Q2 2024 The Descartes Systems Group Inc Earnings Call
Okay.
[music].
Speaker 1: Good afternoon ladies and gentlemen and welcome to the Descartes System Group's Quarterly Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. You may press star 1 now to queue up for questions. 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, September 6, 2023. I would now like to turn the conference over to Scott Begin. Please go ahead.
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 a question and answer session.
You May press Star one now to queue up for your questions at any time. During this call you required immediate assistance. Please press star zero for operator. This call is being recorded on Wednesday September six 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 on the call today are Ed Ryan, CEO and Alan Brett, CFO . I trust that everyone has received a copy of our Financial Results Press release that was issued earlier today.
Thanks, and good afternoon, everyone. Joining me on the call today are Ed Ryan CEO and Allan Brett CFO interest that everyone has received a copy of our financial results press release that was issued earlier today.
Speaker 2: Portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the Safe Harbor provisions of those laws.
Portions of today's call other than historical performance include statements of forward looking information within the meaning of applicable securities laws. These statements are made under the safe Harbor provisions of those laws.
Speaker 2: 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 conditions.
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.
Speaker 2: Descartes operating performance, financial results and conditions. Descartes gross margins and any growth in those gross 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 expensing of specific revenues and expenses. Potential acquisitions and acquisition strategy, cost reduction and integration initiatives and other matters that may constitute forward-looking states.
<unk> operating performance financial results and condition Descartes gross margins and any growth in those gross margins cash flow and use of cash business outlook.
This line revenues baseline operating expenses and baseline calibration anticipated and potential revenue losses and gains anticipated recognition and expensing of specific revenues and expenses potential acquisitions and acquisition strategy cost reduction and integration initiatives and other matters that may constitute forward looking statements.
Speaker 2: These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of Descartes and differ materially from the anticipated results, performance for achievements implied by such forward-looking statements.
These forward looking statements involve known and unknown risks uncertainties assumptions and other factors that may cause the actual results performance or achievements of descartes to differ materially from the anticipated results performance or achievements implied by such forward looking statements.
Speaker 2: These factors are outlined in the press release and in the section entitled, Certain Factors that may affect future results and documents filed and furnished with the Securities and Exchange Commission, the Ontario Securities Commission and other Securities Commission across Canada, including our management's discussion and analysis filed today.
These factors are outlined in the press release and in the section entitled certain factors that may affect future results in documents filed and furnished with the Securities and Exchange Commission, The Ontario Securities Commission and other securities commissions across Canada, including our management's discussion and analysis filed today.
Speaker 2: We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. Your caution that such information may not be appropriate for other purposes.
We provide forward looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. You are cautioned that such information may not be appropriate for other purposes. We.
Speaker 2: We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except as required by law. And with that, let me turn...
We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward looking statements to reflect any change in our expectations or any change in events conditions assumptions or circumstances on which any such statement is based except as required by law.
With that let me turn the call over to Ed. Thanks, Scott and welcome everyone to the call. We had an excellent first half of the year with record financial results. This past quarter. 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 by hitting some highlights of last quarter on some aspects.
Speaker 3: Hey, thanks, Scott, and welcome everyone to the call. We had an excellent first half of the year with record financial results this past quarter. We're excited to go over those with you and give you some perspective about the business environment we see right now. First, let me give you a word now.
Speaker 3: Start by hitting some highlights of less quarter and some aspects of how our business performed. I'll then hand it over to Alan, who will go over the Q2 financial results in word-to-town. I'll then come back and provide an update on how we see the current business environment and how our business is calculated as we enter Q3. And then we'll open it up to the operator to coordinate the Q&A portion of the call.
And how our business performed I'll, then hand, it over to Alan who will go over the Q2 financial results in more detail I will then come back and provide an update on how we see the current business environment and how our business is calibrated as we enter Q3.
And then we'll open it up to the operator to coordinate the Q&A portion of the call.
Speaker 3: So let's get started by looking at the core of the Gisdand at Gillette 31st. He metrics the monitor include revenues, profits, cash flow from operations, and returns on our investment.
So lets get started by looking at the quarter that just ended July 31 <unk>.
Metrics. We monitor include revenues profits cash flow from operations and returns on our investments.
Speaker 3: this past quarter we again had record performance in each of those areas. Total revenues were up 17% from a year ago with service revenues up almost 20%. It income and EPS were up 23 and 19% were 6%.
But this past quarter, we again had record performance in each of those areas total revenues were up 17% from a year ago with service revenues up almost 20% net income and EPS were up 23, and 19% respectively income from operations was up 17%, while adjusted EBITA was up 12%.
Speaker 3: Income from operations was up 17%, well, adjusted the EBITDA was up 12%, and we generated $52 million of cash from operations, representing 86% of adjust.
And we generated $52 million in cash from operations, representing 86% of adjusted EBITDA.
Speaker 3: The end of the quarter, we get $227 million cash and we're debt-free with an undrown $350 million on a credit. We remain well capitalized, cash generating, debt-free, and ready to continue to invest in our...
At the end of the quarter, we had $227 million of cash and we were debt free with an undrawn $350 million line of credit.
Well capitalized cash generating that free and ready to continue to invest in our business. We believe a company like ours is well positioned to continue to thrive in market conditions like these because we've got good organic growth plus the experience in capital capacity to execute on acquisitions.
Speaker 3: We believe a company like ours is well positioned to continue to thrive and market conditions.
Speaker 3: because we've got good organic growth, plus the experience and capital capacity to execute on it.
Speaker 3: We had a good quarter of a volcanic growth in our core services revenues, so I wanted to highlight some of the drivers of that.
We had a good quarter of organic growth in our core services revenues. So I wanted to highlight some of the drivers of that.
Speaker 3: The first issue is real time visibility. Just to refresh on this, a large part of shipping is people moving goods on other people's assets. Whether they be planes, trucks, rail or boats. There may also be intermediaries involving arrange in the shipments or making required hylings, including freight workers, third party logistics providers, and customs workers.
The first issue is real time visibility just a refresher on this a large part of shipping is people moving goods on other people's assets, whether they be planes trucks rail or boats. There may also be intermediaries involved in arranging the shipments are making required filings and Korean including freight brokers third party logistics providers.
And customers brokers with all those assets most of the transportation data sources location and parties involved it can be challenging to know where shipment is knowing the location of a shipment and when that is going to arrive as critical to serving the customer and running your business, our visibility and transportation management solutions, which include macro point.
Speaker 3: With all those assets, most of transportation, data sources, locations, and parties involved, it can be challenging to know where a shipment is, and knowing the location of a shipment, and when that's going to arrive, it's critical to serving your customer and running your business. Our visibility and transportation management solutions, which include macro point, are increasingly important for our customers in this area.
<unk> important for our customers in this area.
Speaker 3: solutions contributed to solid growth in the quarter for reasons including first our solutions are better at tracking loads customers pay based on the number of loads that are tracked by our solutions so we're aligned with our customers on doing what we can to connect as many carriers and intermediaries as possible to get location information on low
These solutions contributed to solid growth in the quarter for reasons, including.
First our solutions are better attracting loads customers pay based on the number of loads that are tracked by our solutions. So we're aligned with our customers on doing what we can to connect as many carriers and intermediaries as possible to get location information on loans, we've launched a new carrier self connect tools that have helped our customers get even more location coverage across.
Speaker 3: We've launched new carrier self-connectables that have helped our customers get even more location coverage across their network of carriers. We've also made investments in customer success personnel to help maximize the number of loads with full visibility.
Their network of carriers. We've also made investments in customer success personnel to help maximize the number of loads with full visibility.
Speaker 3: The outcome has been a greater percentage of low-stract, better data, have your customers in strong growth.
The outcome has been a greater percentage of loads tracked better data happier customers and strong growth.
Speaker 3: Second issue is we're winning more deals and seeing strong demand for visibility. The real-time visibility market is not without competitors. However, we're having good success at securing new customers and welcoming back some old ones because our commitment to tracking the success. We have a broader network that's across more modes of transportation than our competitors and that's being recognized by customers as they choose their visibility solution.
Second issue is we're winning more deals we're seeing strong demand for visibility real time visibility market is not without competitors. However, we're having good success, securing new customers and welcoming back some old ones because our commitment to tracking the success, we have a broader network that's across more modes of transportation and our competitors and that is being recognized.
That is by customers as they choose their visibility solution for the future. Our customers also take comfort in our reliability and there we're operating a business they know will be around to serve them for the long term.
Speaker 3: customers also take comfort in our reliability and they're operating a business they know will be around to save things for a long time.
Speaker 3: The third issue of visibility is embedded in more decarct solutions. Some customers come to us just for visibility, but others are using decarct solutions and are looking to have visibility as an add-on to what they're already doing. Each time we expand our solution set, including by way of acquisition, we look for how we can embed visibility into the new solutions to provide an easier mechanism for our customers to track their lows. We believe that our best source of business is often our existing expansive and supportive customers.
And the third issue is visibility is embedded in more Descartes solutions, some customers come to us just for visibility, but others are using the card solutions and are looking to have visibility as an add on to what they're already doing each time, we expand our solution set including by way of acquisition. We look for how we can embed visibility into the new solutions to providing ease.
Your mechanism for our customers to track their lows, we believe that our best source of business is often our existing expansion and support our customer base. So we are making dedicated efforts to make visibility easier for those customers.
Speaker 3: So we're making dedicated efforts to make visibility easier for those customers.
Speaker 3: Second big issue is routing the scheduling mobile solutions and it's big contributor to our revenue success this quarter. These solutions are principally for when you're managing your own fleet of vehicles rather than hiring space on other people's vehicles. We believe we're the most experienced.
Second Big issue is our routing schedule and mobile solutions.
A big contributor to our revenue success. This quarter, new solutions are principally kind of for when you're managing your own fleet of vehicles, rather than hiring space on other People's vehicles. We believe were the most experienced company.
Speaker 3: in this market and have the premier route in the scheduling solutions to offer.
In this market and have the premier routing and scheduling solutions to offer our customers in this area of phase III challenges, including rising labor cost challenging Chan.
Speaker 3: Our customers in this area have faced recent challenges, including rising labor costs, challenging challenges in security data, rising fuel prices, and customer demands for accurate delivery windows. This is contributed to strong demand with new customer projects and existing customers returning, retuning their solutions.
Challenges in securing data rising fuel prices and customer demands for accurate delivery windows. This is contributing to strong demand with new customer projects and existing customers returning.
Retuning their solutions.
Speaker 3: We've also been innovative in this market, which has contributed to our market leadership. We recently launched a new generation without planning solutions that is being brought out by customers. And we've made investments in our solutions through acquisitions, safety solutions from ground to cloud, and final model delivery, tracking from locals, all factors that contributed to good growth in this area.
We've also been innovative in this market, which has contributed to our market leadership. We recently launched a new generation route planning solution that is being rolled out with customers and we've made investments in our solutions through acquisitions with safety solutions from ground <unk> and final mile delivery tracking from locals all factors that contributed to good growth.
In this area.
Speaker 3: The third area is global trade intelligence. Once again, we saw good growth in the global trade intelligence solutions in our business. The solutions generally fall into three buckets. First bucket is competitive intelligence. Our data-mind solutions provide information on trade flows, historical classification of goods, and other logistics and supply chain intelligence. This information can be used to help make decisions about your own supply chain, but also to see how competitive you are with other company supplies.
The third area is global trade intelligence 11, again, we saw good growth in the global trade intelligence solutions and our business those solutions generally fall into three buckets. The first bucket is competitive intelligence or data mining solutions provides information on trade flows historical classification with goods and other logistics and supply chain.
Intelligence. This information can be used to help make decisions about your own supply chain, but also to see how competitive you are with other company supply chains.
Speaker 3: Recent attention on the efficiency of supply chains is helped to rise demand in this area. In addition, our data is front and center in many leading business publications as a source for data about logistics and supply change, which has also been a good demand driver for us. The second bucket is tariff.
Attention on the efficiency of supply chain Thats helped drive demand in this area. In addition, our data is front and center in many leading business publications as a source for data about logistics and supply chains, which has also been a good demand driver for us.
The second bucket is tariffs.
And Judy data to make intelligent shipping decisions will provide up to date data about tariff and duty rates and rules around the world, which can be used by leading global trade management systems to help run international supply chain.
Speaker 3: We provide up to date data about tariff and duty rates and rules around the world, which can be used by leading global trade management systems to help run international supply.
Speaker 3: seen an increased level of change in tariffs and duties, principally as a consequence of geopolitical pensions and trade.
We've seen an increased level of changes in tariffs and duties principally as a consequence of geopolitical tensions and trade disputes. This has changed the design of many supply chains and has increased the importance of having accurate and timely information like ours.
Speaker 3: has changed the design of many supply chains and has increased the importance of having accurate and timely information like ours.
Speaker 3: their bucket compliance. These solutions help our customers make sure they're not shipping things to people they shouldn't.
The third bucket is compliance solutions help our customers make sure they're not shipping things to people it should it be maybe.
Speaker 3: It's maybe to specific people, to specific countries, to specific geographies, or in some cases, specific goods being shipped. These restrictions have expanded and increased in complexity as the geopolitical tensions have increased and trade disputes have emerged. In addition, governments in the larger economies like the United States have increased the resources dedicated to ensuring compliance, and have levies substantial financial penalties and firms not taking compliance seriously.
Maybe to specific people to specific countries to specific geographies or in some cases specific goods being shipped these restrictions have expanded and increased in complexity as the geopolitical tensions have increased and trade disputes have emerged in addition governments in the larger economies like United States have increased the resources that.
Okay to insurance and ensuring compliance and as loving substantial financial penalties on firms not take in compliance seriously.
Speaker 3: continue to seek good demand for these compliance solutions as a result.
Continuing to see good demand for these compliance solutions as a result.
Speaker 3: Next area is e-commerce. This continues to be a growing market and part of our business. We've made investments into these solutions with additional leadership and also by way of acquisition with our purchase of XPS within the past year.
The next area of ecommerce and this continues to be a growing market and part of our business. We've made investments into these solutions with additional leadership and also by way of acquisition with our purchase of Xps within the past year the.
Speaker 3: The parcel market has seen some recent challenges with labor challenges, UPS, changing service preferences at the U.S. Postal Service and FedEx Restructuring. However, our share in the market continues to increase as we work with partners to find the most efficient way for our customers to get their deliveries made. So good acquisition and organic contribution in the quarter.
The parcel market has seen some recent challenges with labor challenges at UBS changing service preferences at the U S Postal service and Fedex restructuring. However, our share of the market continues to increase as we work with partners to find the most efficient way for our customers to get their deliveries made so good acquisition and organic.
In the quarter.
Speaker 3: We're very happy with how the business performed in the quarter and in particular with the U.K. growth, the business was able to produce a few comments on our two most recent acquisition editions.
We're very happy with how the business performed in the quarter and in particular with the organic growth. The business was able to produce a few comments on our two most recent acquisition additions the <unk>.
First of all in Roswell.
Speaker 3: We combine with Grand Cloud in February , Grand Cloud is particularly strong in safety and compliance solutions. They help identify safety incidents based by drivers and provide responsive and targeted video training on challenges drivers face.
Combined with granted clouded February ground cloud was particularly strong in safety and compliance solutions to help identify safety incidence based by drivers and provide responsive and targeted video training on challenges driver space.
Speaker 3: They also help companies manage delivery obligations as they have as subcontractors to other delivery brands, such as FedEx.
They also help companies manage delivery obligations as they have as they have as subcontractors to other delivery brands such as Fedex. This was one of our larger acquisitions and when we first combined we indicated we anticipated some impact overall.
Speaker 3: This was one of our larger acquisitions and when we first combined we indicated we anticipated some impact overall on our Adjusted EBITDA margin which we saw in Q1.
On our adjusted EBIT margin, which we saw in Q1.
Speaker 3: made good progress on integration and actually saw a slight uptick in aggregate adjusted even to margin in this quarter. So we're hoping that both will offer the future. Finally FedEx has recently announced that it may increase the number of shippance that will move to the independent contractor network. So we saw some good initials and proved demand for that.
We've made good progress on integration and actually saw a slight uptick in aggregate adjusted EBIT margin. This quarter. So we're hoping that bodes well for the future.
Finally, Fedex has recently announced that it may increase the number of shipments that will move to the independent contractor network. So we saw some good initial improved demand for that.
Speaker 3: Second, acquisition of locals, this business provides final mile visibility on deliveries. So if you used to watching your Uber driver, food delivery vehicle, come down the street to your house, locals, technology, replicate that experience, delivery of other goods. This was a key investment in around and scheduling mobile space. Something our own customers need is a seek to provide a better delivery experience for their own customers. This investment was critical to some of our new customers trusting their fleet.
Second the acquisition of locals. This business provides final mile visibility on deliveries. So can you use to watch and your driver for delivery vehicles come down the street to your house locals technology replicate that experience for delivery of other goods. This was a key investment in our routing and scheduling mobile space something our own customers need is a ctrip.
We're riding better delivery experience for their own customers. This investment was critical to some of our new customers trusting their fleet.
Scott Pagan: Good afternoon, ladies and gentlemen, and welcome to the Descartes System Group's quarterly results conference call At this time, all lines are now listened only mode Following the presentation, we will conduct a question and answer session You may press star 1 now to queue up for questions 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, September 6, 2023 I would now like to turn the conference over to Scott Pagan, please go ahead Thanks and good afternoon everyone, joining me in the call today are Ed Ryan, CEO, and Allan Brett CFO, and I trust that everyone has received a copy of our financial results press release that was issued earlier today portions of today's call of a historical performance include statements of forward-looking information within the meaning of applicable securities laws These statements are made under the safe harbor provisions of those laws These forward-looking statements include statements related to our assessment of the current and future impact of geopolitical and economic uncertainty on our business and financial conditions Descartes operating performance, financial results and conditions, Descartes gross margins and any growth in those gross 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 expensing of specific revenues and expenses, potential acquisitions and acquisition strategy, cost reduction and integration initiatives and other matters that may constitute forward-looking statements These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of Descartes and differ materially from the anticipated results, performance for achievements implied by such forward-looking statements These factors are outlined in the press release and in the section entitled certain factors that may affect future results and documents filed and furnished with the Securities and Exchange Commission The Ontario Securities Commission and other Securities Commission across Canada, including our management's discussion and analysis filed today We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future Your caution that such information may not be appropriate for other purposes We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions, any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except as required by law And with that, let me turn the call over to Ed Hey, thanks, Scott, and welcome everyone to the call. We had an excellent first half of the year with record financial results this past quarter We're excited to go over those with you and give you some perspective about the business environment we see right now. First, let me give you a roadmap for this call.
Management to Descartes.
Speaker 3: So let me just summarize the danger over to Allen to give a full financial details on the court. We have record financial results, the business performed well, and 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.
So let me just summarize as I hand, it over to Alan to give a full financial details on the quarter. We had record financial results. The business performed well and 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. We ended the quarter with 220.
Speaker 3: We ended the quarter with $227 million in cash, $350 million in available credit, and a market opportunity where we continue to grow the business for our customers both organically and through acquisition. We remain focused on profitable growth so that we continue to ensure our customers have secure, stable and growing technology partner that can help them with their challenges well in the future.
$7 million in cash $350 million in available credit on our market opportunity, where we continue to grow the business for our customers both organically and through acquisition. We remain focused on profitable growth. So that we continue to ensure our customers have a secure stable and growing technology partner that can help them.
What their challenges well into the future.
Speaker 3: Many thanks to all the Descartes team members for everything they've done to contribute to a great quarter and continue to have our business in an enviable position for future success. That'll turn the caller to Allen to go through our Q2 financial results in Mortetown.
Many thanks to all the Descartes team members for everything they've done to contribute to a great quarter and continue to have our business in an enviable position for future success.
With that I'll turn the call over to Alan to go through our Q2 financial results in more detail.
Speaker 2: Hey, thanks Ed. As indicated, I'm going to walk you through our financial highlights for our second quarter, which ended on July 31st.
Hey, Thanks, Ed as indicated I'm going to walk you through our financial highlights for our second quarter, which ended on July 31.
Speaker 2: We are pleased to report record quarterly revenue of 143.4 million this quarter, an increase of 17% from revenue of 123.0 million in Q2 last year.
We are pleased to report record quarterly revenue of $143 $4 million. This quarter, an increase of 17% from revenue of 123 zero million in Q2 last year.
Speaker 2: While revenue from new acquisitions, including the ground cloud acquisition completed earlier in the year, as Ed just mentioned, contribute nicely to this growth. Similar to the first quarter, and really the last several years, growth and revenue from new and existing customers from our existing solutions with the main driver and growth this quarter when compared to last year.
While revenue from new acquisitions, including the ground cloud acquisition completed earlier in the year as Ed just mentioned contributed nicely to this growth similar to the first quarter and really the last several years growth in revenue from new and existing customers from our existing solutions with the main driver in growth this quarter when compared to last year.
Speaker 2: Looking further at our numbers, our revenue mix in the quarter continued to be very strong with services revenue increasing 19% to 130.7 million or 91% of total revenue compared to 109.4 million or 89% of total revenue in the same quarter last year.
Looking further at our numbers our revenue mix in the quarter continued to be very strong with services revenue, increasing 19% to $137 million or 91% of total revenue.
Compared to $109 4 million or 89% of total revenue in the same quarter last year.
Speaker 2: Services revenue was also up in the ASEC clenchedly, increasing just over 5% from the first quarter this year, as we continue to help our customers expand with new services and additional volume.
Services revenue was also up nicely sequentially, increasing just over 5% from the first quarter. This year as we continue to help our customers expand with new services and additional volumes.
Speaker 2: Removing the impact of recent acquisitions on a like for like basis, we would estimate that our growth and services revenue from new and existing customers would have been just over 9% for the quarter when compared to the same quarter last year. Similar to the results we saw, Q1 this year.
Removing the impact of recent acquisitions on a like for like basis, we would estimate that our growth in services revenue from new and existing customers would have been just over 9% for the quarter when compared to the same quarter last year similar to the results. We saw in Q1 this year.
Speaker 2: License revenue came in 1.4 million or just 1% of revenue in the quarter, down from license revenue of 3.3 million in the second quarter last year. As we had a couple of larger than normal license deals close in the second quarter last year.
License revenue came in at $1 4 million or just 1% of revenue in the quarter down from license revenue of $3 3 million in the second quarter last year as we had a couple of larger than normal license deals close in the second quarter last year, while professional services and other revenue came in at $11 3 million or 8% of revenue.
Speaker 2: While professional services and other revenue came in 11.3 million or 8% of revenue, up approximately 10% from revenue of 10.3 million.
Up approximately 10% from revenue of $10 3 million in Q2 last year, mainly this was mainly as a result of recent acquisitions, including ground cloud.
Speaker 2: This was mainly a result of recent acquisitions including ground.
Ed Ryan: I'll start by hitting some highlights of last quarter and some aspects of how our business performed.
Allan Brett: I'll then hand it over to Alan, who will go over the Q2 financial results in order to tell.
Speaker 2: Gross margins for the second quarter was 76% of revenue for the quarter. Pretty consistently gross margins we realized, both in the first quarter this year and the second quarter last.
Gross margin for the second quarter was 76% of revenue for the quarter pretty consistent with gross margins, we realized both in the first quarter of this year and the second quarter last year.
Ed Ryan: I'll then come back and provide an update on how we see the current business environment and how our business is calculated as we enter Q3 And then we'll open it up to the operator to coordinate the Q&A portion of the call. So let's get started by looking at the core of the just ended July 31st. He metrics the monitor include revenues, profits, cash flow from operations, and returns on our investment. For this past quarter, we again had record performance in each of those areas.
Speaker 2: Operating expenses increased by approximately 19% in the second quarter over the same period last year, and this was primarily related to the impact of recent acquisitions, including ground cloud, but also from additional labor-related costs as we continue to invest in various areas of our business to prepare for future growth.
Operating expenses increased by approximately 19% in the second quarter over the same period last year and this was primarily related to the impact of recent acquisitions, including ground cloud, but also from additional labor related costs as we continue to invest in various areas of our business to prepare for future growth.
Speaker 2: So as a result of both revenue growth, off-slet slightly by our planned cost increases in the business.
So as a result of both revenue growth offset slightly by our planned cost increases in the business. We continue to see strong adjusted EBITDA growth of 12% to a record $66 million up from $54.01 million in Q2 last year.
Ed Ryan: Total revenues were up 17% from a year ago, with service revenues up almost 20%. We had $227 million cash, and we were debt-free with an under-owned $350 million on credit. We remained well-capitalized, cash-generating, debt-free, and ready to continue to invest in our business. We believe a company like ours is well positioned to continue to thrive in market conditions like these, because we've got good organic growth, plus the experience and capital capacity to execute on acquisitions. We had a good quarter of organic growth in our core services revenues, so I wanted to highlight some of the drivers of that.
Speaker 2: We continue to see strong, adjusted EBITDA growth of 12% to a record 60.6 million, up from 54.0 million in Q2 last year.
Speaker 2: As a percentage of revenue, adjusted EBITDA came in at 42.3% of revenue, down from 43.9% of revenue in Q2 last-
As a percentage of revenue adjusted EBITDA came in at 42, 3% of revenue down from 30, 30 43, 9% of revenue in Q2 last year and as mentioned in Q1. This is 11 again, primarily related to the acquisition of ground cloud earlier in the year as it came into Descartes with much lower EBITDA ratios in the rest of our biz.
Speaker 2: And as mentioned in Q1, this is, once again, primarily related to the acquisition of Ground Cloud earlier in the year, as it came into Descartes with much lower EBITDA ratios than the rest of our business.
Speaker 2: We should note that our adjusted EBITDA ratio as a percentage of revenue did increase slightly in Q2 when compared to Q1 of this year, as we've already started to work at improving the profitability on the ground cloud business, consistent with our plans, as Ed mentioned.
<unk>.
We should note that our adjusted EBITDA ratio as a percentage of revenue did increase slightly in Q2, when compared to Q1 of this year as we've already started to work at improving the profitability on the ground cloud business consistent with our plans as Ed mentioned earlier.
Speaker 2: As a result of the above, net income under gap came in at 28.1 million or 32 cents per diluted common share in the second quarter. An increase of 23% from net income of 22.9.
As a result of the above the above net income under GAAP came in at $28 1 million or <unk> 32 per diluted common share in the second quarter, an increase of 23% from net income of $22 9 million or <unk> 27 per diluted common share in the second quarter last year.
Ed Ryan: The first issue is real-time visibility. Just a refresher on this, a large part of shipping is people moving goods on other people's assets, whether they be planes, trucks, rail, or boats. There may also be intermediaries involved in arranging the shipments or making required filings, including freight workers, third party logistics providers, and customs workers. With all those assets, modes of transportation, data sources, locations, and parties involved, it can be challenging to know where a shipment is, and knowing the location of a shipment, and when that's going to arrive is critical to serving your customer and running your business.
Speaker 2: or 27 cents per diluted comment share in a second quarter last year.
Speaker 2: If we look at our offerings for the first half of the year, the trends stay the same. Revenue came in at 280.0 million, an increase of 17% from revenue of 239.4 million in the first six months last.
If we look at our operating results for the first half of the year. The trends stay the same revenue came in at 280.0 million an increase of 17% from revenue of $239 4 million in the first six months last year.
Speaker 2: For the six months here to date, adjusted EBITDA came in at 118.3 million or 42.3% of revenue, up just over 12% from 105.2 million or 43.9% of revenue last year.
For the six months year to date adjusted EBITDA came in at $118 3 million or 42, 3% of revenue up just over 12% from $105 2 million or 43, 9% of revenue last year.
Ed Ryan: Our visibility and transportation management solutions, which include macropoint, are increasingly important for our customers in this area. These solutions contribute to solid growth in the quarter for reasons including, first, our solutions are better at tracking loads. Customers pay based on the number of loads that are tracked by our solutions, so we're aligned with our customers on doing what we can to connect as many carriers and intermediaries as possible to get location information on loads.
Speaker 2: Net income for the six-month-year-to-date period increased 25% coming in at 57.5 million or 66 cents per diluted common share compared to 46.0 million or 53 cents per diluted common share in the first half of last year. Again, with higher, with higher offering profits being partially offset by higher tax.
Net income for the six month year to date period increased 25% coming in at $57 5 million or <unk> 66 per diluted common share compared to 46.0 million or <unk> 53 per diluted common share in the first half of last year again with higher with higher operating profit is being partially offset by.
Ed Ryan: We've launched new carrier self-connectables that have helped our customers get even more location coverage across their network of carriers. We've also made investments in customer success personnel to help maximize the number of loads with full visibility. The outcome has been a greater percentage of loads tracked, better data, happier customers, and strong growth.
Higher tax expense.
Speaker 2: With these strong operating results and continued strong accounts receivable collections, cash flow generated from operations came in at 52.0 million, or 86% of adjusted EBITDA in the second quarter, an increase of 12% from operating cash flow of 40.
With these strong operating results and continued strong accounts receivable collections cash flow generated from operations came in at 52.0 million or 86% of adjusted EBITDA in the second quarter, an increase of 12% from operating cash flow of $46 4 million or also <unk>, 86% of adjusted EBITDA.
Speaker 2: 6.4 million or also 86% of adjusted ebidot in the same quarter last
Ed Ryan: Second issue is we're winning more deals with seeing strong demand for visibility. The real-time visibility market is not without competitors. However, we're having good success at securing new customers, and welcoming back some old ones, because they're commitment to tracking success. We have a broader network that's across more modes of transportation than our competitors, and that's being recognized by customers as they choose their visibility solution for the future. Our customers also take comfort in our reliability, and that we're operating a business that they know will be around certain kind of long-term.
In the same quarter last year.
Speaker 2: For the six month year-to-date operating cash flow has been 100.9 million or 85% of our Adjusted EBITDA, up 11% from 90.8 million in the first half of last year.
For the six months year to date operating cash flow has been $109 million or 85% of our adjusted EBITDA up 11% from $98 million in the first half of last year and we should mention as always going forward. We expect to continue to see strong cash flow conversion and generally expect cash from operations.
Speaker 2: And we should mention, as always, going forward, we expect to continue to see strong cash flow conversion and generally expect cash from operations to be between 80% to 90% of our adjusted EBITDA. In the periods ahead, subject to any unusual fluctuation or future changes in contingent consideration payments that we'll discuss later as I comment on our outlook for the second half.
To be between 90, 80% to 90% of our adjusted EBITDA in the periods ahead subject to any unusual fluctuations fluctuations or future changes in contingent consideration payments that we'll discuss later as I comment on our outlook for the second half of the year.
Ed Ryan: The third issue is visibility is embedded in more decarct solutions. Some customers come to us just for visibility, but others are using decarct solutions and are looking to have visibility as an add-on to what they're already doing. Each time we expand our solution set, including by way of acquisition, we look for how we can embed visibility into the new solutions to provide an easier mechanism for our customers to track their loads. We believe that our best source of business is often our existing expansive and supportive customers.
Speaker 2: So overall, we're once again pleased with our operating results. In the quarter, a strong organic growth and solid performance from our recent acquisitions resulted in 17% growth in revenue and a 12% increase in adjusted EBITDA for the...
So overall, we're 11 again pleased with our operating results in the quarter as strong organic growth and solid performance from our recent acquisitions resulted in 17% growth in revenue and a 12% increase in adjusted EBITDA for the quarter.
Speaker 2: If we turn our attention to the balance sheet, our cash balance is totaled 227 million at the end of July , an increase of approximately 45 million from the end of the first quarter in April .
If we turn our attention to the balance sheet, our cash balances totaled $227 million at the end of July an increase of approximately $45 million from the end of the first quarter in April .
Ed Ryan: So we're making dedicated efforts to make visibility easier for those customers Second big issue is routing the scheduling mobile solutions and big contributor to our revenue success this quarter These solutions are principally for when you're managing your own fleet of vehicles rather than hiring space on other people's vehicles. We believe we're the most experienced company in this market and have to premiere routing the scheduling solutions to offer. Our customers in this area have faced recent challenges including rising labor costs, challenging challenges in security data, rising fuel prices and customer demands for accurate delivery windows.
Speaker 2: While we generate 52 million in cash flow from operations, we also used 6 million of our existing cash analysis to complete an urn out or contitue consideration payment on a past acquisition. We'll also add 2 million in capital additions during the course.
While we generated $52 million in cash flow from operations. We also used $6 million of our existing cash balances to complete and earn outs or contingent consideration payment on a past acquisition, while also adding $2 million in capital additions during the quarter.
Speaker 2: As a result, we currently have our 227 million of cash as well as a $350 million line of credit available under or credit facility available to deploy towards future acquisition.
As a result, we currently have our 227 million of cash as well as a $350 million line of credit available under our credit facility available to deploy towards future acquisitions. So we continue to be well capitalized to allow us to consider all opportunities in our market consistent with our business plan.
Speaker 2: So we continue to be well-capitalized to allow us to consider all opportunities in our market consistent with our business.
Speaker 2: As we turn our attention to the second half of the physical 2024, we should note the fault.
As we turn our attention to the second half of fiscal 2024, we should note the following.
Ed Ryan: This is contributed to strong demand with new customer projects and existing customers returning retuning their solutions. We've also been innovative in this market which is contributed to our market leadership. We recently launched a new generation route planning solution that is being brought up with customers and we've made investments in our solutions through acquisitions, safety solutions from ground cloud and final mile delivery tracking from locals. All factors that contributed to good growth in this area.
Speaker 2: After incurring approximately 3.4 million in capital additions in the first half of the year, we expect to incur approximately two to 3 million additional capital additions for the balance of the year. At this point, we currently expect the second half of the year. We'll use approximately 22.8 million of our cash to pay additional consideration payments on two acquisitions.
After incurring approximately $3 4 million in capital additions in the first half of the year, we expect to incur approximately $2 million to $3 million additional capex capital additions for the balance of the year.
At this point, we currently expect the second half of the year, we will use approximately $22 $8 million of our cash to pay additional contingent contingent consideration payments on two acquisitions.
Speaker 2: Well, the entire 22.8 million estimated contingent consideration to be paid is now accrued for on our balance sheet. 12.7 million of this balance relates to the portion of the urn of arrangements that were accrued for at the time of the acquisition and will reflect it in cash flow from financing activity.
While the entire $22 8 million.
Estimated contingent consideration to be paid is now accrued for on our balance sheet $12 $7 million of this balance relates to the portion of the earn out arrangements that were accrued for at the time of the acquisition and will be fully reflected in cash flow from financing activities.
Ed Ryan: The third area is global trade intelligence. Once again we saw good growth in the global trade intelligence solutions in our business. The solutions generally fall into three buckets. The first bucket is competitive intelligence. Our data mine solutions provide information on trade flows, historical classification of goods and other logistics and supply chain intelligence. This information can be used to help make decisions about your own supply chain but also to see how competitive you are with other company supply chains.
Speaker 2: while the remaining balance of approximately 10 million will be reflected in cash flow from offering activities when paid, as a result of these acquisitions have been better than our initial expectations.
While the remaining balance of approximately $10 million will be reflected in cash flow from operating activities. When paid as a result of these acquisitions have been better than our initial expectations.
Speaker 2: After incurring amortization costs of $30.2 million in the first half of the year, we expect amortization expense will be approximately $29.8 million for the second half of the year. With this figure being subject to adjustment for foreign exchange changes and future acquisition.
After incurring amortization costs of $32 million in the first half of the year, we expect amortization expense will be approximately $29 8 million for the second half of the year with this figure being subject to adjustment for foreign exchange changes and future acquisitions.
Ed Ryan: Recent attention on the efficiency of supply chains is helped to our demand in this area. In addition our data is front and center and many leading business publications as a source for data about logistics and supply chain which has also been a good demand driver for us.
Speaker 2: Hard income tax rate for the second quarter came in as approximately 27% of free tax income, which is right around our blended statutory tax.
Our income tax rate for the second quarter came in at approximately 27% of pretax income, which is right around our blended statutory tax rate.
Ed Ryan: The second bucket is tariff and duty data to make intelligent shipping decisions. We provide up to date data about tariff and duty rates and rules around the world which can be used by leading global trade management systems to help run international supply chains. We have seen an increased level of change in tariff and duties principally as a consequence of geopolitical tensions and trade disputes. This has changed the design of many supply chains and has increased the importance of having accurate and timely information like ours.
Speaker 2: Looking into the second half of the year, we currently expect our tax rate will continue to be in the range of 25 to 30% of our pre-tax income, or somewhere either side of our statutory budget.
Looking into the second half of the year. We currently expect our tax rate will continue to be in the range of 25% to 30% of our pre tax income or somewhere either side of our statutory blended rate.
Speaker 2: However, as always we should state that our tax rate may fluctuate quarter to quarter from one-time items that may arise as we operate internationally across multiple
However, as always we should state that our tax rate may fluctuate quarter to quarter from onetime items that may arise as we operate internationally across multiple countries and finally after incurring stock based compensation expense of $7 4 million in the first half of this year. We currently expect stock compensation will be approximately $9 3 million for the balance of.
Speaker 2: Finally, after entering Stockcase Compensation expense of 7.4 million in the first half of this year, we currently expect Stock Compensation will be approximately 9.3 million for the balance.
Ed Ryan: The third bucket is compliance. These solutions help our customers make sure they are not shipping things to people they should have been. This may be to specific people, to specific countries, to specific geographies or in some cases specific goods being shipped. These restrictions have expanded and increased in complexity as the geopolitical tensions have increased and trade disputes have emerged. In addition to governments in the larger economies left in the United States have increased the resources dedicated to ensuring compliance and have levies substantial financial penalties and firms not taken compliance seriously. We have continued to seek good demand for these compliance solutions as a result.
Speaker 2: subject to any forfeitures of stock options or shared goods. And with that, I'll turn it back over to Ed to wrap up with some closing comments, as well as our baseline calibration.
The year subject to any forfeitures of stock options or share units and with that I'll turn it back over to Ed to wrap up with some closing comments as well as our baseline calibration for Q3, Hey, great. Thanks Alan.
Speaker 3: Hey, great. Thanks, Alan. With a Q3 a month in, we remain confident in our business. The cost is about the broader economic circumstances and various statistics and commentary relating to the supply chain, which is tomorrow.
Q3, a month and we remain confident in our business, but cautious about the broader economic circumstances in various statistics and commentary relating to the supply chain and logistics markets.
Speaker 3: On the broader economic front, which continues high interest rates, pervasive conflict in Ukraine, labor availability challenges, and various recessionary pressures in economic discussion.
On the broader economic Frontlist continued high interest rates pervasive conflict in the Ukraine labor availability challenges in various recessionary pressures and economic discussion.
Ed Ryan: The next area is e-commerce. This continues to be a growing market and part of our business. We have made investments into these solutions with additional leadership and also by way of acquisition with our purchase of XPS within the past year. The parcel market has seen some recent challenges with labor challenges and UPS changing service preferences at the U.S. Postal Service and FedEx Restructuring. However, our share in the market continues to increase as we work with partners to find the most efficient way for our customers to get their deliveries made. So good acquisition and organic contribution in the quarter.
Speaker 3: In the supply chain and logistics market, here's a few things we're noting.
And the supply chain and logistics market, Here's a few things were noted.
Speaker 3: First is shipping volumes. Shipping volumes across various modes of transportation are below their pandemic highs and more closely tracking Greek pandemic trends. In addition, there are some current challenges such as the reduced flow through the Panama Canal caused by low water levels that could impact shipping alternatives.
First is shipping volumes shipping volumes across the various modes of transportation are below their pandemic highs and more closely tracking pre pandemic trends. In addition, there are some current challenges such as the reduced flow through the Panama canal caused by low water levels that could impact shipping alternatives.
Speaker 3: Second is retailer inventory. There's high levels of retailer inventory is potentially impacting fall replenishment cycles. Inventories aren't decreasing, employing retailers are matching demand with replenishment and potentially carrying more safety stock.
The second is a retailer inventories there's high levels of retailer inventories potentially impacting fall replenishment cycles inventories aren't decreasing imply and retailers are matching demand with replenishment and potentially carrying more safety stock.
Ed Ryan: We're very happy with how the business performed in the quarter, and in particular with the U.S. Canada growth, the business was able to produce a few comments on our two most recent acquisition editions.
Speaker 3: The third is consumer demand. There's uncertain consumer demand coming into this peak bienncy, and in particular, it's uncertain how spending how it's will split between durable goods and services and experience.
The third is consumer demand there is uncertain consumer demand coming into this peak buying season in particular, it's uncertain, how spending Harris will split between durable goods and services and experiences overall U S. Consumer spending is still high but theres caution as we approach the holiday season.
Ed Ryan: The first is on ground cloud. We combine with ground cloud in February, ground cloud is particularly strong in safety and compliance solutions. They help identify safety incidents, faced by drivers, and provide responsive and targeted video training on challenges drivers face. They also help companies manage delivery obligations as they have as of contractors to other delivery brands such as FedEx. This was one of our larger acquisitions, and when we first combined, we indicated we anticipated some impact overall on our adjusted EBITDA margin, which we saw in Q1.
Speaker 3: Overall, US consumer spending is still high, but there's caution as we approach the holidays.
Speaker 3: For instance, some capacities left the market. The US truck market has seen some capacity come out of the market with the recent bankruptcy of yellow. The market continues to adjust the post-candemic volumes and its possible work capacity will leave. In error we've seen capacity adjustments with less reliance on pure air freighters.
The forces some capacity has left the market. The U S truck market has seen some capacity come out of the market with the recent bankruptcy of yellow.
The market continues to adjust the post pandemic volumes and it's possible more capacity will leave an air we've seen capacity adjustments.
Less reliance on pure air freighters.
Speaker 3: Fifth, additional trade restrictions. There continue to be new restrictions announced, principally relating to the war in Ukraine, and in connection with burgeoning trade tensions between the US and China.
With additional trade restrictions there continue to be new restrictions announced principally relating to the war in Ukraine and in connection with burgeoning trade tensions between the U S and China.
Ed Ryan: We've made good progress on integration and actually saw a slight uptake in aggregate adjusted EBITDA margin in this quarter, so we're hoping that both will for the future. Finally, FedEx has recently announced that it may increase the number of shipments that will move to the independent contractor network, so we saw some good initials and approved demand for that.
Speaker 3: Some new restrictions have been announced with respect to investment in and trade in ship manufacturing. AI and quantum technologies. These restrictions can be positive for our global trade intelligence business, but can also impact free buying.
Some new restrictions have been announced with respect to investment and trade in chip manufacturing.
And quantum technologies. These restrictions can be positive for our global trade intelligence intelligence business, but can also impact freight volumes.
Ed Ryan: Second, our acquisition is locals. This business provides final mile visibility on deliveries, so if you're used to watching your Uber driver or food delivery vehicle come down the street to your house, locals technology replicates that experience for delivery of other goods. This was a key investment in around and scheduling mobile space, something our own customers need as they seek to provide a better delivery experience for their own customers. This investment was critical to some of our new customers trusting their fleet management to take care of.
Speaker 3: There's also labor challenges. Labor negotiations have created challenges for UPS, West Coast Port and Yellow, and may impact other United Supply Chain players.
There is also the labor challenges labor negotiations have created challenges for UBS West coast ports, and yellow and May impact other unionized supply chain players.
Speaker 3: Next, there's some logistics participants planning for a muted peak season. General commentary from logistics participants is bracing for lower volumes in the second half of the year, with some companies taking proactive cost reduction activities. This is illustrative of the pervasive season.
Next there is some logistics participants planning for a multiple muted peak season general commentary from logistics participants is bracing for lower volumes in the second half of the year with some companies taking proactive cost reduction activities. This is illustrative of the pervasive sentiment of caution.
Ed Ryan: So let me just summarize the hatred over to Allen to give full financial details in the quarter. We had record financial results. The business performed well and 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. We ended the quarter with $227 million in cash, $350 million in available credit and a market opportunity where we continue to grow the business for our customers both organically and through acquisition. We remain focused on profitable growth so that we continue to ensure our customers have access to our stable and growing technology partner that can help them with their challenges well in the future.
Speaker 3: And then finally, distribution of parcel volumes among larger players is uncertain. As I mentioned earlier, UPS has some labor challenges which may have resulted in some parcel volume cautiously being redirected to other players. FedEx has publicly indicated it will be moving more parcel volume to its ground division with independent contractors and away from its express division using employees.
And then finally distribution of parcel volumes among larger players is uncertain.
As I mentioned earlier Ups's, some labor challenges, which May result in some parcel volume cautiously being redirected to other players Fedex has publicly indicated it will be moving more pastoral parcel volume to its ground division with independent contractors and away from its express division using employees.
Speaker 3: US Postal Services Implementing Variously Service Adjustment as it seeks to
U S postal services implemented various new service adjustments as it seeks to compete and Amazon has announced the three entering the parcel delivery business. All of this combined to provide a very competitive environment with uncertainty as to how the volumes will shake out among the various providers.
Speaker 3: And Amazon has announced its re-entering the porcelain delivery business. All of this combines the provider very competitive environment with uncertainty as to how the bonds will shake out among the various providers.
Ed Ryan: Many thanks to all the Descartes team members for everything they've done to contribute to a great quarter and continue to have our business in an enviable position for future success.
Speaker 3: So there's just some of the things we're hearing from our customers and seeing in our business. Things that also inform our calibration to the quarter. Our business is designed to be predictable and consistent. We believe that stability and reliability are valuable to our customers and police and our broader stakeholders. To deliver this consistency, we continue to operate from the following points.
So those are some of the things we're hearing from our customers and seen in our business things that also inform our calibration for the quarter. Our business is designed to be predictable and consistent we believe 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.
Allan Brett: That'll turn the caller to Allen to go through our Q2 financial results in more detail. Hey, thanks Ed. As indicated, I'm going to walk you through our financial highlights for our second quarter which ended on July 31st. We are pleased to report record quarterly revenue of 143.4 million this quarter and increase a 17% from revenue of 123.0 million in Q2 last year. While revenue from new acquisitions, including the ground cloud acquisition completed earlier in the year as Ed just mentioned, contribute nicely to this growth.
Speaker 3: Our long-term plan is for our business to grow just the divita 10 to 15 percent annually. We grow through a combination of organic growth and acquisition.
Our long term plan is for our business to grow adjusted EBITDA, 10% to 15% annually with growth through a combination of organic growth and acquisitions, we pick 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 connect.
Speaker 3: We take a neutral party approach to building and operating solutions on our global logistics network. We don't favor any particular party. We run our business for all supply chain participants, connecting shippers, carriers, logistics service providers, and customs authorities.
Allan Brett: Similar to the first quarter and really the last several years, growth and revenue from new and existing customers from our existing solutions was the main driver and growth this quarter when compared to last year. Looking further at our numbers, our revenue mix in the quarter continued to be very strong with services revenue increasing 19% to 130.7 million or 91% of total revenue compared to 109.4 million or 89% of total revenue in the same quarter last year.
Shippers carriers logistics service providers and customers authorities when we over perform we try to invest that over performance back into our business, we focus on recurring revenues and establishing relationships with customers for life.
Speaker 3: When we over-perform, we try to invest that over-performance back into our business, we focus on recurring revenues and establishing relationships with customers for life, and we thrive on operating a predictable business that allows us forward visibility to our revenues and investment paybacks. In our Q2 report, we provided a comprehensive description of baseline revenues, baseline calibration, and their limitations.
And we thrive on operating a predictable business that allows us forward visibility to our revenues and investments paybacks.
And our Q2 report we provided a comprehensive description of baseline revenues baseline calibration and their limitations.
Speaker 3: As of August 1st, 2023, using foreign exchange rates of 75 cents to the Canadian dollar, $1.10 to the euro and $1.28 to the Great Britain pound, we estimate that our baseline revenues for the third quarter of 2024 are approximately $124 million and our baseline operating expenses are approximately $78 million.
As of August one 2023, using a foreign exchange rates of 75 to the Canadian dollar.
Allan Brett: Services revenue was also up nicely sequentially, increasing just over 5% from the first quarter of this year as we continue to help our customers expand with new services and additional volumes. Removing the impact of recent acquisitions on a like for like basis, we would estimate that our growth in services revenue from new and existing customers would have been just over 9% for the quarter when compared to the same quarter last year, similar to the results we saw at Q1 this year.
$1 10 to the euro and $1 28.
Great Britain pound, we estimate that our baseline revenues for the third quarter of 2024 or approximately $124 million and our baseline operating expenses are approximately $78 million.
Speaker 3: We consider this to be our baseline and just to be able to calibration of approximately $46 million for the third quarter of 2024 Approximately 37% of our baseline revenues as at August 1st 2023
We consider this to be our baseline adjusted EBIT, the calibration of approximately $46 million for the third quarter of 2024 or approximately 37% of our baseline revenues as at August one 2023.
Allan Brett: License revenue came at 1% 1.4 million or just 1% of revenue in the quarter down from license revenue of 3.3 million in the second quarter last year as we had a couple of larger than normal license deals close in the second quarter last year. While professional services and other revenue came in at 11.3 million or 8% of revenue, up approximately 10% from revenue of 10.3 million in Q2 last year, this was mainly a result of recent acquisitions including ground cloud.
Speaker 3: We continue to expect that we'll operate in an adjusted EBITDA operating margin range of 40 to 45 percent. Our margins will vary in that range given such things as foreign exchange movements and the impact of acquisitions as we integrate them into our business.
We continue to expect to operate in an adjusted EBITDA operating margin range of 40% to 45% our margin we're very in that range, given such things as foreign exchange movements and the impact of acquisitions as we integrate them into our business last quarter ground ground cloud impacted our margin. While we started the integration work to bring it up to our desire.
Speaker 3: Last quarter, Groud Cloud impacted our margin while we started the integration work to bring it up to our desired Descartes contribution levels. The integration activities have gone well, we've already seen some margin improvement in Q2, and we're planning for some additional margin improvement going forward, absent any other acquisition activities.
Allan Brett: Growth margin for the second quarter was 76% of revenue for the quarter, pretty consistently growth margins we realized both in the first quarter this year and the second quarter last year. Operating expenses increased by approximately 19% in the second quarter over the same period last year and this was primarily related to the impact of recent acquisitions including ground cloud but also from additional labor related costs as we continue to invest in various areas of our business to prepare for future growth.
To car contribution level.
The integration activities have gone well, we've already seen some margin improvement in Q2, and we're planning for some additional margin improvement going forward absent any other acquisition activity.
Speaker 3: We've got lots of excited things planned in our business. It remains uncertain, broader economic and supply chain environment, but we believe our proven track record of execution, solid capital structure, and customer focus will serve us well. Thanks everyone for joining us on the call today, as always, we're available to talk to you about our business and whatever manner is most convenient for you. And with that, operator, alternative, or anything for questions.
Got lots of exciting things planned in our business and it remains uncertain broader economic and supply chain environment, but we believe our proven track record of execution solid capital structure and customer focus will serve us well 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.
Allan Brett: So as a result of both revenue growth, off-slet slightly by our planned cost increases in the business, we continue to see strong adjusted EBITDA growth of 12% to a record 60.6 million up from 54.0 million in Q2 last year. As a percentage of revenue, adjusted EBITDA came in at 42.3% of revenue down from 43.9% of revenue in Q2 last year and as mentioned in Q1, this is once again primarily related to the acquisition of ground cloud earlier in the year as it came into day card with much lower EBITDA ratios than the rest of our business.
Operator, I'll turn it over to you for questions.
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 1 on your touchtone phone.
Thank you, ladies and gentlemen, we will now conduct a question and answer session. If you have a question. Please press star followed by the number one on your Touchtone phone.
Speaker 1: You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press Start.
You will hear at <unk> request.
If you would like to cancel your request please press star two.
Speaker 1: Please ensure you lift the handset if you're using a smartphone before pressing any key.
Please ensure you look you had said that youre seeing us carefully before addressing any keith.
Speaker 1: Your first question comes from the line of Matt Fogg from William Blair. Your line is now open.
First question comes from the line of Matt Pfau from William Blair. Your line is now open.
Yes.
Speaker 4: Hey, great. Thanks, guys. Ed, I wanted to follow up on some of the comments you made about potential headwinds in the back half of the year here. How should we think about those in terms of, you know, the potential impact on your business? Part of your business is transaction-based, but it's not as simple as just being tied to shipping volumes. So how do we think through the potential puts and takes there in terms of the impact on your revenue?
Allan Brett: We should note that our adjusted EBITDA ratio as a percentage of revenue did increase slightly in Q2 when compared to Q1 of this year as we've already started to work at improving the profitability on the ground cloud business consistent with our plans as Ed mentioned earlier. As a result of the above, net income under gap came in at 28.1 million or 32 cents per diluted common share in a second quarter, an increase of 23% from net income of 22.9 million or 27 cents per diluted common share in a second quarter last year.
Okay, Okay, great. Thanks, guys I.
I wanted to follow up on some of the comments you made about potential headwinds in the back half of the year here.
How should we think about those in terms of the potential impact on your business part of your business is transaction based but it's not as simple as just being tied to shipping volume. So how do we think through the potential puts and takes there in terms of the impact on your revenues.
Speaker 3: Well, as we've been talking about it for a year or two now, we have a lot of things going very well in our business and maybe it will be going better if, you know, at some point in the future, transportation transactions, you know, went down. We don't know what the future is going to bring. We're just running the business.
Well as we've been talking about it for a year or two now we have a lot of things going very well and our business in may.
Maybe it will be going better if.
Allan Brett: If we look at our offerings also the first half of the year, the trends stayed the same. Revenue came in at 280.0 million and increase of 17% from revenue of 239.4 million in the first six months last year. For the six months year to date, adjusted EBITDA came in at 118.3 million or 42.3% of revenue up just over 12% from 105.2 million or 43.9% of revenue last year. Net income for the six month year to date period increased 25% coming in at 57.5 million or 66 cents per diluted common share compared to 46.0 million or 53 cents per diluted common share.
At some point in the future.
Transportation transactions went down we don't know what the future is going to bring we're just running the business.
Speaker 3: looking at what's going on in the market and going, hey, you know, there's some uncertainty out there, so we'll see what happens.
Looking at what's going on in the market and go Hey, there's some uncertainty.
Certainty out there so we'll see what happens.
Speaker 3: As you've seen in the past, transactions have gone down and we still perform very well. We do that because we sell a lot of software outside of that 60% of our recurring revenues.
As you've seen in the past tariff transportation transactions have gone down and we still performed very well.
We do that because we sell a lot of software outside of that 60% of our recurring revenues outside of transaction base volume and even in the transaction space, we tend to be.
Speaker 3: outside of transaction-based volume and even the transactions space we tend to be
Speaker 3: picking up more volume over the course of quarter or a year because our
Picking up more volume over the course of a quarter or a year because our customer.
Speaker 3: Our customers are doing more business with us and as a result, we end up doing pretty well even in the face of the industry having a lackluster time. We'll see what happens. I don't know what's going to happen the rest of the year.
Customers are doing more business with us and as a result.
Allan Brett: Again, with higher offering profits being partially offset by higher taxes. With these strong operating results, and continued strong accounts for receivable collections, cash flow generated from operations came in at 52.0 million, or 86% of a just the EBITDA in the second quarter, an increase of 12% from operating cash flow of 46.4 million, or also 86% of a just the EBITDA in the same quarter last year. For the six months year-to-date operating cash flow has been 100.9 million, or 85% of our just the EBITDA, up 11% from 90.8 million in the first half of last year.
We ended up doing pretty well even in the face of the industry are.
Having a lackluster time, so we'll see what happens I don't know what's going to happen the rest of the year.
Speaker 3: We've heard different things. Same stuff you probably read in the paper. We'll see what happens, but we like our chances either way.
We've heard different things safety.
Same stuff, you're probably reading the paper, we'll see what happens, but we like our chances either way.
Speaker 4: Great, and just wanted to follow up on the macro point. You called out that that's been an area of strength and performing well in a trucking environment that was oversupplied. How does trucking capacity coming out of the system potentially impact that? Is that anything material to think about?
Great and just wanted to follow up on the macro point you called out that that's been an area of strength and performing well.
Any trucking environment that was oversupplied.
As trucking capacity.
To be coming out of the system potentially impact that is that anything material to think about.
Speaker 3: That's interesting. That's actually one of the areas I think about when I made the comment a minute ago. And a macro point continues to grow in a relatively flat truck environment because it continues to pick up more and more customers and more volume from our competitors. I wonder where that is.
Well, it's interesting that's actually one of the areas I think about when I made the comment a minute ago and a macro point continues to grow.
Allan Brett: And we should mention, as always, going forward, we expect to continue to see strong cash flow conversion, and generally expect cash from operations to be between 90 to 90% of our just the EBITDA. In the periods ahead, subject to any unusual fluctuations, or future changes in contingent consideration payments that we'll discuss later, as I comment on our outlook for the second half of the year.
In a relatively flat truck environment.
Because it continues to pick up more and more customers and more volume from our competitors I went over that and some of the prepared comments on the call today, but but.
Speaker 3: some of the prepared comments on the call today, but, but, but,
Speaker 3: macro points, you know, big beneficiary that is as people realize the importance of having a network and they value that over a flashy application because we can track more loads, more and more customers are settling with Descartes because they're saying, hey, that's what's most important.
Macro points, a big beneficiary of that is as people realize the importance of having a network and the value that over a flashy application because we can track more loads more and more customers.
Allan Brett: So, overall, we're once again pleased with our operating results in the quarter as strong organic growth and solid performance from our recent acquisitions resulted in 17% growth in revenue, and a 12% increase in Adjusted EBITDA for the quarter. If we turn our attention to the balance sheet, our cash balance is totaled 227 million at the end of July, an increase of approximately 45 million from the end of the first quarter in April.
Are settling with the car because they are saying hey that that's what's most important.
Speaker 3: My ability to put in 100 loads and be able to track high 80s, low 90s percentage of those loads is much more important than.
My ability to put in 100 loads will be able to track.
High Eighty's low nineties.
Manage of those loans is much more important than that.
Speaker 3: the visibility application of the music myself. Most of the time they're not even using an application to look at these things.
The visibility application of amusing myself most of the time, they're not even using an application and look at these things.
Allan Brett: While we generate 52 million in cash flow from operations, we also use 6 million of our existing cash balances to complete an urn out or contingent consideration payment on a past acquisition, while also adding 2 million in capital additions during the quarter. As a result, we currently have our 227 million of cash, as well as a $350 million line of credit available under our credit facility available to deploy towards future acquisitions.
Great. Thanks, guys for taking my questions I appreciate it.
Hey, Thanks, Matt.
Yeah.
Speaker 1: Your next question comes from the line of fall labor from RBC. Your life is not over.
Your next question comes from the line of Paul paper from RBC. Your line is now open.
Speaker 5: Thanks so much for your afternoon. Just a question on the urnodes. I don't even call them the past. You're having this degree of urnodes. And what's changed now with several acquisitions that are leading to these urnodes versus acquisitions in the past?
Alright, thanks, so much good afternoon.
<unk> on the earn outs.
Paul in the past you, having a degree of earn out.
James.
Now with.
Allan Brett: So, we continue to be well capitalized to allow us to consider all opportunities in our market consistent with our business plan. As we turn our attention to the second half of the physical 2024, we should note the following. After incurring approximately 3.4 million in capital additions in the first half of the year, we expect to incur approximately 2 to 3 million additional capital additions for the balance of the year. At this point, we currently expect the second half of the year, we will use approximately 22.8 million of our cash to pay additional contingent consideration payments on two acquisitions.
Several acquisitions that are aligned to these earn outs versus acquisitions in the past.
Speaker 3: Yeah, I just think question any, right? That several of the deals we've done in the past couple of years have done that. I think it's, you know, there was a...
Yes, thanks for the question and answer Youre right.
Several of the deals we've done in the past couple of years have done that I think it's.
There was a press.
Speaker 3: We heard we talked about it on past calls. It's a rebalancing going on where everything was selling for high dollar volumes as everyone was booming coming out of the pandemic. And when that started to slow down, companies were finding it hard to get people to pay up for acquisitions. And there's not one way to bridge that gap. We've used it effectively a few of the times. It's not really our first choice, rather just to pay cash for something and then the asset out right. But
You heard me talk about it on past calls a rebalancing going on where everything was selling for high dollar volumes as everyone was booming coming out of the pandemic and when that started to slow down.
Allan Brett: While the entire 22.8 million estimated contingent consideration to be paid is now accrued for on our balance sheet, 12.7 million of this balance relates to the portion of the urn of arrangements that were accrued for at the time of the acquisition, and will be reflected in cash flow from financing activities, while the remaining balance of approximately 10 million will be reflected in cash flow from offering activities when paid. As a result of these acquisitions have been better than our initial expectations.
Companies were finding it hard to get people to pay up for acquisitions in an earn out is one way to bridge that gap. We've used it effectively a few other times its not our really our first choice would rather just pay cash for something and own the asset outright but.
Speaker 3: when there is a dispute about what the fair price is for something.
When there is.
Let's say dispute about what the fair prices for something.
Speaker 3: We've used them to get over that hurdle and quite effectively most of the time or in fact every time.
We've used them to get over that hurdle and quite effectively most of the time or in fact every time we've.
Speaker 3: We have an turnout in a process. We're very happy for that acquisition to get here now.
We have an earn out in a process.
We're very happy for that for that acquisition to get the earn out because.
Speaker 3: That usually means where we bought a business is doing very well and probably going to do very well for us
That usually means we bought a business is doing very well and probably going to do very well for us in the future. So.
Allan Brett: After incurring amortization costs of 30.2 million in the first half of the year, we expect amortization expense will be approximately 29.8 million for the second half of the year, with this figure being subject to adjustment for foreign exchange changes and future acquisitions. Our income tax rate for the second quarter came in as approximately 27% of free tax income, which is right around our blended statutory tax. We're looking into the second half of the year.
Speaker 3: We've used it as a front-end for our first choice, but certainly something we've done when we take it to purpose.
We've used it it's brought on our first choice, but certainly something we've done when we pick it's appropriate.
Speaker 5: And then shifting to one of your more recent acquisitions, ground clouds, you mentioned using the integration go well on some margin expansion. And how do we think about the long-term margin profile at that business? I mean, do you think you can get it up to the, the cupping average margin profile?
And then shifting to one of your more recent acquisitions.
Brown crowd.
You mentioned.
<unk>.
The integration go well and margin expansion.
How do we think about the long term margin profile.
That business I mean, you can get it up to the company operating margin profile.
Allan Brett: We currently expect our tax rate will continue to be in the range of 25 to 30% of our pre-tax income, or somewhere either side of our statutory blended rate. However, as always we should state that our tax rate may fluctuate quarter to quarter from one-time items that may arise as we operate internationally across multiple countries. And finally, after incurring stock case compensation expense of $7.4 million in the first half of this year, we currently expect stock compensation will be approximately $9.3 million for the balance of the year, subject to any forfeitures of stock options or share gains.
Paul.
Speaker 3: We'll see, our hope is to, you know, we bought it much, much lower than that and our hope is to get it up as close as we can to that, I don't know.
We will see our hope is to.
We bought at much much lower than that and our hope is to get it up.
As close as we can do that I don't know if or when.
Speaker 3: We have our sights set on the company average margin profile right now, but certainly we'd like to get it up 10, 12 points, which will get it close.
We have our sights set on the company.
Average margin profile right now, but certainly we'd like to get it up 10 to 12 points, which you'll get close.
Speaker 5: And that would be great to see. The, it's a long question, just on the M&A environment in general. You know, your comments about the macro environment express a lot of caution, are you seeing that caution still in the, in the M&A environment in regards to evaluation?
And that would be great.
Just the last question just on the M&A environment in general.
Your comments about the macro environment expressed a lot of caution are you seeing that cost and fill in the M&A environment in regards to the evaluations.
Ed Ryan: And with that, I'll turn it back over to Ed to wrap up with some closing comments, as well as our baseline calibration for Q3. Hey, great. Thanks, Alan. With a Q3 a month end, we remain confident in our business. The cost is about the broader economic circumstances and various statistics and commentary relating to the supply chain and logistics markets. On the broader economic front, which continues high interest rates, the pervasive conflict in the Ukraine, labor availability challenges and various recessionary pressures and economic discussions.
Speaker 3: I think we're starting to see any press see in some of the deals we've been doing now. We're getting more deal done now than we were six, eight months ago. So I think it's starting to settle itself out right now.
I think we're starting to see any compressing some of the deals we've been doing we're getting more deals done now than we were six to eight months ago. So I think it's starting to settle itself out right now and we will see what happens in the economy. If the economy gets worse is probably going to get easier for us to get stuff done.
Speaker 3: We will see what happens in the economy. The economy gets worse. It's probably going to get easier for us to get stuff done.
Speaker 3: I think it's better, you know, people might start saying I want more money for the company's own So I love to see what happens, but we like what we see right now. We're happy to be able to get You know what we think are are very high quality acquisitions done at a price we think we can you know make money for a share or something
If it gets better people might start, saying, hey, I want more money for the for the companies themselves. So we'll have to see what happens but.
We like what we like what we see right now or haven't been able to get what we think are very high quality acquisitions done at a price. We think we can make money for our shareholders.
Ed Ryan: In the supply chain and logistics market, here's a few things we're noting. First is shipping volumes. Shipping volumes across various modes of transportation are below their pandemic highs and more closely tracking Greek pandemic trends. In addition, there are some current challenges, such as the reduced flow through the Panama Canal, caused by low water levels that could impact shipping alternatives. The second is retailer inventory. There's high levels of retailer inventories potentially impacting fall replenishment cycles. Inventories aren't decreasing and applying retailers are matching demand with replenishment and potentially carrying more safety stock.
Alright, thanks for taking the questions.
Hey, Thank you Paul.
Speaker 1: Your next question comes from the line of Justin Long from Stephens, your line is now open.
Your next question comes from the line of Justin Long from Stephens. Your line is now open.
Speaker 6: Thanks and I guess to start building on that last question it sounds like valuations on acquisitions Have started to come down and you talked about that the last couple of quarters are so in terms of the deal activity Have you seen things pick up and maybe could you talk about your confidence and deploying capital in the back Half of the year. I know there weren't any acquisitions in the most recent quarter
Thanks, and I guess to start building on that last question it sounds like valuations on acquisition.
Started to come down and you've talked about that in the last couple of quarters or so in terms of just deal activity have you seen things pick up and maybe could you talk about your confidence in deploying capital in the back half of the year I know there werent any acquisitions in this most recent quarter.
Ed Ryan: The third is consumer demand. There's uncertain consumer demand coming into this peak buying season in particular. It's uncertain how spending how it will split between durable goods and services and experiences. Overall, US consumer spending is still high, but there's caution as we approach the holiday season.
Speaker 3: Yeah, I think that's right. I think we're starting to see prices come into what we think is a reasonable range. That's where we're able to get acquisitions done. And I think we're starting to see more stuff for sale. Again, you know, if there was a kind of a lag there for six months or so, and no one know what to do, I think it's starting to open.
Yes, I think Thats right I think we're starting to see prices come into what we think is a reasonable range thats where were able to get acquisitions done and I think we're starting to see more stuff for sale.
Ed Ryan: The fourth is some capacities left the market. The US truck market has seen some capacity come out of the market with the recent bankruptcy of yellow. The market continues to adjust the post-pandemic volumes and its possible more capacity will leave. In error, we've seen capacity adjustments with less reliance on pure air freighters.
Again, there was a kind of a lag there for six months or so where no one knew what to do with I guess starting to open up now and we're starting to see.
Speaker 3: You know, to say for quality assets that we wanted at prices, whether we think our fair prices for them.
Type of quality assets that we wanted it at prices that we think are fair prices for them and I Oh.
Speaker 3: You know, let's see what happens, but hopefully that translates into the, the only to get more deals done.
Let's see what happens, but hopefully that translates to the ability to get more deals done in the future.
Ed Ryan: This additional trade restrictions are continuing to be new restrictions announced principally relating to the war in Ukraine and in connection with burgeoning trade tensions between the US and China. Some new restrictions have been announced with respect to investment in and trade in ship manufacturing, AI and quantum technologies. These restrictions can be positive for our global trade and television business, but can also impact freight volumes.
Speaker 6: Got it and I know organic growth in the services business is what's most important. But Alan, could you share your estimate for all in organic growth in the quarter? And maybe just going forward Ed, how do you feel about the sustainability of the organic growth we've seen in that services business that tells up really well despite a weak freight market? So just wanted to get a sense for your confidence in that continuing.?
Got it and I know organic growth in the services business is what's most important but Alan could you share your estimate for all in organic growth in the quarter.
Maybe just going forward Ed.
How do you feel about the sustainability of the organic growth we've seen in that services business. Its held up really well despite a weak freight market. So just wanted to get a sense for your confidence in that continuing.
Ed Ryan: There's also labor challenges. Labor negotiations have created challenges for UPS, West Coast Port and Yellow, and may impact other United supply chain players.
Yes, so I'll take the first part of it.
Speaker 2: Overall growth was less than just over 9% that we saw in services. We certainly saw lower license quarter, as I mentioned earlier. We had larger licenses in Q2 last year. We're back to the more basic sort of 1.4 million this quarter. Professional services and other revenue was also flatish down slightly. So in around a 6% or so currency neutral for the entire business, compared to just over 9% on services.
Overall growth was less.
Less than it would be just over 9% that we saw on services. We certainly saw a lower license quarter as I mentioned earlier, we had larger licenses in Q2 last year, we were back to the more basic sort of $1 4 million. This quarter professional services and other revenue was also flattish down slightly so in around the.
Ed Ryan: Next, there's some logistics participants planning for a muted peak season. General commentary from logistics participants is bracing for lower volumes in the second half of the year with some companies taking proactive cost reduction activities.
Ed Ryan: This is illustrative of the pervasive sentiment of caution, and then finally distribution of parcel volumes among larger players is uncertain. As I mentioned earlier, UPS has some labor challenges which may have resulted in some parcel volume cautiously being redirected to other players. FedEx has publicly indicated it will be moving more parcel volume to its ground division with independent contractors and away from its express division using employees. UPS has implemented various new service adjustments as it seeks to compete, and Amazon has announced its re-entering the parcel delivery business. All of this combines the provider very competitive environment with uncertainty as to how the binds will shake out among the various providers.
The 6% or so currency neutral for the entire business compared to just over 9% on services and Ed.
Speaker 3: Yes, thanks Alan. With regard to sustainability, I mean, we'll see what happens in the long run, but in the course coming up here, you know, we...
Yeah, Thanks, Alan with regards to sustainability.
See what happened in the long run but in the.
In the quarters coming up here.
Speaker 3: We think we're in pretty good shape, right? We think we're gonna a strong business, some of the things I want to run.
We think we're in pretty good shape right. We think we're in a strong business. Some of the things I went over on the in the prepared remarks in the beginning of the call I think we think that puts us in a position to to continue to have good organic growth in the business.
Speaker 3: in the preparedness of the beginning of the call, I think that puts us in a position to continue to have good organic growth in the business.
Speaker 3: You know, I probably mentioned this on pass calls, but over the past seven or eight years we Tended towards buying higher quality assets as we've been forced to pay a little more than we used to for stuff We tended to pick higher quality assets with higher rates of growth and that translated into us, you know moving from the
You know I, probably mentioned this on past calls, but over the past seven or eight years, we've tended towards buying higher quality assets as we've been forced to pay a little more than we used to for stuff, we tended to pick higher quality assets with higher rates of growth and that translated into us moving from the.
Ed Ryan: So this is some of the things we're hearing from our customers and seeing in our business, things that also inform our calibration to 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. To deliver this consistency, we continue to operate from the following principles. Our long-term plan is for our business to grow just a little bit to 10 to 15 percent annually.
Speaker 3: mid single digits before the pandemic, to after the pandemic coming out in the high single digits. We're gonna do our best to stick in that range.
Mid single digits before the pandemic to after the pandemic coming out in the high single digits.
We're going to do our best to stick in that range and you know obviously economy has some effect on that but at.
Speaker 3: Economy has some effect on that, but at the moment we like a week.
At the moment, we like what we see.
Speaker 6: Great, thanks for the time and congrats on the quarter. Hey, thank you very much, Joe.
Great. Thanks for the time and congrats on the corner.
Ed Ryan: We grow through a combination of organic growth and acquisitions. We take a neutral party approach to building an operated 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 invest that over performance back into our business. We focus on recurring revenues and establishing relationships with customers for life, and we thrive on operating a predictable business that allows us forward visibility to our revenues and investment paybacks.
Hey, Thank you very much Jeff.
Speaker 1: Your next question comes from the line of Scott Group from Wolf City Search. Your line is now open. Hey, thanks afternoon guys. So, and I think last quarter you were talking about ocean volume starting to improve and customers telling you maybe a little bit more normal inventory replenishment trends coming. Are you, are they now saying something different? I just want to understand sort of what you're saying on the map. More broadly, just your views around like peak season if you have any.
Your next question comes from the line of Scott Group Wolfe Research. Your line is now open.
Hey, Thanks afternoon, guys. So.
And I think last quarter, you were talking about ocean volumes, starting to improve customers, telling you may be a little bit more normal inventory replenishment trends coming are you are they now saying something different I, just want to understand sort of what youre, saying on the macro.
More broadly just your views around like peak season, if you have any.
Speaker 7: Well, yeah, I don't know yet. I've heard rumors it's gonna be maybe a muted peak season. I ought to see stuff going on with the Panama Canal.
Well, yeah, I I don't know yet.
Ed Ryan: In our QT report, we provided a comprehensive description of baseline revenues, baseline calibration, and their limitations. As of August 1st, 2023, using a foreign exchange rate of 75 cents to the Canadian dollar, $1.10 to the euro, and $1.28 to the Great Britain Pound, we estimate that our baseline revenues for the third quarter of 2024 are approximately $124 million. And our baseline operating expenses are approximately $78 million. We consider this to be our baseline adjusted even to calibration of approximately $46 million for the third quarter of 2024, or approximately 37 percent of our baseline revenues as at August 1st, 2023.
I've heard rumors that it's going to be maybe a muted peak season I also see you have stuff going on with the.
The Panama Canal.
Speaker 3: You know, probably for us, it probably doesn't matter very much. People tend to find other ways to move the cargo, which results in other shipments on our network. So it ends up being fine for us. But for our customers, is that's what you're asking? I think that disruptions like that tend to cause them some trouble.
You know probably for us it probably doesn't matter very much people tend to find other ways to move the cargo which results in other shipments on our network. So it ends up being fine for us, but for our customers. If that's what you're asking I think disruptions like that tend to cause them. Some troubles I don't have a crystal ball, what's going to happen in Chris.
Speaker 7: I don't have, you know, a crystal ball, what's going to happen in Christmas season?
Seasonal.
Speaker 3: I'll probably tell you, I'll know for sure at the end of next order, but you know, the rumors I've heard is it might be a little muted, but
Probably tell you all know for sure at the end of next quarter, but.
The rumors I heard as it might be a little muted but.
Speaker 3: I don't think it's something that's significant. And certainly not something that's probably going to pack our numbers as much. Maybe you might have packed some of the ocean carers numbers a bit.
I don't think it's something that's significant.
It's certainly not something thats, probably going to impact our numbers as much as maybe you might impact some of the ocean carriers numbers, a bit, but I don't hear anything horrific going on and I don't hear anything spectacular on either so.
Ed Ryan: We continue to expect it will operate in the adjusted EBITDA operating margin range of 40 to 45 percent. Our margin will vary in that range given such things as foreign exchange movements and the impact of acquisitions as we integrate them into our business. Last quarter ground cloud impacted our margin while we start with the integration work to bring it up to our desired to cart contribution levels. The integration activities have gone well. We've already seen some margin improvement in Q2, and we're planning for some additional margin improvement going forward, asking any other acquisition activity.
Speaker 3: i don't hear anything horrific going on and i don't hear anything spectacular going on either so uh
And it looks at the scene.
Speaker 8: Okay, and then you spend some just time talking about the parcel carriers and volume shifts with UPS and FedEx and the post-ups. Does that matter to you or are you agnostic to where the volume goes? I just understand you think that's a time I just want to say the volume. Yeah, we were trying to describe what's going on in the market for us. So you're right, we're probably a little more agnostic to it. We do business with all of them. We like all of them, we have good relationships.
Okay, and then you spent some time talking about the parcel carriers and volume shifts with UBS and Fedex in the post up does that matter to you are you agnostic towards the volume goes I just to understand you.
Yeah, Yeah, we were trying to describe what was going on in the market for us a year right, we're probably a little more agnostic.
We do business with all of them, we like all of them. They have good relationships with all of them.
Ed Ryan: We've got lots of excited things planned in our business. It remains uncertain, broader economic and supply chain environment, but we believe our proven track record of execution, solid capital structure, and customer focus will serve us well.
Speaker 3: We're not trying to help pick winners in this, we just help service each of them.
We're not trying to help pick winners in this we just help services each of them and.
Speaker 3: There are times when something better than others, sometimes when some more free dust than others, but in general it works out, tends to bounce out across all this.
There are times, when some do better than others. There are some times when.
Ed Ryan: Thanks everyone for joining us on the call today as always.
Some are more freight to us than others, but.
Operator: We're available to talk to you about our business in whatever manner is most convenient for you, and with that operator, I'll turn it over to you for questions.
In general it works out tends to balance out across all of those the larger carriers that you mentioned.
Operator: Thank you.
Speaker 8: And then just last thing, when I think about the step up in organic growth now versus...
Okay, and then just just lastly, when I think about the step up in organic growth now versus.
Matthew Pfau: Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press par followed by the number one on your touchstone phone. Big, great. Thanks, guys. Ed wanted to follow up on some of the comments you made about potential headwinds in the back half of the year here. How should we think about those in terms of the potential impact on your business? Part of your business is transaction-based, but it's not as simple as just being tied to shipping volume.
Speaker 8: pre-COVID. How much is price helping now, even if it's not like real price, just nominal price to just keep pace with more inflation? Is that a meaningful contributor now to organic that maybe you didn't have in the past? I'll let Alan comment a little bit on this, but I wouldn't call it meaningful, but it's there. We certainly raised prices last year because of the high inflation, but Alan.
Pre COVID-19.
Price how much was price, helping now even if it's not like real price just nominal price to keep pace with more inflation is that a meaningful contributor now to organic that maybe you didn't have in the past.
I'll, let Alan comment a little bit on this but I wouldn't call it meaningful but if there were certainly we raised prices last year because of the high inflation, but Alan can comment on.
Speaker 2: Yeah, we're raising prices across the business, across our product line.
Yes, we're raising prices.
Across the business across our product lines.
Speaker 2: Despite that, the overwhelming majority of our growth is still going to be volume related. That's just...
Fight that the overwhelming majority of our growth is still going to be volume related.
That's gonna be consistent so we are using price to offset the cost pressures. We have we should be doing that as a business, but for the most part of our growth is going to be heavily focused on volume doing work with new and existing customers.
Speaker 2: So we're using price-offs at the cost pressures we have. We should be doing that as a business. But for the most part, our growth is going to be heavily focused on volume. Doing more with new and existing customers.
Matthew Pfau: So how do we think through the potential puts and takes there in terms of the impact on your revenue? Well, as we've been talking about it for a year or two now, we have a lot of things going very well in our business, and maybe it will be going better if, you know, at some point in the future, transportation transactions went down. We don't know what the future is going to bring.
Thank you guys.
Hey, Thanks Scott.
Speaker 1: Your next question comes from the line of Robert Young from Canacor's Newity. Your line is now open.
Your next question comes from the line of Robert Young from Canaccord Genuity. Your line is now open.
Speaker 4: Hi, I just wanted to add to the very first question around transaction review. Not being as simple as just tied to shipping volumes. I think there's some transaction minimums on some of the contract.
Just wanted to add to the very first question around transaction revenue and not be as simple as just tight shipping volumes.
Matthew Pfau: We're just running the business, you know, looking at what's going on in the market and going, hey, you know, there's some uncertainty out there so we'll see what happens. As you've seen in the past, transportation transactions have gone down and we've still performed very well. We do that because, you know, we sell a lot of software outside of that 60% of our recurring revenues, you know, outside of transaction-based volume. And even in the transaction space, we tend to be, you know, picking up more volume over the course of a quarter or a year because our customers are, you know, doing more business with us than as a result.
Some transaction minimums on some of the contracts.
Speaker 4: Maybe you could refresh that and how much protection that provides and weaker violence.
If you could refresh that and how much protection that provide some weaker volumes most of our most of our contracts in that transaction space are done at a minimum of 85% to 90% of normal volume in a customer has.
Speaker 3: Most of our contracts and the transaction space are done at a minimum of 85 to 90% of the normal volume that a customer has.
Speaker 3: That plays a role from time to time with individual customers. I think more importantly, you know, we watch the transportation volumes. Our business continues to grow, and in tougher economic times, we tend to have more companies head our direction because of...
That plays a role from time to time with individual customers I think more importantly, when we watch the transportation volumes.
Our business continues to grow and in tougher economic times, we tend to have more companies had our direction because of.
Matthew Pfau: You know, we end up doing pretty well even in the face of the industry having a lackluster time. So we'll see what happens. I don't know what's going to happen in the rest of the year. You know, we've heard different things and same stuff you probably read in the paper. We'll see what happens, but we like our chances either way. Great.
Speaker 3: They tend to shy away from the smaller guys when they get worried about people in the space struggling. So we've tended to pick up more volume then when customers start hurting, they start asking everyone for discounts because we provide 10 or 15 different services to them. We have a lot to negotiate with and the potential to pick up more business from our smaller competitors.
Yeah.
Tend to shy away from the smaller guys when they get worried about.
People in the space struggling so we've tended to pick up more volume than when customers start hurting they start asking everyone for discounts because we provide 10 or 15 different services to them and we have a lot to negotiate with and the potential to pick up more business from our smaller competitors.
Matthew Pfau: And just want to follow up on macro point. You called out that that's been an area of strength that performing well in a trucking environment that was oversupplied. How does trucking capacity coming out of the system potentially impact that?
Speaker 3: better not in a stronger position as us. So as it happened in OA and, you know, in the pandemic, and a couple of the times when we've had
That are not in as strong a position as us so.
As it happened in OA and independent dynamic in a couple of other times when we've had.
Ed Ryan: Is that anything material to think about? Well, that's interesting. That's actually one of the areas I think about when I made the comment a minute ago. You know, macro point continues to grow in a relatively flat truck environment because it continues to pick up more and more customers and more volume from our competitors. I went over that and some of the prepared comments on the call today, but macro points, you know, big beneficiary that as people realize the importance of having a network and they value that over a flashy application because we can track more loads, more and more customers are settling, you know, with the car because they're saying, hey, that's what's most important.
Speaker 3: you know, weaker economic times. And again, I don't know that that's what we're looking at right now. We're probably looking at more of a muddled economic scenario right now. But in weaker economic times, we've tended to pick up volume in the face of our customers having less volume. And we come out of that stronger than ever. And we tend to not have the same lows that maybe some of our competitors would have in transactions by.
Weaker economic times and again I don't know that that's what we're looking at right now we're probably looking at more of a muddled economic scenario right now, but and weaker economic times, we've tended to pick up volume in the face of our customers, having less volume and we come out of that stronger than ever and we tend to not have the same lows and maybe some of our competitor.
Ed Ryan: You know, my ability to put in 100 loads will be able to track, you know, high 80s, low 90s percentage of those loads is much more important than the, you know, the visibility application of using myself. Most of the time, they're not even using an application.
Ours would have in transaction volumes, which is why when these things happen to us.
Speaker 3: which is why when these things happen, you know, you look at our numbers and say, why did they go now?
If you look at our numbers and say why didn't you go now and.
Speaker 3: It's that what the combination of other strengths in
It's that plus the combination of other strengths.
Speaker 3: subscription part of our business that continues to do well with this day.
The subscription part of our business that are that continue.
Continue to do well to this day.
Alright, and then second one for me Youre talking about the impact of Union agreements and a lot of change there.
Speaker 4: And then second one for me, you're talking about the impact of union agreements, a lot of change there.
Speaker 4: Does that have an impact on your customers' willingness to invest in technology to improve the visibility? I mean if the price of the delivery itself goes up then you would assume that technology becomes a better way to seek efficiency. Is that something you're seeing or does it just pressure volumes? Well in the short term it can pressure volumes, it can do things to our customers probably a lot more than it would to us.
That have an impact on your customers' willingness to invest in technology.
To improve the visibility on price.
Okay.
On the delivery itself goes up.
You would assume that technology becomes a better rating.
Matthew Pfau: Thanks guys for taking my questions. Appreciate it. Hey, thanks Matt.
Is that something you're seeing or is it just the pressure volumes.
Paul Treiber: Your next question comes from the line of Paul Treiber from RBC.
Uh huh.
The short term.
Compression volumes that can do things start to our to our customer is probably a lot more than it would to us.
Paul Treiber: Your line is not open. Thanks so much. Good afternoon. Just a question on the urnodes. I don't even call on the past you having this degree of urnodes. What's changed now with several acquisitions that are leading to the urnodes versus acquisitions in the past?
Speaker 7: In the longer term though, you're absolutely right. You've heard us say a number of times change in our business or in our customers' business drives more success for the car. And I think that's absolutely true.
In the longer term, though you're absolutely right you've heard us say a number of times change.
And our business.
Our customers business drives more success for Descartes and I think that's absolutely true in situations like this the more of the supply chain disruptions and strikes at ports are certainly one of them.
Speaker 3: situations like this. The more you have supply chain disruptions and strikes at ports or certainly one of them. The more you have people saying I need more information and I need more technology so that I can do something about that next time it happens and that place right into our hands.
Ed Ryan: Yeah, I think it's a question, and you're right that several of the deals we've done in the past couple of years have done that. I think there was a, you probably heard me talk about it on the past call, so rebalancing going on where everything was selling for high dollar volumes as everyone was booming coming out of the pandemic. When that started to slow down, companies were finding it hard to get people to pay up for acquisitions.
You have people, saying I need more information and they need more technology. So that I can do something about that next time, it happens and that plays right into our hand a.
Speaker 3: and you saw in space in the pandemic, you know, it's probably 10 other.
And you saw it in spades in the pandemic. It is probably 10 other.
Speaker 7: scenarios that could walk you through in the past where that's really helped us to tire us with Trump and then etc. things like that. And you know, we're not looking forward to those changes, but when they occur they tend to be a tailwind for us.
Scenarios that could walk you through in the past or that's really helped us to tariffs with Trump and the et cetera things like that.
Ed Ryan: And I never had one way to bridge that gap. We've used it effectively a few of the time. It's not really our first choice rather to pay cash for something and then the asset out right. But when there's, you know, let's say this is viewed about what the fair price is for something. We've used them to get over that hurdle, and quite effectively most of the time, or back every time. We haven't earned out in a process.
And.
Looking forward to those changes, but when they occur they tend to be a tailwind for us.
Alright, thanks for taking the question.
Thank you Robert.
Okay.
Speaker 1: Your next question comes from the line of Rimo Lenschau from Barclays. Your line is now open.
Your next question comes from the line of Raimo <unk> from Barclays. Your line is now open.
Speaker 9: Great, thank you. This is Jeremy on Farrimo. I was just wondering if you could give a bit more color on how the trade intelligence segment performed in the quarter, and then just broadly your outlook there in terms of both organic investment and M&A around that business line. Thank you.
Great. Thank you this is Jeremy on for Raimo.
Ed Ryan: You know, we're very happy for that acquisition to get here now because that usually means we're, we've bought a business is doing very well and probably going to do very well for us in the future. So we've used it as a front out first choice, but certainly something we've done when we think it's appropriate.
I was just wondering if you could give a bit more color on how the trade intelligence segment performed in the quarter and then just broadly your outlook there in terms of.
Both organic investment and M&A around that business line. Thank you.
Ed Ryan: And then shifting to one of your more recent acquisitions, ground clouds. You mentioned using the integration go well on some margin expansion. And how do we think about the long term margin profile at that business? Do you think you can get it up to the, the, the cupping effort to margin profile? We'll see. Our hope is to, you know, we bought it much, much lower than that. And our hope is to get it up as close as we can to that. I don't know if we have our site set on the company average margin profile right now, but certainly we'd like to get it up to 12 points, which will get it close.
Speaker 3: Hey, thanks Jeremy. Trade Intelligence has been doing very well for several years now.
Thanks, Jeremy.
Trading Telus has been doing very well for several years now.
Speaker 3: Starting with the tariff stuff when Trump came President, the Nationalist tendencies he saw around the world that caused maybe people to pay more attention to it. You creating Russian war has also added to it as we see sanctions getting put on a number of parties in a big part of our databases, there are sanctions. And right through it's just today. I mean, this business has been doing very well. And...
Starting with the.
The tariff stuff when Trump came president and nationalistic tendencies you saw around the world.
That caused maybe people to pay more attention to it.
You are creating more.
Ukraine Russian War is also added to it if we see sanctions getting put on a number of parties and a big part of our databases their sanctions and right through just today I mean, this business has been doing very well.
And.
Speaker 3: I think you asked, we continue to be bullish about it. We actually do. It's one of our best performing businesses. It's one of our most profitable businesses. It's one of the businesses where we think we help the customers the most in a very simple way. And of course, if there were acquisition opportunities there, we would be excited about that because we love the business.
I think you asked.
Ed Ryan: And that would be great to see the, just a last question, just on the MNA environment in general, you know, your comments about the macro environment express a lot of caution. Are you seeing that caution still in the, in the MNA environment in regards to evaluation? I think we're starting to see many, probably seeing some of the deals we've been doing now, we're getting more deal done now than we were six, eight months ago.
Continue to be bullish about it we absolutely do with one of our best performing businesses as one of our most profitable businesses one of the businesses, where we think we help the customers the most.
And in a very simple way.
And.
Of course, if there were acquisition opportunities there we would be excited about that because we love the business.
Got it thank you.
Hey, Thank you.
Ed Ryan: So I think it's starting to settle itself out right now. And we will see what happens in the economy. The economy gets worse. It's probably going to get easier for us to get stuff done. I think it's better, you know, people might start saying I want more money for the company themselves. So we'll have to see what happens, but we like what we see right now. We're happy to be able to get, you know, what we think are very high quality acquisitions done at a price we think we can, you know, make money for shareholders.
Speaker 1: Your next question comes from the line of Kevin, Commissioner Atme from School Shabank. Your line is now open. Hey, they're good evening. You talked about some of the strengths and the success you're seeing in visibility. You talked about winning new customers, but also bringing guys back in. I'm curious to get to remind us, why I might leave, why they're coming back. You mentioned to be product like self-service tools. Just curious to know your thoughts there.
Your next question comes from the line of Kevin Christopher Acme Trump question Ma'am. Your line is now open.
Hey, Good evening, you talked about some of the trends.
That youre seeing.
Visibility you talked about winning new customers, but also bringing bringing guys back and I'm curious if you can remind us what.
Why it might need why they're coming back.
You mentioned, some new products like self service tool just curious to know your thoughts there.
Matthew Pfau: All right, thanks for taking the questions. Hey, thank you both.
Yes.
Yeah Yeah.
Justin Long: Your next question comes from the line of just in long. Your line is now up. Thanks and I guess to start building on that last question, it sounds like valuations on acquisitions have started to come down and you talked about that the last couple of quarters are so in terms of the deal activity. Have you seen things pick up and maybe could you talk about your confidence in deploying capital in the back half of the year?
Yeah.
Speaker 3: So, over the past seven or eight years since we bought Manker Point, there were a number of other players in that space.
So over the past seven or eight years since we bought macro point there were a number of other players in that space.
Speaker 3: that were spending a ton of money advertising getting their name out there. And, you know, launching themselves towards the moon losing a ton of money while they're doing it without what seemed up like without a whole lot of regard to that. I think over time, you know, that helped them pick up some customers right to make enough noise. You spend enough money. You probably pick up some customers, but in the long run, those customers.
That we're spending a ton of money advertising getting their name out there.
And.
Launching themselves towards the moon, losing a ton of money, while they are doing it without what seemed to us like without a whole lot of regard to that.
I think over time that helps them pick up some customers ready to make enough noise and we've spent enough money you would probably pick up some some customers, but in the long run those customers start looking and saying Hey, who is the best provider here and maybe it's not the guy with the name of the newspaper maybe it's it's the guy that contract the most loads forming and overtime.
Justin Long: I know there weren't any acquisitions in this most recent quarter. Yeah, I think that's right. I think we're starting to see prices come into what we think is a reasonable range that's where we're able to get acquisitions done and I think we're starting to see more stuff for sale. Again, you know, if there was a kind of a lag there for six months or so and no one know what to do, I think it's starting to open up now.
Speaker 3: start looking and saying, hey, who's the best provider here? And maybe it's not the guy with the name of the newspaper, maybe.
Justin Long: We're starting to see, you know, let's say for quality assets that we wanted at prices that we think are fair prices for them and I see what happens but hopefully that translates to the ability to get more deals done in the future.
Speaker 3: the guy to contract the most loads for me and over time I think we've been
We have been.
Speaker 3: As a network operator you expect us to focus on this, you know, those gets focused on things like I just mentioned we focused on getting more connections on the network. As a result we track more loads by a lot that our competitors do and over time the customers realize that's what's most important and that's helped us get some competitive wins in that space.
As a network operator, you would expect us to focus on that.
Those guys are focused on things like I, just mentioned, we focused on getting more connections on the network and as a result, we track more loads bye bye.
By a lot than our competitors do and I think over time the customers realize that's what's most important and that has helped us get some competitive.
Allan Brett: Got it and I know organic growth in the services business is what's most important but Alan, could you share your estimate for all in organic growth in the quarter and maybe just going forward Ed, how do you feel about the sustainability of the organic growth we've seen in that services business that tells up really well despite a weak freight market so just wanted to get a sense for your confidence in that continuing. Yeah, so I'll take the first part of it overall growth was less than the just over 9% that we saw on services.
Competitive wins in that space Okay.
Speaker 10: Got it. Thanks for that. Second question, e-commerce, a growing market. You made a bunch of acquisitions during the pandemic. Your mind is how you guys think about that business, maybe in terms of the size, percentage of revenue, and maybe if you can give us some thoughts on the growth profile there, e-commerce, industry-wide, some things to be trending back up after, you know, ruminizing year ago, just comment on the e-commerce business.
Okay got it thanks for that.
Question on E Commerce growing market, you made a bunch of acquisitions during the pandemic.
Remind us.
How are you guys thinking about that business in terms of.
Size percentage revenue and maybe if you could give us some thoughts on the growth profile there e-commerce that industry wide since Keith be trending back up.
After normalizing.
A year ago comment on the E Commerce business.
Speaker 3: Yeah, we have a big fantasy commerce business. We got it at 17 years ago, nine years ago now, and continues to buy any asset in that space that we think would be a good fit for what we already do. And with an ability to help us grow our network, it's about 10% of our business today. It's one of our faster growing businesses. And yeah, we absolutely continue to like that business.
Yeah Big fans of the ecommerce business, we got it at seven eight years ago nine years ago now and.
Allan Brett: We certainly saw lower license quarter. As I mentioned earlier, we had larger licenses in Q2 last year. We're back to the more basic sort of 1.4 million this quarter professional services and other revenue was also flatish down slightly. So in around the 6% or so currency neutral for the entire business compared to just over 9% on services and Ed. Yeah, thanks Alan. With regard to sustainability, we'll see what happens in the long run but you know in the quarter coming up here, we think we're in pretty good shape right?
Continue to buy any asset in that space that we think could be a good fit for what we already do and.
And with an ability to help us grow our network, it's about 10% of our business today.
One of our faster growing businesses and yeah, we absolutely continue to like that business and think that as more and more people order stuff online and that business is going to continue to do well for us for the foreseeable future.
Speaker 7: I think that as more and more people order stuff online, that business is going to continue to do well for us for the foreseeable future.
Speaker 10: Got it. Just the last one for me, local sounds it's doing well. I know that was more of an APAC focus business. Are you starting to sell that product into other TOS customers?
Got it just last one any local sounds it's doing well I know that was more of an APAC.
Allan Brett: We think we're running a strong business, some of the things I want to run in the prepared remarks in the beginning of the call. I think that puts us in a position to continue to have good organic growth in the business. You know, I've probably mentioned this on past calls, but over the past seven or eight years, we've headed towards buying higher quality assets as we've been forced to pay a little more than we used to for stuff.
Business are you starting to sell that product into other other deals and customers.
Speaker 3: We are, you know, we we've always provided that service through third parties. And when we had a chance to buy locals, we we thought that was a great opportunity for us to to be able to do that ourselves without paying a third party to do it. So so that's what we did. And we're bringing it to all the jurisdictions that we operate in right now. It's a simple service.
We are we've always provided that service through third parties and when we had a chance to buy a locals.
We thought that was a great opportunity for us to to be able to do that ourselves without paying a third party to do it. So so that's what we did and we're bringing it to all of the jurisdictions that we operate in right now.
Allan Brett: We tended to pick higher quality assets with higher rates of growth and that translated into moving from the mid single digits before the pandemic. Back to after the pandemic coming out in the high single digits and you know, we're going to do our best to stick in that range and obviously economy has some effect on that. But at the moment, we like what we see. Great. Thanks for the time and congrats on the quarter. Hey, thank you very much just.
It's a simple service rate if it's.
Speaker 7: You order something, and you want to see the truck driving to your house, and you can go on an app, and you can see where the driver is.
You order something and you want us to do the truck driver to your house and you can go on an App and you can see where the driver is.
Speaker 7: That having been said to someone who's trying to deliver furniture or something to that nature, it's very important that you're there when they come to make the delivery and a mobile functionality like that really helps make sure that customers know when the truck's coming so that they're there to get the furniture or whatever it is that they ordered from you. So we want to make sure we're able to bring that experience to all of our customers and now we're doing it in a way where we own the entire solution.
That having been said to someone who's trying to deliver furniture or something of that nature. It's very important that that you are there when they come to make the delivery and mobile functionality like that really helps make sure that customers know when the trups coming so that they are there to get their furniture or whatever it is that they ordered from you. So.
Scott Group: Your next question comes from the line of Scott Group from World Food Research.
We want to make sure we're able to bring that experience to all of our customers and now we're doing it in a way where we own the entire solution. So we're happy about that.
Scott Group: Your line is not open. Hey, thanks afternoon guys. So, and I think last quarter, you were talking about ocean volume starting to improve and customers telling you maybe a little bit more normal inventory replenishment trends coming. Are you, are they now saying something different? I just want to understand sort of what you're saying on the matter.
Speaker 10: I'd appreciate the color of half the line. Thanks. Hey, thanks, Scott.
Got it appreciate the color I'll tell you why.
Hey, Thanks, Kevin.
Okay.
There are no further questions at this time please continue.
Speaker 3: All right, thanks everyone. Appreciate your time today and we look forward to reporting back to you next quarter. Have a great day.
Alright, great. Thanks, everyone. I appreciate your time today, and we look forward to reporting back to you next quarter have a great day.
Okay.
Ed Ryan: More broadly, just your views around like peak season if you haven't. Well, yeah, I don't know yet. I've heard rumors that it's going to be maybe a muted peak season. I also see you have stuff going on with Panama Canal, probably for us, it probably doesn't matter very much. People tend to find other ways to move the cargo, which results in other shipments on our network, so it ends up being fine for us.
Speaker 1: Ladies and gentlemen, this concludes today's conference. All thank you for your participation. You may now disconnect.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Ed Ryan: But for our customers, is that's what you're asking? I think that disruptions like that tend to cause them some trouble. I don't have, you know, a crystal ball, what's going to happen in Christmas season. I'll probably tell you. I'll know for sure at the end of next order, but, you know, the rumors I've heard is it might be a little muted, but, you know, I don't think it's something that's significant, you know, and certainly not something that's probably going to impact our numbers as much. Maybe you might have packed some of the ocean carries numbers a bit, but I don't hear anything horrific going on. I don't hear anything spectacular going on. I don't either.
Ed Ryan: So, we'll set the seat. Okay.
Ed Ryan: And then you spend some just time talking about the parcel carriers and volume shifts with UPS and FedEx and the post office. Does that matter to you? Are you agnostic to where the volume goes? I just want to understand you've seen this in time. I just want to explain the volume. Yeah. I, yeah, we were trying to describe what's going on in the market for us. You're right. We're probably a little more agnostic to it.
Ed Ryan: We do business with all of them. We like all of them. We have good relationships with all of them. We're not trying to help pick winners in this. We just help service each of them. And, you know, there are times when something better than others. Sometimes when some were afraid to us than others, but, you know, in general, it works out tends to balance out across all the larger carriers you mentioned.
Allan Brett: Okay. And then just just lastly, when I think about the step up in organic growth now versus free COVID. How much is it? Price, how much is price helping now? Even if it's not like real price, just nominal price to just keep pace with more inflation. Is that a meaningful contributor now to organic that maybe you didn't have any past? I'll let Alan comment a little bit on this, but I wouldn't call it meaningful, but it's there.
Allan Brett: We're certainly raised prices last year because of the high inflation, but now I can comment on it. Yeah, we're raising prices across the business, across our product lines. Despite that, the overwhelming majority of our growth is still going to be volume related. That's going to be consistent. So we're using price offs at the cost pressures we have. We should be doing that as a business. But for the most part, our growth is going to be heavily focused on volume. We're doing more with new and existing customers.
Matthew Pfau: Thank you, guys. Thanks.
Robert Young: Your next question comes from the line of Robert Young from Canacorn Genuity. Your line is now open. Hi, I just want to add to the very first question around transaction revenue, not being as simple as just tied to shipping volumes. I think there's some transaction minimums on some of the contracts. Just maybe you could refresh that and how much protection that provides weaker volumes. Most of our, most of our contracts in the transaction space are done at a minimum of 85 to 90 percent of the normal volume that a customer has.
Robert Young: That plays a role from time to time with individual customers. I think more importantly, you know, we watch transportation volumes. Our business continues to grow and in tougher economic times, we tend to have more companies head our direction because of, you know, they tend to shy away from the smaller guys when they get worried about, you know, people in the space struggling. So we've tended to pick up more volume than when customers start hurting, they start asking everyone for discounts because we provide 10 or 15 different services to them.
Robert Young: We have a lot to negotiate with and the potential to pick up more business from our smaller competitors that are not in a stronger position as us. So as it happened in08 and, you know, in the pandemic and a couple other times when we've had, you know, weaker economic times. And again, I don't know that that's what we're looking at right now. We're probably looking at more of a muddled economic scenario right now.
Robert Young: But in weaker economic times, we've tended to pick up volume in the face of our customers having less volume and we come out of that stronger than ever. And we tend to not have the same lows that maybe some of our competitors would have in transaction volumes.
Robert Young: Which is why one of these things happen is, you know, you look at our numbers and say, why didn't they go now? And, you know, it's that plus the combination of other strengths, in the subscription part of our business that continues to do well with this day.
Ed Ryan: All right, and then second one for me that you're talking about the impact of union agreement, a lot of change there. Does that have an impact on your customers willingness to invest in technology, to improve the visibility? I mean, a price of delivery itself goes up and you would assume that technology becomes a better way to seek efficiency. Is that from your scene or does it just pressure volume? I mean, short term, it can pressure volumes.
Ed Ryan: It can do things to our customers probably a lot more than it would to us. In the longer term though, you're absolutely right. You've heard us say a number of times change in our business or in our customers' business drives, you know, more success for the car. And I think that's absolutely true in situations like this. The more you have supply chain disruptions and strikes at ports are certainly one of them.
Ed Ryan: The more you have people saying, I need more information and I need more technology so that I can do something about that next time it happens. And that place right into our hand. And you solve and space in the pandemic, you know, it's probably ten other scenarios I could walk you through in the past where that's really helped us to tire us with Trump and then et cetera, things like that. And you know, we're not looking forward to those changes, but when they occur, they tend to be a tailwind for us.
Robert Young: All right, thanks. Thanks for your question. Thank you, Rob.
Jeremy Campbell: Your next question comes from the line of Rimo Lenschau from Barclays. Your line is now open. Great. Thank you. This is Jeremy on Furrimo. I was just wondering if you could give a bit more color on how the trade intelligence segment performed in the quarter. And then just broadly your outlook there in terms of both organic investment and M&A around that business line. Thank you. Hey, thanks Jeremy. The trade intelligence has been doing very well for several years now.
Jeremy Campbell: You know, starting with the tariff stuff when Trump came present and the nationalistic tendencies you saw around the world that caused maybe people to pay more attention to it. The Ukrainian War, the Ukrainian Russian War, has also added to it as we see sanctions getting put on a number of parties in a big part of our databases there are sanctions. And right through it's up today. I mean, this business has been doing very well and you know, I think you asked, you know, where we continue to be bullish about it.
Jeremy Campbell: So we actually deal with one of our best performing businesses is one of our most profitable businesses, one of the businesses where we think we help the customers the most in a very simple way. And of course, if there were acquisition opportunities there we would be excited about that because we love the business.
Jeremy Campbell: Got it.
Jeremy Campbell: Thank you.
Ed Ryan: Your next question comes from the line of get interest around me from school Shabank. Your legs now open. Hey, they're good evening. You talked about some of the strengths and success you're seeing in invisibility. You talked about winning new customers, but also bringing guys back in. I'm curious. You can remind us, you know, why why customer might leave? Why they're coming back? You mentioned to be products like self-service tools. Just curious to know your thoughts there.
Ed Ryan: Yeah, I mean, you saw, or were the past seven or eight years since we bought Mac or point, there were a number of other players in that space that were spending a ton of money advertising, getting their name out there and, you know, launching themselves towards the moon, losing a ton of money while they're doing it without what seemed up like without a lot of regard to that. I think over time, you know, that helped them pick up some customers right to make enough noise, you spend enough money, you probably pick up some customers, but in the long run, those customers start looking and saying, hey, who's the best provider here?
Ed Ryan: And maybe it's not the guy with his name in this paper, maybe it's the guy that contract the most loads for me. And over time, I think we've been, as a network operator, you expect us to focus on this, you know, those guys focused on things like I just mentioned, we focused on getting more connections on the network. And as a result, we track more loads by a lot that our competitors do. And over time, the customers realize that's what's most important, and that's helped us get some competitive wins in that space. Okay, got it. Thanks for that.
Ed Ryan: Second question, e-commerce, a growing market. You made a bunch of acquisitions during the pandemic. Your mind is how you guys think about that business, maybe in terms of the size, you know, percentage of revenue and maybe you can give us some thoughts on the growth profile there. E-commerce industry-wide seems to be trending back up after, you know, formalizing your goals, comments on the e-commerce business. Yeah, big fans of e-commerce business, we got it at 17 years ago, nine years ago now, and continues to buy any assets in that space that we think would be a good fit for what we already do.
Ed Ryan: And with an ability to help us grow our network, it's about 10% of our business today. It's one of our faster growing businesses. And yeah, we absolutely continue to like that business and think that as more and more people order stuff online, that business is going to continue to do well for us for the foreseeable future. Got it.
Ed Ryan: Just the last one for me. Locals sounds it's doing well. I know that was more of an APAC focused business. Are you starting to sell that product into other other CEOs and customers? We are, you know, we've always provided that service through third parties, and when we had a chance to buy locals, we thought that was a great opportunity for us to be able to do that ourselves without paying a third party to do it.
Ed Ryan: So that's what we did and we're bringing it to all the jurisdictions that we operate in right now. It's a simple service, right? It's, you know, you order something and you want to see the truck driving to your house and you can go on an app and you can see where the driver is. That having been said, if someone is trying to deliver furniture or something to that nature, it's very important that you're there when they come to make the delivery.
Ed Ryan: And a mobile functionality like that really helps make sure that customers know when the truck's coming so that they're there to get the furniture or whatever it is that they ordered from you. So we want to make sure we're able to bring that experience to all of our customers and now we're doing it in a way where we own the entire solution so we're happy, about that. I appreciate the color. I'll pass the line. Thanks. Hey, thanks, Scott.
Operator: There are no further questions at this time. Please continue. All right. Great. Thanks, everyone.
Scott Pagan: Appreciate your time today, and we look forward to reporting back to you next quarter. Have a great day.
Operator: Ladies and gentlemen, this concludes today's conference hall. Thank you for your participation.
Operator: You may now disconnect.