Q4 2022 Descartes Systems Group Inc Earnings Call

March 2, 2022

Welcome to the quarterly results call. My name is Jackie and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer his question.

You would like to ask a question during today's presentation. Please press Star then one on your Touchtone phone. Please note that this conference is being recorded I would now like to turn the call over to Mr. Scott Pagan Mr. Pagan you may begin.

Thanks, Jackie and good afternoon, everyone.

Joining me remotely on the call today are Ed Ryan CEO and Allan Brett CFO .

Everyone has received a copy of our financial results press release that was issued earlier today.

Portions of today's call other than historical performance include statements of forward looking information within the meaning of applicable securities laws.

Our statements are made under the safe Harbor provisions of those laws.

Forward looking statements include statements related to our assessment of the current and future impact of the COVID-19, pandemic in Russia, and Ukraine comp lift on our business and financial condition.

<unk> operating performance financial results and condition <unk> gross margins and any growth in those gross margins cash flow and use of cash taxation rates and use of tax assets business outlook baseline revenues baseline operating expenses and 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 integration initiatives and other matters that may constitute forward looking statements.

These forward looking statements are not known and unknown risks uncertainties assumptions and other factors that may cause the actual results performance or achievements.

To differ materially from the anticipated performance or achievements implied by such forward looking statements.

These factors are outlined in the press release and in the section entitled certain factors that may affect future results in documents filed and furnished with the Securities and Exchange Commission Imperial security commissions and other securities commissions across Canada, including our management's discussion and analysis filed today.

We provide forward looking statements fully for the purpose of providing information about management's current expectations and plans related to the future.

You're cautioned that such information may not be appropriate for other purposes.

We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions and forward looking statements to reflect any change in our expectations or any change in events conditions assumptions or circumstances on which any such statements except as required by law.

Now, let me turn the call over to Ed.

Thanks, Scott and welcome everyone to the call.

We had excellent fourth quarter and year end financial results, our best ever I'm excited to highlight some of them for you, but first let me give you a roadmap for this call.

I'll start with highlighting some aspects of our financial results. Some factors that we believe contributed to them and some comments on the current environment that we're operating them.

And then I'll hand, it over to Alan who will go over the Q4 and annual financial results in more detail I will then come back and update on how our business is calibrated and we will then open it up to the operator to coordinate the Q&A portion of the call.

So lets get started by looking at Q4.

We had record high revenues of $112 4 million up 20% from a year ago.

Net income was $19 $2 million adjusted EBITDA was a record high of $51 million, we generated $45 five.

<unk> 5 million in cash from operations were 91% of our adjusted EBITDA or.

Our adjusted EBITDA as a percentage of revenues was 45%.

All of these metrics were ahead of our plans so a very strong financial quarter for us.

And that quarter rounds out a truly solid financial year for us of record annual results across the board. We had record revenues of $424 $7 million, we had record net income of $86 $3 million or $1 per share.

Record adjusted EBITDA of $85 $7 million, we had record cash generated from our operating activities of $176 $1 million or 95% of our adjusted EBITDA.

Our adjusted EBITDA as a percentage of revenues was 44% all of this was well ahead of our plans and as a result of our solid work from our team and our business throughout the whole year to deliver some great results.

I don't want to spend too much time looking in the rearview mirror.

We're already a month into our next quarter and financial year in the world and the business environment have changed massively over that month. So let me highlight a few things that I think contributed to us doing well last year.

First our business does well in a changing and complex business environment second prior investments drove organic growth.

Third we are a market leader in the real time visibility space enforce our acquisitions have contributed very well.

So let me speak to each of these four areas. So the first one our business does well in changing and complex times.

Historically, our business has done well when the supply chain and logistics market is changing and or becomes more complex our core mantra.

For why we exist is to help isolate our customers from complexity goods moving from point a to point B will pass numerous international borders attract a bunch of paperwork for security and customs filings be charged multiple taxes traveled through multiple modes of transportation and touch multiple parties to get to their destination and this complexity changes depending on.

What particular commodity or item you're shipping.

Does it need special handling refrigeration does it attract a particular regulatory scrutiny theres a host of issues.

It's not practical for any one company to be able to handle all these logistics issues in house and still be successful in its own business.

That's why the supply chain and logistics market space is so fragmented there are firms that are very specialized.

More and more information and technology has become key to helping things move from point, a to point B, and that's where and why we exist where specialist and providing the information and technology to help isolate people from logistics complexity, rather than you're connecting to one thousands of trading partners you can connect to us once and we will use our network to connect to the trading partners.

Rather than stay up to date on every tariff for every country for every commodity in the world subscribe to our service and let us handle that complexity, if youre moving shipments through multiple trucking companies and using various brokers use our real time visibility to connect all these parties to track your shipment.

And as things get more complex or change it becomes more and more clear why you need a trusted party like Descartes to help you with technology and information, it's too much and too time consuming to handle on your own.

The Covid pandemic forced every business to change its supply and delivery practice practices, whether it would be where they got their supplies what companies they work with or how they would remotely get visibility to their shipments and deliveries that change in complexity drove demand for our products and services.

Another example is what happened in the United Kingdom with Brexit.

Huge complexity was introduced to move things between the EU and U U K, new finally as needed to be made new procedures needed to be followed new tariff structures needed to be adhere to things changed and it became more complex to move goods. This drove very good demand for our services in particular, the customer's phone arena.

We were able to help our customers.

Help our existing and new customers cope with the complexity and change and as a result that contributed to our business growth last year.

So that was a good tailwind for us last year change and complexity in how goods are supplied and deliberate drove good demand for our products and services.

The second area is the prior investments are driving organic growth.

As we started last fiscal year I indicated that we intended to invest over performance back in our business specifically in our go to market activities.

Our intention in doing that was to strengthen our business for the long term sustainable growth and drive additional organic growth.

Focused our investments in a few areas first we invested in our sales team by taking a very customer centric approach to helping customers with their problems. This resulted in us refocusing our sales group deepening our expertise in North America, and strengthening our leadership presence in EMEA.

Second we made investments in building out our customer success team on a global basis and across many product groups. We recognize that we have an enviable large customer base and we wanted to be more focused on how we could do more with our existing customers and ensure we were being responsive to their needs. So they would help so they would keep using our services.

Finally, we made investments in marketing to modernize our practices through the use of technology and different marketing expertise, we believe that the pandemic pushed us forward to move away from reliance on legacy marketing geared towards trade shows and are now future focused on things like search engine optimization, and finding innovative ways to engage with our customers to identify and serve their needs.

As you've seen it over past quarters, we've generated some pretty good organic result results growth at some of the early returns on these investments.

Paid off quickly we expect this growth to ebb and flow as we learn and fine tune our investments, but we're very pleased with the start so overall our go to market team and their progress has been a big contributor to our success over the past year. Thanks to all of them for their hard work.

Third we are a market leader in the real time visibility space.

Several years back we combined with macro point to strengthen our visibility services. Our goal as a combined business was to run a successful and sustainable business, one that provided quality service and a sustainable business model, where our customers wouldn't have to worry about whether our business with financially survive as customers became more and more reliant on our service.

That business combination has been very successful we believe we're a preeminent real time visibility provider in the market. Our global logistics network provides the infrastructure to connect with all the parties involved in helping to shipment moved from point a to point b, meaning we've got the infrastructure to focus on and deliberate global visibility across every mode of transportation.

Last year, we tracked over 575 million shipments in real time for our customers real time visibility has been it is one of our core competencies and it's recognized by our customers and the market <unk>.

The macro point in real time visibility was exited excellent contributor to our success last year and we believe there is still good momentum there.

And finally, our acquisitions our business is designed to grow organically and by combining with complementary businesses. It's a model. We've used successfully for the past 15 plus years over that time, we've combined with over 50 businesses.

This past year was no exception as we combined with three businesses last February at the start of our fiscal year, we combined with questar web to strengthen our customers' compliance business and AD free trade zone functionality to what we do.

In May we combined with portraits in Germany to strengthen our rate management solutions and complement our investment in containers, where we help ocean carriers and intermediaries.

Modernize their business for E Commerce engagement in July we combined with Green Mountain to expand our route management and mobile technologies in food beverage and other distribution verticals. Each of these combinations was well received by our customers and collectively they contributed well to our success last fiscal year.

As we started this fiscal year, we've already closed one new acquisition or combination with net CHP a few weeks ago at CHP is the security and customs filing visits in the U S. Like we are that CHP is a particular strength in type 86 filings, which are U S. Customs filings that are made when the value of an important below $800 type 86 filings are off.

Often leveraged by e-commerce providers selling low value goods, because there was an expedited important filing process for service provider success is often dependent on the ability to handle high volumes of filings.

<unk> also has some traditional customs broker functionality to help with filings and we've already made some joint sales for some new customers. All in all we think this is a great complement to our business and we're excited to welcome all our new net CHP team members to Descartes.

So acquisitions were a good contributor for us last year and given how we've already started this fiscal year. We are on the right track for it to continue this year.

So those are some of the things that contributed to our success last year. We expect most of those factors to continue to influence our financial results. This current financial year. However, there are also some newer factors shaping the business environment right now that I wanted to comment on.

Are the Russia, Ukraine conflict inflationary pressures and resource scarcity and ongoing inventory replenishment.

So let me start with the Russia, Ukraine conflict nothing to say on this call is going to give anyone any greater insight into how that conflict started or how and when it will end. The only thing I can say with certainty is that there is a lot of uncertainty at the moment.

Itself does not have a direct presence in either the Ukraine, or Russia, and almost no customer or supplier relationships. So no direct financial exposure. So when we consider the impact of the conflict on debit cards business, our thoughts turn more to what impact.

The impact will be on our customers to global trade environment, and the global economy as a whole.

Conflict conflict will have an impact on supply chain and logistics market. We've already seen a few consequences in the early days of Ukraine ports are closed impacting the flow of goods Russian forces have destroyed some Ukrainian air cargo freighters sanctions will likely impact operations at ports and other countries.

Aerospace has been restricted for Russian air traffic impacting air cargo capacity, that's available and the link and cost of flights. Similarly, Russia has restricted access to its own aerospace to more than 30 countries. Some companies rely on raw materials from Ukraine, or Russia, causing some manufacturing factories to close and undoubtedly impacting supply.

Various multinationals have suspended or withdrawn from the Russian operations, Russia, and Ukraine concrete could you, sorry, Russia, and Ukraine contribute oil and natural gas to the energy markets and with the supply being curtailed there could be a meaningful impact on any energy prices and the prices of other commodities.

Some logistics companies, including Fedex, DHL and EPS have suspended shipments to Russia Ocean Network Express Maersk and MSC have all halted bookings to Russian destinations all of this could impact global trade volumes.

Finally, severe sanctions have been placed on businesses and individuals associated with Russia, and Belarus impacting supply chains of numerous businesses and where they can sell their products and services. For example, Apple has announced that it stops sales of its products in Russia.

A few days ago.

All of these factors bring complexity and changes in the market as I mentioned earlier, our business has historically done very well when there is complexity and change however, given how early we are in the conflict and the possible impact on the global economy, It's too early for anyone to be able to accurately predict how their business will fare Descartes included.

This type of complexity and change brings opportunity and potential risk. Let me give you some examples of each.

And opportunity perspective, numerous countries around the world just imposed severe financial and other trading sanctions on Russia, and Belarusian banks government entities individuals and companies. The names of each of these entities and individuals went on numerous lists prohibiting countries from trading or otherwise doing business with them, compiling these list of denied or sanction parties and screw.

<unk> customer list, where transactions for compliance with those sanctions as one of our core businesses.

<unk> sanctioned party screening was just confirmed by multiple countries to be critical to have severe penalties for noncompliance.

We're a global leader in this space, we expect new and existing customers will lead us to help them in this regard.

Another opportunity comes from force changes in supply chain, most companies will have some impact on their business.

They will need to establish new trading relationships with parties in new countries and trade lanes to get materials for their business to do this will need to electronically connect a new parties something to that our global logistics network is ideally suited to help them win.

Yeah.

Each new opportunity as a darker cloud hanging over which is the potential impact of the global economy. Our success over the past periods and changing and complex times has been because we were able to help our customers be successful.

As a much more challenging task and in an environment, where global trade volumes go down or the global economy contracts and right now we just don't know what the impact of the conflict, where the resulting financial sanctions will be on either trade volumes or the economy, it's something that like everyone else, we will continue to monitor.

Let me just speak in one other somewhat related risk and that cyber security over the past several years, we've seen various businesses and markets severely hampered by ransomware attacks with the attacks often state sponsored by foreign governments. It's.

It has hit the oil and gas industry medical community and education market.

<unk> logistics markets have not been immune all four of the world's largest ocean carriers have been hit by ransomware attacks over the past several years over the past two weeks cyber incident impacted expedites and caused them to have to rebuild their operations.

Possible, but one of the consequences of this conflict is an increased level of cyber attack on businesses.

Since the conflict started Toyota suspended its domestic factory operations in Japan as it dealt with the cyber attack.

Quite possible they will be more.

An area of increased attention for our customers and suppliers and for Descartes as well.

So the Russia, Ukraine conflict brings a lot of uncertainty and it introduces.

Introduces complexity and change to logistics and supply chain operations, there are opportunities to help our customers with these challenges and risks from a world with increased geopolitical tension and economic for agility.

We're certainly being careful as we move forward in our business.

Second issue is inflationary pressures and resource scarcity.

Even before the Russia, Ukraine conflict brought uncertainty of the economic conditions. The economy was dealing with a bunch of inflationary pressure that seems like a somewhat logical consequence is somewhat new money being pumped into the system during the pandemic to aid with recovery.

Those inflationary pressures that hit the logistics and supply chain community the cost of raw materials and goods alternative supply chain have increased resulting in increased prices to consumers logistics markets have increased.

The prices on containers and vessels and carriers have been posed supplemental fees. In addition label markets faced wage pressure, resulting in competition among companies to get the need of drivers warehouse workers and pork personnel needed to keep goods moving.

On top of this so as I mentioned on our previous call. There is a general human resource scarcity that exist in logistics and supply chain markets. For example, the lack of skilled drivers in the U S has resulted in novel solutions to increase that talent pools, such as lowering the minimum wage sorry minimum age limit to be able to drive a truck.

Businesses have also struggled to find workers in light of vaccination requirements and quarantine impacts on labor availability and there's potential labor unrest with the ongoing negotiation of the international Longshore and warehouse Union contract for the West Coast Port workers.

Inflationary pressures just one more challenge for our customers to face to get to the right and sufficient people to keep goods moving.

Something we need to be aware of since we have a real interest in helping our customers move as many shipments as they need to.

And the final is inventory replenishment retailers have inventory levels that are historically at historic lows as a percentage of the revenues. There has been some recovery over recent months. However, the logistics infrastructure just isn't there to let them catch up as quickly as many of them would probably like.

Many retailers adopted revised logistics strategies to avoid the multiple multi vessel backups that were happening on the west coast ports over the last several months.

Well the good news is the backup on the West Coast ports is lessening the bad news is that the east coast ports, where all that traffic was shifted to where now backed up all that to say that there is still a demand for goods in inventory in the market as retailers try to replenish ultimately this remains a good tailwind for demand and the logistics and supply chain market.

So I know that was a little longer in my opening comments. The unusual however, given the recent events in the Ukraine I wanted to provide some context as to both what's impacted our business historically and what the business environment is that we're working in right now.

The highlight of today's announcement is a great quarterly and annual financial results that were well ahead of our plans we had some strong investments and business conditions pay off for us over the last year driving both organic and acquisition growth our customers have been presented with some unique challenges over the past month that will.

We know there'll be looking to us to help them with.

We have a good history of dealing with challenges. Our team has built a business that has been resilient through past challenges. We believe that we have a track record products team and financial strength to meet the challenges our customers and our business face today.

Once again, thanks to the entire Descartes team for their efforts this past year and for the work they're doing right now to help our customers deal with all the change and complexity in the world right now with that I'll turn the call over to Alan to go through our Q4 and annual financial results in detail.

Hey, Thanks, Ed as indicated I'm going to walk you through our financial highlights for our fourth quarter and year ended January 31 2022.

We're pleased to report record quarterly revenues of $112 $4 million. This quarter, an increase of 20% from revenues of $93 4 million in Q4 of last year.

Our revenue mix in the quarter continued to be very strong with services revenue also increasing 20% to $99 5 million from $82 7 million last year in the fourth quarter.

Presenting 89% of total revenue in each period.

Professional services and other revenue, including hardware revenue came in at $11 7 million or 10% of revenue up from $9 $3 million last last fourth quarter and also consistent at 10% of revenue in each quarter.

While license revenue was just over $1 million or 1% of revenue in the fourth quarter. This year very similar to the fourth quarter last year.

For the year revenue was a record $424 7 million up 22% from revenue of $348 7 million in the previous year.

Gross margin came in at 76% of revenue for the fourth quarter up from gross margin of 75% in the fourth quarter last year.

For the year gross margin was also up from 74% to 76% consistent with the trend in the fourth quarter with this improvement.

Being a result of increased operating leverage from the organic growth we experienced in the business.

Operating expenses in the fourth quarter and for the year ended January 31 increased primarily related to the impact of recent acquisitions, but also.

Already mentioned as a result of additional investments that we made in our business over the past year, including in the areas of sales marketing.

Element activities and network security.

However, despite these investments for the third year in a row as a percentage of revenue the increase in operating expenses was once again lower than the increase in revenue as we continued to benefit from our operating leverage as we grow.

As a result of the revenue growth gross margin gross margin expansion and continued operating cost leverage I. Just described we continue to see strong adjusted EBITDA growth to a record $50 1 million or 44, 6% of revenue in the fourth quarter.

Up 30% from.

From $38 6 million or <unk> 41, 3% of revenue in the fourth quarter last year.

For the year adjusted EBITDA came in at 150 to $185 7 million or 43, 7% of revenue.

Up 31% from adjusted EBITDA.

142.0 million or 47% of revenue last year.

As a result of these solid operating results cash flow generated from operations came in at $45 5 million or approximately 91% of adjusted EBITDA in the fourth quarter. This year up 25% from operating cash flow of $36 5 million or <unk>, 95% of adjusted EBITDA in the fourth quarter last year.

For the year cash flow from operations was $176 1 million or 95% of adjusted EBITDA up 34% from $131 2 million or 92% of adjusted EBITDA last year, primarily as a result. This is a result of some very strong cash flow collections from our customers.

Going forward subject to unusual events and quarterly fluctuations, we expect to continue to see strong operating cash flow conversion of approximately 85% to 9% of our adjusted EBITDA.

Ed.

From a GAAP earnings perspective, net income came in at $19 2 million up 12% from net income of $17 2 million in the fourth quarter last year.

For the year net income was $86 3 million or $1 per diluted common share up 66% of <unk>.

$52 1 million or <unk> 61 per diluted common share last year.

Overall as Ed mentioned earlier were certainly pleased with these operating results for fiscal 2022 as revenue growth of 22% allowed us to invest significantly in our business, while allowing us to achieve 31% growth in adjusted EBITDA expand our adjusted EBITDA margin to 30 to 43, 7% of revenue and achieved 30.

4% growth cash flow from operations for the year.

If we turn our attention to the balance sheet, our cash balances totaled $213 4 million at the end of January 'twenty, two and we did not have any borrowings outstanding under our credit facility at the end of the year.

Subject to year end on February nine we announced that we had used approximately $40 million of our existing cash balances to complete the CHP acquisition, which had described in some detail just earlier.

As a result, we currently have approximately $175 million in cash balances as well as $350 million available for us to draw under our credit facility for future acquisitions.

So as always we continue to be very well capitalized to allow us to consider all acquisition opportunities in our market consistent with our business plan.

As we look to that to the current year, our physical 2023, we should note the following.

After incurring approximately $4 8 million.

Capital additions this past year, we expect to incur approximately $4 million to $5 million of additional capital expenditures in the coming year with a continued focus on it security.

We expect amortization expense will be approximately $54 million for fiscal 2023 with this figure being subject to adjustment for foreign exchange changes and any future acquisitions.

Our income tax rate in the fourth quarter came in at 26% of pretax income, resulting in a tax rate for the year of approximately 16%.

For fiscal 2022, which is significantly lower than our statutory tax rate in Canada, and the U S. Mainly as a result of recognition of previously unrecognized tax losses that occurred earlier in the year.

Going forward, we would expect that our tax rate will be closer to our statutory rates.

<unk> in an expected range of 25% to 30% of our pre tax income for our fiscal 2023.

As always we should add that our tax rate may fluctuate from quarter to quarter from onetime items that may arise as we operate internationally across multiple countries.

And finally, we currently expect stock compensation to be approximately $9 3 million for fiscal 2023, and this will be subject to expected future grants as well as any future forfeiture of stock options or share units.

I'll now turn it back to Ed who will wrap up with our baseline calibration.

Hey, Thanks Alan R.

Our business is designed to be predictable and consistent.

We believe that stability and reliability are valuable to our customers employees into our broader stakeholders to deliver this consistency we continue to operate the following principles.

Our long term plan is for our business to grow adjusted EBIT at 10% to 15% annually.

Growth through a combination of organic growth and acquisitions.

A neutral party approach to building and operating solutions on our global logistics network.

Don't favor any particular party, we run our business for all supply chain participants connecting shippers carriers logistics service providers and customers authorities.

When we over perform we tried to reinvest that over performance back into our business with.

Focus on recurring revenues and establishing relationships with customers for life.

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

We performed well ahead of our plans in Q4, our plans are to reinvest that performance back in the business will continue to invest in the front end of the business.

As we are having good success as I mentioned earlier.

We also plan to keep pushing to accelerate product and acquisition integration.

We believe preparation is the key to success, which is why we set out annual and quarterly plans by sticking to our plan.

Sticking to our plan can be fully shipped the world around you fundamentally changes so while we have concrete investment plans for this year, we anticipate that we're going to be cautious and executing on those plans, while we continue to monitor and evaluate the impact on our business and our customers' businesses from the Russia, Ukraine conflict.

Same caution was kept in mind as we calibrated for our business in Q1 <unk>.

In our annual report we provided a comprehensive description of baseline revenues baseline calibration and there are limitations as at February 19 2022.

Incorporating the acquisition of net CHP and using foreign exchange rates.

<unk> 79 for the Canadian dollar $1 13 to the euro at $1 36 to the pound we estimate that our baseline revenues for the first quarter of 2023 are approximately $102 million and our baseline operating expenses are approximately $62 $3 million, we consider this to be our <unk>.

<unk> calibration of approximately $37 9 million for the first quarter of 2023 or approximately 38% of our baseline revenues as at February 19 2022.

Last quarter, we indicated that the targeted adjusted EBITDA operating margin range for our business would remain at 38% to 43% for fiscal 'twenty two.

Q4, we were just under 45%.

The broader uncertainty in the markets, we're not looking at changing our targeted range, but we will revisit that in future quarters. If we continue to over perform and if the market stabilizes.

We ended the fiscal year with more than $200 million in cash before we bought net CHP, but you also have an undrawn $350 million line of credit we have the <unk>.

Capital capacity and desire to continue to be acquisitive, we still believe there are acquisitions that meet our financial and strategic criteria.

This is a sobering time for our business on the one hand, we're thrilled with how the business is performing and the position that we're in to be able to continue to make investments, we know will benefit our customers and other stakeholders.

On the other hand like everyone else, we're troubled by the awful events of Ukraine, Russia.

<unk> are hoping for a quick and peaceful resolution that will see the unnecessary loss of so many lives.

Our guiding light in these periods of uncertainty as our customers will continue to focus on helping them meet the numerous challenges they are facing in this market.

We're here to help them deal with this change and complexity.

If we do this will remain strong and trusted business deliver that will deliver superior results for our customers and our shareholders. Thanks to everyone for joining us on the call today as always we're available to talk to you about our business in whatever manner is most convenient for you.

And with that I'll now turn the call back over to the operator for the Q&A portion of the call.

Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your touch.

Thanks, Paul.

If you wish to be removed from the queue. Please press the pound or the haskins there'll be a delay before the first question is amount maybe youre using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again are we have a question. Please press Star then one on your Touchtone phone.

And our first question comes from Paul Treiber with RBC capital. Please go ahead.

Thanks, very much and good afternoon.

Just in regards to the acquisition of net CHP can you speak to some of the run rate revenues and profitability and then also the earn out is a relatively large portion of potential.

Compensation here.

Why why is that.

A little bit higher than maybe what you've previously done and can you speak to the future growth there.

Sure.

We're really happy with the acquisition of Nets H B.

Let's say the.

The way we acquired is probably in line with a lot of the tuck ins that we do in the multiples paid for those in the past.

We think it's a great business.

We.

Really got lucky to get it took a little while for us to get this one done but it was.

A competitor of ours in this space, specifically and that some of the customs filing initiatives that they are involved in.

We're also involved in we think.

Coming together provides a real opportunity for their customers to be doing business with a bigger company.

There's also a lot of customers that we have that we think might be a benefit from some of the things that done at CHP does and those are the makings of a great acquisition.

With regard to your question about the earn out.

There was a lot of uncertainty and we earn outs for us are usually.

Because the two parties can agree on the what's a fair price because we don't know whats going to happen in the future.

<unk>.

Maybe that speaks to some of the opportunity we see there and.

The size of the and the size of the earn out that was put in place. So.

We hope we pay every dime of it we don't know whats going to happen and that's why they were not exist but.

For us and as with any acquisition.

Acquisition, any any ear and how can we put in place we usually think.

If we're willing to pay that extra money, we're going to get even more benefit business benefit from it if it happens so we're going to watch and see what happens but.

And a very high level works very excited about adding that CHP to working.

With net CHP I mean, you have a pretty large e-commerce business now how do you see.

Ross selling synergies and the cross selling strategy between those different e-commerce businesses and to the extent that can you bundle that together into into sort of a more.

The cohesive offering RMB packaged offering to your to your customers.

For sure.

You can already see that going on in our business before we bought that CHP.

Youre right and Thats HB is is it an odd way in the e-commerce business, because the type 86 filings that they specialize in our four shipments that are coming out of.

Into the United States from other countries oftentimes.

China and other areas in Asia, where they are being shipped in individual pieces.

Across the ocean, but.

There's lots of opportunities for customers to save money in the process of consolidating those loads into single boxes on planes or boxes on ships.

And then being mailed using the <unk>.

Parcel or U S postal service wants to get to the United States.

On freight saves on tariffs and duties and.

As a real opportunity for our customers.

You could see with some of the other stuff that we bought in ecommerce space over the past six or seven years, we've already put them together and sell them together and you could see some of the growth in that business has been excellent and a lot of it's due to cross selling.

Someone needs a parcel manifested and someone needs a transportation management system someone needs a warehouse management system and we now have all of those components to put together and make one operated customers and it's I think becoming more and more attractive to these.

Online retailers that are selling on Amazon, or Google or overstock or ebay or whatever.

And.

They're buying as they get bigger they need more sophisticated logistics and supply chain solutions and.

We're the guy walking the door with a full suite of products to solve the whole problem. So it's been.

Very good for us.

And just lastly.

And almost following up on the last point you made.

In terms of walking the door you made earlier in the prepared remarks, you made a strong case for Descartes as value proposition and connecting parties and even managing denied parties.

From a marketing perspective, how are you what's the strategy to raise awareness.

Of your full breadth of solutions and even.

Raising awareness for Descartes in general with potentially new customers out there.

Well it's interesting.

We know most of the big guys in this space, we do business with them already so it's easy for us to go right to the larger players in this space I suspect what youre talking about the medium and smaller players that.

We're getting into in the last 10 years, and maybe even do a pretty effectively right now.

Continue to see more and more Descartes.

The carton.

Web ads in places I didn't expect what I'm searching on newspaper articles and things like that where the cards coming up more and more that helps us get to the small and medium sized players.

Certainly some of the web.

Web optimization.

Search engine optimization tools.

We've been putting in place and making investments in the past year or two.

Oftentimes driven by the pandemic, but now I think this is never going away for us to get higher up on the search results for companies that are looking to solve problems that we do.

So we saw a and frankly from a cross selling perspective once we get in the door. Our job is to get in the door and start selling more and start telling them why.

Just like you might see at the bottom of an Amazon page if people that bought this also by this and this you should take a look at those two solutions I think.

Over the last five or six years, our team has gotten much much better and even perhaps really really good at doing that so that our cross number cross selling numbers continue to rise.

Thank you for taking my questions.

Hey, Thank you Paul.

Our next question comes from Paul steep with Scotia capital. Please go ahead.

Hey, great evening it.

Can you just talk a little bit about how we think about momentum heading into this year.

A lot of puts and takes you outlined which is helpful.

One I guess I'm, just thinking of the customs area last year, we had a big lift from Brexit.

Or do you maybe see the momentum shifting to Ed in terms of the business like obviously E com strong real time strong.

Is there anything we should think about just regards to sort of lapping a Brexit anniversary.

Model forward.

Yes, I mean, there is always going to be more customs filing initiatives. They come along but you are right that Brexit vote with the big one that we really capitalize on it pretty well so.

Yes, the things.

So as I say this but some of the some of the things that you see in the tariff and duty and the sanction parties databases that we sell are being highlighted by this conflict thats going on right now because the world is about to see a whole lot more sanctions placed on people that are about to see a whole lot of tariffs and duties change as a result of some of the things that are going on right now and that puts pressure on people to make sure.

They have a database like ours, so they don't make a big mistake the cost them big governmental fine so.

That's certainly an opportunity for us.

Supply chain visibility space is booming for us E. Commerce space is doing is doing very well on top of gigantic growth last year, we're still seeing some growth in that in that business and I think lots.

Lots of areas in that business are still doing very well, our routing and scheduling businesses.

I think more and more companies.

As we always thought but now it's really coming through more and more companies are realizing I need to get good at delivering to the home before someone else does it for me.

<unk>.

We're seeing a lot of strength in that business with some pretty large wins over the last.

Six months or so here that I think will propel us into next year, so what areas of the business going pretty well.

It happens I don't know what happens to the world economy, but right now when you see.

Backlogs at ports and supply delays and I mentioned inventory levels of retailers being on the low side those are all opportunities for us too.

You have more shipments in the coming months.

That's a real opportunity to grow.

Here's one you brought up and that we haven't talked about but you guys highlighted in the filings you mentioned it tonight around cyber and I know the board has done work on it for the last couple of years in the circular you've highlighted.

To be more or less so from a defensive perspective, which we all get the obviously, it's critical to Descartes.

What's the actual opportunity at the other way that you can go out to clients, having a GL in and help them.

With maybe a more resilient infrastructure than they might be able to build on their own what's what's that we're starting to progress.

We're starting to provide a lot of a lot of this.

I would say unfortunately, because usually.

When we're providing these emergency backup services for our customers a lot of times, it's because they've got themselves.

Activate theyre, having them in the middle of a disaster.

We're coming into two which is a shame for them and we're coming in to help them solve the problem but.

More and more we're seeing customers, calling us to help them solve some of those problems and we certainly have develops and packages to do that and I think with each one we're thinking of more things that we could do to back them up a little more efficiently. So that they can get back up and running on our <unk>.

Fully hosted solution of ours as quickly as possible.

Sure.

Yes.

It's an opportunity for us and I think a bigger one moving forward.

Perfect and then last one and I'll pass the line can you just talk a little bit about the front office. Obviously, we started talking about the increased investments there, but maybe.

Some of the changes you're making around the sales team that you highlighted at the start in your comments, but.

How much more opportunity is there to sort of further evolve maybe sort of realigned the organization do you think there is as you go forward. Thanks guys.

I mean, all the stuff that we've done has been additive to kept the existing the organization in place and added to it to make them stronger and specifically stronger and their ability as our customer I mean, our customer base as well into the 20 thousands now.

And Thats a lot of different customers to know and understand to be able to effectively sell to them. So we've been putting people in place that really understand the various markets that we sell through so that we're always going and speaking from a position of strength in terms of knowledge of their business and how we might solve their problem and I think the.

You'll see us continue to do that because our make more investment there over time.

Because it continues to go well every dollar of put news coming back.

<unk> so.

I don't see us slowing down until we think we might have.

Meet met.

A point, where it's really not.

Additive anymore, and then maybe we would slow down, but I don't I don't see that happening anytime soon.

Any AD, they're trying to do it at a reasonable pace, we're pretty conservative operators.

Youre not going to see us massively change the amount we spend on sales and marketing, but we keep adding people and software tools to help our <unk>.

Customer facing employees that are working with customers to be better at their jobs and better understand the customers, they're serving so that there can be better.

Sure.

Perfect. Thanks, guys.

Thanks, Paul.

Our next question comes from Justin Long with Stephens. Please go ahead.

Thanks.

Wanted to ask about organic growth could you share your best guess on where organic growth shook out in the quarter and then also as we think about this next fiscal year youre going to be lapping pretty tough comp on that front, so any thoughts around the pace of organic growth over the next year.

Yes, sure you can see in some of the numbers we had a good year, we're always focused on EBITDA growth. It highlighted that a couple of times and probably a couple of times that I recall, you've ever heard me do we.

We're focused on 10% to 15% EBITDA growth half coming from.

<unk>.

Organic activities half coming from acquisition growth you can see in this past year.

We've been able to get to those numbers just organic growth alone, which is awesome. That's why you see the numbers up at the level. They are.

I think Alan just told me before the call. If you did the if you did the math out of the some of the filings we did we get at somewhere in the 15% 16% range for organic growth this past quarter.

An excellent number we've historically been 3% to 6%.

And to put up numbers in the mid teens is excellent.

Yes, we're pretty conservative operators over.

You've probably seen over the years.

This plan for the worst and hope for the best.

We continue to plan to run our business to 10% to 15%.

EBIT growth and that usually require something like 4% to 6% organic growth I don't know what's going to happen in the next year a lot of it has to do with shipping volumes I hope, we do better than that but.

For the moment Thats, when we do our budgeting and Thats the way we plan to run the business and if we get more than that that's great. We will spend the extra on trying to make the company better for the world.

Okay. That's helpful and just thinking about that 10% to 15% EBITDA growth target.

Feels like the organic growth is accelerating and maybe some of this is sustainable based on the drivers that you mentioned earlier in the call.

Any thoughts around that 50, 50 split between organic growth and acquisition growth potentially changing especially when you pair this with valuations in the market on acquisition.

Okay.

Yeah.

Obviously, the 50 50 changes based on what's available for acquisition and higher organic growth as rig counts the organic growth pretty high so.

We've been doing fairly well on acquisitions as well.

That 50, 50 is probably more of a guide to give to give you a sense of what we're planning on.

Look we buy what we buy what we think we should buy that could be nothing next year. It could be it could be seven company that just depends.

The good stuff to buy we're going to we're going to.

If we think we can make money for our shareholders in an acquisition, we're going to do it and.

None come along that meet our hurdle rates we won't.

I suspect the answer will be somewhere in between there.

And.

We hope the organic growth continues at the clip it is but I also know that there are no illusion that it will if the economy turns it's probably going to go back to where it was before.

And.

We want to be and say, we want to be a safe investment no matter what happens. So thats why we kind of run things conservatively and plan for good numbers and if we get great numbers, that's even better we will put the extra money back into the business.

And if we just get okay numbers, we're still going to do pretty well.

One's expectations so.

That's what I, that's what I expect without having a crystal ball to know what happens out of a couple of quarters with the economy.

Got it thanks, and congrats on a great year.

Hey, Thank you just appreciate it.

Yeah.

Our next question comes from Robert Young with Canaccord Genuity. Please go ahead.

Hi, good evening.

This might be hard to answer, but I was curious if you could.

Maybe give us a sense of any impact that might be from some of that.

U S legislations that regulate the container shipping industry.

But.

Just curious what impact if any positive or negative that might have on your business.

Can you talk about the legislation they just started proposing with visibility.

Yes, we were just we were just.

I mean, it just came out a couple of them came out a week or two ago.

We're looking at it as well.

I mean.

Having filed legislation most of my career, we do a lot of government initiatives and things like that.

When something this early stage just wanted to think about but.

The odds of it coming through are not great.

It was a proposal to put.

To get everyone to give stuff to the federal Maritime Commission to help them with visibility.

<unk>.

I'd be surprised if it actually went that way.

At the same time, it does kind of.

Expressed with the market is interesting it is especially with what's going on here with the congestion of the ports and stuff. This visibility is more important than ever.

It's more likely to be side by south by private companies, but we will see we continue to monitor if they actually one of the system to do that I think you'd see us there trying to find ways to help them I think our network really helps.

People solve problems like this.

If the government wanted help doing that.

We would be happy to try and help solve the problem with them.

More likely it is going to be soft privately.

Just.

More and more companies like ours are going to be they're trying to collect information from all the various parties around that supply chain and share that information. So that people know where stuff is so they can make better decisions.

Yes.

I think youre going to see us be right in the middle of this.

Legislation or no legislation.

Great.

I think there was.

Our concern just on the rapid increase in prices.

Marine shipping.

Maybe there was.

Step towards putting some regulatory framework around that.

I mean my background.

20 years ago, 25 years ago came from providing right management that the government has mandated and then.

Over about a 10 year period, probably 15 years ago, they stopped collecting all those rates.

They do a minor collection of it now that we are still involved in but.

They used to have one database for all the rates in the United States and the shippers spot hard.

To get rid of that was really that article a couple of the other guys who are in the executive team with the carton and lapping going because I knew the whole history of it going these same shippers that are doing the spot to get rid of that so that so the largest shippers could negotiate lower rates. The carrier has always said, hey, I can't give you that lower rate if I have to make those rates public.

So they got Congress 15 years ago to abolish this process and now theyre.

They're going hey wouldn't it be greater for golf each other's rates again.

Okay.

You guys remember how this all started.

So I don't know, whether that's going to go forward or not we continue to monitor it.

If it did we have great systems to be right in the thick of it we have.

All of these systems that help people database the rates and if the government wanted to use one of those systems too.

To make all the rates available we'd be happy to try and participate in that at the same time.

I think it's going to be awfully hard for them to agree on a piece of legislation that is going to get all the way through the house and the Senate to allow them to do that especially knowing that just 15 years ago, maybe 20 years ago. They all fought to get rid of it.

Now there may be asking to get it back.

That would be a head scratcher to me.

Okay.

Interesting okay.

Okay. The second question just on that.

Yes.

The timing.

I need to be a U S focused business.

Just curious about the international opportunity there.

And there was the announcement with <unk> logistics related to that.

We don't know if I can read that incorrectly that seem pretty quickly on the back of that so I was wondering if that was connected contacts there.

That's it.

There is a big customer of ours big customer and that's H b.

We were happy with when we bought <unk>.

To bring him on as an even bigger customer and I think.

With them in with.

Other net CHP customers, we've already been in a lot of conversations about hey, now that you are with Descartes Theres a lot of other things we could do with you.

<unk>.

We're going to see that benefit us as we have a lot of our acquisitions.

One of the main drivers for our acquisitions is cross selling.

We continue to get better and better at it with each new acquisition and really.

Leveraging our market size to go in and say Hey, there's a lot of stuff. We can do for you guys should sit down and talk with us for a little while.

Customers are fairly large customer of ours, they usually say yesterday, whether they buy something or not but so yes, we should talk about that and we will go in and do it in a lot of time something.

Kicks off the tree.

Okay. Thanks.

Okay. Thank you Robert.

Our next question comes from Nick Agostino with Laurentian Bank. Please go ahead.

Nick Your line is now open.

If you're muted please on mute.

Our next question comes from Howard Leung with Farecast investment. Please go ahead.

Hi, there thanks, Thanks, Tom.

Much one.

One two.

Wanted to first ask about the.

Is it fair to say I guess.

In terms of thinking about the Ukraine conflict.

Short term as you mentioned theres a lot of complexity.

The sanction.

And potential tariffs.

So thats benefiting some of Descartes.

Descartes customers.

And then driving their demand for.

Our solution.

But the longer the Conrad escalate.

That if that.

<unk> trade volumes that could be a concern.

Alright.

Perspective.

Yes.

Yes, possibly I mean, if I think of all the all the issues related to the Ukraine, Russia conflict right now.

There's a bunch of different areas.

Potentially impact us we have our direct customers in those regions, which there are we don't have a ton of direct customers in Russia, and Ukraine to begin with.

The handful of customers with the.

No.

The amount of money on our network that's insignificant.

We have issues internal issues.

Team members that are located in those regions and we're spending time to get them.

You either get them to safety or get them to other countries in the region, where we do business, where they can be safe.

We have suppliers that are potential for suppliers to me there were very few so thats really not a significant.

Issue for US, we have global shipments, which I think you're mostly focused on global shipments in and out of the region.

Ukraine, and Russia, and oddly or maybe maybe because of some of the sanctions that are already in place there's not a ton of volume on our network coming out of Russia, and Ukraine Theres some but.

Again, a relatively minor impact and.

A lot of those shipments might just move to other parts of the world as well so.

That's the part we have to see.

And then you have the part you mentioned a minute ago, which is the sanctioned parties and the tariffs and duty changes, which you think is a real opportunity for us as a whole lot more sanctions goes and go in place in tariffs and duties changed as a result of this that's why people use our database. So that's an opportunity for us.

And then.

Most broadly is what impact does this have on the economy and that's the part where it's a little harder for us to see how big an impact of this have on the global economy and I don't know the answer to that question, Yes, My gut would be not massive right now, but you got to see where this conflict goes to other people get involved its spread to other parts of the world I hope none of that happens, but if it does.

Packed on the world economy could be bigger than it looks right now and if it is that'll impact us like everybody else.

And thanks for breaking that all down.

There's a lot of moving parts.

I guess suffice to say that.

If.

And so still early that even now with your cleaning.

Renegotiations with your existing customers youre, not really seeing that come up yet I would think.

No and I wouldn't expect it to come up and renegotiations anyway remember most of our contracts auto renew so theres not.

And a whole lot of our time renegotiating contracts.

And if we did right.

Right now I would be.

Be banking on anything from that in a renegotiation.

Customers, usually trying to it right now they're raising their volumes in any in any discussion that we're having but if they want to get.

To have more volume they want to get.

I'm going to get lower rates and as a result of committing to higher minimum switches.

The kind of stuff, we see going on today because of what's happened over the past year and a half and I think the customers thinking I'm at higher volumes now I can get lower rates, if I commit to them. So.

And any discussion we have about prices, that's probably the leading driver at the moment.

Right right that makes sense and hope hopeful.

All your team members are able to keep safe.

I guess just turning to the.

Okay.

Turning to <unk>.

The annual.

The geographic breakdown of revenues.

EMEA had.

The growth was really pretty impressive.

Look at the U S and Canada.

Growth to kind of disclosure there.

The incremental growth.

<unk>.

How much of that that growth.

In Canada.

Brexit if at all and can you just.

Just speak to some of the other main drivers.

2022.

Alan and Don can jump in here and correct me, if I'm wrong, but I believe most of that Brexit revenue is in the EMEA region and one of the one of the drivers behind the large growth in the EMEA region last year was that Brexit initiative there.

There may be some that's coming out of the U S. But the vast majority is going to be in the UK and Europe .

Yes, yes, that's right it's the Brexit related stuff is in EMEA.

The rest of the growth Youre seeing in Canada U S auto parts as is the rest of our business. The other things that as I mentioned earlier in the call. The other parts of our business that are going well as well as just the strength of the overall economy.

Yeah.

Okay. Okay makes sense, thanks for that and just maybe one more for Alan I might have missed it but.

Do you have the FX impact to revenues for the quarter.

Yes, it's fairly minor.

That's about it.

Headwind to revenues Q4 over Q4.

About $1 million.

Decreased operating expenses as well, so so really no big impact on EBITDA, but about a $1 million or so.

Negative to revenues in Q4.

Okay.

That makes it makes sense. Thanks, so much guys I'll turn it back.

Okay.

Thanks Howard.

Yeah.

Thank you and at this time, we have no further questions turning the call back over to Mr. Ryan for any final remarks.

Great. Thanks, operator, thanks, everyone for joining us on today's call. We look forward to reporting to you in a few months on our Q1 results have a great evening. Thanks.

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

Okay.

Yes.

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Okay.

Yeah.

Sure.

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Okay.

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Okay.

[music].

I would like to ask a question during today's presentation. Please press Star then one on your Touchtone phone. Please note that this conference is being recorded I would now like to turn the call over to Mr. Scott Pagan Mr. Pagan you may begin.

Thanks, Jackie and good afternoon, everyone. Joining me remotely on the call today are Ed Ryan CEO and perhaps you got to go past that everyone has received a copy of our financial results press release that was issued earlier today.

Portions of today's call other than historical performance include statements of forward looking information within the meaning of applicable securities laws.

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 in Russia, Ukraine conflict with our business and financial condition.

Anticipated and potential revenue losses, and gains anticipated recognition and expensing of specific revenues and expenses potential acquisitions and acquisition strategy cost reduction and integration initiatives and other matters that may constitute forward looking statements.

These forward looking statements.

The risks uncertainties assumptions and other factors that may cause the actual results performance or achievements.

To differ materially from the anticipated results.

Performance or achievements implied by such forward looking statements.

These factors are outlined in the press release and in the section entitled certain factors that may affect future results in documents filed and furnished with the Securities and Exchange Commission Imperial Security Commission 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're cautioned that such information may not be appropriate for other purposes.

We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions and forward looking statements reflect any change in our expectations or any change in events conditions assumptions or circumstances on which any such statements except as required by law.

Now, let me turn the call over to Ed.

Thanks, Scott and welcome everyone to the call.

We had excellent fourth quarter and year end financial results, our best ever I'm excited to highlight some of them for you, but first let me give you a roadmap for this call.

I'll start with highlighting some aspects of our financial results. Some factors that we believe contributed to them and some comments on the current environment that we're operating in.

And then I'll hand, it over to Alan who will go over the Q4 and annual financial results in more detail I'll, then come back and update on how our business is calibrated and we will then open it up to the operator to coordinate the Q&A portion of the call.

So lets get started by looking at Q4.

We had record high revenues of $112 $4 million up 20% from a year ago.

Net income was $19 $2 million adjusted EBITDA was a record high of $51 million, we generated $45.5 million in cash from operations were 91% of our adjusted EBITDA.

Our adjusted EBITDA as a percentage of revenues was 45%.

All of these metrics were ahead of our plans so a very strong financial quarter for us.

And that quarter rounds out a truly solid financial year for us of record annual results across the board.

Record revenues of $424 $7 million.

Record net income of $86 $3 million or $1 per share.

We had record adjusted EBITDA of $85 7 million, we had record cash generated from our operating activities of $176 $1 million or 95% of our adjusted EBITDA.

I don't want to spend too much time looking in the rearview mirror, we're already a month into our next quarter and financial year in the world and the business environment have changed massively over that month, but let me highlight a few things that I think contributed to us doing well last year.

First our business does well in a changing and complex business environment.

Second prior investments drove organic growth.

Third we are a market leader in the real time visibility space enforced our acquisitions have contributed very well.

So let me speak to each of these four areas. So the first one our business does well in changing and complex times.

Historically, our business has done well when the supply chain and logistics market is changing and or becomes more complex our core mantra.

What particular commodity or item you're shipping.

Does it need special handling refrigeration does it attract a particular regulatory scrutiny there is a host of issues.

It's not practical for any one company to be able to handle all these logistics issues in house and still be successful in its own business.

That's why the supply chain and logistics market space is so fragmented there are firms that are very specialized.

More and more information and technology has become key to helping things move from point, a to point B, and that's where and why we exist where specialist and providing the information and technology to help isolate people from logistics complexity, rather than you're connecting the thousands of trading partners you can connect to us once and we'll use our network to connect to the trading partners.

And as things get more complex or changed it becomes more and more clear why you need a trusted party like Descartes to help you with technology and information, it's too much and too time consuming to handle on your own the Covid pandemic forced every business to change its supply and delivery practice practices, whether it would be where they got their supplies what companies they work with her.

How they would remotely get visibility to their shipments and deliveries that change in complexity drove demand for our products and services.

Another example is what happened in the United Kingdom with Brexit a huge complexity was introduced to move things between the EU and the U K new filings needed to be made new procedures needed to be followed new tariff structures needed to be adhere to things changed and it became more complex to move goods. This drove very good demand for our services in particular, the customer's phone.

Arena.

We were able to help our customers.

Help our existing and new customers cope with the complexity and change and as a result that contributed to our business growth last year.

So that was a good tailwind for us last year change and complexity in how goods are supplied and deliberate drove good demand for our products and services.

The second area is the prior investments are driving organic growth.

As we started last fiscal year I indicated that we intended to invest over performance back in our business specifically in our go to market activities. Our attention in doing that was to strengthen our business for the long term sustainable growth and drive additional organic growth.

We focused our investments in a few areas first we invested in our sales team by taking a very customer centric approach to helping customers with their problems. This resulted in us refocusing our sales group deepening our expertise in North America, and strengthening our leadership presence in EMEA.

Second we made investments in building out our customer success team on a global basis and across many product groups. We recognize that we have an enviable large customer base and we wanted to be more focused on how we could do more with our existing customers and ensure we're being responsive to their needs. So they would help so they would keep using our services.

As you've seen it over past quarters, we've generated some pretty good organic result results growth as some of the early returns on these investments.

<unk> paid off quickly we expect this growth to ebb and flow as we learn and fine tune our investments, but we're very pleased with the start so overall our go to market team and their progress that has been a big contributor to our success over the past year. Thanks to all of them for their hard work.

Third we are a market leader in the real time visibility space.

Three years back we combined with macro point to strengthen our visibility services. Our goal as a combined business was to run a successful and sustainable business, one that provided quality service and a sustainable business model, where our customers wouldn't have to worry about whether our business with financially survive as customers became more and more reliant on our service.

We've got the infrastructure to focus on and deliberate global visibility across every mode of transportation.

Last year, we tracked over 575 million shipments in real time for our customers real time visibility has been and is one of our core competencies and it's recognized by our customers and the market <unk>.

The macro point in realtime visibility was exited excellent contributor to our success last year and we believe there is still good momentum there.

In May we combined with portraits in Germany to strengthen our rate management solutions and complement our investment in containers, where we help ocean carriers and intermediaries.

Modernize their business for ecommerce engagement in July we combined with green mile to expand our route management and mobile technologies in food beverage and other distribution verticals. Each of these combinations was well received by our customers and collectively they contributed well to our success last fiscal year.

As we started this fiscal year, we've already closed one new acquisition or combination with net CHP a few weeks ago that CHP is the security and customs filing visits in the U S. Like we are that CHP is a particular strength in type 86 filings, which are U S. Customs filings that are made when the value of an important is below $800 type 86 filings are off.

Often leveraged by e-commerce providers, selling low value goods, because theres, an expedited important filing process for service provider success is often dependent on the ability to handle high volumes of filings.

<unk> also has some traditional customers broker functionality to help with filings and we've already made some joint sales for some new customers. All in all we think this is a great complement to our business and we're excited to welcome all our new net CHP team members to Descartes.

So acquisitions were a good contributor for us last year and given how we've already started this fiscal year. We are on the right track for it to continue this year.

They are the Russia, Ukraine conflict inflationary pressures and resource scarcity and ongoing inventory replenishment.

So let me start with the Russia, Ukraine conflict nothing I say on this call is going to give anyone any greater insight into how thats conflict started.

Or how and when it will end the only thing I can say with certainty is that there is a lot of uncertainty at the moment.

The card itself does not have a direct presence in either the Ukraine, or Russia, and almost no customer or supplier relationships. So no direct financial exposure. So when we consider the impact of the conflict on debt cards business, our thoughts turn more to what impact what the impact will be on our customers to global trade environment and the global economy as a whole.

This conflict conflict will have an impact on supply chain and logistics market. We've already seen a few consequences in the early days of Ukraine ports are closed impacting the flow of goods Russian forces have destroyed some Ukrainian air cargo freighters sanctions will likely impact operations at ports and other countries aerospace its been restricted for Russian air traffic.

Impacting air cargo capacity, that's available and the link and cost of flights. Similarly, Russia has restricted access to its own airspace to more than 30 countries. Some companies rely on raw materials from Ukraine, or Russia, causing some manufacturing factories to close and undoubtedly impacting supply.

Various multinationals have suspended or withdrawn from their Russian operations, Russia, and Ukraine concrete could you, sorry, Russia, and Ukraine contribute oil and natural gas to the energy markets and with the supply being curtailed there could be a meaningful impact on any energy prices and the prices of other commodities.

Some logistics companies, including Fedex, DHL, and EPS have suspended shipments to Russia.

Ocean Network Express Maersk and MSC have all halted bookings to Russian destinations all of this could impact global trade volumes.

And finally severe sanctions have been placed on businesses and individuals associated with Russia, and Belarus impacting supply chains of numerous businesses and where they can sell their products and services. For example, Apple has announced that it stops sales of its products in Russia, just a few days ago.

All of these factors bring complexity and change to the market as I mentioned earlier, our business has historically done very well when there is complexity and change however, given how early we are in the conflict and the possible impact on the global economy, It's too early for anyone to be able to accurately predict how their business will fare Descartes included.

This type of complexity and change brings opportunity and potential risk. Let me give you some examples of each.

Customer lists where transactions for compliance with those same sanctions as one of our core businesses.

<unk> sanctioned party screening was just confirmed by multiple countries to be critical to have severe penalties for noncompliance.

We're a global leader in this space, we expect new and existing customers will lead us to help them in this regard.

Another opportunity comes from force changes in supply chain, most companies will have some impact on their business.

They will need to establish new trading relationships with parties in new countries and trade lanes to get materials for their business to do this will need to electronically connect a new parties something that our global logistics network is ideally suited to help them win.

Yeah.

Each new opportunity has a darker cloud hanging over which is the potential impact of the global economy. Our success over the past periods and changing and complex times has been because we were able to help our customers be successful.

As a much more challenging task and in an environment, where global trade volumes go down or the global economy contracts and right now we just don't know what the impact of the conflict, where the resolving financial sanctions will be on either trade volumes or the economy, it's something that like everyone else, we will continue to monitor.

It hit the oil and gas industry medical community and education market.

Why chain and logistics markets have not been immune all four of the world's largest ocean carriers have been hit by ransomware attacks over the past several years over the past two weeks cyber incident impacted expedites and caused them to have to rebuild their operations.

Possible that one of the consequences of this conflict is an increased level of cyber attack on businesses.

Since the conflict started Toyota suspended its domestic factory operations in Japan as it dealt with the cyber attack.

Quite possible there will be more <unk>.

An area of increased attention for our customers and suppliers and for Descartes as well.

So the Russia, Ukraine conflict brings a lot of uncertainty and it introduces complexity and change to logistics and supply chain operations. There are opportunities to help our customers with these challenges and risks from a world with increased geopolitical tension and economic fragility.

We're certainly being careful as we move forward in our business.

Second issue is inflationary pressures and resource scarcity.

Even before the Russia, Ukraine conflict brought uncertainty of the economic conditions. The economy was dealing with a bunch of inflationary pressure. It seems like a somewhat logical consequence of somewhat new money being pumped into the system during the pandemic to aid with recovery.

Those inflationary pressures have hit the logistics and supply chain community the cost of raw materials and goods all through the supply chain have increased resulting in increased prices to consumers logistics markets have increased.

The prices on containers and vessels and carriers have been post supplemental fees. In addition label markets faced wage pressure, resulting in competition and when companies to get the Nida drivers warehouse workers and pork personnel needed to keep goods moving.

Businesses are also struggled to find workers in light of vaccination requirements and quarantine impacts on labor availability and there's potential labor unrest with the ongoing negotiation of the international Longshore and warehouse Union contract for the West Coast Port workers.

Inflationary pressures just one more challenge for our customers to face to get to the right and sufficient people to keep goods moving.

Something we need to be aware of since we have a real interest in helping our customers move as many shipments as they need to.

And the final is inventory replenishment retailers have inventory levels that are historically at historic lows as a percentage of their revenues there has been some.

Covering over recent months however, the logistics infrastructure just isn't there to let them catch up as quickly as many of them would probably like.

Many retailers adopted revised logistics strategies to avoid the multiple the multi vessel backups that were happening on the west coast ports over the last several months.

Well the good news is the backup on the West Coast ports is lessening the bad news is that the east coast ports, where all that traffic was shifted to our now backed up all of that to say that there is still a demand for goods in inventory in the market as retailers try to replenish ultimately this remains a good tailwind for demand and the logistics and supply chain market.

So I know that was a little longer in my opening comments about unusual however, given the recent events in the Ukraine I wanted to provide some context as to both what's impacted our business historically and what the business environment is that we're working in right now.

They'll be looking to us to help them with.

Hey, Thanks, Ed as indicated I'm going to walk you through our financial highlights for our fourth quarter and year ended January 31 2022.

We're pleased to report record quarterly revenues of $112 $4 million. This quarter, an increase of 20% from revenues of $93 4 million in Q4 of last year.

Our revenue mix in the quarter continued to be very strong with services revenue also increasing 20% to $99 5 million from $82 7 million last year in the fourth quarter, representing 89% of total revenue in each period.

While license revenue was just over $1 million or 1% of revenue in the fourth quarter.

This year very similar to the fourth quarter last year.

For the year revenue was a record $424 7 million up 22% from revenue of $348 7 million in the previous year.

Gross margin came in at 76% of revenue for the fourth quarter up from gross margin of 75% in the fourth quarter last year for.

For the year gross margin was also up from 74% to 76% consistent with the trend in the fourth quarter with this improvement.

Being a result of increased operating leverage from the organic growth we experienced in the business.

Operating expenses in the fourth quarter and for the year ended January 31 increased primarily related to the impact of recent acquisitions, but also.

Already mentioned as a result of additional investments that we made in our business over the past year.

Including in the areas of sales marketing development activities and network security.

As a result of the revenue growth gross margin gross margin expansion and continued operating cost leverage I. Just described we continue to see strong adjusted EBITDA growth to a record of $50 1 million or 44, 6% of revenue in the fourth quarter up.

Up 30% from.

From $38 6 million or 41, 3% of revenue in the fourth quarter last year.

For the year adjusted EBITDA came in at 150 to $185 7 million or 43, 7% of revenue.

Up 31% from adjusted EBITDA.

142.0 million or 47% of revenue last year.

For the year cash flow from operations was $176 1 million or 95% and adjusted EBITDA up 34% from $131 2 million or 92% of adjusted EBITDA last year, primarily as a result. This is a result of some very strong cash flow collections from our customers.

Going forward subject to unusual events and quarterly fluctuations, we expect to continue to see strong operating cash flow conversion of approximately 85% to 90% of our adjusted EBITDA.

Head.

From a GAAP earnings perspective, net income came in at $19 2 million up 12% from net income of $17 2 million in the fourth quarter last year.

For the year net income was $86 3 million or $1 per diluted common share up 66% of.

<unk> $52 1 million or <unk> 61 per diluted common share last year.

Overall as I mentioned earlier, we're certainly pleased with these operating results for fiscal 2022 as revenue growth of 22% allowed us to invest significantly in our business, while allowing us to achieve 31% growth in adjusted EBITDA expand our adjusted EBITDA margin to 30 to 43, 7% of revenue and achieved 30.

4% growth in our cash flow from operations for the year.

Subject to year end on February nine we announced that we had used approximately $40 million of our existing cash balances to complete the net CHP acquisition, which had described in some detail just earlier.

As a result, we currently have approximately $175 million in cash balances as well as $350 million available for us to draw under our credit facility for future acquisitions.

As always we continue to be very well capitalized to allow us to consider all acquisition opportunities in our market consistent with our business plan.

As we look to that to the current year, our physical 2023, we should note the following.

After incurring approximately $4 8 million in capital additions. This past year, we expect to incur approximately $4 million to $5 million additional capital expenditures in the coming year with a continued focus on it security.

We expect amortization expense will be approximately $54 million for fiscal 2023 with this figure being subject to adjustment for foreign exchange changes and any future acquisitions.

Our income tax rate in the fourth quarter came in at 26% of pre tax income.

Nothing in the tax rate for the year of approximately 16% for.

For fiscal 2022, which is significantly lower than our statutory tax rate in Canada, and the U S. Making here as a result of recognition of previously unrecognized tax losses that occurred earlier in the year.

Going forward, we would expect that our tax rate will be closer to our statutory rates, resulting in an expected range of 25% to 30% of our pre tax income for our fiscal 2023.

As always we should add that our tax rate may fluctuate from quarter to quarter from onetime items that may arise as we operate internationally across multiple countries.

And finally, we currently expect stock compensation to be approximately $9 3 million for fiscal 2023, and this will be subject to expected future grants as well as any for <unk>.

Forfeiture of stock options or share units.

I will now turn it back to Ed who will wrap up with our baseline calibration.

Hey, Thanks Alan R.

Our business is designed to be predictable and consistent.

We believe that stability and reliability are valuable to our customers employees into our broader stakeholders to deliver this consistency we continue to operate the following principles.

Our long term plan is for our business to grow adjusted EBIT at 10% to 15% annually.

We grow through a combination of organic growth and acquisitions.

We take a neutral party approach to building and operating solutions on our global Logistics network, we don't favor any particular party, we run our business for all supply chain participants connecting shippers carriers logistics service providers and customers authorities.

When we over perform we tried to reinvest that over performance back into our business.

Focus on recurring revenues and establishing relationships with customers for life.

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

We performed well ahead of our plans in Q4, our plans are to reinvest that performance back in the business will continue to invest in the front end of the business.

We're having good success as I mentioned earlier, we also plan to keep pushing to accelerate product and acquisition integration.

We believe preparation is the key to success, which is why we set out annual and quarterly plans by sticking to our plan.

That same caution was kept in mind as we calibrated for our business in Q1, and our annual report we provided a comprehensive description of baseline revenues baseline calibration and there are limitations as of February 19 2022.

Incorporating the acquisition of nets, the HB and using foreign exchange rates.

79 of the Canadian dollar $1 13 to the euro at $1 36 to the pound we estimate that our baseline revenues for the first quarter of 2023 are approximately $102 million and our baseline operating expenses are approximately $62 $3 million, we consider this to be our baseline.

Calibration of approximately $37 9 million for the first quarter of 2023 or approximately 38% of our baseline revenues as at February 2022.

Last quarter, we indicated that the targeted adjusted EBITDA operating margin range for our business would remain at 38% to 43% for fiscal 'twenty two.

Q4, we were just under 45% in light of the broader uncertainty in the markets. We're not looking at changing our targeted range, but we will revisit that in future quarters. If we continue to over perform and if the market stabilizes.

We ended the fiscal year with more than $200 million in cash before we bought net CHP.

Also have an undrawn $350 million line of credit we have the capital capacity and desire to continue to be acquisitive. We still believe there are acquisitions that meet our financial and strategic criteria.

Conflict and are hoping for a quick and peaceful resolution that will save the unnecessary loss of so many lives.

Our guiding light in these periods of uncertainty as our customers will continue to focus on helping them meet the numerous challenges. They are facing in this market. We're here to help them deal with this change in complexity if.

If we do this will remain strong and trusted business.

River that will deliver superior results for our customers and our shareholders. Thanks to everyone for joining us on the call today as always we're available to talk to you about our business in whatever manner is most convenient for you.

And with that I'll now turn the call back over to the operator for the Q&A portion of the call.

Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your telephone.

If you wish to be withheld from the queue. Please press the pound side or the haskins there'll be a delay before the first question is amount maybe youre using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, we have a question. Please press Star then one on your Touchtone phone.

And our first question comes from Paul Treiber with RBC capital. Please go ahead.

Thanks, very much and good afternoon.

Just in regards to the acquisition of net CHP can you speak to some of the run rate revenues and profitability and then also the earn out is a relatively large portion of potential.

Compensation here.

Why why is that.

A little bit higher than maybe what you've previously done and can you speak to the future growth there.

Sure.

We're really happy with the acquisition of Nets HBV.

Let's say the.

The way we acquired is probably in line with a lot of the tuck ins that we do in the multiple we might pay for those in the past.

We think it's a great business.

We are.

Really got lucky to get it took a little while for us to get this one done but it was as you know.

A competitor of ours in this space, specifically and that some of the customs filing initiatives that they are involved in.

We're also involved in and we think.

Coming together provides a real opportunity for their customers to be doing business with a bigger company.

There's also a lot of customers that we have that we think might be a benefit from some of the things that done at THB does and those are the makings of a great acquisition.

With regard to your question about the earn out.

There was a lot of uncertainty and we earn outs for us are usually.

Because the two parties can agree on the what's the fair price because they don't know whats going to happen in the future.

<unk>.

Maybe that speaks to some of the opportunity we see there and.

The size of the and the size of the earn out that was put in place. So.

We hope we pay every dime of it we don't know what's going to happen and that's why they were not exists but.

For us and as with any acquisition any any earn out that we put in place we usually think.

If we're willing to pay that extra money, we're going to get even more benefit business benefit from it if it happens so we're going to watch and see what happens but.

And a very high level, we're very excited about adding that CHP to working.

Yeah.

With net THB I mean, you have a pretty large e-commerce business now.

How do you see cross selling synergies and the cross selling strategy between those different e-commerce businesses and to the extent that can you bundle that together into into sort of a more.

Cohesive offering RMB packaged offering to your to your customers.

For sure.

You can already see that going on in our business before we bought that CHP.

Alright, Thats HB is is it an odd way in the e-commerce business, because the type 86 filings that they specialize in our four shipments that are coming out of it.

The United States from other countries oftentimes.

China and other areas in Asia, where theyre being shipped in individual pieces.

Across the ocean, but.

There's lots of opportunities for customers to save money in the process of consolidating those loads into single boxes on planes or boxes on ships.

And then being mailed using the.

Parcel or U S postal service wants to get to the United States.

Saves on freight saves on tariffs and duties and.

As a real opportunity for our customers.

You can see with some of the other stuff that we bought in ecommerce space over the past six or seven years, we've already put them together and sell them together and you could see some of the growth in that business has been excellent and a lot of it's due to cross selling.

It's becoming more and more attractive to these.

Online retailers that are selling on Amazon, or Google or overstock or ebay or whatever.

<unk>.

They're buying as they get bigger they need more sophisticated logistics and supply chain solutions and.

We're the guy walking the door with a full suite of products to solve the whole problem. So it's been.

Very good for us.

And just lastly.

And almost following up on the last point you made.

In terms of walking the door you made earlier in the prepared remarks, you made a strong case for Descartes as value proposition and connecting parties and even managing denied parties.

From a marketing perspective, how are you whats the strategy to raise awareness.

Of your full breadth of solutions and even.

Raising awareness for Descartes in general with potentially new customers out there.

Well it's interesting.

We know most of the big guys in this space, we do business with them already so it's easy for us to go right to the larger players in this space I suspect what you are talking about the medium and smaller players that were.

We're getting into in the last 10 years, and maybe even do a pretty effectively right now I continue to see more and more Descartes.

The carton.

Web ads in places that didn't expect what I'm searching on newspaper articles and things like that where the cards coming up more and more that helps us get to the small and medium sized players.

Certainly some of the.

Web optimization.

Search engine optimization tools.

We've been putting in place and making the investments in the past year or two.

Oftentimes driven by the pandemic, but now I think there is note. This is never going away for us to get higher up on the search results for companies that are looking to solve problems that we.

We solve and frankly from a cross selling perspective once we get in the door our job is to get in the door and start selling more and start telling them why.

Just like you might see at the bottom of an Amazon page people that bought this also by this and this you should take a look at those two solutions I think.

Over the last five or six years, our team has gotten much much better at and even perhaps really really good at doing that so that our cross number cross selling numbers continue to rise.

Thank you for taking my questions.

Hey, Thank you Paul.

Our next question comes from Paul steep with Scotia capital. Please go ahead.

Okay great.

Can you just talk a little bit about how we think about momentum heading into this year.

A lot of puts and takes you outlined which is helpful.

One I guess I'm just thinking of in the customs area last year, we had a big lift from Brexit.

Or do you maybe see the momentum shifting to Ed in terms of the business like obviously E com strong real time strong.

Is there anything we should think about just regards to sort of lapping a Brexit anniversary as we model forward.

Yes, I mean, there's always going to be more customs filing initiatives. They come along but you are right that Brexit vote with the big one that we really capitalize on it pretty well so.

Yes, the things.

We have a database like ours, so they don't make a big mistake the cost them big governmental fine so.

That's certainly an opportunity for us.

Supply chain visibility space is booming for us E. Commerce space is doing is doing very well on top of a gigantic growth last year, we're still seeing some growth in that in that business and I think.

Lots of areas in that business are still doing very well, our routing and scheduling businesses I think more and more companies.

As we always thought but.

Now, it's really coming through more and more companies are realizing I need to get good at delivering to the home before someone else does it for me.

We're seeing a lot of strength in that business I would put some some pretty large wins over the last.

Six months or so here that I think will propel us into next year, so what areas of the business going pretty well.

What happens at I don't know what happens to the world economy, but right now when you see.

Backlogs at ports and supply delays and I mentioned, the inventory levels of retailers being on the low side those are all opportunities for us to.

You have more shipments in the coming months.

That's.

The real opportunity for us.

Here's one you brought up and that we haven't talked about but you guys highlighted in the filings you mentioned it Tonight rent cyber and I know the <unk>.

<unk> done work on it for the last couple of years in the circular you highlighted maybe more less so from a defensive perspective, which we all get the obviously, it's critical to Descartes, but what's the actual opportunity at the other way that you can go out to clients, having a GL in and help them.

With maybe a more resilient infrastructure than they might be able to build on their own what is that starting to progress.

We're starting to provide a lot of a lot of this.

I would say unfortunately, because usually.

When we're providing these emergency backup services for our customers a lot of times, it's because they've got themselves.

Got hacked and they are having they are in the middle of a disaster.

We're coming into two which is a shame for them and we're coming in to help them solve the problem but.

More and more we're seeing customers, calling us to.

To help them solve some of those problems and we certainly have developed some packages to do that and I think with each one we're thinking of more things that we could do to back them up a little more efficiently. So that so that they can get back up and running on a fully hosted solution of ours as quickly as possible.

So, yes, it's an opportunity for us and I think a bigger one moving forward.

Perfect and then last one and I'll pass the line can you just talk a little bit about the <unk>.

Front office, obviously, we started talking about the increased investments there, but maybe.

Some of the changes you're making around the sales team that you highlighted at the start in your comments, but.

How much more opportunity is there to sort of further evolve or maybe sort of realigned. The organization do you think there is as you go forward. Thanks guys.

I mean, all the stuff that we've done has been additive to kept the existing organization in place and added to it to make them stronger and specifically stronger and their ability as our customer and their customer base as well into the 20 thousands now.

And that's a lot of different customers to know and understand to be able to effectively sell to them. So we've been putting people in place.

Really understand the various markets that we sell through so that we're always going and speaking from a position of strength in terms of knowledge of their business and how we might solve their problem and I think the.

Youll see us continue to do that because our make more investment there over time.

Because it continues to go well every dollar we're putting news coming back in.

<unk> so.

I don't see us slowing down until we think we might have.

Meet met a point, where it's really not.

Additive anymore, and then maybe we would slow down, but I don't I don't see that happening anytime soon.

Any AD, they're trying to do it at a reasonable pace, we're pretty conservative operators.

Youre not going to see us massively change the amount we spend on sales and marketing, but we keep adding people and software tools to help our.

Customer facing employees that are working with customers to be better at their jobs and better understand the customers, they're serving so that they can be better.

Yes.

Perfect. Thanks, Ed.

Thanks, Paul.

Our next question comes from Justin Long with Stephens. Please go ahead.

Thanks.

I wanted to ask about organic growth could you share your best guess on where organic growth shook out in the quarter and then also as we think about this next fiscal year youre going to be lapping pretty tough comps on that front, so any thoughts around the pace of organic growth over the next year.

Yes, sure you can see in some of the numbers we had a good year, we're always focused on EBITDA growth. It highlighted that a couple of times and probably a couple of times on every call you've ever heard me do we're focused on 10% to 15% EBITDA growth have come.

From.

Organic activities half coming from acquisition growth you can see in this past year.

We've been able to get to those numbers just on organic growth alone, which is awesome. That's why you see the numbers up at the level they are.

I think I was just told me before the call. If you did the if you did the math on out of the some of the filings we did we get at somewhere in the 15% 16% range for organic growth this past quarter.

An excellent number we've historically been 3% to 6%.

And to put up numbers in the mid teens is excellent.

Yes, we're pretty conservative operators over.

You've probably seen over the years.

Always plan for the worst and hope for the best.

We continue to plan to run our business to 10% to 15% EBIT growth and that usually require something like 4% to 6% organic growth I don't know what's going to happen in the next year a lot of it has to do with shipping volumes I hope, we do better than that but.

For the moment Thats, when we do our budgeting and that's the way we plan to run the business and if we get more than that that's great. We'll spend the extra on trying to make the company better for the world.

Okay. That's helpful and just thinking about that 10% to 15% EBITDA growth target.

It feels like the organic growth is accelerating and maybe some of this is sustainable based on the drivers that you mentioned earlier in the call.

Any thoughts around that 50, 50 split between organic growth and acquisition growth potentially changing especially when you pair this with valuations in the market on acquisitions.

Okay.

Yeah.

Obviously, the 50 50 changes based on what's available for acquisition and higher organic growth as rig counts the organic growth pretty high so and we.

We've been doing fairly well on acquisitions as well.

That 50, 50 is probably more of a guide to give to give you a sense of what we're planning on.

Look we buy what we buy what we think we should buy or that could be nothing next year. It could be it could be seven company that just depends.

The good stuff to buy we're going to we're going to.

If we think we can make money for our shareholders in an acquisition, we're going to do it.

None come along that meet our hurdle rates we won't.

I suspect the answer will be somewhere in between there.

And.

We hope the organic growth continues at the clip it is but I also know there are no illusions that it will if the economy turns is probably going to go back to where it was before.

And.

We want to be in safe, we want to be a safe investment no matter what happens so thats why we kind of run things conservatively and plan for good numbers and if we get great numbers, that's even better we will put the extra money back into the business.

And if we just get okay numbers, we're still going to do pretty well and we'd be ever.

One's expectations so.

That's what I, that's what I expect without having a crystal ball to know what happens out of a couple of quarters with the economy.

Got it thanks, and congrats on a great year.

Hey, Thank you just I appreciate it.

Yeah.

Our next question comes from Robert Young with Canaccord Genuity. Please go ahead.

Hi, good evening.

This might be hard to answer, but I was curious if you could.

Can you give us a sense of any impact there might be from some of that.

U S legislation, so regularly the container shipping industry.

But.

Just curious what impact if any positive or negative that might have on your business.

Can you talk about the legislation that just started proposing with visibility.

Yes, we were just we were just I mean, it just came out a couple of them came out a week or two ago.

We're looking at it as well.

Yes.

I mean.

Having filed legislation most of my career, we do a lot of government initiatives and things like that.

When something this early stage just wanted to think about but.

The odds of it coming through are not great.

It was a proposal to put.

To get everyone to give stuff to the federal Maritime Commission to help them with visibility.

<unk>.

I'd be surprised if it actually went that way.

At the same time, it does kind of.

Expressed with the market is interested in us, especially with what's going on here with the congestion of the ports and stuff. This visibility is more important than ever.

It is more likely to be side by south by private companies, but we will see we continue to monitor if they actually one of the system to do that I think you'd see us there trying to find ways to help them I think our network really helps.

People solve problems like this.

If the government wanted help doing that.

We would be happy to try and help solve the problem with them.

I think more likely its going to be soft privately.

Just.

Yes.

I think youre going to see us be right in the middle of this.

Legislation or no legislation.

Great.

I think there was.

Our concern just on the rapid increase in prices.

Marine shipping.

Maybe there was a step towards putting some regulatory framework around that.

Yes.

My background, Cambridge.

20 years ago, 25 years ago came from providing right management that the government has mandated and then.

Over about a 10 year period, probably 15 years ago, they stopped collecting all those rates.

They do a minor collection of it now that we are still involved in but.

They used to have one database for all of the rates in the United States and the shippers spot hard.

To get rid of that.

It was really that article a couple of the other guys who are in the executive team with the carton and lapping going because I knew the whole history of it going the same shippers that are doing this spot to get rid of that so that so the largest shippers could negotiate lower rates. The carrier has always said, hey, I can't give you that lower rate if I have to make those rates public and.

So they got Congress 15 years ago to abolish this process and now theyre.

They're going hey wouldn't it be greater for golf each other's rates again.

Okay.

You guys remember how this all started.

So I don't know, whether that's going to go forward or not we continue to monitor it.

If it did we have great systems to be right in the thick of it we have.

All of these systems that help people database the rates and if the government wanted to use one of those systems too.

To make all the rates available we'd be happy to try and participate in that at the same time.

I think it's going to be awfully hard for them to agree on a piece of legislation that is going to get all the way through the house and the Senate to allow them to do that especially knowing that just 15 years ago. There maybe 20 years ago. They all fought to get rid of it.

Now there may be asking to get it back.

That will be a head scratcher to make.

Yeah.

Interesting.

Okay. The second question just on that.

The.

I need to be a U S focused business.

It's about the international opportunity there.

And there was the announcement with <unk> logistics.

I don't know if I'd read that incorrectly that seem pretty quickly on the back of that so I was wondering if that was connected in some context there.

No I would say it was a big customer of ours big customer and that's H b.

We're happy with when we bought <unk>.

To bring him on as an even bigger customer and I think.

With them and with a bunch of other net tsb's customers, we've already been in a lot of conversations about hey, now that Youre, what Descartes Theres a lot of other things we could do with you.

And I think.

Okay.

We're going to see that benefit us as we have in a lot of our acquisitions.

One of the main drivers for our acquisitions is cross selling and we.

We continue to get better and better at it with each new acquisition and really.

Leveraging our market size to go in and say Hey, there's a lot of stuff. We can do for you guys should sit down and talk with us for a little while.

Customers are fairly large customer of ours, they usually say yesterday, whether they buy something and occupancy yes, we should talk about that it will go in and do it in a lot of time something shakes.

Kicks off the tree.

Okay. Thanks.

Okay. Thank you Robert.

Our next question comes from Nick Agostino with Laurentian Bank. Please go ahead.

Nick Your line is now open.

If you're muted please on mute.

Okay. Our next question comes from Howard Leung with Aircastle investment. Please go ahead.

Hi, there thanks.

Thanks, so much.

One two.

Wanted to ask first ask about the.

Is it fair to say I guess.

In terms of thinking about the Ukraine conflict.

Short term as you mentioned theres a lot of complexity.

Even with the sanction.

Potential terrorists.

So thats benefiting some of Descartes.

Descartes customers.

And then driving their demand for our solution.

But the longer the Conrad.

Conrad escalate.

If that if that negatively impacts trade volumes that could be a concern from descartes.

From the perspective.

Yes, possibly I mean, if I think of all of the all the issues related to the Ukraine, Russia conflict right now.

There's a bunch of different areas.

Potentially impact us we have our direct customers in those regions, which there are we don't have a ton of direct customers in Russia, and Ukraine to begin with.

Handful of customers with the.

No.

Amount of money on our network that's insignificant.

We have issues internal issues.

Team members that are located in those regions and we're spending time to get them.

You either get them to safety or get them to other countries in the region, where we do business, where they can be safe.

We have suppliers that are potential for suppliers to me there were very few so thats really not a significant.

Issue for US we are global shipments, which I think you're mostly focused on global shipments in and out of the region.

Of Ukraine, and Russia, and oddly or maybe maybe because of some of the sanctions that are already in place there's not a ton of volume on our network coming out of Russia, and Ukraine Theres some but.

Again, a relatively minor impact and a lot of those shipments might just move to other parts of the world as well so.

That's the part we have to see.

And then you have the part you mentioned a minute ago, which is the sanctioned parties and the tariffs and duty changes, which we think is a real opportunity for us as a whole lot more sanctions go in place in tariffs and duties changed as a result of this that's why people use our database. So that's an opportunity for us.

And then most broadly is what impact does this have on the economy and that's the part where it's a little harder for us to see how big an impact of this have on the global economy and I don't know the answer to that question, Yes, My gut would be not massive right now, but you got to see where this conflict goes to other people get involved its spread to other parts of the world I hope none of that happens, but if it does.

The impact on the world economy could be bigger than it looks right now and if it is that will impact us like everybody else.

And thanks for breaking that all down.

There's a lot of moving parts.

I guess suffice to say that.

If.

And so still early that even now with your.

Renegotiations with your existing customers youre, not really seeing that come up yet I would think.

No and I wouldn't expect it to come up and renegotiations anyway remember most of our contracts auto renew so theres not.

Spend a whole lot of our time renegotiating contracts.

And if we did right.

Right now I wouldn't be.

Be banking on.

Anything from that in a renegotiation.

Customers, usually trying to it right now the reason they are volumes in any in any discussion that we're having but if they want to get.

They have more volume they want to get.

I wanted to get lower rates and as a result of committing to higher minimum switches.

The kind of stuff, we see going on today.

Because of what's happened over the past year, and a half and I think the customers thinking I'm at higher volumes now I can get lower rates, if I commit to them. So.

And any discussion we have a rough prices, that's probably the leading driver at the moment.

Right right that makes sense and hope the portfolio team members, you're able to keep stable.

I guess turning to the.

Yes.

Turning to <unk>.

Annual.

The geographic breakdown of revenues.

EMEA had.

That growth was really pretty impressive when I look at the U S and the Canada.

Growth due in kind of disclosure there.

The incremental growth from new and existing customers.

How much of that growth.

Canada.

Brexit if at all.

Can you just speak to some of the other main drivers.

Fiscal 'twenty two.

Alan Alan can jump in here and correct me, if I'm wrong, but I believe most of that Brexit revenue is in the EMEA region and one of the one of the drivers behind the large growth in the EMEA region last year was that Brexit initiative there.

There may be some thats coming out of the U S. But the vast majority is going to be in the UK and Europe .

Yeah, Yeah, that's right, it's the Brexit related stuff is in EMEA.

The rest of the growth Youre seeing in Canada U S counterparts as is the rest of our business and the things that as I mentioned earlier in the call. The other parts of our business that are going well as well as just the strength of the overall economy.

Yeah.

Okay. Okay makes sense, thanks for that and just maybe one more for Alan I might have missed it but.

Do you have the <unk>.

Impact to revenues for the quarter.

Yes, it's fairly minor.

This is about a million dollar headwind to revenues Q4 over Q4.

About $1 million.

<unk> decreased to operating expenses as well, so so really no big impact on EBITDA of about $1 million or so.

Negative to revenues in Q4.

Okay.

Makes sense. Thanks, so much guys I'll turn it back.

Okay.

Thanks Howard.

Thank you and at this time, we have no further questions turning the call back over to Mr. Ryan for any final remarks.

Great. Thanks, operator, thanks, everyone for joining us on today's call. We look forward to reporting to you in a few months on our Q1 results have a great evening. Thanks.

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

Q4 2022 Descartes Systems Group Inc Earnings Call

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