Q4 2023 Descartes Systems Group Inc Earnings Call

Speaker 1: time during this call you require immediate assistance please press star zero for the operator. This call is being recorded on Wednesday March 1, 2023. I would now like to turn the conference over to Scott Pagan. Please go ahead.

Speaker 2: Thanks and good afternoon everyone. Joining me remotely on the call today are Ryan, CEO , and Helen Brett, CFO . We trust that everyone has received a copy of our financial results pressure-least that is issued earlier today.

Speaker 2: Forcibly of today's call other than shore call performance include statements of forward looking information within the meeting of the Tickable Security FLOGS.

Speaker 2: These statements are made under the state harbor provisions of those laws. These forward-looking statements include statements related to our assessment of the current and future impact of geopolitical and economic uncertainty on our business and financial condition. They cart operating performance, financial result and condition. They cart gross and operating margins and any variation in those margins. Cash, low and use of cash. Business outlook. Business outlook.

Speaker 2: baseline revenues, baseline operating expenses, and baseline calibration. Anticipated and potential revenue losses and gains.

Speaker 2: and participate in recognition of the expensive and specific revenues and expenses.

Speaker 2: Potential acquisitions and acquisition strategy, cost reduction and integration initiatives, and other matters that may constitute for overlooking statements.

Speaker 2: These four looking statements involve known and unknown risks and certainties, assumptions, and other factors that make how the actual results, performance, or achievements of Descartes' different materially from the anticipated results, performance, or achievements implied by such four looking statements.

Speaker 2: These factors are outlined in the press release and section entitled certain factors that affect future results in documents filed and furnished with the SEC, the OXE, and other securities commissions across Canada, including our management's discussion and analysis filed today.

Speaker 2: We provide for looking at statements solely for the purpose of providing information about management's current expectations and plans relating to the future.

Speaker 2: Your caution that such information may not be appropriate for other purposes.

Speaker 2: We don't undertake for accepting the obligation or undertaking to release publicly in the updates or ravine the 20-fold-of-the-state and reflect any change in our expectations or any change in events, conditions of housing or circumstances, one which ending such statement is based, except as required by law. And with that, let me turn the call over to the head.

Speaker 2: Hey, great. Thanks, Scott, and welcome everyone to the call. We had an excellent fourth quarter and year with the record financial results. We've also made some significant investments in business. We're excited to go over those with you and give you some perspective about the business environment we see right now. The first, let me give you a word back for this call.

Speaker 2: I'll start with highlighting some aspects of our financial results, how our business performed in the last quarter, and some investments we've made. I'll then hand the call over to Alan, who will go over the Q4 and annual financial results in more detail. I'll then come back and provide an update on the current business environment and how our business is calibrated, and we'll then open it up to the operator to coordinate the Q&A portion of the call. Thanks for your attention.

Speaker 2: So let's get started by looking at our year. The metrics we monitor include revenues, profits, cash flow from operations, and return on investment.

Speaker 3: For this past year, we had record performance to each of those areas. Total revenues were up 14% in the year with services revenues up 15%.

Speaker 3: Income and earnings per share were both up 18%, while adjusted EBITDA was up 16%.

Speaker 3: We generated almost $200 million of cash from operations representing 89% of adjusted EBITDA. 92% if you exclude the acquisition or not payments you made during the year that went through cash from operations. A good headwind to have considering how well the acquisitions performed and contributed to our businesses. And the year ended strongly for us as well. We had referred to...

Speaker 3: further investments in our business. So a very strong financial quarter and year for us.

Speaker 3: These results happen in a very challenging foreign exchange environment. Our annual revenues would have been $14 million higher if we'd used last year's FX rates, and our quarterly revenues would have been $3 million higher.

Speaker 3: While we're fairly naturally heads, we still face some foreign exchange headwinds to adjust the evapotent.

Speaker 3: Allen will go into this in more detail later. However, strong results that might have been even stronger in a different foreign exchange environment.

Speaker 3: At the end of the year, we had $276 million in cash and would get free with an under-owned $350 million line of credit that we just extended the term on.

Speaker 3: We use some of that cash after the year to buy ground cloud, which I'll discuss in a few minutes.

Speaker 3: However, we remain well capitalized, cash generating, debt free, and ready to continue to invest in our business.

Speaker 3: We believe a company like ours is well positioned to continue to thrive in market conditions like these.

Speaker 3: There are some areas in our business that were very strong in the fourth quarter. Our data content businesses continue to have high demand.

Speaker 3: Particularly in the night party screening, this company has continued to deal with complying with the myriad of new sanctions that have come out relating to the conflict in the Ukraine.

Speaker 3: Our transportation management businesses sell strong growth with demand for macro points, and we have a real-time visibility shipments across all modes leading the way.

Speaker 3: And we saw a good seasonal bump in e-commerce volumes to end the year. Transportation volumes were otherwise as we would expect in our business to end the year given seasonality.

Speaker 3: The cart was able to deliver superior financial performance last year while continuing to invest in our business.

Speaker 3: We continued our approach of making both organic and acquisition investments.

Speaker 3: On the organic side, the improvement we saw this past fiscal year in organic growth was helped by the customer-facing investments we made in our business in the year and in the prior fiscal years.

Speaker 3: We expanded our sales and marketing groups. We created a pillar focused on internal management oversight structure. We established and expanded a customer success group designed to improve the customer experience and identify additional ways our customers can get value from using our solutions. And consequently, improve our revenue and customer retention.

Speaker 3: These investments were made while balancing achieving our immediate financial targets and positioning the company even better for the future.

Speaker 3: This fiscal year was no exception to that organic investment. We organically added more than 150 people to our business this year. Many of those roles were designed to help us with future organic growth, sales, customer success and development continue to be a focus area for hires.

Speaker 3: We believe we build a resilient business that our customers can rely on for their needs today and tomorrow, and that's a key reason we continue to invest for not just the business we have today, but the business we'll have in the near future. We take that same customer-centric approach to considering acquisition investments in our business. That's fiscal year.

Speaker 3: brought four new businesses into Descartes, with our customers continuing to see e-commerce as a growth and focus area. We combined with MFCHB in February 2022 to strengthen our e-commerce customs filing capabilities, as our customers express interest and enhance routing and scheduling solutions.

Speaker 3: that leveraged artificial intelligence and machine learning. We combined with FOXTRAP in April , and with our customers moving more and more small parcel goods, particularly in e-commerce, we teamed up with XPS in June of 2022.

Speaker 3: The last deal of the fiscal year was in January when we combined with supply vision. Our logistics service provider customers are in the midst of a big push to digitize their operations, both internal and customer facing.

Speaker 3: We've made several historical investments to help them out, including containers, portraits, and quest-a-web. With supply vision, we're adding to that arsenal of tools to help logistics service providers better manage the lifecycle of shipments for their customers.

Speaker 3: to comprehensive digital system that helps them quote route and book shipments through to final delivery and when combined with our real-time shipment visibility solutions like macro point it provides comprehensive end-to-end solution for them.

Speaker 3: You can also link supply vision into the Global Logistics Network, giving supply vision customers broad access to a community of traded partners and services that can enhance their own business.

Speaker 3: While there was less than a month of supply vision in our QPL results, we're thrilled with the early returns and excited to have the supply vision team on board. Welcome to them all.

Speaker 3: Following the end of the fiscal year, we ended up closing one of the larger acquisitions we've done. And like the previous acquisitions I've described, this one was very much guided by customer demand and input. The end of the fiscal year, we ended up closing one of the larger acquisitions we've done.

Speaker 3: Starting from even before the pandemic, final mile delivery to homes and businesses has become a critical part of the logistics cycle.

Speaker 3: There are tens of thousands of independent final mile delivery specialists and carriers in North America alone.

Speaker 3: before you even consider all the private fleets also making these deliveries.

Speaker 3: With the increased delivery volumes, our customers have been eager for more help to make these delivery operations more efficient, reliable and safe.

Speaker 3: Grand Clyde is the perfect fit for this market. It provides a robust solution that helps independent final mile delivery companies manage their operations with particular specialization for service providers who are performing the bulk of their deliveries for large transportation brands, such as FedEx, Amazon, or Front Door Collective.

Speaker 3: The platform lets them receive delivery orders, plan, and execute the routes, train and monitor driver performance, manage their assets and resources, and analyze their operating efficiency.

Speaker 3: Ground plot is also integrated to video telematic solutions to provide driving event detection and verification Combining with reactive coaching solutions to improve driver safety. It's a great solution for the market and an excellent complement to our investment and shift track for the carrier market

Speaker 3: Grant Cloud is a well-run and profitable business with lots of room for future growth with independent last mile delivery companies.

Speaker 3: What really distinguishes Ground Cloud is its specialization and attention to driver safety.

Speaker 3: They've done an excellent job of creating and providing easily digestible driver training video content deliverable to drivers mobile devices. We've seen increased attention to driver and worker safety through our broader customer base, particularly in private fleet. This is often driven by environmental, social and governance views of having safer roads for our communities.

Speaker 3: and safer work environments, but also for economic reasons due to the high cost of accidents, litigation, and resulting insurance impact.

Speaker 3: We believe that ground cloud safety and driver training solutions can be very helpful to our private fleet clients in having safer businesses and a meaningful impact on their communities.

Speaker 3: We're very excited to have a Grand Cloud as part of Descartes. Welcome to the whole team. We look forward to being able to report back on what we've been able to accomplish together in the near future.

Speaker 3: With that, let me just summarize with a hand over to Alan to give the full financial details on the year and quarter. We had record financial results. The business performed well. We believe that's a good reflection of the value that our customers continue to get from our solutions and the hard work that our team continues to put in for our customers.

Speaker 3: Even with broader economic challenges last year, including big foreign exchange headwinds, we were able to achieve our targets.

Speaker 3: And we did it while continuing to invest in our business to drive our longer term growth. We continued to make internal investments in customer facing roles to drive future organic growth. We also invested in four acquisitions to address areas where our customers continued to see growth. We ended the year in a great financial shape with a large customer roster and a high percentage of recurring revenues. We ended the year with $276 million in cash.

Speaker 3: $350 million in available credit, and a market opportunity where we can continue to grow the business for our customers both organically and through acquisition.

Speaker 3: And following the year, we used some of that cast to complete one of the largest acquisitions to date. We remain focused on profitable growth so that we can continue to ensure that our customers have a secure, stable, and growing technology partner that can help them with their challenges well into the future. My thanks to all the part team members for everything they've done to contribute to a great year.

Speaker 2: quarter and year-end at January 31st.

Speaker 2: We are pleased to report record quarterly revenues of 125.1 million this quarter and increase of 11 percent from revenues of 112.4 million can queue for of last year.

Speaker 2: This revenue was growth was achieved despite the continued headwind from FX resulting from a strong US dollar.

Speaker 2: On an FX neutral basis, our revenue growth would have been over 3 million higher in Q4, meaning that our revenue growth year over year would have been over 14% for Q4.

Speaker 2: Our revenue mix in the quarter continued to be very strong with services revenue increasing 14% to 113.4 million up from 99.5 million in the fourth quarter last year. With services revenue increasing to 91% of total revenue this quarter up from 89%.

Speaker 2: of total revenue in Q4 last year. Removing the impact of both the recent acquisitions as well as the negative impacts from F-FACs that we have mentioned. On a like for a like basis, we would estimate that our growth in services revenue from new and existing customers would have been approximately 9.5% at quarter when compared to the same quarter last year. Two days after.

Speaker 2: Professional services and other revenue, including hardware revenue, came in at 10.0 million or 8% of revenue, down slightly from 11.7 million or 10% of revenue, as a result of lower hardware revenue, as well as a decrease in professional service as more of our solution sales require less implementation.

Speaker 2: or configuration work, which is certainly consistent with our long-term plans.

Speaker 2: In addition, license revenue came in at 1.7 million compared to 1.2 million last year in the fourth quarter, consistent at just 1% of revenue.

Speaker 2: For the year, revenue was a record 486.0 million, up 14.4% from revenue, 424.7 million in the previous year.

Speaker 2: Again, the foreign exchange headwinds on revenue were significant all of last year, with a negative impact on revenue of 14 million from FX.

Speaker 2: As a result, revenue growth was closer to 18% on a currency neutral basis.

Speaker 2: For the year, Services Revenue came in at 435.7 million, up 15% from 378.7 million, in Q4 last year.

Speaker 2: Gross margin increased to 77% of revenue for the fourth quarter and the year up from gross margin of 76% for the fourth quarter in the entire period last year.

Speaker 2: The slight improvement in gross margin is consistent with the operating leverage that we would expect to achieve as a result of the continued growth in our business.

Speaker 2: Operating expenses in the fourth quarter and the year and the January 31st increased primarily related to the impact of recent acquisitions, but also as a result of additional investments that we've made in our business over the past year, primarily as Ed said in the areas of marketing, sales, product development, and network security.

Speaker 2: Ajusted EBITDA came in as a record 55.4 million in the fourth quarter, up 11% from a justed EBITDA of 50.1 million in the fourth quarter last year. And while we continue to be fairly naturally hedged to foreign exchange rates, our justed EBITDA would have also been higher if it were not for the negative impact from FX this quarter.

Speaker 2: Simply put, the euro and British pound were weaker to the US dollar than the Canadian dollar in this period, resulting in this loss on the Adjusted Ebutt deadline.

Speaker 2: Looking at the annual results, as a result of the revenue growth and gross margin expansion from continued leverage that we described earlier, we continue to see strong adjusted EBITDA growth to a record 215.2 million or 44.3% of revenue for the year.

Speaker 2: Looking at the annual results, as a result of the revenue growth and gross margin expansion from continued leverage that we described earlier, we continue to see strong adjusted EBITDAG growth to a record 215.2 million or 44.3% of revenue for the year, up 15.9%.

Speaker 2: From 185.7 million or 43.7% of revenue last year. We should note that for the 50 year in a row, as a percentage of revenue are adjusted EBITDA, continue to increase as we benefit from the offering margin as the offering leveraged as we grow the business. We should note that for the 50 year in a row, as a percentage of revenue is adjusted as we grow the business.

Speaker 2: With these solid operating results, cash flow generated from operations came in at $50.6 million, or 91% of adjusted EBITDA in the fourth quarter this year, up 11% from operating cash flow of $45.5 million.

Speaker 2: 0.5 million or 91% of adjusted EBITDA in Q4 last year.

Speaker 2: For the year, cash flow from operations was 192.4 million or 98% of the justice idiota.

Speaker 2: Up from 107.6.1 million or 95% of adjusted EBITDA last year.

Speaker 2: In addition, we should note that a result of the stronger than expected results on past acquisitions of both ship track and containers, we ended up paying an additional 5.6 million in urnodes compared to our original estimates were made at the time of those acquisitions. And as a result, those additional cash payments went through our cash flow from operations this year.

Speaker 2: to 90% of our adjusted EBITDA for the years ahead, of course subject to unusual events and quarterly fluctuations.

Speaker 2: From a gap earnings perspective, net income for the fourth quarter came in at 29.8 million of 55% from net income of 19.2 million in the fourth quarter last year.

Speaker 2: For the year, net income was 102.2 million, or $1.18 per diluted common share, up 18.4% from $86.3 million, or $1 per diluted common share last year.

Speaker 2: Overall, as Ed mentioned earlier, we're certainly pleased with our operating results for fiscal 2023. As our continued revenue growth allowed us to invest in several areas of our business, while still allowing us to achieve 15.9% growth in adjusted EBITDA. Expand our adjusted EBITDA March into 44.3% of revenue.

Speaker 2: and achieve growth in our catchable from operations for the year. If we look at the balance sheet, our catch balances totaled 276.4 million at the end of January and we did not have any borrowings under our credit facility at the end of the year. As Ed mentioned subsequent year end on February 14th, we announced we used approximately 138 million of our existing catch balances to complete the ground cloud acquisition.

Speaker 2: which had described in detail a little earlier.

Speaker 2: As a result, we still have approximately 138 million of cash balances, as well as 350 million available to us to draw under our credit facility for future acquisitions. So clearly, we continue to be well-capitalized to allow us to consider all acquisition opportunities in our market, consistent with our business plan. Thank you.

Speaker 2: As we look to the current year, our physical 2024, we should note the following.

Speaker 2: After incurring approximately 6.1 million in additional capital additions this past year, we expect to incur approximately 5 to 7 million in additional capital expenditures this coming year.

Speaker 2: We expect amortization expense will be approximately $15 million for physical 2024, with this figure being subject to adjustment for foreign exchange rates.

Speaker 2: foreign exchange rate changes and any future acquisitions.

Speaker 2: Our income tax rate in the fourth quarter came in at approximately 17.5% of free tax income, resulting in a tax rate for the year of approximately 24%.

Speaker 2: which is slightly lower than our statutory tax rate, mainly as a result of the reversal of uncertain tax positions that we recorded in Q4 of this year.

Speaker 2: Looking at FY24, we would currently expect that our tax rate could be low slightly lower than our statutory tax rate.

Speaker 2: if certain other uncertain tax positions are released.

Speaker 2: As a result, we are expecting the tax rate to be in the range of 22 to 27% of our pre-tax income in our physical 2024.

Speaker 2: Although, as always, we should add that our tax rate may fluctuate from quarter to quarter from one-time tax items that may arise as we operate internationally across multiple countries. And finally, we currently expect stock compensation to be approximately 10 to 11 million for physical of $0,224.

Speaker 2: subject to any future equity grants, as well as any future forfeitures of stock options or share units. And with that, I'll turn it back over to Ed to wrap up with our baseline calibration.

Speaker 3: Hey, thanks Alan. We're already a month into our new fiscal year in quarter. We've already been busy by completing the acquisition of Grand Cloud. We're excited about the upcoming year and our business. However, we remain cautious about the broader economic circumstances that are out there. There's high interest rates, higher inflation, a pervasive conflict in the Ukraine.

Speaker 3: that into its second year and the various recessionary pressures and economic discussion. We've seen some companies taking actions to read their business for what may come. So for us, we will be cautious in the face of uncertainty.

Speaker 3: Supply chain and logistics continues to be a critical business function for our customers regardless of the economic circumstances. I wanted to share some areas that our customers are monitoring and to shape the market that we're currently operating in.

Speaker 3: The first is US Ocean Container imports are at pre-pandemic levels.

Speaker 3: Based on public data available through our data mine service, it's clear that there was a pullback in ocean imports over the past six months starting in August .

Speaker 3: Current volumes are 15 to 20 percent lower than the pandemic eyes, but are consistent with the levels we saw in 2019 and 2020. There's less impact from COVID delays in China. Part of the reason for the pullback in ocean imports was China's approach to zero COVID, with many businesses critical to the international logistics and supply chains either shuttered

Speaker 3: or severely understaffed. Recently, China has eased up on that policy, and so our customers anticipate goods may start to flow more freely.

Speaker 3: The next is port transit delays. Port transit delays have improved. As volumes came off a bit, the backlog that had been seen at many ports has begun to work through. We're no longer seeing ocean ports with long lines of ships offshore and containers that are otherwise starting to move through the ground system more efficiently.

Speaker 3: The next is USO ocean imports of shifted to East Coast ports. It's been a recent trend where volumes have shifted to East Coast ports. That's likely in part due to continued labor challenges on the West Coast. There still isn't a contract in place with the dock workers and new regulations impacting truck drivers being classified as employees.

Speaker 3: rather than independent contractors in California. Our customers are mindful of this import flow change when making their decisions. Ocean freight rates are expected to come down. During the pandemic, ocean rates surged almost $20,000 a container from pre-pandemic $2,000 to $3,000 levels. The spring period is when many shippers and carriers negotiate their freight rates for the upcoming year.

Speaker 3: much to replace inventory.

Speaker 3: Now that we're through the holiday period, we're hearing retailers are mindful of the broader economic circumstances but are cautiously looking to replenish inventories.

Speaker 3: That may have retellered driven shipment volumes increased as the year progresses.

Speaker 3: Next, final mile delivery is still key. During the pandemic, e-commerce volumes grew at unprecedented rates.

Speaker 3: We're still seeing growth in e-commerce, just not as strong as during the pandemic. E-commerce growth has in part contributed to a continued focus on the importance of last mile delivery. Gone are the days of a home delivery of anything being a novelty.

Speaker 3: Recently, Tarton announced that it was investing $100 million into its network to improve next-day and upon a mod of the delivery. And Amazon just announced its enhancing its delivery options.

Speaker 3: The final mile is still a big topic for retailers and our recent acquisition investments reflect that feedback

Speaker 3: Environmental, social, and governance discussions in boardrooms are having a meaningful impact on supply chain and logistics decisions.

Speaker 3: Our customers are looking for detailed information from their trading partners so they can meet and report on their own ESG goals. Also, our customers need this information to show their compliance with existing pending regulations addressing such issues as use of forced labor, environmental impact of operations, and trading with restricted parties.

Speaker 3: We've recently seen several countries roll out additional sanctions on entities and people connected with the Ukraine conflict, so we anticipate compliance and ESG reporting solutions will continue to get mindshare with our customers.

Speaker 3: So those are some of the things we're hearing from our customers and seeing in our business. Things that also inform our calibration for the quarter. Our business is designed to be predictable and consistent. We believe that stability and reliability are valuable to our customers and employees and our broader stakeholders.

Speaker 3: To deliver this consistency, we continue to operate from the following principles.

Speaker 3: Our long-term plan is for our business to grow adjusted even to 10 to 15 percent 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.

Speaker 3: connecting shippers, carriers, logistics service providers, and customs authorities. When we overperform, we try to reinvest that over performance back into our business. We focus on recurring revenues and establishing relationships with customers for life. And finally, we thrive on operating a predictable business that allows us forward visibility to our revenues and investment paybacks.

Speaker 3: In our annual report, we provided a comprehensive description of baseline revenues, baseline calibration, and their limitations.

Speaker 3: We typically provide calibration as of the first day of the fiscal period. However, with the ground cloud acquisition happening on February 14th, we've updated calibration to that date and included those aspects of ground cloud for which we feel we have sufficient visibility to at this point.

Speaker 3: as of February 14th, 2023, using a foreign exchange rate of $0.75 to $18.00.

Speaker 3: 1.07 to the euro and 1.21 to the Great Britain PAM. We estimate that our baseline revenues for the first quarter of 2024 are approximately 117 million and our baseline operating expenses are approximately 74 million. We consider this to be our baseline adjusted emita calibration of approximately $43 million for the first quarter of 2024.

Speaker 3: or approximately 37% of our baseline revenues as at February 14th, 2023. Last quarter, we indicated that our target adjusted even to operating margin range of 40 to 45%. Last year in Q1 and Q2, we were at 44%. In Q3, we were at 45%, and in Q4, we were at 44%.

Speaker 3: We're maintaining that same 40 to 45% for this fiscal year. As we've indicated in the past, we anticipate that our margin will vary in that range, given such things as far as exchange movements and completing larger acquisitions that are operating below our aggregate margin at the time of acquisition.

Speaker 3: Ground cloud is a profitable cash generating business and one of the larger acquisitions we've ever done. However, ground cloud currently operates at a lower margin than the CARX target aggregate adjusted even to margin. Primarily as a result of its revenue mix with higher professional services from in-person safety training courses that complement the software platform. So we anticipate that for Q1 are adjusted even to operating margin could be lower than Q1.

Speaker 3: a certain broader economic environment, but we believe our proven track record of execution, solid capital structure and customer focus will serve as well to have a great fiscal year. Thanks to everyone for joining us on the call today, as always, we're available to talk to you about our business and whatever manner is must you meet for you.

Speaker 3: And with that, I'll turn the call over to the operator to handle the Q&A portion of the call.

Speaker 1: Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the number one on your touchstone phone. You will hear a one-tone prompt acknowledging a request.

Speaker 1: One moment please for your first question.

Speaker 4: Your first question comes from the line of mad fall from William Lear. Your line is now open. Great. Thanks for taking my questions. Ed, just circling back to all the macro comments that you made, maybe just help us understand what the impact you're seeing on your business from those comments is, are you seeing any impact on either transactions or deal closures as a result of some of the items?

Speaker 4: you see the results yourself today. Okay, great. Then in terms of acquisitions, I think larger acquisitions is an area that you called out where there was perhaps a bigger discrepancy between valuations you were willing to pay and were.

Speaker 4: valuation expectations were. You made a larger acquisition with GroundCloud. Does that sort of signal that market's opening back up or maybe just some comments in terms of what you're seeing there? Yeah, we're seeing a very healthy market for that. The prices can be all over the place, depending on the company and who's selling them and what banks are representing and things like that. But we're certainly seeing lots of opportunity out there and you can see we just pulled off two acquisitions in the past couple months. So certainly.

Speaker 3: See a market that's open for business. Okay, great. Thank you.

Speaker 5: for the business. Okay, great. Thank you. Thanks, Matt.

Speaker 1: As a reminder, it is star one to ask a question. Your next question comes from the line of Paul Traber from RBC Capital Markets. Your line is not open.

Speaker 6: Thanks very much, and you afternoon. Just hoping that you could elaborate on some of the semantics of details for grandcloud. Specifically, you mentioned the mix of professional services is higher than your business. How should we think about the mix there? And in any additional comments you could provide on the company's revenue or growth or the management of the profitability is definitely been then-day-curt.

Speaker 3: a base training at night when they're maybe in their cab or before they go to work the next morning. At the same time when they start this business off, when they start new customers off, they go through a comprehensive training program that involves on-site training. That's why you see a little higher professional services.

Speaker 3: rates in those businesses then maybe the car to customer. Normally we say in our business they would like it if there was no professional services because that would mean that the products were all easy to install and no one had to get an anything complicated to get them in but there's obviously products even in our business that are more sophisticated and take a little while to put in. Grand Clubs kind of the same when they get a new customer.

Speaker 3: as part of the process, they provide a comprehensive training program for all the drivers. And then specific behavior-based training as the drivers driving routes during each business day, and they're seeing errors being made, and they're recommending them based on those errors for videos that they might watch at night.

Speaker 3: I don't know if you have anything to add to that album.

Speaker 2: Yeah, and not a lot. I think from a revenue perspective, it still gets the mold of what we want to buy, which is predominantly a recurring revenue business. In this case, yes, the professional service and other category will be higher than day cuts.

Speaker 2: Vin Descartes' number, we were at 8-9%, it would probably be double that percentage, but it still fits the exact mold of what you want, which is very predictable subscription based business recurring.

Speaker 6: Okay, that's helpful. It just sort of, it puts it in the ballpark. So that's helpful. And then how do you see it integrating with the remainder or complimenting the remainder of your existing mobile routing and telematics business?

Speaker 3: Well, I think about it. We're helping these same types of companies plan routes every day. So it's a very similar customer base. We do business with a lot of delivery companies that are doing daily route plans in our routing software to deliver to the home.

Speaker 3: And that's a great customer base to sell this into. But like a lot of the companies that we've bought, they have a certain type of customer they go after and they have a couple hundred of them or a couple thousand of them, whatever it is. And we have a couple hundred or a couple thousand more than that. And so we're able to go out and quickly bring our solutions to a much broader audience. And that's a big advantage for us when we buy a company like Grand Club.

Speaker 6: Okay, and then just one last one just can you speak the impact of inflation on your business to what degree or not have you updated pricing for inflation and how do we think about it from a cost point of view? There were some impacts on all of it.

Speaker 3: You probably heard of Santa past that we typically only raised prices in the areas where our costs are going up directly so we have avoided in the past no inflation-based price increases on our network and the transaction type businesses.

Speaker 3: That changed when the inflation rates went up to 70% and maybe higher around the world over the last couple of years. And we started to make some adjustments to customer prices. Minor compared to maybe what some other companies were doing. So I would say it was fairly well received for a price increase within our customer raises. This was probably seen as fair. And on the cost side.

We certainly seen some of it and we had certainly have some cost to proceed and some of our numbers are cost to going up maybe a little faster than we might have otherwise but we're more than making up for that with that growth in our business.

We certainly have some cost to proceed and some of our numbers are cost to go and up maybe a little faster than we might have otherwise, but we're more than making up for that with growth in our business. Thanks for taking my questions.

Thanks, Paul. Your next question comes from the line of Justin Long from Stephens. Their line is not open. Thanks. Following up on the ground cloud acquisition, is there anything you can share on what financial targets need to be achieved in order for that urn out to be paid?

of information out there to people that.

might not be on our side. But suffice it to say like every acquisition we've done, when we have an earn out, we are more than happy to pay it. In other words, if they can get the growth that's set forth in the earn out, it's great for our business. So let's hope that that happens in this one as well.

So, places to say, you should state the fairly significant number in the grant law acquisition that some substantial growth for them to get there. So, let's see what happens, but we would hope that that does happen and be more than happy to pay the ironically out there. I don't know if you have any more detail you want to provide.

You know, just generally the way we build out those acquisitions, any time we have an earn out, we are thrilled to pay the entire earn out. It will meet our financial metrics if it grows to the levels that will require us to pay the earn out. So this is, and that's just, this business is entirely consistent with that. We'd be happy to pay that earn out.

Okay, and when you say meet your financial objectives, are you saying that it would be within that target margin range if the revenue objectives are achieved? I'm more speaking to getting our payback on our acquisitions when we deploy that capital. We're looking to get our money back in five to seven years of 15 to 20% return.

And we think we can achieve that if, you know, at any level within that or note with zero or whether we hit that or note, that's what I'm maybe for. Well, maybe I can add to that just our answer almost always.

anytime I can think of their based on revenue, getting to revenue targets. We take it on ourselves to manage the cost of the business and help make it more profitable over time. So the targets are usually not anything more than growth in revenue.

I understood and Alan, I think you mentioned earlier that excluding FX, organic growth was about 9.5%. Anything you can share on the impact from transactional volumes within that number and then I guess on the 150 organic.

Headcount ads this year.

What are you assuming for organic growth going forward as you make that investment? I'll take the first one and Ed if you want to talk to head counts. But as far as you organic growth, that's our estimated growth within the services category. You know our service is a split between transactional.

and subscription. Now, for the most part, both are growing. Our subscriptions tend to be some of the higher growth areas of the business, but growth a little bit slanted towards subscription, but both growing, adding up to that 9.5%. Head on head counts, did you want to make a comment? Yes, sir. So, I mean, yes.

It's the full year ahead of us and we obviously reserved the right to adjust course Depending on what happens in the business you probably saw that last year I don't think the plan on having that many last year just the the business started performing very well And we needed more people and went out and got them I think roughly our plans are maybe for increase a half that but I wouldn't read too much into that if things go well We could see us increasing that if

If the economy stalls more, we would probably reduce that just to be prudent operators as a business. You probably heard me saying the past couple quarters, there's a lot of economic uncertainty, and we were starting to remove our foot from the gas pedal and not press the brake like you may have seen a lot of other technology companies do.

but certainly cover it just to make sure we don't get ourselves into any trouble. So it just seemed to come out of that right now. It was the headlines I'm reading in newspapers. So we'll see what happens. But you know, for the most part, we plan for about half the growth that you saw in head count organically last year in the coming year. And we'll adjust accordingly as we see how the business evolves.

Okay, got it. Thanks for the time. Thanks, thank you, just. Your next question comes from the line of Daniel Chan from TD. Your line is now open.

Yes, thanks. Ed, you talked about ground cloud having a higher mix of professional services, driving a lower eBudum margin. Just wondering whether for you to get there, eBudum margin more in line with your target, whether you have to change their business model to reduce that PS mix.

And if so, how do you do that and how long will it take for you to get those margins that that's where you want it to be?

Certainly, we have some thoughts about how to do it. They were providing one-on-one training classes for individual companies. We could see ourselves doing more of that virtually and with larger audiences that may end up having us over time. Thank you.

have a much more profitable professional services of training mixed. You know, one of the big things in any software companies is just selling more of the stuff, right? You know,

When you, you know, if you have 100 customers and you're providing software and writing software for those 100 customers, if you make it 200 customers, invariably that company's going to be more profitable. You're writing the same piece of code for now, double the amount of people. And if they're all paying a fair price, your profits go up.

which has been a big part of our growth in EBITDA over the past 10 years. As we get a bigger and bigger customer base and therefore have a bigger and bigger group of people to go tell our next acquisition into, and I think we might see the same from the ground cloud over time.

That makes sense, thanks for that. And then shifting gears a bit, just wondering if there's any impact from the Windsor Framework that's just got passed. You know, we're still analyzing it, but you know, they've established a Green Lane and a Red Lane much like you see in passenger traffic. We understand that both lanes are going to continue to have a filing, so you know, it first must be in peace.

God is there's not going to be a ton of impact to our business negative or positive.

Okay, great. Thank you. Thank you. Your next question comes from the line of Robert Young from Canyacargenuity. Your line is now open.

Hi, good evening. A couple of the macro comments and questions around the transactions, I get the sense that maybe that was a minor headwind. And so if you could clarify that and then maybe just give a refresher on how minimum contracts protect that or if that's still in place, maybe just maybe a refresher there. Yeah, I mean, I caught up the ocean business and actually if I look at the data mine step.

air getting even stronger in the last couple of weeks based on the data mine staff. So, you know, we'll see, but impacting this past quarter was minor. I mean, we had plenty of stuff that made up for it or more than made up for it.

had us kind of beaten our projections for the last quarter because there's a bunch of businesses we're firing on off full cylinders and we had an ocean business that was only down slightly. So all in all, pretty good news for us.

Okay, and then you touched on my second question around China. There's a lot of news about the reopening and the impact. Maybe it's more on air travel. Is that not having a more positive impact? Yeah, I think it is. I thought that I was just kind of mentioning in the ocean space, so we're starting to see a pickup in the stats we get from governments over the past.

been retailers get through Christmas and as I mentioned that we thought a lot of retailers were selling stuff that they had ordered pretty early last Christmas and as the stock as the shelves emptied out they're now looking to replenish those things and you know now that a bunch of factors are open in

I guess you just make it a little better than most pets, but still I don't know exactly what's going to happen But I think I'm starting to see the in the past couple of weeks the impact of that and and and increase stray bonds

Okay, and last question, just a little clarification in the press release, the 40 to 45% of just Secretà range, I think the quote from you, Alan, maybe the way I read it, it seemed to suggest there's inclusive of M&A forward. I just want to make sure I'm not reading that incorrectly. The 40-45 doesn't include...

any anticipated future emanate that's just up to this point? Well, yeah, just remember that it's an even to margin range. So, you know, borrowing us by buying something massive, and you can see here at Grand Clot, it has a bit of a negative impact on our overall margins because we bought a company that makes less money as a percentage revenue than we do. But still, you know, only a point or two, and that was a fairly large acquisition for us. Yeah, no, I think we are trying to...

Your next question comes from the line of Kevin, Krish Muradni from Scotiabank, your license open. Hey guys, good evening. Question for you just on competition, potential competition. You understand you cover several areas in the broader logistics ecosystem. I'm just curious.

Given the momentum that we're seeing in space, there are any particular areas we're seeing youth competitors or outsized funding from private equity or anything in that regard. Areas that are hot and curious what you're seeing and how well you may be positioned in these areas, you may be willing to direct more of your attention to from emanating perspective.

Yeah, thanks, Kevin. We're seeing, over the last several years, we're seeing a lot more money coming into this space, which I think is good news. I mean, you're talking about it in terms of being competitors.

Understand there are also potential acquisition candidates for us, which is as much how we think of it as competition competitors come up with new ideas and they think we watch 10 of them get started and. You know, we get to see who's the best 1 or 2 guys out there and maybe 1 day we'll end up buying 1 of those companies and that's tends to be more the way we think about it. But. Yeah, it's absolutely there's been a ton more investment in the space and I think that's great news.

Is there any is it just pretty widespread? I'm curious if there's any particular well you know areas are popping up

Well, you can see the supply chain visibility space is hot with it. You know, we were the first mover in that space by a macro point. Micro point has some competitors that have also attracted a ton of investment. And there's more people popping up in that space all the time that they're also potential customers of ours. Or they need they need access to the data that we have because we do business with most of the freight brokers in North America. We.

We tend to have more data than any of our competitors in that space and are able to sell that to other people who are building their own supply chain visibility tools, but don't have access to a network like ours, so that's been great for us. You can see all these IoT devices that your start to see come out and I suspect we're just at the beginning of this.

But people are making smaller and smaller things to put in packages to put in pallets to put in planes and trucks and containers and everything else and I'll tell you what's happening to your product while it's moving where it is what temperature at that did it get a you know hard bounce. All kinds of stuff like that so that you can eventually build software around that to help.

The big manufacturers and retailers make better decisions about what's going on in their supply chain based on these IoT devices that are out there. So I think we're at the beginning of that right now. And you know hundreds of thousands of companies that start up based on that. And we're really excited about it because that's all information that we could use to help our customers get better results. Got a guide. I'd appreciate those comments.

Maybe to continue on the M&A, you know, it's definitely been picking up a bit, assets getting a little bit bigger. Can you, it's been a while, I think the last several acquisitions we made have been all cash, and you know, in the past, the macro point did include stock. And just curious about your philosophy on purchase price for acquisitions, your decision on, you know, mixes cash and equity, any thoughts there? We try to be cash buyers. When people...

When you see stock getting pissed in the deal, it's usually because the people that own the business have asked for some component of it to be in day card stock. Oftentimes they go, hey, we're buying some company for say $50 million and they're going all right, I'll take 40 of it in cash and 10 of it in stock. And if they requested from us, that's good news for us. We're not really up for looking for reasons to dilute our shareholders, but if...

The owner of a business says, hey, I want you to buy the company. I want to pick you guys to be the buyer. And I want to take back some day card stock. We look at that as, you know, something that we should do. Right? And now I have an owner in that business. It's probably going to still work here and probably going to be very vested in our success. So that's something we'll almost always say yes to.

Got it. Thanks for that. Maybe just the last one for me, just a question on the sort of your marketing spend in efforts. I think it was just over a year ago when you kind of talked about more meaningfully stepping up the efforts there, the customer success team. The new digital marketing initiative is just wondering how that's been progressing or you happy with the ROI. If there anything you could share there in terms of your network tension share wallet increases that any.

anything that you're seeing, that you're willing to share in terms of the return on that step-up that you've been in. We're very happy with it. I don't know, but I want to release any more retention steps than we already do. We think it's been very helpful for us. We've had enough success with it in the last year that we're starting to roll it out now in Europe as well. And we think it's, you know, as our business gets bigger, we need to do things like that to stay as close to the customers.

as we were when we were a small company. And we think investments like this are the smart thing to do. The good news is we went and did it over the last two years and it really worked well and we're doing more of it as a result. Understood. Thanks a lot. I'll pass the line.

we were when we were a small company and we think investments like this are the smart thing to do and the good news is we went and did it over the last two years and it really worked well and we're doing more of it as original. Understood. Thanks a lot. I'll pass the line. Thanks a lot. Thanks a lot.

Your next question comes from the line of Stephen Lee from Raymond James. Your line is not open. Thank you. Maybe a question for Alan to start. Can I check with you? So the overall organic growth is around 7.5% at constant currency. Alan.

Yeah, so in the prepared comments we mentioned 9.5% growth in services revenue. We did see a drop in professional service and other revenue. It was partly hard, we're a little bit on the people side. When you blend those together for the fourth quarter, we are somewhere in that 7.5% range. But the most important for us is to be that long-term growth in...

which is highly recurring revenue for us. 9.5 on services coming down to that 7.5.8 on the total revenue. And I was curious, given the higher PS makes with ground cloud, does that not mean that the services organic growth going forward is going to miss those PS organic growth from ground cloud? Is it better to look at the overall organic growth?

Sorry, I didn't catch your question. Because I believe your services organic growth, you exclude PS revenues from that, right? And I was asking, even your recent acquisition, ground cloud, a lot of, while a higher mix of their revenues is PS, we're looking at services organic growth, we'd be missing the organic growth coming from those PS revenue streams from ground cloud.

Yeah, we're obviously going to try to grow that business both on the on the subscription side for the software as well as as well as the side. I mean, realistically for us, the. The subscription piece should grow faster if we execute to our plan, we will continue to to to focus on on both elements, but.

Given your comments, there are so shipment volumes on one side and then but the other part booming with This organic growth like seven eight percent high single digit would it be a good base for For this year or we can do better than that I mean

we're going to be in that range. And we always kind of plan to run our business in the 46% organic revenue growth range and trying to get 10 to 15% even to growth out of that. We've seen this too much better than that in the past years. But you know, if the economy kind of went into a boom period there for a year or two and it started to come back down.

We're pretty happy being in that 9% range right now. And, you know, just think that came from quality of acquisitions growth that we've brought to you. Quality acquisitions that we brought on in the past. A little bit of it from customers thinking that supply chains and logistics is a lot more important than they thought it was pre-pandemic. And yeah, I'm hopeful that that range stays up in that 8, 9%, but we'll just have to say. Got it. And then add your also your comment. It's a shipping volume. It's been increased through the year.

So does that mean maybe we see it slower first half and then the better second half in terms of organic growth as well? Yeah, I mean I don't want to make predictions to your app, but if our customers do well like that, yeah, I would expect our business to continue to do better and better over time. Got it. And then a couple questions on your recent acquisition. So ground cloud, what has been the growth profile in recent years? Yeah.

And what did the organic, thanks? It was their fast growing company and it was all around. So the double digit in terms of growth? I didn't call out.

It's a specific decision. But it's a fast ground company. It's one of the reasons we wanted to buy it. We think we have an opportunity to expose it to a lot more customers. And as a result, maybe continue that growth into the future. Got it. And then maybe an update on the XPS. I remember the, maybe you're gonna see the...

But I remember coming on the air not until we get there. But we're very happy with the acquisition so far.

All right, thanks guys. Hey, thank you Stu. Our next question comes from the line of Scott group from Wolf. Your line is now open.

Okay, thanks afternoon. So is there a lot of, there are much seasonality to the revenue at ground cloud or to a trientate? Should we take like the bump in the baseline for Q1 and amulet that? I'm just trying to figure out the right way to try and ballpark for your revenue.

It's a fairly consistent, performing business, yes, not a kind of seasonal. But is it kind of business where you would expect the actual revenue to outperform the baseline, like we've seen the rest of the business? I don't know if exact numbers, but yes, you know.

I know it is the beginning of the year, you always talk about 10 to 15%. I think you get there to the high end or exceed it every year. What is the visibility to repeating that?

Again, that's true. We don't take our bonuses and we don't get to 15. So we're all planning on getting to 15.

I think we've beaten it 15 years in a row, Scott, and I obviously can't make a promise about it, but that's certainly our intention, is to be a 15 or better.

We say 10 to 15 and we do our damage to get to 15. Thank you guys. Thank you Scott.

Your next question comes from the line of Raimo Lench Chow from Barclays. Your line is now open.

Great, thank you. This is Jeremy on Forrival. I was just wondering if you could share a bit more detail on how the e-commerce business Would you say like it's reached more of a steady state post of deceleration from the pandemic or really any color you can share there would be helpful? Thanks.

Sure, thanks Jeremy. So, you know, we had massive growth coming out of the pandemic in the end of 2020 and 2021 like a lot of e-commerce companies had. I think we ended up in a different circumstance soon thereafter. A lot of e-commerce companies that we saw went flat. That's not what happened to us. We kind of went back to our normal.

you know, the low double digit growth coming out of that and we continue to see that be the case right now. It's a very nice business for us. It continues to grow at a nice pace every quarter and yeah we're still seeing I don't want to want to use the word slap because it's.

the growth rate is flat, but it's still growing nicely every quarter and every year coming out of that big flip in the beginning of the pandemic.

When I read the newspapers about some other e-commerce results, I don't think we're subject to the same things that they are. Maybe because we're selling a lot more new customers, so we continue to get growth even if e-commerce sales are flat for a quarter or so.

When I read the newspapers about some other e-commerce results, I don't think we're subject to the same things that they are. Maybe because we're selling a lot more new customers, so we continue to get growth even if e-commerce sales are flat for a quarter or so. So, thank you.

other e-commerce results. I don't think we're subject to the same things that they are. Maybe because we're selling a lot more new customers, so we continue to get growth even if e-commerce sales are flat for a quarter or so. Got it. Thank you. Thank you.

There are no further questions at this time. Ed Ryan, please proceed. Thanks everyone, appreciate all your time today and I hope to see you as we're out on the road in the coming weeks. Otherwise, we'll forward to you, forwarding back to you next quarter. Have a great night and take a seat. Thank you very much.

I.

Good afternoon ladies and gentlemen and welcome to the Descartes System Group Quarterly Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct question and answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Wednesday, March 1, 2023.

I would now like to turn the conference over to Scott Bigen. Please go ahead. Thanks and good afternoon everyone. Joining me remotely on the call today are Ryan, CEO , and Helen Brett, CEO . We trust that everyone has received a copy of our financial results press release that is issued earlier today. For some of today's call, other than the show-error performance includes statements of forward

condition, Descartes gross and operating margins and any variation in those margins, cash flow and use of cash, business outlook, baseline revenues, baseline operating expenses and baseline calibration.

anticipated and potential revenue losses and gains, anticipated recognition and expensive things, specific revenues and expenses, potential acquisitions and acquisition strategy, cost reduction in integration initiatives, and other matters that they constitute for the looking statements. These four looking statements involve known and unknown risks.

uncertainties, assumptions, and other factors that may cause the actual results, performance, or achievements of Descartes to differ materially from the anticipated results, performance, or achievements implied by such forward-looking statements.

These factors are outlined in the press release and in the section entitled, Certain Factors That May Affect Future Results, in documents filed and furnished with the FCC, the OFC, and other securities commissions across Canada, including our management's discussion and analysis filed today. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and policy.

which any such statement is based, except as required by law. And with that, let me turn the call over to Ed. Hey, great. Thanks, Scott, and welcome, everyone, to the call. We had an excellent fourth quarter and year with record financial results. We've also made some significant investments in business. We're excited to go over those with you and give you some perspective about the business environment we see right now. But first, let me give you a roadmap for this call.

I'll start with highlighting some aspects of our financial results, how our business performed in the last quarter, and some investments we've made. I'll then hand the call over to Alan, who will go over the Q4 and annual financial results in more detail. I'll then come back and provide an update on the current business environment and how our business is calibrated, and we'll then open it up to the operator to coordinate the Q&A portion of the call.

So let's get started by looking at our year. The key metrics we monitor include revenues, profits, cash flow from operations, and return on investment.

For this past year, we had record performance in each of those areas. Medical revenues were up 14% in the year, with services revenues up 15%.

Net income and earnings per share were both up 18%, while adjusted EBITDA was up 16%. We generated almost $200 million in cash from operations, representing 89% of adjusted EBITDA, 92% if you exclude the acquisition or not payments we made during the year that went through cash from operations.

A good headwind to have considering how well the acquisitions performed and contributed to our businesses. And the year ended strongly for us as well. We had record Q4 quarterly revenues with services revenues up 14%. We had record profits of almost $30 million in net income and $55 million of adjusted EBITDA.

We generated more than $50 million in cash from operations, representing 91% of our adjusted EBITDA. And we used that cash flow and our balance sheet to make further investments in our business. So a very strong financial quarter and year for us.

These results happen in a very challenging foreign exchange environment. Our annual revenues would have been $14 million higher if we'd used last year's FX rates, and our quarterly revenues would have been $3 million higher.

While we'll fairly naturally hedge, we still face some foreign exchange headwinds to adjust at EBITDA. Alan will go into this in more detail later. However, strong results that might have been even stronger in a different foreign exchange environment. At the end of the year, we had $276 million in cash and were debt-free with an undrawn $350 million line of credit.

and market conditions like these.

There are some areas in our business that were very strong in the fourth quarter. Our data content businesses continue to have high demand.

Particularly in denied party screening, as companies continue to deal with complying with the myriad of new sanctions that have come out relating to the conflict in the Ukraine.

Our transportation management businesses sell strong growth with demand for macro points, and we have a real-time visibility to shipments across all modes leading the way.

And we saw a good seasonal bump in e-commerce volumes to end the year. Transportation volumes were otherwise as we would expect in our business to end the year given seasonality.

The cart was able to deliver superior financial performance last year while continuing to invest in our business. We continued our approach of making both organic and acquisition investments.

On the organic side, the improvement we saw this past fiscal year in organic growth was helped by the customer-facing investments we made in our business in the year and in the prior fiscal years. We expanded our sales and marketing groups. We created a pillar focused on internal management oversight structure. We established and expanded a customer success group designed to improve what workers, individuals, and customers seem to be doing and are continuing to push for these improvements.

the customer experience, and identify additional ways our customers can get value from using our solutions, and consequently, improve our revenue and customer retention. These investments were made while balancing achieving our immediate financial targets and positioning the company even better for the future. This fiscal year was no exception to that organic investment. We organically added more than 150 people to our business this year. Many of those roles were designed to help us with future organic growth, the sales, customer success, and development continue to be a focus area for hires.

We believe we build a resilient business that our customers can rely on for their needs today and tomorrow, and that's a key reason we continue to invest for not just the business we have today, but the business we'll have in the near future. We take that same customer-centric approach to considering acquisition investments in our business. Last fiscal year, we brought four new businesses into Descartes, with our customers continuing to see e-commerce as a growth and focus area. We combined with NetCSB in February 2022.

to strengthen our e-commerce customs and file and capabilities. As our customers express interest and enhance routing and scheduling solutions that leveraged artificial intelligence and machine learning, we combined with FOXTRA and April . And with our customers moving more and more small parcel goods, particularly in e-commerce, we teamed up with XPS in June of 2022.

Our last deal of the fiscal year was in January when we combined with Supply Vision. Our logistics service provider customers are in the midst of a big push to digitize their operations, both internal and customer-facing. We've made several historical investments to help them out, including containers, Portrix, and QuestaWeb. With Supply Vision, we're adding to that arsenal of tools to help logistics service providers better manage the lifecycle of shipments for their customers.

It's a comprehensive digital system that helps them quote, route, and book shipments through to final delivery. And when combined with our real-time shipment visibility solutions like MacroPoint, it provides a comprehensive end-to-end solution for them.

We can also link Supply Vision into the global logistics network, giving Supply Vision customers broad access to a community of trading partners and services that can enhance their own business.

While there was less than a month of supply vision in our Q4 results, we're thrilled with the early returns and excited to have the supply vision team on board. Welcome to them all. Following the end of the fiscal year, we ended up closing one of the larger acquisitions we've done. And like the previous acquisitions I've described, this one was very much guided by customer demand and input.

Starting from even before the pandemic, final mile delivery to homes and businesses has become a critical part of the logistics cycle. There are tens of thousands of independent final mile delivery specialists and carriers in North America alone before you even consider all the private fleets also making these deliveries. With the increased delivery volumes, our customers have been eager for more help.

to make these delivery operations more efficient, reliable, and safe. Grand Cloud is the perfect fit for this market. It provides a robust solution that helps independent final mile delivery companies manage their operations with particular specialization for service providers who are performing the bulk of their deliveries for large transportation brands such as FedEx, Amazon, or Front Door Collective. The platform lets them receive delivery orders, plan, and execute the routes.

train and monitor driver performance, manage their assets and resources, and analyze their operating efficiency. GrandPod is also integrated to video telematics solutions to provide driving, event detection, and verification, combining with reactive coaching solutions to improve driver safety. It's a great solution for the market and an excellent complement to our investment and shift.

creating and providing easily digestible driver training video content deliverable to drivers mobile devices. We've seen increased attention to driver and worker safety through our broader customer base, particularly in private fleet. This is often driven by environmental, social, and governance views of having safer roads for our communities and safer work environments.

but also for economic reasons due to the high cost of accidents, litigation, and resulting insurance impact. We believe that ground cloud safety and driver training solutions can be very helpful to our private fleet clients in having safer businesses and a meaningful impact on their communities. We're very excited to have ground cloud as part of Descartes. Welcome to the whole team. We look forward to being able to report back on what we've been able to accomplish together in the near future. With that, let me just summarize with a handover to Alan to give the full financial details on the year and quarter.

to drive future organic growth. We also invest in four acquisitions to address areas where our customers continue to see growth. We ended the year in a great financial shape with a large customer roster and a high percentage of recurring revenues.

We ended the year with $276 million in cash, $350 million in available credit, and a market opportunity where we can continue to grow the business for our customers both organically and through acquisition.

And following the year, we used some of that cash to complete one of the largest acquisitions to date. We remain focused on profitable growth so that we can continue to ensure that our customers have a secure, stable, and growing technology partner that can help them with their challenges well into the future. We need our hands on the water and all the other caused by CF gone.

My thanks to all Descartes team members for everything they've done to contribute to a great year and continuing to have our business in an enviable position for future success. I'm now turning the call over to Alan to go through our annual and Q4 financial results in more detail. Okay, thanks Ed. As indicated, I'm going to walk you through our financial highlights for our fourth quarter and year-ended.

headwind from FX resulting from a strong US dollar. On an FX neutral basis our revenue growth would have been over 3 million higher in Q4, meaning that our revenue growth year-over-year would have been over 14% for Q4.

Our revenue mix in the quarter continued to be very strong with services revenue increasing 14%. To 113.4M up from 99.5M. In the 4th quarter last year with services revenue increasing to 91% of total revenue this quarter up from 89% of total revenue in Q4 last year.

Removing the impact of both the recent acquisitions as well as the negative impacts from FX that we have mentioned, on a like for like basis, we would estimate that our growth in services revenue from new and existing customers would have been approximately 9.5% in the quarter when compared to the same quarter last year.

Professional services and other revenue, including hardware revenue, came in at $10.0 million, or 8% of revenue, down slightly from $11.7 million, or 10% of revenue, as a result of lower hardware revenue, as well as a decrease in professional service as more of our solution sales require less implementation or configuration work, which is certainly consistent with our long-term plans. In addition, license revenue came in at $1.7 million compared to $1.2 million.

As a result, revenue growth was closer to 18% on a currency neutral basis. For the year, services revenue came in at $435.7 million, up 15% from $378.7 million in Q4 last year.

Gross margin increased to 77% of revenue for the 4th quarter. And the year up from gross margin of 76% for the 4th quarter and the entire year entire period last year.

The slight improvement in gross margin is consistent with the operating leverage that we would expect to achieve as a result of the continued growth in our business. Operating expenses in the fourth quarter and the year end of January 31st increased primarily related to the impact of recent acquisitions, but also as a result of additional investments that we've made in our business over the past year.

primarily is that set in the areas of marketing, sales, product development, and network security. Adjusted EBITDA came in as a record 55.4 million in the fourth quarter, up 11% from adjusted EBITDA of 50.1 million in the fourth quarter last year. And while we continue to be fairly naturally hedged to foreign exchange rates, our adjusted EBITDA would have also been higher if it were not for the negative impact from FX this quarter. Simply put the euro in British pound for weaker to the US dollar that the Canadian dollar.

We should note that for the fifth year in a row, as a percentage of revenue, our adjusted EBITDA continue to increase as we benefit from the operating margin as we grow the business.

With these solid operating results, cash flow generated from operations came in at 50.6 million or 91% of adjusted EBITDA in the fourth quarter this year, up 11% from offering cash flow of 45.5 million or 91% of adjusted EBITDA in Q4 last year.

For the year, cash flow from operations was 192.4 million, or 98% of adjusted EBITDA, up from 176.1 million, or 95% of adjusted EBITDA last year. In addition, we should note that as a result of the stronger than expected results on the past acquisitions of both ship track and containers, we ended up paying an additional 5.6 million in earnouts compared to our original estimates were made at the time of those acquisitions.

And as a result, those additional cash payments went through our cash flow from operations this year. Excluding the impact of those additional or no payments, cash flow from operations would have been approximately 92% of adjusted EBITDA for the year. Going forward, we expect to continue to see strong operating cash flow conversion in the range of 85 to 90% of our adjusted EBITDA for the years ahead, of course, subject to unusual events and quarterly fluctuations. From a GAAP earnings perspective, net income for the fourth quarter came in at $29.8 million.

allowed us to invest in several areas of our business while still allowing us to achieve 15.9% growth in adjusted EBITDA, expand our adjusted EBITDA margin to 44.3% of revenue and achieve growth in our cash flow from operations for the year. If we look at the balance sheet, our cash balances totaled at $276.4 million at the end of January .

and we did not have any borrowings under our credit facility at the end of the year. As Ed mentioned, subsequent to year end on February 14th, we announced we used approximately $138 million of our existing cash balances to complete the ground cloud acquisition, which Ed described in detail a little earlier. As a result, we still have approximately $138 million in cash balances as well as $350 million available to us to draw under our credit facility for future acquisitions. So clearly, we continue to be well capitalized to allow us to consider all acquisition opportunities in our market.

consistent with our business plan. As we look to the current year, our physical 2024, we should note the following. After incurring approximately 6.1 million in additional capital additions this past year, we expect to incur approximately five to 7 million in additional capital expenditures this coming year.

We expect amortization expense will be approximately $15 million for physical 2024, with this figure being subject to adjustment for foreign exchange rates, foreign exchange rate changes in any future acquisitions.

Our income tax rate in the 4th quarter came in at approximately 17.5% of pre-tax income. Resulting in a tax rate for the year of approximately 24%. Which is slightly lower than our statutory tax rate, mainly as a result of the reversal of certain uncertain tax positions that we recorded in Q4 of this year. Looking at FY24.

We currently, we would currently expect that our tax rate. It could be low, slightly lower than our statutory tax rate. If certain other uncertain tax positions are released. As a result, we're expecting the tax rate be in the range of 22 to 27% of our pre-tax income in our fiscal 2024.

Although, as always, we should add that our tax rate may fluctuate from quarter to quarter from one-time tax items that may arise as we operate internationally across multiple countries. And finally, we currently expect stock compensation to be approximately $10 to $11 million for fiscal 2024, subject to any future equity grants as well as any future forfeitures of stock options or share units.

And with that, I'll turn it back over to Ed to wrap up with our baseline calibration. Thanks, Alan. We're already a month into our new fiscal year and quarter. We've already been busy by completing the acquisition of Ground Cloud. We're excited about the upcoming year and our business. However, we remain cautious about the broader economic circumstances that are out there.

There's high interest rates, higher inflation, a pervasive conflict in the Ukraine that's into its second year, and the various recessionary pressures and economic discussion. We've seen some companies taking actions to ready their business for what may come. So for us, we will be cautious in the face of uncertainty.

Supply chain logistics continues to be a critical business function for our customers regardless of the economic circumstances. I wanted to share some areas that our customers are monitoring and to shape the market that we're currently operating in.

The first is US ocean container imports are at pre-pandemic levels. Based on public data available through our DataMine service, it's clear that there was a pullback in ocean imports over the past six months starting in August .

Current volumes are 15 to 20 percent lower than the pandemic highs, but are consistent with the levels we saw in 2019 and 2020. There's less impact from COVID delays in China. Part of the reason for the pullback in ocean imports was China's approach to zero COVID, with many businesses critical to the international logistics and supply chains.

either shuttered or severely understaffed. Recently, China has eased up on that policy, and so our customers anticipate goods may start to flow more freely. The next is port transit delays have improved. As volumes came off a bit, the backlog that had been seen at many ports has begun to work through. We're no longer seeing ocean ports with long lines of ships offshore and containers that are otherwise starting to move through the ground system more efficiently.

The next is U.S. ocean imports have shifted to East Coast ports. There's been a recent trend where volumes have shifted to East Coast ports. That's likely in part due to continued labor challenges on the West Coast. There still isn't a contract in place with the dock workers and new regulations impacting truck drivers being classified as employees rather than independent contractors in California. Our customers are mindful of this import flow change when making their decisions. Ocean freight rates are expected to come down. During the pandemic, ocean rates surged almost $20,000 a container from pre-pandemic $2,000 to $3,000 levels. The spring period is when many shippers and carriers negotiate their freight rates for the upcoming year.

Our customers are expecting that rates will come down, and that may be a catalyst for volumes to increase every time. Next, our customers anticipate that shipment volumes may increase as the year progresses. Prior to this past holiday season, many retailers that access inventory, and accordingly didn't order or ship as much to replenish inventory.

Now that we're through the holiday period, we're hearing retailers are mindful of the broader economic circumstances, but are cautiously looking to replenish inventories. That may have retailer-driven shipment volumes increase as the year progresses. Next final mile delivery is still key. During the pandemic, e-commerce volumes grew at unprecedented rates. We're still seeing growth in e-commerce, just not as strong as during the pandemic. E-commerce growth has in part contributed to a continued focus on the importance of last mile delivery.

Gone are the days of a home delivery of anything being a novelty. Recently Target announced that it was investing $100 million into its network to improve next day's final mile delivery, and Amazon just announced it's enhancing its delivery options. The final mile is still a big topic for retailers, and our recent acquisition investments reflect that feedback. The next is ESD-focused impacts, supply chain, and logistics. Environmental, social, and governance discussions in boardrooms are having a meaningful impact.

on supply chain and logistics decisions. Our customers are looking for detailed information from their trading partners so they can meet and report on their own ESG goals. Also, our customers need this information to show their compliance with existing and pending regulations addressing such issues as use of forced labor, environmental impact of operations, and trading with restricted parties. We've recently seen several countries roll out additional sanctions on entities and people connected with the Ukraine conflict.

so we anticipate compliance and ESG reporting solutions will continue to get mindshare with our customers. So those are some of the things we're hearing from our customers and seeing in our business, things that also inform our calibration for the quarter. Our business is designed to be predictable and consistent. We believe that stability and reliability are valuable to our customers, employees, and our broader stakeholders. To deliver this consistency, we continue to operate from the following principles. Our long-term plan is for our business to grow just as you get that 10 to 15% annually. We grow through a combination of organic growth and acquisitions.

We take a neutral party approach to building 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 customs authorities. When we overperform, we try to reinvest that overperformance back into our business. We focus on repairing revenues and establishing relationships with customers for life. And finally, we thrive on operating a predictable business that allows us forward visibility to our revenues and investment paybacks.

In our annual report, we've provided a comprehensive description of baseline revenues, baseline calibration, and their limitations. We typically provide calibration as of the first day of the fiscal period. However, with the ground cloud acquisition happening on February 14th, we've updated calibration to that date and included those aspects of ground cloud for which we feel we have sufficient visibility to at this point. As of February 14th, 2023, using a foreign exchange rate of 75 cents to the Canadian dollar.

107 to the euro and 1.21 to the Great Britain pound. We estimate that our baseline revenues for the first quarter of 2024 are approximately 117 million and our baseline operating expenses are approximately 74 million. We consider this to be our baseline adjusted EBITDA calibration of approximately 43 million dollars for the first quarter of 2024.

or approximately 37% of our baseline revenues as at February 14, 2023. Last quarter, we indicated that our targeted adjusted EBIT to operating margin range was 40% to 45%. Last year in Q1 and Q2, we were at 44%. In Q3, we were at 45%. And in Q4, we were at 44%.

We're maintaining that same 40 to 45 percent for this fiscal year. As we've indicated in the past, we anticipate that our margin will vary in that range given such things as foreign exchange movements and completing larger acquisitions that are operating below our aggregate margin at the time of acquisition. Ground Cloud is a profitable, cash-generating business and one of the larger acquisitions we've ever done.

However, Grand Cloud currently operates at a lower margin than Descartes' target aggregate adjusted EBITDA margin, primarily as a result of its revenue mix with higher professional services from in-person safety training courses that complement the software platform. So we anticipate that for Q1, our adjusted EBITDA operating margin could be lower than Q4 by between 1 and 2 percentage points as we work on integrating this business into Descartes. We've included that margin impact into our consideration in providing our Q1 calibration. We've got lots of exciting things planned for our business this year.

We've already completed some exciting acquisitions and other investments that we believe will be a big benefit to our customers. It remains an uncertain, broader economic environment, but we believe our proven track record of execution, solid capital structure, and customer focus will serve us well to have a great fiscal year. 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 turn the call over to the operator to handle the Q&A portion of the call. Thank you. Ladies and gentlemen, we will now conduct the question and answer session.

If you have a question, please press star followed by the number one on your touch tone phone. You will hear a one tone prompt acknowledging a request. One moment, please for your first question. Your first question comes from the line of Matt Faugh from William Blair. Your line is now open. Great, thanks for taking my questions. Just circling back to all the macro comments that you made, maybe just help us understand what the impact you're seeing on your business from those comments is. Are you seeing any impact on either transactions or deal closures as a result?

an area that you called out where there was perhaps a bigger discrepancy between valuations you were willing to pay and where valuation expectations were. You made a larger acquisition with Ground Cloud. Does that sort of signal that market's opening back up or maybe just some comments in terms of what you're seeing there? Yeah, I was just seeing a healthy market for that. The prices can be all over the place depending on the market.

As a reminder, hit the star 1 to ask a question.

Your next question comes from the line of Paul Traber from RBC Capital Markets. Your line is now open. Thanks very much and good afternoon. Just hoping that you could elaborate on some of the financial details for GramCloud. Specifically, you mentioned the mix of professional services is higher than your business. How should we think about the mix there?

And in any additional comments you could provide on the company's revenue or growth or the main to the profitability is different than Descartes. Okay, yeah, let me handle that at a high level. I want to see if Alan has any other comments. But if you think about their business, they're providing training services to customers. A lot of it's based on driver feedback on telematics devices where they're seeing drivers do certain things during the day and then they're recommending them for video based training at night when they're maybe in their cab or before they go to work the next morning.

At the same time, when they start those businesses off, when they start new customers off, they go through a comprehensive training program that involves onsite training. That's why you see a little higher professional services.

rates in those businesses than maybe the cart's accustomed to. Normally we say in our business, we would like it if there was no professional services because that would mean the products were all easy to install and no one had to get into anything complicated to get them in, but there's obviously products even in our business that are more sophisticated and take a little while to put in. Ground cloud's kind of the same. When you get a new customer.

As part of the process, they provide a comprehensive training program for all the drivers and then specific behavior based training as the drivers driving routes during each business day and they're seeing errors being made and they're recommending them based on those errors for videos that they might watch at night.

I don't know if you have anything to add to that, Alan. Yeah, not a lot. I think from a revenue perspective, it still fits the mold of what we want to buy, which is predominantly a recurring revenue business. In this case, yes, the professional service and other category will be higher than Descartes's number. We were at 8, 9%. It'll probably be double that percentage. But it still fits the exact mold of what you want, which is very predictable.

subscription-based business recurring. Okay that's helpful. It just sort of puts it in the ballpark. So that's helpful. And then how do you see it integrating with the remainder or complementing the remainder of your existing mobile routing and telematics business?

Well, I think about it, we're helping these same types of companies plan routes every day. So it's a very similar customer base. We do business with a lot of delivery companies that are doing daily route plans in our routing software to deliver to the home. And that's a great customer base to sell this into. Like a lot of the companies that we've bought, you know, they.

they have a certain type of customer they go after and they have a couple hundred of them or a couple thousand of them, whatever that is. And we have a couple hundred or a couple thousand more than that. And so we're able to go out and quickly bring our solutions to a much broader audience. And that's a big advantage for us when we buy a company like GrandCloud. Okay, and then just one last one. Can you speak to the impact of inflation on your business? To what degree?

or not have you updated pricing for inflation? And how do we think about it from a cost point of view? So we've had some impact on all of it. You probably heard of saying the past that we typically only raise prices in the areas where our costs are going up directly. So we have avoided in the past. No.

inflation-based price increases on our network and the transaction type businesses. That changed when the inflation rates went up to 7%, 8% and maybe higher around the world over the last couple of years. We started to make some adjustments to customer prices, minor compared to maybe what some other companies were doing. And we changed then

I would say it was fairly well received for a price increase within our customer base. It was probably seen as fair. And on the cost side, we've certainly seen some of it. We certainly have some costs in our seat and some of our numbers are going up maybe a little faster than they might have otherwise. But we're more than making up for that with that growth in our business.

Thanks for taking my questions. Thanks, Paul. Our next question comes from the line of Justin Long from Stevens. Your line is now open. Thanks. Following up on the ground cloud acquisition, is there anything you can share on what financial targets need to be achieved in order for that earn-out to be paid? Anything you can share on what financial targets need to be paid?

help us or could you help us with the kind of year one revenue contribution we should be expecting from this business? Let me start with that at least. Without getting into the difference because I don't want to provide competitive information out there to people that...

might not be on our side. But suffice it to say, like every acquisition we've done, when we have an earn-out, we are more than happy to pay it. In other words, if they can get the growth that's set forth in the earn-out, it's great for our business. So let's hope that that happens in this one as well. Suffice it to say, you should see it's a fairly significant investment.

It's a fairly significant number in the ground cloud acquisition that, you know, it's some substantial growth for them to get there. So, let's see what happens, but we would hope that that does happen and be more than happy to pay the earn out if we got there. I don't know if you have any more detail you want to provide. No, just generally the way we build out those acquisitions, anytime we have an earn out, we are thrilled to pay the entire earn out. It will meet our financial metrics if it grows to the levels that will require us to pay the earn out. So, this is, and that's just.

This business is entirely consistent with that. We'd be happy to pay that on it. Okay, and when you say meet your financial objectives, are you saying that it would be within that target margin range if the revenue objectives are achieved? I'm more speaking to getting our payback on our acquisitions. When we deploy that capital, we're looking to get our money back in 5 to 7 years of a 15 to 20% return. And we think we can achieve that at any level within that or note with zero or whether we hit that or note. That's what I'm looking for. Maybe I can add to that, Justin.

Our earnings are almost always, in fact, anytime I can think of, they're based on revenue, getting the revenue targets. We take it on ourselves to manage the costs of the business and help make it more profitable over time. So the targets are usually not anything more than growth and revenue. Understood. And Alan, I think you mentioned earlier that excluding FX

organic growth going forward as you make that investment? I'll take the first one and Ed if you want to talk to the head counts, but as far as the organic growth, that's our estimated growth within the services category. You know our services have split between transactional and subscription. Now for the most part both are growing. Our subscriptions tend to be some of the higher growth areas of the business.

But growth a little bit slanted towards subscription, but both growing adding up to that 9.5%. Ed on headcounts, did you want to make a comment? Yes, sir. I mean, it's a full year ahead of us and we obviously reserve the right to adjust course.

depending on what happens in the business. You probably saw that last year. I don't think we planned on having that many last year. Just the business started performing very well and we needed more people and went out and got them. I think roughly our plans are maybe for an increase of half that, but I wouldn't read too much into that. If things go well, we could see us increasing that. If the economy stalls more, we would probably reduce that just to be prudent operators of the business.

You probably heard me say in the past couple of quarters, you know, hey, you know, there's a lot of economic uncertainty and we were starting to remove our pedal from our foot from the gas pedal and kind of not press the brake like you may have seen a lot of other technology companies do but but certainly cover it just to make sure we don't get ourselves into any trouble. Started to seem to come out of that right now with the headlines I'm reading in the newspapers. So we'll see what happens. But you know, for the most part, we plan for about half the growth that you saw in headcount organically last year.

in the coming year and we'll adjust accordingly as we see how the business forms. Okay, got it. Thanks for the time. Thank you, Justin. Your next question comes from the line of Daniel Chan from TD. Your line is now open. Yes, thanks. You talked about Ground Cloud having a higher mix of professional services driving a lower EBITDA margin. Just wondering whether for you to get their EBITDA margin more in line with your target whether you have to change their business model to reduce that PS mix?

And if so, how do you do that? How long will it take for you to get those margins up to where you want it to be? Certainly, we have some thoughts about how to do it. You know, they were providing one-on-one training classes for individual companies. We could see ourselves doing more of that virtually and with larger audiences that may end up having us over time, you know, have a much more profitable professional services or training mixed.

You know, one of the big things in any software company is just selling more of the stuff. When you, you know, if you have 100 customers and you're providing software and writing software for those 100 customers, if you make it 200 customers, invariably that company is going to be more profitable. You're writing the same piece of code for now, double the amount of people. And if they're all paying a fair price, your profits go up, you know, which is, you know, been a big part of our growth in EBITDA over the past 10 years.

as we get a bigger and bigger customer base and therefore have a bigger and bigger group of people to go sell our next acquisition into. And I think we might see the same from ground cloud over time. That makes sense, thanks for that. And then shifting gears a bit, just wondering if there's any impact from the Windsor framework that just got passed. You know, we're still analyzing it, but you know,

They've established a green lane and a red lane, much like you see in passenger traffic. We understand that both lanes are going to continue to have a filing, so at first blush, my gut is that there's not going to be a ton of impact to our business, negative or positive. Okay, great. Thank you. Thank you. Your next question comes from the line of Robert Young from Canada Cardinuiti. Your line is now open. Hi, good evening. A couple of the macro comments and questions around the transactions, I get the sense that...

Maybe that was a minor headwind. And so if you clarify that and then maybe just give a refresher on how minimum contracts protect that or if that's still in place, maybe just maybe a refresher there. Yeah, I mean, I called out the ocean business and actually, if I look at the data mine stats, it's actually starting to recover in January and into early February . So, you know, I'm expecting that here, we kind of mentioned that the China effect, you know, kind of easing up in, you know, right after Christmas. I kind of suspect that's what we're seeing right now. Truck and air were still pretty strong and I see an error getting even stronger in the last.

a couple weeks based on the data mine stats. So, we'll see, but the impact in this past quarter was minor. I mean, we had plenty of stuff that made up for it or more than made up for it. And had us kind of beaten our projections for the last quarter because a bunch of businesses were firing on off full cylinders. And we had an ocean business that was only down slightly. So, all in all, pretty good news for us. Okay, and then you touched on my second question around China. There's a lot of news about the reopening and the impact. Maybe it's more on air travel. Is that not having a more positive impact? Yeah, I think it is. That's what I was just kind of mentioning in the ocean space. So, we're starting to see it pick up in the...

But still, I don't know exactly what's going to happen. But I think I'm starting to see in the past couple of weeks the impact of that and increased labor-free farmers.

Okay, and last question, just a little clarification in the press release, the 40 to 45% of just EBITDA range, I think the quote from you, Alan, maybe the way I read it, it seemed to suggest there's inclusive of M&A forward. I just want to make sure I'm not reading that incorrectly. The 40-45 doesn't include any anticipated future M&A, that's just up to...

at this point? Well, yeah, just remember that it's an even to margin range. So, you know, borrowing us by buying something massive and you can see here with ground plot, it has a bit of a negative impact on our overall margins because we bought a company that makes less money as a percentage revenue than we do. But still, you know, only a point or two, and that was a fairly large acquisition for us. So, yeah, no, I think we are trying to say we'll be in that 40 to 45. So, yeah, yeah.

percent margin range. If we did something gigantic stir it could go outside of that it was way more profitable than us it would move up if it's less profitable than us that moves down but you know net net I'd be surprised if it changed outside of that range 40 to 45 percent.

and arranged. If we did something gigantic stir it could go outside of that. If it was way more profitable than us, it would move up. If it's less profitable than us, it moves down. But you know net-net I'd be surprised if it changed outside of that range 40 to 45%. Understood. Based on acquisition.

Thanks, you, Rob. Our next question comes from the line of Kevin Krishmarathny from Scotiabank. Your line is now open. Hey guys, good evening. Question for you just on a competition, a potential competition, understanding you cover several areas in the broader logistics ecosystem. Just curious, given the momentum that we're seeing in space, are there any particular areas where we're seeing new competitors or outsized funding from private equity or anything in that regard? Areas that are hot, I'm curious what you're seeing and how well you may be positioned in these areas. Are these areas you may be willing to direct more of your attention to?

or the way we think about it. But yeah, it's absolutely, there's been a ton more investment in the space and I think that's great news.

Is there any, is it just pretty widespread? I'm just curious if there's any particular areas that are popping up. Well, you can see the supply chain visibility space is hot. We were the first move in that space by a macro point. Macro point has some competitors that have also attracted a ton of investment. And there's more people popping up in that space all the time. There are also potential customers of ours, right? They need access to the data that we have because...

IoT devices that you're starting to see come out and I suspect we're just at the beginning of this but people are making smaller and smaller things to put in packages to put in pallets to put in planes and trucks and containers and everything else and I'll tell you what's happening to your product while it's moving where it is what temperature it's at did it get a you know hard bounce

all kinds of stuff like that so that you can eventually build software around that to help the big manufacturers and retailers make better decisions about what's going on in their supply chain based on these IoT devices that are out there. So I think we're at the beginning of that right now. There's going to be hundreds if not thousands of companies that start up based on that and we're really excited about it because that's all information that we could use to help our customers get better results. Got it, appreciate the comments. Maybe to continue on the M&A, it's definitely been picking up a bit. Assets getting a little bit bigger.

It's been a while, I think, the last several acquisitions you made have been all cash. In the past, you've macro-pointed and included stock. I'm just curious about your philosophy on purchase price for acquisitions, your decision on a mix of cash and equity. Any thoughts there? We try to be cash buyers. When you see stock getting pissed in a deal, it's usually because the people that own the business have asked for some component of it to be in day-card stock.

Oftentimes they go, hey, we're buying some company for say $50 million and they're going, all right, I'll take 40 of it in cash and 10 of it in stock. And if they requested from us, you know, that's good news for us. We're not really up for – we're not looking for reasons to dilute our shareholders, but if the owner of a business says, hey, I want you to buy the company. I want to pick you guys to be the buyer and I want to take back some <expletive> Carter stock. Let's look at that as something that we should do, right? And now I have an owner in that business that's probably going to still work here and probably going to be very vested in our success. But it's something we'll almost always say yes to.

Got it. Thanks for that. Maybe just the last one for me, just a question on the sort of your marketing spending efforts. I think it was just over a year ago when you kind of talked about more meaningfully stepping up the efforts there, the customer success team, the new digital marketing initiatives. I'm just wondering how that's been progressing. Are you happy with the ROI? Is there anything you could share there in terms of net retention, share of wallet increases, any, anything, you know, that you're seeing that you're willing to share in terms of the, you know, the return on that, that step up that, that you.

We think investments like this are the smart thing to do. And good news is we went and did it over the last two years and it really worked well and we're doing more of it as original. Understood. Thanks a lot. I'll pass the line.

Thanks, Tim. Your next question comes from the line of Steven Lee from Raymond James. Your line is now open. Thank you. Maybe a question for Alan to start. Can I check with you? So the overall organic growth is around seven and a half percent at constant currency. Alan? Yeah, so in the prepared comments we mentioned nine and a half percent.

services which is highly recurring revenue for us. So nine and a half on services coming down to sort of that seven and a half eight on the total revenue.

Got it. And I was curious, given the higher PS mix with ground cloud, does that not mean that the services organic growth going forward is going to miss those PS organic growth from ground cloud? Is it better to look at the overall organic growth?

Sorry, I didn't catch your question. Because I believe your services organic growth, you exclude PS revenues from that, right? And I was asking, given your recent acquisition, ground cloud, a higher mix of the revenues is PS. Looking at services organic growth, would we be missing?

should grow faster if we execute to our plan. You know, we will continue to focus on both elements, but, and we'll just disclose to you as we go. I mean, we're disclosing service of revenue growth because that's the most relevant number for us in the long-term piece of the business, but both will be important and we'll message it accordingly. Got it, thanks. And then just given your comments, so shipment volumes on one side and then, but the other parts booming.

Would this organic growth like 7-8% high single digit, would it be a good base for this year or we can do better than that?

Well, I mean, we think we're going to be in that range. And we always kind of plan to run our business in the 4 to 6% organic revenue growth range and trying to get 10 to 15% even to growth out of that. We've seen this too much better than that in the past years.

But you know, if the economy kind of went into a boom period there for a year or two and it started to come back down, we're pretty happy being in that 9% range right now. And, you know, just think that came from quality of acquisitions growth that we've, that we brought in quality of acquisitions that we brought on in the past. A little bit of it from customers thinking that supply chains and logistics is a lot more important than they thought it was pre-pandemic. And, yeah, I'm hopeful that that, you know, that that range stays up in that 8, 9%, but we'll just have to see.

Got it. And then, Ed, also your comment, you said shipping volumes may increase through the year. So does that mean maybe we see a slower first half and then a better second half in terms of organic growth as well? Yeah, I mean, I don't want to make predictions till year out, but if our customers do well like that, yeah, I would expect our business to continue to do better and better over time. Got it. And then a couple of questions on your recent acquisition. So, ground cloud, what has been...

It's a fast-growing company. It's one of the reasons we wanted to buy it. We think we have an opportunity to expose it to a lot more customers. And as a result, maybe continue that growth into the future. Got it. And then maybe an update on the XPS. I remember the year out there was sizable. How are they doing so far? And would you expect...

until they get there.

But we're very happy with the acquisition so far. Let's put it that way.

All right, thanks guys. Thank you, Stu. Our next question comes from the line of Scott group from Wolf. Your line is now open. Hey, thanks afternoon. So is there a lot of, is there much seasonality to the revenue at ground cloud or should we try and take should we take like the bump in that the baseline for Q1 and annualize that I'm just trying to figure out the right way to the right way to

trying ballpark for your revenue. It's a fairly consistent, performing business. Not a ton of season out. But is it an incident? Is there a kind of business where you would expect the actual revenue to outperform the baseline? Like we see in the rest of the business? I don't know if exact numbers, but yes, most of our business were expecting a baseline. And then quarter to quarter, there'll be some increase.

in the business as we get the actual results in. And I think Cloud would probably be no different. Okay, and then I know it's obviously the very beginning of the year, you always talk about 10 to 15%, but I think you pretty much get there to the high end or exceed it every year.

I know it's early, but what's the visibility to repeating that again this year? We don't take our bonuses and we don't get to 15. So we're all planning on getting to 15. I think we've beaten this 15 years in a row, Scott.

You know, I obviously can't make a promise about it, but I but certainly our intention is to be a 15 or better You say 10 to 15 and we do our damage to to get to 15 Okay, good stuff. Thank you guys. Appreciate it. Thank you. Thank you Your next question comes from the line of rhyme Oh lens show from Barclays your line is now open I was just wondering if you could share a bit more detail on on how the e-commerce business is trending Would you say like it's reached more of a steady state?

post deceleration from the pandemic or really any color you can share there would be helpful. Thanks. Okay, sure. Thanks, Jeremy. So, you know, we had massive growth coming out of the pandemic in the end of 2020 and 2021 like a lot of ecommerce companies.

Had I think we ended up in a different circumstance soon thereafter a lot of ecommerce companies that we saw went flat That's not what happened to us. We kind of went back to our normal, you know, dubs low double-digit growth Coming out of that and we continue to see that be the case right now It's a it's a very nice business for us. It continues to grow at a at a nice pace every quarter and Yeah, we're still seeing I don't want to use the word flat because it's

the growth rates are flat, but it's still growing nicely every quarter and every year coming out of that big blip in the beginning of the pandemic. When I read the newspapers about some other e-commerce results, I don't think we're subject to the same things that they are, maybe because we're selling a lot more new customers, so we continue to get growth even if e-commerce sales are flat for a quarter or so. Got it. Thank you. Thank you. There are no further questions at this time.

Ed Ryan, please proceed. Hey, thanks, everyone. Appreciate all your time today, and I hope to see you as we're out on the road in the coming weeks, and otherwise look forward to reporting back to you next quarter. Have a great night, and thanks for your time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.