certain benefits.
And since your acquisition.
That's unrecognized tax.
Acquisition tax rate in Q1 came in at 21.
Losses from 2.
1.1%.
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Percentage.
The tax rate would be in the range.
On top of ours.
The range.
That's true.
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Okay.
The.
The tax income.
And this was mainly as a result.
That's the reversal.
So from that.
So the patient allowance.
I think some previously unrecognized.
And so the tax.
Lots of people.
A nice 30.
All of it as well as the reversal of.
For the Q2.
Some of those shifts.
2 we currently expect that our tax rate would be in the range.
Year.
Range.
Year currently expect our tax rate to be live in the area.
For the Sip result.
The other 40%.
Of the itself.
The center.
Total valuation allowance.
In the past for returning to a.
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The range 5 to 30 per.
For the first.
Per cent.
Sent of that MS Clinton years.
As always we should add that our tax rate may fluctuate.
Dr.
Some.
Tax provision given the air.
In terms of the operating internationally.
3.
Yes.
1 of the.
First of all the countries.
At the before returning to a.
Mark.
For recurring stock based compensation.
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The tax.
The last quarter, we currently.
But as always we should.
That's compensation.
For that fluctuate.
It would be of pain.
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Millions.
The items may arise if the outbreak internet.
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Shares of stock options for sure.
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Current.
Comments.
For the past.
RBC.
Quarter, we currently expect stock.
Okay, great. Thanks, Alan 1 of the things we strive for Descartes is consistent.
Q2.
We believe the consistency brings stability and reliability things that we know are valuable to our customers and our broader stakeholders.
<unk> was the comment.
<unk> delivered this consistency we operate from consistent business prints.
Thanks, Alan 1 of the things we strive for it the hardest consisting.
Principal of 15% annually.
T systems, he brings stability and reliability things of that we know are valuable to our customers and our broader stakeholders.
The only from we expect to reinvest that.
The we operate from consistent business.
We focus on recurring revenues and establishing relationship.
Principal of the 10% to 15% annually.
Ships. The finally, we thrive on operating predictable business.
Okay.
That allows.
The.
The ability to our revenue.
The farm, we expect to reinvest that over performance back into our <unk>.
It's been hitting some of these principles, particularly in light of US performing ahead of our plans for Q.
Business.
1 we believe.
Ryan on operating predictable business.
That net.
Of.
Performance.
Of the stability to our revenues and investment payback.
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The back from some of these principles, particularly in light of.
To make predictable and sustainable.
A few.
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1 of.
Backstage.
The performance back into our business.
Dave that's the circumstance that we find ourselves in now.
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Now in our business to drive.
To make the <unk>.
Ryan more consistent organic.
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Gannett clients in the future.
But how we can generate the forward visibility to revenue as an investment payback.
Future sort of go to market infrastructure.
Back when we think.
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Think circumstance that we find ourselves in.
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Now in our business to drive even more consistent organic.
Growth.
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As for <unk>, we keep that investment opportunity in.
And the opportunities to both enhance our go to market infrastructure.
The mind.
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Better sell.
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Allobrain early reported.
Growth for retention.
For the pension we filed today, we provided a comprehensive description of baseline revenue.
Tension that investment opportunity.
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Mind over performance as an opportunity to get better.
As of May.
Better opportunity to celebrate.
From the beginning of our fiscal quarter.
Celebrate.
This quarter. However, we're calibrating as of May 7.
Day, we've provided a comprehensive description of baseline revenue.
As of May <unk>.
Revenue celebration and their.
7 of 82.
Patients quickly recalibrate as of May.
<unk> 21 to the euro.
The beginning of our fiscal quarter.
Oh and $1.
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For <unk> to GBP pound, we estimate that our baseline revenue.
77.
The news for the second quarter of 2022 or approximately 92 million.
The $1.21 to the euro.
Since our approximately $59 million.
Our.
Consider this to be our baseline calibration of exactly.
For found we estimate that our baseline revenues.
Our protect quarter.
The second quarter of 2022 or approximately $92 million.
<unk> baseline revenue.
Operating expenses are.
So the 20.
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Consider this to be our baseline calibration of exactly.
The 1 for our business.
A $43 million.
So.
For the <unk>.
As mentioned our actual results for Q1.
Quarter nearly 30.
1 of about 42% and we've been above 40% for each of the past 4 quarters, given what we see we're raising that range and we believe will operate.
6 range for our business.
In the 3% adjusted EBITDA range for the balance of fiscal 2020.
Business the 1.
2.
<unk> had us at about 42% and we've been above 40% for each of the.
2 of the year will be to growth.
The past given what we see we're raising that range and we believe will operate.
Good contributions from both portraits and quest the web in Q2.
In the sense of fiscal 2020.
Too active in the acquisition.
The 2 comments about investing for future organic growth our focus for the balance of the year will be to growth.
The market here.
<unk> organically and by acquisition.
Area and diligent efforts will guide.
This should confucians from both portraits and quest of web in Q2.
So I described a few things that I think position us well to grow as a bit.
To first quarter, we believe there are still acquisitions that meet our financial and strategic criteria.
Business.
Area and that continued focus.
From a portfolio.
The guide.
<unk> impact that our solutions have on the environment, our ability to recruit talented people.
I think position us well to grow as the <unk>.
People about those factors from what I said.
Business customers, our dedication to driving success for our.
The lessons integrated.
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And even better financial.
The.
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The positive impact that our solutions have on the environment.
Okay.
<unk>, our ability to recruit talented people.
The earlier Max vaccination efforts in the U.
People changed about those factors from what I said last quarter other than.
The us similar efforts in the U K and Canada may soon put those economies in a position to begin to open up further as.
Then some of the market tailwind.
Well well that is positive news there is still a long way to go with vaccination for many parts of the world.
The first to start the process of reopening.
But even in the U S and some of them.
Reopening of Canada may soon put.
Mark it's generally going to be hurricane strength.
Those are the open up further as.
It means that are still in the grips of of the pandemic.
Well positive news there is still a long way to go with vaccination for many parts of the <unk>.
<unk> support our customers.
The reopening in the U S and some of their.
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Mark of tailwind.
I'll get back of some of the.
And its hurricanes.
Premiums that we were used.
Strength of the large economies that are still in the grips of the pandemic.
Net.
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Never reach of US work conditions will change, how we interact with others will change and our buying.
Abbott's will chase.
Well get back of some of the.
The changes are sustainable tailwind for our business specifically the accelerated move to further automation and <unk>.
Back to the way they once.
<unk> e-commerce from traditional buying back.
Work range, how we interact with others will change.
I couldn't believe the lockdowns and the resulting need to work remotely have COVID-19.
And our sustainable tailwind for our business.
Convince meaningful impact on making our jobs easier.
Their automation and busy.
For mobile.
<unk> moved the ecommerce from traditional buying Magnus.
Basic and logistics, where by its nature.
Mechanization front, we believe the lockdowns and the resulting need to work remotely have convinced many.
We're seeing this in the demand for our solutions.
Making our jobs easier.
<unk>.
To pull from the distributor.
For the do this remotely and more how do we do this remotely.
That's the 1 supply chain and logistics where by its nature.
Remote within of permanent an accelerated shift.
So it's moving via remote.
The people in the future years, we'll see a shift to go from business to consumer.
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<unk>.
What if we wanted to do this remotely and.
But we believe.
More.
Leave the commerce will.
The E Commerce front, we believe that theres been a permanent an accelerated shift.
The demand for our solutions.
The people are seeing online.
To wrap.
Here's youll see a shift from business to consumer.
I believe that it provides a great opportunity for us to it.
<unk>.
The best take our.
We believe.
Business.
Leave the commerce will.
Sure, we know will be good for our customers and other stakeholders.
Make and that will drive.
Specific to our.
Drive.
Business for wells that I described earlier.
To wrap.
Earlier, how we got this great opportunity that we have in front of us.
And it provides a great opportunity for us to investing.
Now call today as always we're available to talk to you about our.
No it will be good for our customers and other stakeholders.
The business, sometimes sooner rather than later in.
Older systems that I described earlier.
The first grader I'd like to turn it over.
Earlier this great opportunity that we have in front of us.
Thank.
Now everyone for joining us on the call today as always we're available to talk to you about our.
Alright, and 1 on your Touchtone phone.
Business.
Sometimes sooner rather than later in.
From here.
And with that operator, I'd like to turn it over.
Over to you for the.
The will be delayed for the first question is.
Questions will now begin the question and answer.
The non time.
If you have of quest.
Yes, that's fair.
Star then 1 on your Touchtone phone.
First do you have a question.
Zone, they ever for Mike.
And 1.
Amir first of.
1.
For the ASP.
And the first question.
For the first question is.
Your line is.
The announced excuse me speaker phone you may need to pick up the handset.
Thanks for all the details on the call.
First day.
<unk>.
Then you have of quest.
Total debt of a recap.
On the areas of investment I noticed you mentioned go to market.
The first question.
<unk>.
Yes.
So assuming you're meaning.
Meaning.
Your line is.
The incremental investment of the.
Okay.
The outperformance despite.
Thanks for all.
Spike range.
All of the deal.
I didn't hear you call out anything.
For the cap.
Around the sort of curious is is there an area of their focus and then I've got.
On the service.
1 for.
And assuming your <unk>.
All of them.
Meaning incremental investment of the.
1 of the areas there's more of it.
The other range.
With.
I didn't hear you call out anything.
Stuff in it as.
Around the sort of curious.
Well.
This area of their focus and then I've got.
The.
1.1.
The good even better.
Fast I mentioned, the yeah sure I mentioned that on the last call.
The school.
All of them 1 of the areas of theirs.
I guess should we be thinking.
More for.
Yeah.
Laying the groundwork for sort of 23 and maybe into 'twenty for in terms.
For.
The new.
Of the 2 to change that you're making here.
<unk>.
And then the clarification as well would just be.
<unk>.
<unk> you.
Can you just be.
Hit the calibration numbers, you went a little of SaaS.
Yes.
Faster.
Yes.
They're in the past.
You know found work for sort of 23 and maybe into 'twenty for in terms.
<unk>.
Of the magnitude of change that Youre, making here and then the clarification is.
Well would.
The customer facing stuff yeah.
The expected to be over the next couple of years.
For the Central Pascal.
The second let me just go back of my notes.
It's not the current the calibration.
The lines.
I will just like he got it okay for calibration bracket.
Customer are the.
Zero.
The picked up.
The b over the next couple of years.
Yes.
For the Clinton.
1 second let me just go back in my notes.
Of the calibration.
Zero.
I would just like you got it for calibration.
Yeah.
92.
And our next question.
Comes from Paul type.
True.
Calibrated adjusted EBITDA.
Your line is open.
Zero.
Got it. Thanks, so much of a good afternoon I just wanted to follow up quickly on the.
The last comment you had this on the products you said that are hot way of putting more investment just could you elaborate on which areas.
Okay.
Areas of the.
The capital.
The greatest momentum.
Uh huh.
Right now, yes, some of the ones I mentioned actually in the the thing of the ecommerce businesses and there's a bunch of businesses in there that are doing.
The product.
Well for the ship management in the in the.
Product.
So could you elaborate on which areas.
The management pieces of that business or global trade compliance business is doing very well heard me mentioned Brexit.
This is of a bunch of businesses in there that are doing.
That's it.
Well, both the ship management in the in the.
The had been doing very well lately, we made a lot of investment for Brexit last year, you did see some of that paying off right now most of that Brexit work is.
Net heard me mentioned Brexit.
He's done.
Prior to.
Some of the regulatory.
To exit so that's awesome now we get the kind.
The had been doing very well lately, we made a lot of investment for Brexit last year, you see some of that paying off right.
And of the ecommerce businesses, the direct beneficiary of out of the last mile deliveries.
Now prior to.
But the run.
To the go live for Brexit. So that's awesome now we get the kind of reap the rewards of that.
<unk>.
Mobile handheld businesses, all do well as well.
Business.
Last mile delivery is expand so we see that opportunity.
So the direct beneficiary of out of the last mile deliveries.
10 years.
But longer run.
Years as e-commerce volumes continue to.
On our <unk>.
Tracking businesses mobile handheld businesses, all do well is less.
The growth.
Less smile delivery is expand so we see that opportune.
The supply chain from logistics public culminated with the the shifting.
<unk>.
E Commerce volumes continuing.
Getting have you just seen of general rise in interest.
Tryst for customers to want to automate.
The.
The bank more and more.
The.
Or are.
Growth.
For.
The.
Yeah.
And he's not in.
The logistics you know public culminated.
In.
What's.
All of it.
The only for your customers day.
But the.
The top.
Uh huh.
Morris out.
No.
Yeah.
Rising interest for customers to want to audit.
Sure.
The bank more.
As the World realizes.
Or are there for seeing that in.
<unk> logistics and supply chain is more important than they thought it was an impact.
In.
I got most of the world's coming.
Most.
Just kind of understand what that.
It is.
The persons.
Is that puts pressure on the companies that they're buying stuff from 2.
Yeah I think.
2 the status messages and tell them, where shipments are all along and the trucks that deliver them for the warehouses, even even kind of need to know where.
As for what's coming.
For all of these the orcas.
And what that.
Mr deliveries for the.
It is true on the companies that they're buying stuff from 2.
With a lot of pressure on our customers to.
Who can tell them, where shipments are all along and the trucks that deliver them to the warehouses, even even kind of need to know.
I get.
That's.
For.
All of the straight faster and faster deliveries for the consumer.
Like right now and perhaps for.
Super.
For.
The process puts a lot of pressure on our customers to have technology in place the deliberate to those customer expectations and we're 1 of the main.
For the new IMO lunchtime from Barclays. Your line is.
Places for why you're seeing us do very well right now and perhaps.
The open the topic of the ecommerce if I.
Some of.
But what's the point of emphasis for you guys, especially around the pandemic and it did really well I wanted to ask how youre seeing the growth trending here as we continue to move into a post pandemic.
Of the future of your line is.
Well the frame the long term potential.
The open trading on for Ryan and I don't want to stay on the topic of the ecommerce.
Here, we see it going back to.
And for you guys, especially around the pandemic and it did really well.
We were seeing pre pandemic of what we saw with the big step function.
Well the move into a post pandemic.
Function as the pandemic started and it started to the <unk>.
Low, but still pretty good levels.
Well, we see it going back to.
I think so.
To the bubbles that were probably.
Uh huh.
We were seeing pre pandemic of what we saw.
I think for the start of the pandemic, where it really shut.
The biggest you know.
As the pandemic started and it started to.
Got up to.
The slow.
2 of for growth, but still quite good.
But this too.
1 of our fastest growing.
Since the the.
And I don't know how long that goes onto the future.
Big the.
Dresses go on for some time.
This is shut.
But I'm working.
Setup.
And I just look around.
<unk> seen it now come back.
The thing is talking to friends of whatever.
But still quite.
We're more comfortable doing.
Good fastest.
And quickly look to order of things online versus go to the store I think the pandemic probably started that <unk>.
Granted.
Process.
Moving.
The comfortable doing that.
Can I just.
That's the <unk> the.
I think talking to friends of whatever.
It's for 1 follow up if I can.
Couple of doing.
And it's good to see the EBITDA.
Then quickly look to order things online versus go to the store I think the pandemic probably started that process.
Other filling in the business and operational improvement over the past few quarters.
Processing.
Orders, because any cost discipline that you've learned of dependent.
And 1 follow up if I can.
The World I mean, it's mostly most of the growth in our business contributed to it in the beginning of the pandemic it.
With some.
How much of that was scaling of the business and operational improvement over the past few quarters.
Yeah.
<unk> cost.
<unk> heard us.
But in past calls.
Yeah.
As the pandemic world.
Last may when we saw the April results down, 5%, we kind of kind of cost 5.
For all contributed to it in the beginning of the pandemic.
Percent and subtract.
In fact, we probably.
Some plan as our revenue went down we cut costs.
Costs are in line with that.
Moving.
I think for to talk about.
What you're seeing now that's gotten us up into the.
Of that and we saw the April results down, 5%, we kind of kind of cost 5%.
Per cent range has been.
In fact.
Our business growing and in some of the.
With the growing since the.
I've always exist in our business right. The last dollar of in its almost all profit.
But the you know.
And the <unk> discusses.
Uh huh.
Most of the network that we operate.
Range has been.
Our business growing and some of the.
And the equity frankly.
The dynamics that have always existed in our business right. The last dollar of in its almost all of profit.
Demand.
The.
<unk> from Citi. Your line is open.
The business of the.
The network that we operate in the recurring revenue model.
So I wanted to follow up on organic growth is there any way you could help us kind of ballpark that level of organic growth that you saw in the quarter and I know.
Your line is.
No against the initial stages of.
Thanks, and congrats on the quarter.
Debt basis so.
So I wanted to follow up on organic growth is there any way you could help us.
And of ballpark the level of organic growth that you saw in the quarter and I know, we're comping against the initial stages of.
Yeah, so listen.
Debt basis.
The I think if you look into the financial statements.
Sequential trends you're seeing.
Statements that hit the organic growth but.
The growth of your of Alan jump in.
But on the combined basis. So we're constantly integrated in the business as Ed mentioned in his prepared comment.
The strong quarter organically I think if youre looking.
Comment performing quite well for us is that organic.
Growth for or.
For the hit the organic growth.
Or is that growth.
But we run the business on the.
Altogether.
Combined group.
Together for.
The contract.
Paul.
Contract of integrating the business as Ed mentioned in his prepared.
Acquisitions.
Comments and acquisitions.
Just a general recovery in trade.
Our net organic.
And the end of our products.
Products.
Growth.
Growth.
<unk> all contributing to.
Hopefully.
The best.
Yeah.
The organic.
Altogether.
Or was it for.
The overall for the 3 reasons I mentioned.
While the answer everything.
The acquisition.
For.
<unk>.
That's great and then maybe.
The general recovery in trade.
The.
And.
Okay.
And organic.
No.
Net growth.
Products are all contributing to the to probably with the best.
Well I mean, we're up we're up 70%.
Sent from the.
The organic.
Organic for everything.
The closely.
Great and then maybe.
Business.
The sequentially from.
From.
And heavily that's again, it's going to be a mix of both of that organic growth and.
And I mean, we're up we're up.
Cash.
Per.
Customers for volume.
Volume was so.
<unk>.
The 5% revenue growth sequentially.
The.
You have other.
The first.
The math.
Good day.
The DAU growth.
Our adjusted EBITDA.
Simple.
The Dol and heavily that's.
The goal.
Again, it's the mix of both of that organic growth and.
Okay. That's helpful and just quickly to follow up on.
That comment around investing.
The growth sequentially.
<unk>, there any way to put numbers around that comment.
You have other.
A man.
The question that's sort.
About.
The incremental investment we could see this year end and maybe.
For.
Okay. That's helpful.
You could for Gannett.
1 follow up on.
Growth.
The comment around investing.
Or.
Format for the business is there any way to put numbers around that comment.
There is you don't know the exact numbers.
And we'll just have to see how we go we're going around the organization right now.
Comment to that organic.
And what.
Growth environment that you're.
With the managers of the run various.
For.
<unk> Group center in our business trying to.
Find the best areas to invest where we think we can get the biggest bang for our.
We'll just have to see how we go we're going around the organization right now.
Buck.
And I'm looking.
But take us of the word that we mentioned that we're going to.
For the managers of the run.
Investments back in the.
Certain of our business trend.
Business and with an eye towards getting the results in the coming years.
The biggest bang for our Buck.
So.
And I think we've put anything out specifically about how much we're going to spend.
What was the second part.
But word that we mentioned there were going to.
To the question of growth profile of that Youre, assuming over the balance of well.
The investment and with an eye towards getting the results in the coming years.
Of that effort.
We're doing pretty well right now.
Yeah.
Yeah. So we.
The first part of your question.
Beat it.
What was the part.
We.
The question for Us.
The organic growth profile of that youre, assuming over the balance of Wow.
We beat that we'll reinvest.
<unk> seen for.
Best of the Biz.
Just to expand the growth.
Business.
You know it's.
It's going pretty well, obviously, you can see the organic growth number was great. This.
Hum.
The quarter, we hope that trend continues, but we're gonna stay out of the economy.
We're playing in the 4% to 6% organic growth.
The months coming out of the pandemic.
And if you're investing it back into the business.
Makes sense I appreciate the.
You know it's.
Thank.
It's pretty well, obviously you can see the organic growth number it was great to see.
Thanks, Jeff Chen.
The quarter, we hope that trend continues, but we're going to the how the economy performers of the.
Thompson.
In the coming months coming out of the pandemic.
Hey, good afternoon, guys, it's Rob salmon on for Scott.
Scott.
Okay.
<unk>.
Hey, thanks.
Jesse robbing the back on.
I think at the payback on a on a couple of questions regarding the EBITDA margins and the investments as we look out.
Thanks, Jeff for noon guys, it's Rob salmon on for Scott.
The incremental investments you're planning on doing should we be expecting EBITDA margins.
Scott the to pay back on a couple of questions regarding.
<unk> from the levels that we're at in the first quarter.
As we look out to.
I mean listen.
Yeah.
We put out the range.
Here, the incremental investments you're planning on doing should we.
30 net range.
<unk> to be retreating in the near term.
You know, there's a lot of factors that go into it some of the math out of our control.
But no we would like to.
The keep it in the range that we.
Term.
<unk> 38.
We mentioned we plan on keeping the range of.
We continue to operate in that range.
You mentioned and then.
We'd like to keep that number going up.
There's a lot of factors of go into it some of them outside of our <unk>.
That you've seen.
We would like to.
<unk> like them to continue to be tailwind for the remainder.
And on keeping the range of.
How should we think about the Brexit revenue kind of scaling.
You mentioned Paul.
Non of course of 'twenty 1.
You had.
And will we be at full run rate do you think even at the end of the year old has continued to.
To be at home and looking out.
From <unk>.
I E.
<unk> remainder.
The 20.
<unk> of here, how should we think about.
Remember, it's all recurring revenue right. So the the people pay.
And of course.
The us men and they're paying us monthly minimums.
For us its run rate do you think even at the end of the year old has continued.
And as long as.
Be it going out.
They are customers of ours so.
As I mentioned in the path.
It's all recurring revenue right. So the the people pay.
Past initiatives are step functions right.
The us firms.
I pull demand the governor.
And of forever or at least as long as.
It has to they have to comply with some regulation and then we help our customers do.
As I mentioned in the past.
Of that exit scenario that you know it was already of business that we were very.
Tests are step functions right.
Murray.
I can't control the man.
<unk> came up.
<unk>.
Up with because the best solution in the market and in the face of that of bunch of our competitors.
Oh man has the customers do.
Kind of felt the deliver some of our or parts of.
That is already of business that we were very.
So all of that.
We then came up.
That must be coming to the leader in that market and.
With a bunch of our competitors.
Oh.
Kind of failed to deliver some or all or parts of.
The phases to this rule in the some of them are already in place and some of them are.
What are the us becoming the leader in that market.
The in whole until the end of the year so.
Customers have some ramp up period to get in we expect that's why we'll see a tailwind.
You know going over the course of the year we.
And some of.
You sign up some of the smaller medium sized players that have yet to do this yet.
Or in whole until the end of the year. So.
Continue to ramp up the transaction.
Ramp up period to get in we expect that's why we'll see a tailwind.
Actions quickly.
Towards the year we.
It should be live at that point and.
Small and medium sized players that have yet to do this.
The first is.
Yet all of the players in the market.
In and out of the U K growth.
End of the year, when they're supposed to be a lot.
But.
After that theoretically.
But and their volumes that we'll get for Brexit by the end of the.
It would be more.
The year current revenue business I think you can expect to get those for a long time to come.
Modest U K growth.
Come kind of of another substantial increase in our regulatory business, it's going to come from in other jurisdictions.
But the volumes that we'll get for Brexit by the end of the year.
And in terms of just the.
Year because most.
The face of adoption through year.
As of the.
And is.
At the same time, if we're gonna have a another substantial increase in our regulatory business.
Is it of some.
It sort of jurisdiction.
Sort of should be thinking of maybe where we're at 5.
Whatever the number.
Sticky in terms of just the.
<unk> I don't know yet I think we've picked up a good piece of.
The is.
The business.
Is it fair step at the towards the very end of the year.
Got it.
Or maybe you can kind of give us some.
Route.
Sort of cadence that we should be thinking of.
For the year, we know theyre not doing everything they can with us right.
I don't know yet I think we picked up a good piece.
Now exactly.
Piece of the for the business.
Prices are going to be over the course of the year and when theyre going to recur so.
It's how much everyone Mike.
We're always doing.
Due by the end of the year.
Really.
Or they're not doing everything they can with us right.
And we're prepared for whatever volume they might bring us in.
Now exactly.
Do you expect that it will continue to rise, we don't know to what level.
And theyre going to occur so we're.
Just as we always do.
Yeah, Thanks for the time.
Were favorably.
As for Q.
For it and we're prepared for whatever volume they might bring us in.
The call back over to.
But it will continue to rise, we don't know to what level yet.
For the.
Hey, great. Thanks, everyone. We appreciate your time this afternoon and look forward to talking.
Thank.
And.
The rep.
This concludes our question.
Okay.
And that's without sort of.
Or at least for the Q2 results call I appreciate your time for that thanks.
The connect for final remarks.
Thanks, guys. Thank you, ladies and gentlemen.
Okay. Great. Thanks, everyone. We appreciate your time this afternoon and look forward to talking.
And to you.
Yeah.
Okay.
[music].
Uh huh.
[music].
[music].
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 the question and answer session if you'd like to ask the questions. During the today's presentation. Please press Star then 1 on you touched on the phone.
Please note. This conference is being recorded and now I'll turn the call of a Scott pagan Scott Pagan you may begin.
Okay.
Thanks, and good afternoon, everyone. Joining me remotely on the call today are Ed Ryan CEO, and Allan Brett CFO and the trusted everyone has received the copy of our financial results press release that was issued earlier today.
Partially of the todays call other than the 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 of the COVID-19 pandemic on our business and financial condition Descartes operating performance financial results and condition of <unk>.
The gross margins and any growth from those gross margins cash flow and use of cash.
The baseline revenue baseline the operating expenses in the baseline calibration.
The anticipated and potential revenue losses, and gains anticipated recognition and expensing of specific revenues and expenses 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 then 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 of any change in events conditions assumptions or circumstances on which any such statement is based except as.
As of as required by law and with that let me turn the call over to Ed.
Okay.
Hey, Thanks, Scott and welcome everyone to the call.
Some excellent first quarter results to kick off of our 'twenty 'twenty 2 fiscal year and I'm excited to be able to talk with you about them here today, but first let's start with the roadmap for this call.
I'll start with some comments about our performance over the past quarter and what we think they may tell us about our business.
I'll, then hand, it over to Alan who will go over the Q1 financial results in detail I'll come back then an update on how our business is calibrated and some things that we watch in this fiscal year.
And then we'll open it up the op the operator to coordinate the Q&A portion of the call.
So with that let's get started as the headlines of the press release said these were record financial results for us that are well ahead of our plans to start off the year.
To get ready for the point of why we're ahead on plan.
Here are a few factors. So first we had a good new additional recurring revenues and our customers' compliance pillar from a Brexit solutions second we had better than planned performance from recent acquisitions and third we've seen a good bounce back from shipping volumes on our network as the U S is starting to open up.
Up for business.
So let me talk about each of these areas for just a little bit here, let's.
Let's start with Brexit in Q1, we had a great traction and helping our customers get ready for compliance with the new U K Brexit rules, we've talked about this a bit on past calls however, with the U K, leaving the EU.
You've established the brand new country for <unk> purposes for all trade between or passing through to and from the United Kingdom and the EU.
That means that you've now got a new UK customers rules for imports into in exports out of the U K, you've got new rules for imports into in exports out of the EU, the new security filings by mode of transport for all of the shipments and.
In addition.
Each of these rules of coming in on a phased in basis somewhat the grace periods and others of immediately and exceptions to particular rules, such as Ireland and Northern Ireland.
All in all of its been a very complex situation for our customers to learn and manage.
For Descartes and we've historically been 1 of the leading UK customs and security filers. This makes us an ideal company to help customers be ready for compliance with new rules. We've seen good early success and getting customers signed up better than we were initially planning on.
And we remain active in getting customers signed up in advance of the end of your Brexit deadline when filings will become mandatory and while we don't expect the same level of new customers that we had this quarter. We think it will still be a tailwind for the rest of the year.
All in all our team has done an excellent job of making sure we were ready to help our customers with timely filings and that preparedness has been rewarded by customers choosing us with recurring revenue contracts to help them with ongoing U K customs compliance challenges.
Second factor that I mentioned above.
The above planned for performance from some of our recently completed acquisitions, those who followed our company for some time now it's no secret what we look for in buying companies, we listened to our customers about where to invest for the future and as a result of our acquisition strategy is very much very much customer driven from.
From a financial perspective, we are very disciplined in our approach the value of recurring revenue businesses, we value of companies that have an eye to profit value of companies that are growing but also minding. The bottom line the value of companies that are of good reputation with their customers and we value of companies that are distinctive.
And have a defendable market position in their space.
We understand the others may take a different approach and looking for acquisition targets. Some acquirers on of paths of growth at any cost and are less concerned of a business can and will make money. They pay up for the pure revenue growth of the requires a more focused on the financial engineering of contribution of a deal and less about the quality of the acquired company or how it went.
For the benefit of customers I'm sure. It has merit to these other approaches its just not what we do.
For a typical of the card deal, we're establishing a conservative model for wind and acquired business comes in.
Went to initially focus on getting our combined team working together and while not missing a beat on customer delivery.
Also went to <unk>. We are we also want to get.
2 executing on synergies quickly. So we can immediately operate profitably is the cohesive business for the benefit of customers.
Pandemic has not caused us to deviate from how we acquire or integrate businesses last year, we bought 3 businesses and this year. We've already bought to you believe there continues to be a number of good quality profitable businesses that makes sense to be of part of the global logistics network and that will be a big benefit to our customers. We believe are combining with.
Good businesses makes us a better company and it will remain a large part of our plans going forward.
Some of the businesses, we bought last year had very good performance in the first quarter last year, we combined with ship track of business with particular strength in mobile and routing solutions for last mile delivery companies I mentioned on the previous call. How we had immediate post deal of success with combined Descartes ship track deals with the big increases in ecommerce and as a consequence.
The last mile deliveries through the pandemic, there's been even more demand and ship trucks customer base for extended solution Rollouts. So the great start to the year for that business.
Also last summer, we combined with containers as you may recall, the containers business helps for orders and transportation carriers with digital platform to interact with their customers keep premise for us combining what debt. We believe that together, we can reach more customers and give them confidence in what we can do.
Seeing that premise proved true as containers continues to see good traction.
With customers with several recurring revenue sign ups and go lives that hit the first quarter.
Okay.
In part based on the success, we saw with containers and further serving the for logistics intermediaries, maybe very community. We've completed 2 deals this year that help round out our border solution footprint the.
First with quest of web in March that we talked about on our last results call for <unk>.
That provides brokers and border solutions to help them manage their lifecycle of shipments, including some of unique foreign trade zone functionality cost of web is only part of our business for 2 months in the first quarter, but it's already having an impact the teams of integrated well and we've already worked together on various combined opportunities, including helping customers with joint duty drawback and duty recover.
The opportunities in Canada, and U S truly a great start.
And then right. After the quarter ended we completed the acquisition of portraits portrait because of a good example of where good decisions in the past, helping make decisions in the future.
Purchase through the part of our partner of containers and so we're already had experience successfully working with containers and portrait on joint opportunities with customers portraits of isn't the business of multimodal transportation rate management, primarily for for orders and logistics intermediaries portraits provides a platform that allows these intermediaries debt digital rates for all.
All of the different contract permutations that your media Arie has with its transportation carriers, and then manage those rates to provide accurate unprofitable quoting for complex moves that the inter married media Aerie makes for at the end customers in particular, when combined with the container of digital front end and the carts existing forward or back office Solutions, Inc.
The powerful combined platform that gives them the intermediary everything they need to run their business.
So to sum up as it relates to acquisitions, we completed some acquisitions last year. The performed very well in Q1, and then we added 2 businesses in the first part of the year. The we're very excited about and we believe can provide very good value to our customers. Our plans are for them to profitably contribute to our business immediately just like we've planned for the previous.
Since we've acquired it was nothing has changed in our willingness to buy how we buy or how those businesses will contribute.
The third thing that can be attributed to a great Q1 operational performance was a general increase in shipping volumes that we saw in our global logistics network. The increase was driven by 2 main factors. The first was the general economic recovery, we've seen as the U S. Open backs up opens back up for business and the second factor was the <unk>.
Customers are trusting us with more and more of their business.
Our global Logistics network is the foundation of our business that connects all of the parties to logistics transactions together from transportation carriers logistics intermediaries.
For the shippers and receivers of goods and the governments involved in the regulation and taxation of the movement of those goods. We do this all over the world and for every mode of transportation make it a truly comprehensive global logistics network.
Oftentimes the big events impacting shipping will operate as a bit of a zero sum game.
Shipments in 1 geography or down say due to something like prohibitive tariffs the often be up in other countries, where it's now more economical to ship to and from or in other circumstances, where of shipping lane is blocked due to weather natural disaster or other circumstance, you'll likely see pickups in volumes in other shipping lanes.
Or modes of transportation. So when you have 1 of the world's largest logistics network that serves all of the different modes of transportation of geographies, you're protected from many events that hit shipping you often see shifts in where and how shipments are moving rather than across the board increases or decreases exceptions.
The exceptions to this are aware of there are global recessionary of Bruner booming times.
Proverbial rising tides, raising all boats were the opposite.
This is somewhat what we saw over the past pandemic year with decreased shipping bombs in particular decreased international shipping volumes. The initial pandemic shocks impacted both shipping supply and demand for example in the air cargo world much of the available shipping capacity was removed from the passenger planes to stop flying remember those passenger planes were carrying car.
Go on their bellies and demand for shipping services was also impacted as retailers didn't have in store shopping hours that required quite as much replenishment.
Through the latter half of last fiscal year, we source the saw slow signs of shipment volume for coming back. These were in part driven by the resiliency of many of our customers when presented with the obstacles about how consumers could it by in store. Many quickly shifted focus to the ecommerce efforts as we talked about on past calls e-commerce volume and the resulting last.
The mile delivery continues to drive good results for our business.
But in Q1 with the mass availability of vaccines in the U S. We've seen it pushed the reopening as restrictions have been lifted more passenger planes of moving cargo. In addition to the industry's move to retrofit planes for cargo only freighters also with physical stores now reopening, we're seeing warehouse and store replenishment as the legitimate factor in increasing shipment volume.
To sum up we saw good volumes across our network in Q1 of things in the U S began to open up when we add this to the fact that customers continue to trust us with more and more of their business. We've seen very healthy organic growth on our network that was certainly a good sign for our business in Q1, and hopefully a vaccine rollouts advance around the world also a good thing for global shipment volumes.
So the 3 main areas that contribute to record results for us in Q1, Brexit acquisition performance in rising shipment volumes.
Things contributed to record total revenues and service revenues record income from operations net income and adjusted EBITDA above our plans with adjusted EBITDA up 26 per cent from a year ago of 42% adjusted EBITDA margin and cash from operations at almost 99 per cent of adjusted EBITDA. Each of these things were ahead of our plans.
And I want to thank our entire Descartes team and our customer base for all of their help in getting us there.
With that I'll now turn the call over to Alan to go through our Q1 results in more detail al.
Hey, thanks debt as.
Weighted I'm going to walk with 2 of our financial highlights for our first quarter, which ended on April 30 of them.
We are pleased to report record quarterly revenues of 98 point of view.
This quarter, an increase of 18% from revenues of $83.7 million in Q1 last year.
Revenue from new acquisitions contributed nicely to this growth like I've mentioned growth and revenue from new and existing customers, including for new Brexit really the customer.
The U K what are the main drivers of growth this quarter when compared to last year.
We should note that the first quarter last year is a bit of a weaker comparable period as it did have a negative impact from lower transactional volumes at the outset of the Covid pandemic last year really.
In the month of April of last year.
In addition, we should mention that there is a benefit to revenue from foreign exchange this quarter of approximately $3 million as the U S. Dollar of this weaker compared to the euro the Canadian dollar and British pound compared to the same period last year.
How's the rhythm as a reminder of the impact of foreign exchange on the adjusted EBITDA was once again quite to monitor as we remain fairly naturally hedged to the FX on a profitability for cash flow basis.
Back to revenue our revenue mix for the quarter continued to be very strong with services revenue, increasing 19% to $88.3 million for 90% of total revenue compared to $74.1 million for 89 per cent of revenue in the same period last year.
Services revenue was also up nicely sequentially, increasing 7% from the fourth quarter of last year.
License revenues came in at $1.3 million or just over 1 percentage of revenue in the quarter.
Down from license revenues of $1.8 million of the first quarter last year.
While professional services and other revenue came in at $9.2 million for 9% of revenue up 18%.
From $7.8 million for the same period last year.
Gross margin for the first quarter increased to 76 per cent of revenue.
Up strongly from gross margin of 74 per cent for the first quarter last year.
Gross margins continued to increase with the strong incremental growth from new and existing customers that we experienced in the quarter.
Our operating expenses increased in the first quarter and this was primarily related to the impact of the cost base from recent acquisitions, but also from additional labor related costs as we continue to invest in our business.
These cost increases were partially offset by savings that we continue to see how the business such as the continued lower travel marketing and facilities costs related to the ongoing pandemic.
As a result, we continue to see strong adjusted EBITDA growth of 26 per cent to a record $41.5 million or 42.0% of rapidly during the quarter up for.
The 33 zero of million or $39.4 per cent of revenue in the first quarter last year.
The things exceptional operating results cash flow generated from operations came in at $40.9 million for approximately 99% of adjusted EBITDA in the first quarter of this year of.
<unk>, 49% from operating cash flow of $27.5 of them for.
For <unk>, 83% of adjusted EBITDA in the first quarter last year.
Going forward subject to unusual events and quarterly fluctuations, we expect to continue to see strong cash flow conversion and generally expect cash from operations. The team to be between 85 of 95 per cent of our adjusted EBITDA in the periods of head.
From a GAAP earnings perspective, net income came in at $18.4 million up 67% from net income of 11.0 of million in the first quarter last year.
Overall, our debt said, we're really pleased with these operating results for the first quarter as the strong organic growth and solid performance from our recent acquisitions resulted in the 18% growth in revenue and more importantly for 26% growth of adjusted EBITDA for the quarter.
If we turn our attention to the balance sheet.
Our cash balances totaled $138.1 million at the end of April.
Subsequent to year to quarter end, we announced that we have used approximately 25 million of our existing cash balances to complete the <unk> acquisition, which had described in some detail of the milder weather.
As a result, we still have over 110 million of cash.
Well as 350 million of available to us the drawn under our credit facility for future acquisitions. So.
So we continue to be very well capitalized to allow us to consider all acquisition opportunities in the market consistent with our business plan.
As we look for the balance of the fiscal 2022 of you should note the following.
After incurring approximately 1.6 million from capital additions in the first quarter, we expect to incur approximately $4 million to $5 million of additional capital expenditures for the balance of this year.
After incurring amortization costs of $13.8 million of Q1, we expect the MSA amortization expense will be approximately $42.5 million for the balance of the year for this figure of being subject to adjustment for foreign exchange changes and future acquisitions.
Our tax rate in Q1 came in at 21.
The 1% of pretax income lower than our statutory tax for the 27 per cent and this was mainly as a result of recognizing certain benefits from previously unrecognized tax losses carryforward.
Looking into Q2.
We currently expect that our tax rate would be in the range of 8 to 15 per cent of pretax income.
The result of the expected reversal of valuation allowances of certain additional tax loss carry forward as well as the reversal of some uncertain tax positions.
As a result for the year. We currently expect our tax rate to be within the area of 15 to 20 per cent of pretax income before returning to a more expected range of 25 to 30 per cent of pretax income in subsequent years.
As always we should add that our tax rate in the fluctuate from 1 time items that may arise as the operating internationally across multiple countries.
And finally after incurring stock based compensation expenses of $2.6 million in the past quarter. We currently expect stock stock compensation will be approximately $9 million for physical 22 subject to enforce the chairs of stock options or share of humans.
I'll now turn it back over the adequate wrap up of some closing comments and our baseline calibration.
Hey, great. Thanks, Alan 1 of the things we strive for it the card is consistency we believe the consistency of brings stability and reliability things that we know are valuable to our customers and our broader stakeholders to deliver this consistency we operate from consistent business principles, we plan for our business to grow adjusted EBITDA of 10% to 15% annually.
We plan to growth through a combination of organic growth and acquisitions. When we over perform we expect to reinvest that over performance back into our business and we focus on recurring revenues and establishing relationships with customers for life.
Finally, we thrive on operating predictable business that allows us the forward visibility to our revenues and investment paybacks.
I just wanted to spend a minute hitting some of these principles, particularly in light of US performing ahead of our plans for Q1.
We believe that when we over perform we should look at investing that over performance back into our business. We believe the over performance presents an opportunity to invest to make the future of our business better more predictable and sustainable.
How we can generate the forward visibility to revenue as an investment paybacks that we crave and.
And we think that's the circumstance we find ourselves in now we have an opportunity to invest in our business to drive even more consistent organic performance in the future specifically, we intend to look at opportunities to both enhance our go to market of infrastructure and also customer service the specific goals of impacting future organic revenue growth and customer <unk>.
Retention so when we looked at calibrating their business for Q2, we keep that investment opportunity in mind because for us over performance as an opportunity to get better not an opportunity to celebrate.
So on the calibration and our quarterly report that Scott mentioned, we filed today, we provided a comprehensive description of baseline revenues baseline calibration and their limitations.
Typically we calibrate as of May 1st being the beginning of our fiscal quarter. This quarter. However, we're calibrating as of May 7th being the date of the portraits acquisition.
So as of May 7 and using foreign exchange rates of 82 cents of the Canadian dollar of dollars 21 to the euro and $1 and 1 dollar for Oh no.
Mine to GBP pound, we estimate that our baseline revenues for the second quarter of 2022 or approximately $92 million and our baseline operating expenses are approximately $59 million. We consider this to be our baseline calibration of exactly of.
<unk> $33 million for the second quarter of 2022 or approximately 36% of our baseline revenues as at May 7th 2021.
We've indicated previously that the targeted adjusted EBITDA margin range for our business is 35% to 40% as mentioned our actual results for Q1 had us at about 42 per cent and we've been above 40% for each of the past 4 quarters.
Given what we see we're raising that range and we believe will operate in the 38% to 43% adjusted EBITDA range for the balance of fiscal 2022.
Even with my comments about investing for future organic growth our focus for the balance of the year will be to grow both organically and by acquisition. We anticipate good contributions from both portraits and quest of web in Q2, and we intend to continue to be active in the acquisition market as I said last quarter. We believe there are still acquisitions that meet our financial and strategic criteria.
And that continued focused and diligent efforts will guide us on the acquisition front.
Last quarter I described a few things that I think position us well to grow as the business. They included a broad range of customers our dedication to driving success for our customers our broad partner portfolio. The positive impact that our solutions have on the environment, our ability to recruit talented people and market tailwind nothing has changed about those facts.
For us from what I said last quarter other than we're a bigger business with new acquisitions integrated and even better financial performance, but I do want to touch on some of the market tailwind.
As I described earlier Max vaccination efforts in the U S of enabled the U S to start the process of reopening similar efforts in the U K and Canada may soon put those economies in a position to begin to open up further as well.
Well that is positive news there is still a long way to go with vaccination for many parts of the world. So while we expect the reopening in the U S and some other markets to be of tailwind, it's not necessarily going to be hurricane strength. There are many large economies that are still in the grips of of the pandemic and they're an important part of the global community the need to continue to support our.
<unk> with the logistics of vaccine distribution around the world. So that we can all get back of some of the pre pandemic freedoms that we were used to.
When the economies do reopen the things are never totally going back to the way they want to work for each of US work conditions will change how we interact with others will change and our buying habits will change we believe that some of those changes are sustainable tailwind for our business specifically the accelerated move to further automation and business and the continued move to e-commerce from.
And of buying mechanisms.
On the automation front, we believe the lockdowns and the resulting need to work remotely have convinced many that technology can have a meaningful impact on making our jobs easier to perform on a distributed from global basis and that is especially so in supply chain and logistics, where by its nature remote people are managing remote assets moving via remote transportation, we're seeing.
This is of the demand for our solutions questions from customers are no longer what if we wanted to do this remotely and more how do we do this remotely.
On the E Commerce front, we believe that theres been a permanent an accelerated shift of People's comfort and purchasing online in the future years, we'll see a shift from business to consumer further into the business the business World in short, we believe that E. Commerce will make last mile delivery is even more important in the future and that will drive demand for our solutions.
To wrap up we're happy with how the business is performing and believe that it provides a great opportunity for us to invest and make our business even better for the future something that we know will be good for our customers and other stakeholders and otherwise we're going to stick to our business principles that I described earlier because of that.
That's how we got this great opportunity that we have in front of us now.
So thanks to everyone for joining us on the call today as always we're available to talk to you about our business by phone or virtual meeting and we hope sometimes sooner rather than later in person and with that operator, I'd like to turn it over to you for questions.
Thank you we will now begin the question and answer.
If you have of questions. Please press Star then 1 on your Touchtone phone.
If you wish for the diverse like here. Please press the pound sign or they ask me the.
So the delay before the first question is announced.
Excuse me the speaker phone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press Star then 1 on your Touchtone phone.
The first question.
Your line is open.
Hey, great.
Thanks for all the details from the color can you just give us a little bit of a recap on the areas of investment I noticed you mentioned go to market and customer service and I'm, assuming you're meaning like the incremental investment of the outperformance. Despite the the bumped up range.
I didn't hear you call out anything around product I'm, just sort of curious is is there an area of their focus from that I got 1.1 fast follow up clarification I mentioned, the yeah sure I mentioned that on the last call net that's certainly 1 of the areas as there's more of it.
The products that are hot the.
They were putting some more investment in as well, but I want to call out the.
For the new investment since the we did even better this quarter.
And I guess in terms of go to market and should we be thinking like this is you know laying the groundwork for sort of 'twenty, 3 and maybe into 'twenty for in terms of the magnitude of change that you're making here and then the clarification as well would just be could you just re hit the calibration numbers you went a little fast there.
Then I'll pass the line.
Yeah give me.
The second yeah.
The.
Customer are the customer facing stuffs.
Back to the B over the next couple of years.
The 1 second let me just go back in my notes in the calendar.
The calibration.
Got it okay perfect celebrate.
Yeah.
With 92 million.
And calibrated adjusted EBITDA of 33 zero.
Perfect. Thanks, good quarter guys.
Hey, Thanks, Bob.
Yeah.
And our next question comes from Paul Treiber from RBC Capital. Your line is open.
Got it. Thanks, so much of a good afternoon, just wanted to follow up quickly on the last comment you had just on the product. He said that our heart, where you're putting more investment just could you elaborate on which areas have seen the debt the greatest momentum right now.
Yes, some of the ones I mentioned actually in the end of the thing the ecommerce businesses and there's a bunch of businesses in there that are doing well, both the shipment management and the and the.
And the warehouse management pieces of that business.
Global trade compliance business is doing very well you may have heard me mention Brexit.
Some of the regulatory.
Appliance areas.
Been doing Burwell lately, we made a lot of investment for Brexit last year, you could see some of that paying off right now most of that Brexit work is done.
The prior to the the.
For the go live for Brexit. So that's awesome now we get the kind of reap the rewards of that business.
And then maybe Moreover.
No.
All the you know the ecommerce businesses the direct beneficiary of out of the last mile deliveries, but but in the longer run our mobile routing.
You know tracking businesses mobile handheld businesses, all do well is less mile deliveries expand so we see that opportunity unfolding over the next 5 to 10 years.
As e-commerce volumes continue to grow.
And just.
At a high level.
He is an extremely disruptive to supply chain from the logistics you know public culminated with the I suppose.
For the ship getting stuck in the Suez Canal the.
How have you just seen of general rise in interest for customers to want to automate more and more of their supply chain and then are you seeing that in.
For the ability to cross sell or upsell.
The way for customers to adopt more solutions out there for him.
Yes, that's exactly what we're seeing I mean, I think as as the whole world realizes the.
The logistics and supply chain is more important than they thought it wasn't like I guess, the most of the world's coming just now to understand what that is.
That puts pressure on the companies that they're buying stuff from 2 <unk>.
Give them status messages and tell them, where shipments are all along and the trucks that deliver them to the warehouses, even even kind of need to know where all of these things are the orchestrate faster and faster deliveries for the consumer and that whole process puts a lot of pressure on our customers to have technology in place to the deliberate to those customer expectations and we're 1 of the.
The main places they would go to get that and I think that's why.
Or at least part of why you're seeing us do very well right now and perhaps for some time to come into the future.
Alright, thanks for taking my questions.
Hey, Thanks, a lot.
And the next question comes from.
Lunchtimes and Barclays. Your line is open.
Hey, this is Frank on for Ryan I don't want to stay on the topic of the ecommerce if I get to the point of emphasis for you guys, especially around the pent out of like and it did really well I wanted to ask how youre seeing the growth trending here as we continue to move into a post pandemic world can you also frame of the long term potential here and growth.
We see it going back to growth levels that were are probably what we were seeing pre pandemic of what we saw with the big step function up in you know as the.
The pandemic started and it started to the <unk>.
Slow, but they're still pretty good levels I think we were in the in the twenties.
Since the the big.
Push that we got or the start of the pandemic, where it really shut up.
Upwards of 40% and we're seeing that now come back to of a normal level of growth, but still quite good and they're probably 1 of our fastest growing businesses.
And I don't know how long that goes on in the future I suspect. It will go on for some time for more.
Look around the Hercules debt.
Thanks for talking to friends of whatever it seems like people are more and more comfortable doing that.
And quickly look to order of things online versus go to the store I think the pandemic probably started that process, but.
Once you're comfortable doing that it's hard to go back.
Great. That's really helpful and 1 follow up if I can it was good to see the EBITDA our target.
Target range raised could you talk a little bit about how much of that was scaling of the business and operational improvement over the past few quarters versus any cost discipline that you've learned of dependent of coral.
I mean, it's mostly most of the growth in our business contribute to it in the beginning of the pandemic. There was some cost discipline as our revenue went down we cut costs in line with that I think you've heard us talk about that in past calls last.
May when we saw the April results down, 5%, we kind of kind of cost 5%. We haven't done anything like that since in fact, we've probably been growing as our business has been growing since then but the.
Most of that what you're seeing now that's gotten us up into the you know Oh you know.
42 per cent range has been you know our business is growing and in some of the the.
The dynamics of always exist in our business right. The last dollar of in its almost all of profit and most of our business is because of the of the network that we operate in the recurring revenue model of the outbreak.
Perfect. Thanks, Ed.
Thank you Frank.
And our next question comes from that's the non from Stephens. Your line is open.
Thanks, and congrats on the quarter.
So I wanted to follow up on organic growth is there any way you could help us kind of ballpark the level of organic growth that you saw in the quarter and I know, we're comping against the initial stages of the pandemic on a year over year basis. So maybe Ed could you speak to the sequential trends you're seeing in organic growth as well.
Have you all of Alan jump in it's like we got the number of strength.
Yeah, so listen the strong quarter organically I think if you look and get the the financial statements.
Okay, just over double digit organic growth, but you remember we run of business in the combined basis of where we're constantly in the.
And the business as Ed mentioned in his prepared comments some of those recent acquisitions are performing quite well for us is that organic growth for or is that a is that acquisition growth was that again the way.
We operate if I Miss altogether overall for the 3 reasons you had mentioned that the straw.
Long acquisitions, the yeah, the Brexit and then just the general recovery in trade and the.
The option of our products are all contributing to the to probably what is the best organic growth number we've seen for a while.
Yeah.
The answer everything for you.
That's great and then maybe the trend sequentially from 1 of <unk>.
Organic growth perspective as well.
Yeah, I mean, we're up we're up 70%.
From a sequentially for the business as far as as far as the adjusted EBITDA and heavily that's again, it's gonna be a mix of both of that organic growth and and 1 existing customers that are doing more volume with us. So the 5% revenue growth sequentially of about 7.5% the EBITDA growth sequentially.
That's where all the mix of both of those factors that are driving.
Yes.
Great. That's helpful and just quickly to follow up on that comment around investing outperformance back into the business is there any way to put numbers around that comment as we think about debt incremental investment we could see this year end and maybe you could speak to the organic growth environment that you're planning for over the balance of the year.
As you make that comment.
I don't know the exact numbers.
And we'll just have to see how we go we're going around the organization right now I'm looking for for areas, where we think.
With the managers of the won various groups in our in our business trying to define the best areas to invest where we think we can get the biggest bang for our Buck.
And I think we've put anything out specifically about how much we're going to spend but you could take us of the word that we did we mentioned that we're going to invest the over performance back into the business.
And with an eye towards getting the results in the coming years for that effort. So.
The going into the first part of your question what was the what was the second part of the question the repeat that.
The organic growth profile of that youre, assuming over the balance of well yeah.
I mean, we assume for years to 6% organic growth.
We're doing pretty well right now you know chance, we'd beat it but the.
We.
As we've always stated we're playing in the 4% to 6% organic growth and if if we beat that we'll reinvest it back into the business.
You know, it's it's been going pretty well, obviously you can see the organic growth number was great. This quarter we.
We hope that trend continues, but you're never going to the how the economy performers of the.
In the coming months coming out of the pandemic.
Makes sense I appreciate the time.
Hey, Thanks, John.
Yeah.
And our next question comes from.
Scott Group from Wolfe Research your.
Your line is open.
Hey, good afternoon, guys, it's Rob salmon on for Scott.
Just any rough in the back on.
I think at the payback on a on a couple of questions regarding the EBITDA margins and the investments.
As we look out to later in the year given the the incremental investments you're planning on doing should we be expecting EBITDA margins to be for treating in the near term.
From the levels that we're at in the first quarter.
I mean listen we just called out the range 30, 38 to 43 per cent. We think will continue to operate in that range.
We'd like to keep that number going up a you know there's a lot of factors that go into it some of them outside of our control.
But no we would like to to keep it in the range that we mentioned.
We plan on keeping the range of mentioned.
Got it and then Ed earlier in the call you had highlighted the.
The Brexit tailwind that that you've seen this past quarter and you expect them to continue to be tailwind for the remainder of of the year. How should we think about the Brexit revenue kind of scaling up of over the course of 'twenty, 1 and will only be at full run rate do you think even at the end of the year old has continued to be at the talent looking out into.
The fiscal 'twenty 3.
Remember, it's all recurring revenue right. So the the people pay us per shipment and they're paying us monthly minimums, and we expect that they'll do that with us forever or at least as long as they are customers of ours. So.
No.
As I mentioned in the past these.
Regulatory.
<unk> are step functions right.
Can't control demand are the government has to come in and tell our customers. They have to comply with some regulation and then we help our customers do that.
Fortunately the Brexit scenario that you know it was already of business that we were very.
Strong in that market.
We then came up with what we think is the best solution in the market and in the face of that of bunch of our competitors kind of fell.
Failed to deliver some of our or parts of all of.
Of that solution.
So all of that translated to us, becoming the leader in that market and.
You heard me on the call.
20 minutes ago, I was kind of mentioning that there's a bunch of phases to this rule in the some of them are already in place and some of them are rolling out over the course of the year, it's not going to be mandatory.
In whole until the end of the year so.
Customers have some ramp up period to get in we expect that's why we'll see a tailwind going over the course of the year. We think will continue to sign up some of the small and medium sized players that have yet to do this yet.
And that all of the players in the market will continue to ramp up the transactions through to the end of the year when they're supposed to be lot after that theoretically.
1 should be live at that point, and we may see increases, but they'll probably be more modest as.
As the international trade in and out of the U K growth, but otherwise we would expect that we've gotten most of the customers.
And the volumes that we'll get for Brexit by the end of the year because of the recurring revenue business or the you can expect to get those for a long time to come.
At the same time, if we're going to have another substantial increase in our regulatory business, it's going to come from in other jurisdictions.
Yeah.
Got it and then in terms of just the the face of adoption through year end is it really stair step at the towards the very end of the year or maybe you can kind of give us some sort of cadence that we should be thinking of maybe where we're at 5.
For the number is.
I don't know yet I think we've picked up a good piece of the good chunk of the business.
It's not easy.
Easy for us to figure out how much everyone might do.
By the end of the year, we know theyre not doing everything they can with us right now.
But it's hard for us to predict exactly.
What the increases are going to be over the course of the year and when theyre going to occur. So we're.
Just as we always do of work.
Playing it conservatively.
We're prepared for it and we're prepared for whatever volume they might bring us and we do expect that it will continue to rise, we don't know to what level yet.
I appreciate it thanks for the time guys.
Hey, Thank you revenue.
And this concludes our question and answer if that's enough for the call back over to the.
Speakers for final remarks.
Hey, great. Thanks, everyone. We appreciate your time this afternoon and look forward to talking to you next I think it's early September for the Q2 results call I. Appreciate your time for that thanks, guys.
Thank you ladies and gentlemen, this concludes today's conference call.
You may now disconnect.