Q2 2025 The Descartes Systems Group Inc Earnings Call

Edward Ryan: [inaudible] and Edward Ryan,

Speaker Change: Ladies and gentlemen, welcome to the day card systems group quarterly results call. At this time, all lines are in listen only mode.

Speaker Change: Following the presentation, we will conduct a question and answer session.

Speaker Change: If at any time during this call you require immediate assistance.

Speaker Change: Please press star 0 for the operator.

Speaker Change: This call is being recorded on Wednesday, December 4 of 2024.

Speaker Change: I would now like to turn the call over to Scott Pagan, please go ahead.

Scott Pagan: CFO, and I trust that everyone that's received a copy of our financial results, press release, it was issued earlier today.

Speaker Change: Forces of today's call other than historical performance includes statements of forward-looking information within the meaning of applicable security slots. These statements are made under the Safe Harbor Providence of those laws.

Speaker Change: These forward-looking statements include statements related to our assessment of the current and future impact of geopolitical trade and economic uncertainty on our business and financial conditions. They can't stop writing performance by natural results in condition. They can't grow smarts and grow to those gross margins.

Speaker Change: Cashflow and use of catch business outlook, baseline revenues, baseline operating expenses and baseline calibration.

Speaker Change: and Tissipated and Potential Revenue Lawsons in Gaines and Tissipated Racking Mission and the Expensing of Specific Revenue and Expenses.

Speaker Change: Patential Acquisitions and Acquisitions Strategy, cost reduction in integration initiatives to other matters that may constitute forward-looking statements.

Speaker Change: These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results performance or achievements of day-car to differently from the anticipated results performance or achievements implied by such forward-looking statements.

Speaker Change: These factors are outlined in the press release, and in the section entitled certain factors, the May effect feature results in documents filed in 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.

Speaker Change: 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.

Speaker Change: 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 is required by law.

Speaker Change: and with that, let me turn the call over to Ed.

Ed: Hey, thanks Scott and welcome everyone to the call.

Ed: Today, we're reporting record, second quarter results, continued strong revenue and adjust the deeper to growth and the new business that is doing the Dick Carke team.

Ed: We're excited to go over these results 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.

Ed: I'll start by hitting some highlights of the last quarter and some aspects of how our business performed. I'll then hand it over to Allan who will go over the Q2 financial results in more detail. After that I'll come back and provide an update on how we see the current business environment and how our business was calibrated as we entered our third fiscal quarter.

Ed: and we'll then open it up to the operator to coordinate the Q&A portion of the call.

Allan: So let's start with the Corps of the End of July 31st. Key metrics we monitor include revenues, profits, cash flow from operations, operating margins and returns on our investments.

Allan: But this past quarter, we again had very good performance in each of those areas. Total revenues were up 14% from a year ago, the services up 12% from a year ago. That income was up 23% from a year ago, with adjusted EBITDA up 17% from one year ago.

Speaker Change: are headline targets are 10 to 15% adjusted even to growth per year so it's great to see this over performance.

Speaker Change: Justin, even to margin, was up a percentage point from a year ago to 43%.

Speaker Change: So we had a unique item that prevented it from being even higher, our ground cloud business entered an accelerated hardware replacement cycle with our customers in C2.

Speaker Change: to get AI enabled cameras to them. This resulted in more, low margin hardware sales, the customers in the quarter and then we were expecting changing the revenue mix and impacting the margin.

Speaker Change: The core business and margin is otherwise performing as we'd expect and Allan can speak to this in word of tell.

Allan: later in the call.

Allan: We also generated $34.7 million in cash from operations in Q2. That amount was impacted by the accounting treatment for $25 million of the $34.2 million of our now payments we made in the quarter.

Allan: Without that $25 million hitting cash flow from operations, we'd have generated $59.7 million or 85% of adjusted even to in line with how we would expect the business to perform.

Allan: At the end of the quarter we had over $250 million in cash and we were debt free with an under on $350 million line of credit

Allan: This is after we used about 13 million to acquire box-top technologies and pay $34.2 million dollars in earn-outs on previously completed acquisition.

Allan: We remain well capitalized, cash generating, growing and we're just continuing to invest in our business.

Allan: Our growth strategy remains one of total growth. The designer business to be a profitable business to generate cash, and otherwise be reinvested back to improve the business for our customers and stakeholders.

Allan: We consider where to invest space and part on the returns we can generate on our invested capital. We attend a grow our business 10 to 15 percent a year through a combination of organic and acquisition activities.

Allan: When our business generates 14% revenue growth and 17% adjusted, even to growth over a year, we believe our business is performing well. Your organic growth in our total revenues in the quarter is about 9%. So we're pleased to have contributions from acquisitions and the organic business.

Allan: In addition to the box top acquisition, we announced in June we also completed two acquisitions in Q1 and I just wanted to comment a bit about each other contributions since joining.

Allan: We combine with OCR and March of this year. OCR are experts in sanction party screening and export compliance.

Allan: These are both areas that complement our existing global trade intelligence offerings. But OCR makes us even stronger by adding AI capabilities to our toolkit for our strange solutions and advanced export compliance technology that can serve some of the biggest companies in the world.

Allan: This is an area of increasing complexity for our customers where they need technology partners who are actively investing in helping them meet their compliance obligations.

Allan: Let me just offer a couple of recent examples that demonstrate the challenges our customers face.

Allan: First, historically thanks to party lists of included domains of individuals and organizations that have been sanctioned by one or more government organizations.

Allan: However, recently that has shifted into ways. First governments have realized that some individuals and organizations are quick to change their legal means to side step sanctions.

Allan: That has been met by some governments now requiring screening, particular physical address, rather than legal name, recognized and it may be more difficult to change physical locations. This new screening mechanism is something that the part OCR is ahead of the marketing, so our customers are ready to meet this obligation.

Operator: Ladies and gentlemen, welcome to the Descartes Systems Group Quarterly Results Call. At this time, all lines are in listening only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, December 4th of 2024.

Allan: Second, historically sanctioned this for published by governments, but recently U.S. authorities have also included lists published by non-governmental organizations in the scope of what our customers are expected to screen, something that they carto as AR is also the head of the market on.

Allan: At this new sanction approach to a number of new sanctioned parties that are being added because of ongoing conflicts in the Middle East and Russia Ukraine. Organizations using force labor in their operations, and we've got a rapidly changing complex landscape for our customers to comply with.

Scott Pagan: I would now like to turn the call 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 trusted everyone that's received a copy of our financial results, press release that was issued earlier today.

Dick Carter: The Fiat has been a good contributor since joining and is tracking ahead of our plans. Replace with the commonality of purpose we have and are thrilled to provide a home for their team here at Dick Carter.

Scott Pagan: The 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. These forward looking statements include statements related to our assessment of the current and future impact of geopolitical trade and economic uncertainty on our business and financial conditions. Descartes operating performance, financial results and conditions. Descartes gross margins and any growth of those gross margins.

Dick Carter: and is also expanded our international footprint with operations in India and a blue chip of multinational customer base. Welcome again to the whole team for most of your thanks to everyone on making our combination of success for our customers.

Dick Carter: Our second acquisition of Q1 was time AFD.

Speaker Change: Time A of D has two parts of their business. First, they do European customs and security-bound solutions with particular strength in Ireland. Secondly, they do asset tracking for airlines.

Scott Pagan: 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 different materially from the anticipated results, performance or achievements implied by such forward looking statements.

Speaker Change: Since the acquisition we really hit the ground running, we've already worked with some of the existing time as the customers to expand what we can do for them.

Speaker Change: Together, we've gone to our customers to help them meet the new ICF2 security standards and we've rapidly got our organizations together to ensure we're getting our customers the best of our combined solutions.

Speaker Change: The initial contribution is ahead of plan from training positively, further welcome to the whole time ASD team.

Speaker Change: What business focus on work, having new acquisitions to deliver great value to customers and be ahead of plan is a testament to all the work of our combined teams. Our corporate development team also does a great job of finding businesses that we know our customers will be excited about and fit them into our culture.

Scott Pagan: 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.

Speaker Change: and T2, they were able to identify another green one.

Speaker Change: and June we combine with that box-style technologies.

Speaker Change: for about $13 million. Box top was an existing day card partner in a logical combination. Box top has shouldn't manage with solutions for small and mid-sized logistics service providers. The same customer may face that makes up a large percentage of our customers for our broker folder solutions.

Scott Pagan: 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 is required by law.

Speaker Change: Our integration started immediately with a immediate focus on the CART time boxed app solutions working for the European SMB Ford or Community.

Speaker Change: The only part of the day card for a part of you two, it's a initial contribution where head of plan and we've got a good running starting Q3. Welcome to the entire box top team.

Ed Ryan: And with that, let me turn the call over to Ed. Hey, thanks, Scott, and welcome everyone to the call. Today we're reporting record.

Speaker Change: Collectively, you've had good acquisition contributions and success in identifying businesses that are good fit for our business and customers.

Ed Ryan: Second quarter results continue to strong revenue and adjusted EBITDA growth and a new business that has joined the Descartes team. We're excited to go over these results 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. I'll start by hitting some highlights of the last quarter and some aspects of how our business performed.

Speaker Change: the Capital Position, the intended continue to explore the acquisition market, global logistics and supply chain market conditions have been difficult for our customers, and that it's also brought challenges to smaller or early-stage logistics technology businesses.

Speaker Change: There are lots of potential acquisitions targets for us, but even more work can two intelligent re-evaluate his opportunities. We're confident in our scene and we'll continue to begin to effectively and efficiently deploy our capital.

Ed Ryan: I'll then hand it over to Allan who will go over the Q2 financial results in more detail. After that, I'll come back and provide an update on how we see the current business environment and how our business was calibrated as we entered our third fiscal quarter.

Speaker Change: As I referenced the challenging logistics and supply chain market conditions, I just wanted to help some things that were seen.

Ed Ryan: And we'll then open it up to the operator to coordinate the Q&A portion of the call.

Speaker Change: First U.S. truck violence continue to be lower than normal and well below pandemic levels.

Ed Ryan: So let's start with the quarter that ended July 31st. Key metrics we monitor include revenues, profits, cash flow from operations, operating margins and returns on our investments. In this past quarter, we again had very good performance in each of those areas. Total revenues were up 14% from a year ago with services up 12% from a year ago. Net income was up 23% from a year ago with adjusted EBITDA up 17% from one year ago.

Speaker Change: With the increased volume during the pandemic, you saw an increase in capacity and with volumes coming down, you're seeing that capacity exit the market with many small providers leaving and some large providers like yellow and U.S. logistics forced to exit.

Speaker Change: We've counted lower volumes by improving our tracking efficiency where we're now able to track and order for the 7% of the loads our customers are involved with. We believe this tracking efficiency be best of class in the continuing amount of these volume trends.

Ed Ryan: Our headline targets are 10 to 15% adjusted EBITDA growth per year. So it's great to see this over performance. Adjusted EBITDA margin was up a percentage point from a year ago to 43% that we had a unique item that prevented it from being even higher. Our ground cloud business entered an accelerated hardware replacement cycle with our customers in Q2 to get AI enabled cameras to them. This resulted in more low margin hardware sales, the customers in the quarter, and then we were expecting changing the revenue mix and impacting the margin.

Speaker Change: Market partial volumes have seen sun growth, but GPS and USPS are seen pressure on revenues per parcel. This revenue pressure has most partial pairs looking at pricing, service offerings, and potential cost reduction.

Speaker Change: So, Markton and Flux were even harder for shipers to keep track of the best prices and services.

Speaker Change: Our student management solutions will continue to be important in this market as a result.

Speaker Change: Third U.S. Ocean in Port Bonds were very high in July, the third highest of tract in a 26-month high. It wasn't a big increase in Port Wait Times with this increased volume.

Ed Ryan: The core business and margin is otherwise performing as we'd expect, and Alan can speak to this in word of tail later in the call. We also generated $34.7 million in cash from operations in Q2. That amount was impacted by the accounting treatment for $25 million of the $34.2 million of earn out payments we made in the quarter. Without that $25 million hitting cash flow from operations, we'd have generated $59.7 million or 85% of adjusted EBITDA in line with how we would expect a business to perform.

Speaker Change: Ocean Import from China, we're the record high, higher ocean volumes, if sometimes the ship is to hire follow on truck lines, so we'll monitor that as well.

Speaker Change: We're also keeping an eye on the potential labor disruption in the South Atlantic Gulf Force coasts ports and the continued recovery of port capacity at the port of Baltimore.

Speaker Change: For labor challenges, our theme right now. As I mentioned, the still has not labor agreement with various ocean port workers. There was a recent disruption in rail with labor negotiations and several air carriers are dealing with pilot negotiations.

Ed Ryan: At the end of the quarter, we had over $250 million in cash, and we were debt-free with an under-owned $350 million line of credit. This is after we used about $13 million to acquire box-stop technologies and paid $34.2 million in earn-outs on previously completed acquisition. We were remaining well-capitalized, cash-generating, growing, and ready to continue to invest in our business.

Speaker Change: You should need that it's going to impact the flow to the forecast nurse.

Speaker Change: spoke about the challenging sanctions and compliance environments for our customers, but shipping has also been complicated with a volatile tariff environment. There's been active in position of a new tariffs recently in particular on AI, unable to shift technology and electric vehicle components.

Ed Ryan: Our growth strategy remains one of total growth. We've designed our business to be a profitable business that generates cash that can otherwise be reinvested back to improve the business for our customers and stakeholders. We consider where to invest based and part on the returns we can generate on our invested capital. We attend to grow our business 10 to 15% a year to recombination of organic and acquisition activities. When our business generates 14% revenue growth and 17% adjusted EBITDA growth over a year, we believe our business is performing well. The organic growth in our total revenues in the quarter is about 9%, so we're pleased to have contribution from acquisition and the organic business.

Speaker Change: is also uncertainty on how the tariff environment will be impacted by the U.S. election cycle. It's an active time for our customers, and we're seeing more inquiries than those from our customers for help here.

Speaker Change: Generally, the high inflation rate environment has been tough on our customers, but with some countries providing rate relief with inflation being controlled, we're monitoring the impact on bodies.

Speaker Change: and designed our business to be able to succeed in challenging business conditions.

Speaker Change: We focus on total growth and try to diversify our business.

Speaker Change: We are done to grow organically and by way of acquisition, the diversified across all mode of transportation. We provide business value across seven solution pillars. We have over 26,000 customers with low customer concentration. We serve all parties, supply chain and logistics transactions.

Ed Ryan: In addition to the box-top acquisition, we announced in June, we also completed two acquisitions in Q1.

Ed Ryan: I just wanted to comment a bit about each of the contributions since June. We combine with OCR in March of this year. OCR are experts in sanctioned party screening and export compliance. These are both areas that complement our existing global trade intelligence offerings. But OCR makes us even stronger by adding AI capabilities to our toolkit for our screening solutions and advanced export compliance technology that can serve some of the biggest companies in the world. And this is an area of increasing complexity for our customers where they need technology partners who are actively investing in helping them meet their compliance obligations.

Speaker Change: Carriers Logistics Service, the Riders' Port Government and Shipers, we serve customers on a global basis with the workforce.

Speaker Change: So the global workforce, who believe that all of these levers to our business provide us with many opportunities to help manage our business through prosperous and challenging times. The hardest of business are customers rely on that our team can be proud of, and that our stakeholders are relied on to consistently make the living.

Dick Hard: Dick Hard has done that again this course.

Speaker Change: So let me just summarize the answer over Allan to give the full financial details of the quarter in the year

Speaker Change: 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.

Ed Ryan: Let me just offer a couple recent examples that demonstrate the challenges our customers face. First, historically sanctioned party lists have included the names of individuals and organizations that have been sanctioned by one or more government organizations. However, recently that has shifted into ways. First governments have realized that some individuals and organizations are quick to change their legal names to side-to-step sanctions. That has been met by some groups and other governments now requiring screening by a particular physical address rather than legal name, recognizing it may be more difficult to change physical locations.

Speaker Change: The quality and contribution of acquisitions, we've added to our business and the hard work that our team continues to put it for our customers.

Speaker Change: We entered the quarter with more than $250 million in cash, $350 million in available credit, and a market opportunity where we can continue to grow the business for our customers both with a canclet and direct position.

Speaker Change: We remain focused on profitable growth so that we continue to ensure that our customers have a secure, stable, and growing technology partner that can help them with their challenges well into the future.

Ed Ryan: This new screening mechanism is something that they part OCR is ahead of the market and so our customers are ready to meet this obligation. Second, historically sanctioned this will publish by governments. The recently US authorities have also included lists published by non-governmental organizations in the scope of what our customers are expected to screen. Something that they cart OCR is also the head of the market on. Add this new sanction approach to a number of new sanctioned parties that are being added because of ongoing conflicts in the Middle East and Russia Ukraine. We're organizations using forced labor in their operations and we've got a rapidly changing complex landscape for our customers to comply with.

Speaker Change: Thank you to all the first team members for everything they've done to contribute to a great quarter in business And with that, I'll turn the caller over to Allan to go through our Q2 financial results in more detail

Allan: Hey, thanks Ed. As in the case, I'm going to take you through our financial highlights for our second quarter, which ended July 31.

Allan: We are pleased to report record-corely revenue of 163.4 million this quarter that increase of 14 percent from revenue of 143.4 million in Q2 last year.

Allan: While revenues from new acquisitions, including the recently acquired OCR, ASD, and box top businesses contributed nicely to this growth.

Ed Ryan: The C.R, has been a good contributor since joining and is tracking ahead of our plans. We're pleased with the commonality of purpose we have and are thrilled to provide a home for their team here at Descartes. It has also expanded our international footprint with operations in India and a blue chip multi-national customer base. Welcome again to the whole team from a C.R, thanks to everyone on making our combination of success for our customers.

Allan: Simulates the past number of quarters, growth in revenue from new and existing customers from our existing solutions with the main drivers in growth this quarter when compared to last year.

Allan: Our best guess is a growth in sales to new and existing customers or organic revenue growth came in at about 9% in the second quarter.

Allan: Looking further at our numbers, our revenue mix and the quarter continue to be solid with services revenue increasing 12% to 146.2 million or 89% of total revenue compared to 130.7 million for 91% of total revenue in the same period last year.

Ed Ryan: Our second acquisition of Q1 was Time ASD. Time ASD has two parts of their business. First, they do European customs and security filing solutions with particular strength in Ireland. Second, they do asset tracking for airlines. Since the acquisition, we really had the ground running. We've already worked with some of the existing Time ASD customers to expand what we can do for them. Together, we've gone to our customers to help them meet the new ICS-2 security standards and we've rapidly got our organizations together to ensure we're getting our customers the best of our combined solutions.

Allan: Service revenue is also up nicely, coincidentally, increasing just over 6% from the first quarter of this year, as we continue to help our customers expand with new services.

Allan: License revenue came in at 1.4 million or 1% of revenue in the quarter consistent with the second quarter of last year.

Allan: and Professional Services and other revenue came in at 15.8 million or 10% of revenue up from 11.3 million or 8% of revenue in Q2 last year.

Ed Ryan: The initial contribution is ahead of plan and training positively. A further welcome to the whole Time ASD team. For a business focus on growth, having new acquisitions deliver great value to customers and be ahead of plan. There's a testament to all the work of our combined teams. Our corporate development team also does a great job of finding businesses that we know our customers will be excited about and fit them into our culture. In Q2, they were able to identify another great one.

Allan: For us, other revenue includes hardware revenue, and while it's generally quite small each quarter, we had an unusual increase in hardware revenue in our ground cloud business this quarter.

Allan: During the second quarter, as Ed mentioned, our ground cloud business entered an accelerated hardware replacement cycle to implement new AI enabled camera technology. And this resulted in approximately 2.5 million of additional low margin hardware sales being recorded late in the second quarter.

Ed Ryan: In June, we combined with box-top technologies for about $13 million. Box-top was an existing Descartes partner and a logical combination. Box-top has shipment management solutions for small and mid-sized logistics service providers. The same customer base that makes up a large percentage of our customers for our broker-folder solutions. Our integration started immediately with a media focus on Descartes' time boxed-stop solutions working for the European SMB border community. Though it was only part of Descartes for a part of Q2, its initial contributions were head of plan and we've got a good running starting Q3.

Speaker Change: Gross margin for the second quarter, came in at 75% of revenue, down slightly from gross margin of 76% of revenue that we realized in the second quarter of last year, and this is mainly a result of the unusual lower margin hardware sales and the ground cloud business that I just mentioned.

Speaker Change: Looking at our cost-based, operating expenses increased by just under 11% in the second quarter, hope the same period last year, and this was primarily related to the impact of recent acquisition, including the OCR acquisition completed earlier in the first quarter of this year.

Ed Ryan: Welcome to the entire boxed-stop team. We intend to continue to explore the acquisition market global logistics and supply chain market conditions have been difficult for our customers and that it's also brought challenges to smaller or early state logistics technology businesses. There are lots of potential acquisition targets for us, but even more work to intelligent re-evaluate those opportunities were confident in our scheme and will continue to begin to effectively and efficiently deploy our capital.

Speaker Change: Excluding the impact of these recent acquisitions, we had minor increases in labor-related expenses, including stock-based compensation, as we continue to carefully invest in our people and our business.

Speaker Change: We also experienced unusual bad debt of approximately 500,000 this quarter as one of our U.S. sort of one of our logistics service provider customers, U.S. logistics declared bankruptcy during the second quarter.

Speaker Change: So, as a result of both revenue growth, offset slightly by the operating cost increases just mentioned. We continue to see strong adjusted EBITDA growth of 17% to a record 70.6 million in a second quarter, up from 60.6 million in a second quarter last year.

Ed Ryan: As I referenced the challenging logistics and supply chain market conditions, I just wanted to hit on some things that were seen. First, U.S, truck volumes continued to be lower than normal and well below pandemic levels. With the increased volume during the pandemic, you saw an increase in capacity and with volumes coming down, you've seen that capacity exit the market with many small providers leaving and some large providers like yellow and U.S, logistics forced to exit.

Speaker Change: He has a percentage of revenue, adjusts the evit.com and at 43.2% of revenue.

Speaker Change: up from 42.3% of revenue in Q2 last year. And while this ratio is up from the second quarter,

Speaker Change: Up from the first quarter, we've also integrated and improved operating ratios from several recent acquisitions. We should note that our Justice Eva Dal Ratio is actually down slightly from the 44.3 ratio that we recorded in Q1 this year.

Ed Ryan: We've counted lower volumes by improving our track and efficiency, where we're now able to track north of 87% of the lows our customers are involved with. We believe this track and efficiency be best of class and we continue to monitor these volume trends. Market partial volumes have seen some growth but UPS and USPS are seeing pressure on revenues per parcel. This revenue pressure has most parcel carries looking at pricing, service offerings and potential cost reductions.

Speaker Change: The slight drop in the second quarter, the EBITDA March, you can almost entirely be attributed to the unusual 2.5 million of low margin hardware sales, realize in the quarter, as well as the one time increase in that debt that we're both mentioned earlier.

Speaker Change: As a result of the above net income under US gap came in at 34.7 million or 40 cents per diluted common share in the second quarter and increased at 23% from net income of 28.1 million or 32 cents per diluted common share in the second quarter last year.

Ed Ryan: So a market influx worth even harder for shippers to keep track up the best prices and services. Our shipment management solutions will continue to be important in this market as a result. Third, U.S, ocean import volume from very high in July. The third highest is tracked and the 26 month high. There wasn't a big increase in port wait times with this increased volume. Ocean imports from China work a record high, higher ocean volumes have sometimes contributed to higher follow-on truck lines so it will monitor that as well. We're also keeping an eye on potential labor disruption in the South Atlantic, both coasts and ports, and a continued recovery of port capacity at the Port of Baltimore.

Speaker Change: We're looking at our Auburn results for the first half of the year, revenue came in at 314.8 million, an increase of 12.4% from revenue of 200 to maybe 0.0 million in the first six months last year.

Speaker Change: and Justin E. Bedoff of that period came in at 137.6 million or 333.7% of revenue, up 16.3% from 118.3 million or 42.3% of revenue last year.

Ed Ryan: Fourth, labor challenges are seen right now. As I mentioned, there still isn't a labor agreement with various ocean port workers. There was a recent disruption in rail with labor and gradation issues and several air carriers are dealing with pilot and gradation issues. Each of these items can impact the flow goods for our customers.

Speaker Change: I didn't come for the first half of this year, increased by almost 21% coming in at 69.3 million or 80 cents per diluted common share compared to 57.5 million, 466 cents per diluted common share in the first half last year.

Ed Ryan: I spoke about the challenging sanctioned compliance environments for our customers, but shipping has also been complicated with a volatile tariff environment. There's been active imposition of new tariffs recently in particular on AI, enabled chip technology, and electric vehicle components. There's also uncertainty on how the tariff environment will be impacted by the U.S, election cycle. It's an active time for our customers and we're seeing more inquiries than normal from our customers for help here.

Speaker Change: With these solid operating results and strong AR collections, we continue once again to have strong cash flow from operations, recording an additional 34.7 million in operating cash flow in the second quarter.

Speaker Change: However, as we mentioned earlier and have mentioned several times in the last few quarters, during the second quarter, we've also had to make some larger payments on our note arrangements related to some recent acquisitions and the current accounting rules require that we record any portion of those contingent consideration payments.

Ed Ryan: Generally, the high inflationary, high interest rate environment has been tough on our customers, but with some countries providing rate relief with inflation being controlled, we're monitoring the impact on buying. We've designed our business to be able to succeed in challenging business conditions. We focus on total growth and try to diversify our business. We grow organically and by way of acquisition, we diversify it across all more of the transportation. We provide business value across seven solution pillars.

Speaker Change: that is above our initial estimate, made at the time of the acquisition through our cash flow from operations, instead of showing them as an investing activity.

Speaker Change: Simply put, because these acquisitions have gone better than our original estimates, we were required to record 25.0 million out of the total urnode payments of 34.2 million made in the quarter, as a reduction to our cash flow from operations.

Speaker Change: Excluding this unusual accounting treatment of these higher herno payments, our cash flow from operations would have been 59.7 million, or 85% of our adjusted EBITDA in the second quarter, right in the range where we would have expected.

Ed Ryan: We have over 26,000 customers with low customer concentration. We serve all parties, supply chain and logistics transactions, carriers, logistics service providers, ports, government and shippers. We serve customers on a global basis with the workforce. With the global workforce, we believe that all of these levers to our business provide us with many opportunities to help manage our business from prosperous and challenging times. Descartes of business are customers who rely on, that our team can be proud of, and that our stakeholders have relied on to consistently deliver. Descartes has done that again this quarter.

Speaker Change: For the six months here today, again, excluding the impact of these unusual hernote payments, operating cash flow would have been 123.4 million, or 90% of our just so you'd be up 22% from 100.9 million in the first half of last year.

Speaker Change: And we should mention, as always, going forward subject to unusual events and quarterly fluctuations. We expect to continue to see strong cash flow conversion, and generally expect cash flow from operations to be between 80 and 90 percent of our adjusted EBITDA in the quarters ahead.

Ed Ryan: Let me just summarize as I handed over Alan to give the full financial details of the quarter in a year. 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, the quality and contribution of acquisitions we've added to our business, and the hard work that our team continues to put in for our customers. We enter the quarter with more than $250 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 that our customers have a secure stable and growing technology partner that can help them with their challenges well into the future.

Speaker Change: Overall, we are once again pleased with our quarterly operating results as strong organic growth and solid performance from our recent acquisitions resulted in a 14% growth in revenue and a 17% increase in a just EBITDAF for the second quarter.

Speaker Change: If we turn our attention to the balance sheet, our cash balance increased by approximately 14 million from the end of the first quarter in April.

Speaker Change: While we generate strong cost for operations, we also use 34.2 million of our existing cash balances to complete contingency consideration payments on two pass-back positions.

Speaker Change: while also using 13.7 million to complete the box top acquisition that we announced earlier in the second quarter.

Allan Brett: Thank to all Descartes and members for everything they've done to contribute to a great quarter in business, and with that, I'll turn the call over to Alan to go through our Q2 financial results in more detail. Hey, thanks Ed. As indicated, I'm going to take you through our financial highlights for our second quarter, which ended July 31st. We are pleased to report record quarterly revenue of 163.4 million this quarter, an increase of 14% from revenue of 143.4 million in Q2 last year.

Speaker Change: As a result, as I mentioned, we currently have 253 million of cash available, as well as a $350 million of credit available to us to deploy towards future acquisitions. So we continue to be well-capilized to allow us to consider all opportunities in our market, consistent with our business plan.

Speaker Change: As we look to the second half of our physical 2025, we should note the following.

Speaker Change: 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 in additional capital expenditures for the balance of this year.

Allan Brett: While revenues from new acquisitions, including the recently acquired OCR, ASD, and box top businesses, contributed nicely to this growth, similar to the past number of quarters, growth and revenue from new existing customers from our existing solutions, with the main drivers in growth this quarter when compared to last year. Our best guess is that growth in sales to new existing customers or organic revenue growth came in at about 9% in the second quarter.

Speaker Change: As mentioned earlier, we recorded approximately 2.5 million of incremental low margin hardware sales in a second quarter as part of the AI camera replacement project in our ground cloud business.

Speaker Change: We currently expect to record a similar amount of around 2.5 million of additional lower margin hardware sales in Q3 of this year as we complete the majority of this hardware replacement cycle this quarter

Allan Brett: Looking further at our numbers, our revenue mix in the quarter continued to be solid, with services revenue increasing 12% to 146.2 million or 89% of total revenue, compared to 130.7 million or 91% of total revenue in the same period last year. Service revenue was also up nicely, increasing just over 6% from the first quarter of this year, as we continue to help our customers expand with new services. License revenue came in at 1.4 million or 1% of revenue in the quarter, consistent with the second quarter of last year.

Speaker Change: After paying 34.2 million in Erno payments on pass-back positions in the second quarter, we currently expect that we will not make any more additional Erno payments in the second half of this year, while we currently anticipate to make a cash for no payments of approximately 1.5 million in FY26.

Speaker Change: As we communicate last year, last quarter sorry, we purchased 95% of the shares of ASD in the first quarter of this year and as part of the deal structure, we have the option to purchase the remaining 5% of this business by the end of this business clear.

Allan Brett: And professional services and other revenue came in at 15.8 million or 10% of revenue up from 11.3 million or 8% of revenue in Q2 last year. For us, other revenue includes hardware revenue, and while it's generally quite small each quarter, we have an unusual increase in hardware revenue in our ground cloud business this quarter. During the second quarter, as Ed mentioned, our ground cloud business entered an accelerated hardware replacement cycle to implement new AI-enabled camera technology.

Speaker Change: We expect to spend 3.6 million to complete the acquisition of this remaining 5% of the OBSD business in the fourth quarter of this year.

Speaker Change: After incurring amortization costs of 32.4 million in the first half of the year, we expect amortization expense will be approximately.

Allan Brett: And this resulted in approximately 2.5 million of additional low margin hardware sales being recorded late in the second quarter. Gross margin for the second quarter came in 75% of revenue, down slightly from gross margin of 76% of revenue that we realized in the second quarter of last year. And this is mainly a result of the unusual lower margin hardware sales in the ground cloud business that I just mentioned. Looking at our cost base, operating expenses increased by just under 11% in the second quarter of the same period last year, and this was primarily related to the impact of recent acquisition, including the OCR acquisition completed earlier in the first quarter of this year.

Speaker Change: 33.1 million for the second half of the year. With this figure being subject to adjustment for four exchange changes and future acquisitions.

Speaker Change: Our income tax rate for the second quarter came in at approximately 28% of free tax income, which is slightly higher than our estimated blended statutory tax rate of 26.5%.

Speaker Change: Looking into the second half of this year, we currently expect that our tax rate will continue to be in the range of 25 to 30% of our pre-text income, or somewhere on either side of our blended statutory tax rate.

Speaker Change: However, as always, we should state that our tax rate may vary at fluctuate for quarter quarter from one-time tax items that may arise as we operate internationally across multiple countries.

Speaker Change: and finally, after incurring stock-based compensation, expense of 10.1 million in the first after the year, and currently expect stock compensation will be approximately 10.9 million for the balance of this year, subject any forefature of stock options or shareings.

Allan Brett: Excluding the impact of these recent acquisitions, we had minor increases in labor related expenses, including stock-based compensation, as we continue to carefully invest in our people and our business. We also experienced an unusual bad debt of approximately 500,000 this quarter as one of our U.S., sorry, one of our logistics service provider customers, U.S, logistics declared bankruptcy during the second quarter. So, as a result of both revenue growth, offsets slightly by the operating cost increases just mentioned.

Speaker Change: and with that I'll turn it back over to Ed to wrap up with some closing comments and our baseline calibration for Q3.

Ed: It's great thanks, Allan

Ed: We've done three acquisitions so far this year that we believe will contribute more to our calibration as we come more experienced and operating them together, we're mindful of some weakness in U.S. domestic truck that I mentioned earlier, but also mindful of some recent signals of potential recovery of volumes.

Allan Brett: We continue to see strong adjusted EBITDA growth of 17% to a record 70.6 million in the second quarter, up from 60.6 million in the second quarter last year. As a percentage of revenue, adjusted EBITDA came in at 43.2% of revenue, up from 42.3% of revenue in Q2 last year. And while this ratio is up from the second quarter, up from the first quarter, we've also integrated and improved operating ratios from several recent acquisitions.

Ed: We keep these things in mind as we set our calibration for the quarter, our business is designed to be predictable and consistent. We believe it's stability and reliability are valuable to our customers and employees in our broader stakeholders.

Ed: to deliver this consistency we continue to operate from the following principles.

Ed: Our long-term plan is for our business to grow adjusted even at the 10 to 15 percent annually. We grow to a combination of organic growth and acquisitions.

Allan Brett: We should note that our adjusted EBITDA ratio is actually down slightly from the 44.3 ratio that we recorded in Q1 this year. This slight drop in the second quarter in EBITDA margin can almost entirely be attributed to the unusual 2.5 million of low margin hardware sales, realized in the quarter, as well as the one time increase in bad debts that were both mentioned earlier. As a result of the above, net income under U.S, gap came in at 34.7 million or 40 cents per diluted common share in the second quarter, and increased at 23% from net income of 28.1 million or 32 cents per diluted common share in the second quarter last year.

Speaker Change: He's taken 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.

Speaker Change: When we over-perform, we try to reinvest that over performance back into our business. We focus on recurring revenues and establishing relationships with customers for life. And we thrive when operating a predictable business that allows us forward visibility to our revenues and investment paybacks.

Speaker Change: in our quarterly report, we've provided a comprehensive description of baseline revenues, baseline calibration and their limitations.

Allan Brett: Looking at our operating results for the first half of the year, revenue came in at 314.8 million, an increase of 12.4% from revenue of 288.0 million in the first six months last year. Adjusted EBITDA for that period came in at 137.6 million or 33.7% of revenue, up 16.3% from 118.3 million or 42.3% of revenue last year. Net income for the first half of this year increased by almost 21% coming in at 69.3 million or 80 cents per diluted common share compared to 57.5 million or 66 cents per diluted common share in the first half last year, with these solid operating results and strong AR collections, we continue once again to have strong cash flow from operations, recording an additional 34.7 million in operating cash flow in the second quarter.

Speaker Change: As of August 1st, 2024, using foreign exchange rates of 72 cents to the Canadian dollar.

Speaker Change: A dollar eight to the euro and a dollar 28 to the pound. We estimate that our baseline revenues for the third quarter of fiscal 2025 are approximately $141 million and our baseline operating expenses are approximately $87.5 million.

Speaker Change: We consider this to be our baseline, adjusted even to calibration of approximately 53.5 million dollars for the third quarter of fiscal 25. We're approximately 38% of our baseline revenues as at August 1st, 2024.

Speaker Change: We continue to expect a lap rate in an adjusted ebit to operating margin range of 40 to 45 percent. Our margin can vary in that range given such things as revenue mix, like we saw with hardware this quarter, foreign exchange movements, and the impact of acquisitions as we integrate them into our business, like we previously saw with groundcloud.

Speaker Change: We expect the ground top hardware replacement cycle will continue in Q3 so that revenue makes May impact margins slightly again this quarter.

Speaker Change: We've got lots of exciting things planned for our business that remains a challenging, economic, supply chain and compliance environment for our customers. But we believe our proven track record of execution, solid capital structure and customer focus will help us serve them well.

Allan Brett: This is above our initial estimates made at the time of the acquisition through our cash flow from operations, instead of showing them as an investing activity. Simply put, because these acquisitions have gone better than our original estimates, we were required to record 25.0 million out of the total earn-owned payments of 34.2 million made in the quarter as a reduction to our cash flow from operations. Excluding this unusual accounting treatment of these higher earn-owned payments, our cash flow from operations would have been 59.7 million or 85% of our adjusted EBITDA in the second quarter, right in the range where we would have expected.

Speaker Change: Thanks to everyone for joining us on the call today, as always we're available to talk to you about our business and whatever manner is most demeaning for you and that's that operator. I'll turn it back to you for questions.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: If you have a question, please press the R1 in your touchstone phone.

Speaker Change: You'll hear a prompt that your hand has been raised.

Speaker Change: Should you wish to decline from the polling process? Please press start too.

Allan Brett: For the six months year to date, again, excluding the impact of these unusual earn-owned payments, operating cash flow would have been 123.4 million or 90% of our adjusted EBITDA, up 22% from 100.9 million in the first half of last year. And we should mention, as always, going forward subject to unusual events and quarterly fluctuations, we expect to continue to see strong cash flow conversion and generally expect cash flow from operations to be between 80% and 90% of our adjusted EBITDA in the quarters ahead.

Speaker Change: If you're using a speaker phone, please lift the handset before pressing any keys.

Speaker Change: when moment please for your first question.

William Blair: Your first question comes from the one backer of William Blair. Your line is already open.

Faith: Hi, guys, it's Faith on for Dylan. Can you just remind us as you're talking about some of the different macro-postintakes, your transactional exposure? You guys continue to operate well despite some of the headwinds that you called out.

Allan Brett: Overall, we are once again pleased with our quarterly operating results as strong organic growth and solid performance from our recent acquisitions resulted in a 14% growth in revenue and a 17% increase in adjusted EBITDA for the second half. If we turn our attention to the balance sheet, our cash balance increased by approximately 14 million from the end of the first quarter in April. While we generate strong cash flow from operations, we also use 34.2 million of our existing cash balances to complete contingent consideration payments on two past acquisitions, while also using 13.7 million to complete the box top acquisition that we announced earlier in the second quarter.

Speaker Change: So maybe could you just help us think about the banded range of outcomes that are possible as volumes either take up or decline more substantially?

Speaker Change: Stewart, and our, as a portion of overall revenue are transactional revenues in the low 30s, 31% roughly.

Speaker Change: and they are fairly consistent performers, you know, that there are obviously variations when volumes go up and down, but compared to most transactional businesses, I think, and certainly given the underlying minimums that we have on our business.

Allan Brett: As a result, as Ed mentioned, we currently have 253 million of cash available as well as a $350 million line of credit available to us 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 Change: in a normal time.

Speaker Change: Including, you know, minor ups and downs in the ocean air truck and rail markets, those numbers are fairly consistent. I'd say compared to most transactional businesses.

Speaker Change: Great, great. And then just one more quick one. You guys called out your three acquisitions today. You talked earlier about earlier about having that three to six target every year. Any color on the outlook for the second half of what you guys may be looking at or the broader M&A landscape.

Allan Brett: As we look to the second half of our fiscal 2025, 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 in additional capital expenditures for the balance of this year. As mentioned earlier, we record approximately 2.5 million of incremental low margin hardware sales in the second quarter as part of the AI camera replacement project in our ground cloud business.

Speaker Change: Yeah, we see a pretty good environment for acquisitions I think I'm in the last year

Speaker Change: You know, people's expectations for what they should sell their companies for, they've come down to what we would consider a reasonable level in a lot of cases and you can see us get more acquisitions done this year and I expect that to continue for the foreseeable future.

Allan Brett: We currently expect to record a similar amount of around 2.5 million of additional lower margin hardware sales in Q3 of this year as we complete the majority of this hardware replacement cycle this quarter. After paying $34.2 million in urnote payments on past acquisitions in the second quarter, we currently expect that we will not make any more additional urnote payments in the second half of this year, while we currently anticipate to make a cash urnote payments of approximately $1.5 million in FY26 As we communicated last year, we purchased 95% of the shares of ASD in the first quarter of this year.

Speaker Change: All right, awesome. Thanks so much. Congrats again on the quarter. Thank you.

Speaker Change: Your next question comes from Paul Triber of RBC Capital Markets. Your line is already open.

Paul Triber: Well, thanks very much and good afternoon. It is a couple of clarification questions. It's first, just on me, the organic growth in 9%. Is that referring to services only or does it also take into account the one time hardware revenue in the quarter?

Allan Brett: And as part of the deal, we have the option to purchase the remaining 5% of this business by the end of this physical year. We expect to spend $3.6 million to complete the acquisition of this remaining 5% of the ASD business in the fourth quarter of this year. After incurring amortization costs of $32.4 million in the first half of the year, we expect amortization expense will be approximately $33.1 million for the second half of the year, with this figure being subject to adjustment from foreign exchange changes and future acquisitions.

Speaker Change: Yeah, well, you're a little crackly, but the 9% is the estimated organic growth in the total business.

Speaker Change: Okay, and secondly for baseline for Q3, does that include the 2.5 million that you expect in low margin hardware or is it excluded now be in addition to that baseline?

Speaker Change: It's a great question, it includes some element of that hard, where we do have some orders already, for some that we know will be delivered in Q3, where we're estimating that the total amount will be 2.5, but we don't have all those orders yet, so it is, it is, you know.

Allan Brett: Our income tax rate for the second quarter came in at approximately 28% of free tax income, which is slightly higher than our estimated blended statutory tax rate of 26.5%. Looking into the second half of this year, we currently expect that our tax rate will continue to be in the range of 25% to 30% of our pre-tax income, or somewhere on either side of our blended statutory tax rate. However, as always, we should state that our tax rate may vary influctually from quarter to quarter from one-time tax items that may arise as we operate internationally across multiple countries.

Speaker Change: Included for what we know about at this point in time, or what we knew about for August.

Speaker Change: Okay, and then just a lot for me, just on the A is the acquisition, it's the remaining five percent. The cost of it, I think you mentioned it's three and a half million. It seems like there's quite a premium there. Can you just walk through the structure of that acquisition and some of the moving parts there?

Allan Brett: And finally, after incurring stock-based compensation expense of $10.1 million in the first half of the year, we currently expect stock compensation will be approximately $10.9 million for the balance of this year, subject to any forefoot sure of stock options or shares.

Speaker Change: Yeah, so essentially what happened from a deal structure perspective, we bought 95% of that business in the first quarter for reasons that were in.

Ed Ryan: And with that, I'll now turn it back over to Ed to wrap up with some closing comments and our baseline calibration for Q3. Hey, great. Thanks, Alan.

Speaker Change: Personal to the sellers, they wanted some piece of it deferred. We are committed and expect fully expect to purchase the remaining 5% before the end.

Ed Ryan: We've done three acquisitions so far this year that we believe will contribute more to our calibration as we come more experienced and upward in them together. Remindful of some weakness in U.S, domestic truck that I mentioned earlier, but also mindful of some recent signals of potential recovery of volumes. We keep these things in mind as we set our calibration for the quarter. Our business is designed to be predictable and consistent. We believe that stability and reliability are valuable to our customers, employees, and our broader stakeholders. To deliver this consistency, we continue to operate from the following principles.

Speaker Change: of our physical 25. There is no additional premium. The number I gave you should line up as being the 5% element that's remaining in that business.

Speaker Change: Thank you, Edward, in the questions.

Edward Ryan: Pagan, Edward Ryan.

Speaker Change: Your next question comes from Stephanie Price of C.I.B.C.

Speaker Change: Your line is already open.

Stephanie Price: Hey, good afternoon.

Stephanie Price: Just on the harbor piece with ground cloud, this one, if you can give it more detail there and how confident you are that the refresh should be mostly complete in fiscal Q3. I think you mentioned that, Allan.

Ed Ryan: Our long-term plan is for our business to grow adjusted even to 10 to 15 percent annually. We grow through a combination of organic growth and acquisitions. We take a neutral party approach to building and operating solutions on our global logistics network. We don't favor any particular party. We run our business for all supply chain participants, connecting shippers, carriers, logistics service providers, and customs authorities. When we overperform, we try to reinvest that over performance back into our business. We focus on recurring revenues and establishing relationships with customers for life. And we thrive on operating a predictable business that allows us forward visibility to our revenues and investment paybacks.

Speaker Change: Yeah, I mean, what happened here is we started providing AI cameras and we offered a deal up for our customers where if they signed up for it to your deal that we included a new AI camera in it.

Speaker Change: We did that mostly to protect our existing customer base and the good news and that was...

Speaker Change: We had a lot more customers than just our customer, existing customer base, take advantage of it and sign new contracts with us. So we were pleasantly surprised with the reaction to that in the market.

Ed Ryan: In our quarterly report, we've provided a comprehensive description of baseline revenues, baseline calibration, and their limitations. As of August 1, 2024, using foreign exchange rates of 72 cents to the Canadian dollar, $1.8 to the Euro, and $1.28 to the Pound, we estimate that our baseline revenues for the third quarter of fiscal 2025 are approximately $141 million and our baseline operating expenses are approximately $8.75 million. For the third quarter of fiscal 2025, we're approximately 38% of our baseline revenues as at August 1, 2024.

Speaker Change: and we're estimating that it'll be largely over this coming quarter, but...

Speaker Change: I'm not positive or that, I'm great news that I continue to make kept signing up more customers but best we can tell right now we should be done with most of that in the existing quarter and what we've done here has been pleasantly surprising to us.

Speaker Change: Great, thanks, and then just on M&A, you mentioned that smaller businesses are being challenged by the free environment, just curious what you're seeing on the larger deal-side as well.

Speaker Change: I think they get challenges to it. I think that the small and medium-sized businesses, and really when I made that comment, I was talking about our customers more, but it's the same for the acquisitions I think.

Ed Ryan: We continue to expect to elaborate in an adjusted EBITDA operating margin range of 40 to 45%. Our margin can vary in that range given such things as revenue mix, like we saw with hardware this quarter, foreign exchange movements, and the impact of acquisitions as we integrate them into our business, like we previously saw with ground cloud. We expect the ground cloud hardware replacement cycle will continue in Q3 so that revenue mix may impact margins slightly again this quarter.

Speaker Change: Now there was a time I could go a year to go when they had done

Speaker Change: Elvated Expectations of their work that maybe weren't realistic over time.

St. Dingham: St. Dingham, St. in the larger businesses, and we take a look at all those larger businesses as well when they come up for sale.

St. Dingham: but there's some dynamics going on where we're not as happy with sometimes what those were they.

St. Dingham: you know, combination by a private equity firm of a bunch of businesses that we already looked at. We thought, you know, we didn't bet on the first time, so we thought they made it overpaid for them the first place and now we're...

Ed Ryan: We've got lots of exciting things planned for our business. It remains a challenging economic supply chain and compliance environment for our customers, but we believe our proven track record of execution, solid capital structure, and customer focus will help us serve them 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.

St. Dingham: BNAS to pay more for them going forward, and that's often frustrating to us. Frankly, we don't always agree with what they put together and that ends up in a situation where, well, look at a bigger business, but we're not always interested.

Operator: And with that operator, I'll turn it back to you for questions. Thank you.

Speaker Change: Fair, thank you very much.

Operator: Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press bar one in your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press bar two. If you're using a speaker phone, please lift the handset before pressing any keys. One moment please for your first question.

Speaker Change: Your next question comes from RIMO LASTRO of Barclays.

Speaker Change: Your line is already open

RIMO LASTRO: He, perfect. Thank you. Two quick questions, Ed, on the puts on TX, on the track side.

Speaker Change: That seems like late cycle to me because they had the last kind of mile in the way, like not the last mile, but you know what I mean If you look at previous cycles and I kind of overthinking this now, or whatever you see in this troddy on there And then, Allan, if you think about a free cash flow or operating cash flow is quarter worth of one number that

Faith: Your first question comes from Dylan Becker of William Blair. Your line is already open. Hi guys, it's Faith on for Dylan. Can you just remind us as you're talking about some of the different macro puts and takes your transactional exposure? You guys continue to operate well despite some of the headwinds that you called out.

Kim: Kim in a slightly below where the rest of the Romans was really, really strong. Can you kind of speak to the put some takes there and probably seasonality? Thank you. Congratz on me as well.

Allan: Hey, Rhino. Yeah, so I know I don't think you're ever thinking that that's exactly right. Truck 10's the follow some of the other modes in particular ocean and hair that tend to drive a lot of truck fine. So we were encouraged to, I mentioned it for briefly in the.

Ed Ryan: So maybe could you just help us think about the banded range of outcomes that are possible as volumes either take up or decline more substantially? Sure. As a portion of overall revenue are transactional revenues in the low 30-31% roughly. And they are fairly consistent performers. You know, there are obviously variations when volumes go up and down, but compared to most transactional businesses, I think, and certainly given the underlying minimums that we have in our business in a normal time, including minor ups and downs in the ocean air truck and rail markets. Those numbers are fairly consistent.

Speaker Change: Opener Marks that Ocean's volume was very, very strong at the end of the quarter and I am optimistic that that's going to flow into truck volumes in the coming months. That's normally what happens, and I hope you'll see that at the end of your stutters.

Speaker Change: Yep, okay.

Speaker Change: Yeah, and run on your on your questionable cash flow. So as we mentioned in the prepared comments, we had a little unusual event this quarter, which we've been mentioning for the last couple of quarters would happen.

Speaker Change: On our larger urnope payments that we had, we made a couple payments in the quarter. Those payments turned out to be larger than the initial estimates we made at the time of the acquisition, and U.S. Gap rules require us to take any of those additional payments that we made.

Ed Ryan: I'd say compared to most transactions. Great, great.

Ed Ryan: And then just one more quick one. You guys called out you have three acquisitions today. You talked earlier about having that three to six target every year. Any color on the outlook for the second half of what you guys may be looking at or the broader M&A landscape? Yeah, we see a pretty good environment for acquisitions. I think over the last year, you know, people's expectations for what they should sell their company's fortune come down into what we would consider a reasonable level. And in a lot of cases, and you can see us getting more acquisitions done this year, and I expect that to continue for the foreseeable future.

Speaker Change: Bob and beyond the original estimates, and put those true cash flow from operations, so they're a hit, a 25.0 million hit to cash flow from operations.

Speaker Change: If you exclude that for the quarter, our cash flow is just a $060 million cash, our just a cash flow from operations.

Speaker Change: 85% of our Justin Ebeda, and that's right in the range of what we expect, typically we expect anywhere from 80 to 90% of our Justin Ebeda to become operating cash flow.

Speaker Change: with that one adjustment, which is a very unique item. We're right in that middle of that range. So hopefully that explains it. It's a very unique one-time item. Should not hit us to this expense in the quarter's going forward. Okay, thanks for the sense. All right, thank you.

Faith: All right, awesome. Thanks so much. Congrats again on the quarter. Thank you, Peyton.

Speaker Change: Lecture on.

Paul Treiber: Your next question comes from Paul Threiber of RBC Capital Markets. Your line is already open. Oh, thanks very much.

Speaker Change: There are no further questions at this time. I would hand over the call to add Ryan for closing remarks. Please go ahead. Hey, great. Thanks everyone for your time this evening. We look forward to reporting back to you on our Q3 results in December and otherwise have a great evening.

Allan Brett: Good afternoon. A couple of clarification questions. This first is on the organic growth in 9%. Is that referring to services only or does it also taking to count the one-time hardware revenue in the quarter? Yeah, a little crackly, but the 9% is the estimated organic growth in the total business. Okay, and secondly for baseline for Q3, does that include the 2.5 million that you expect in low margin hardware or is it excluded and not be in addition to that baseline?

Speaker Change: Ladies and gentlemen, this concludes today's conference call, thank you for your participation and you may now disconnect.

Allan Brett: It's a great question. It includes some element of that hardware. We do have some orders already for some that we know will be delivered in Q3. We're estimating that the total amount will be 2.5, but we don't have all those orders yet, so it is included for what we know about at this point in time or what we know about for August.

Allan Brett: Okay, and then just for me, just on the ASD acquisition, the remaining 5%, the cost of it, I think you mentioned, is 3.5 million. It seems like there's quite a premium there. Can you just walk through the structure of that acquisition and some of the what happened from a deal structure perspective? We bought 95% of that business in the first quarter. For reasons that were personal to the sellers, they wanted some piece of it deferred.

Allan Brett: We are committed and expect fully expect to purchase the remaining 5% before the end of our physical 25. There is no additional premium. The number I gave you should line up as being the 5% element that's remaining in that business.

Paul Treiber: Okay, thanks for taking the questions.

Stephanie Price: Your next question comes from Stephanie Price of CIBC. Your line is already open. Hey, good afternoon.

Allan Brett: Just on the hardware piece with ground cloud, this one I can give a little more detail there and how confident you are that the refresh should be mostly complete in fiscal Q3. I think you mentioned that, Allan. Yeah, I mean, what happened here is we started providing AI cameras and we offered a deal up for our customers where if they signed up for a two year deal that we included a new AI camera in it, we did that mostly to protect our existing customer base and the good news in that was we had a lot more customers and just our customer existing customer base take advantage of it and sign new contracts with us.

Allan Brett: So we were pleasantly surprised with the reaction to that in the market and we're estimating that it'll be largely over this coming quarter, but I'm not positive at all. I hope great news of it continued and we kept signing up more customers, but best we can tell right now we should be done with most of that in the existing quarter and what we've done here has been pleasantly surprising to us.

Stephanie Price: Great, thanks.

Ed Ryan: And then just on M&A, you mentioned that smaller businesses are being challenged by the freight environment. Just curious what you're seeing on the larger deal side as well. I think they get challenges too. I think that, you know, with the small and medium sized businesses and really when I made that comment, I was talking about our customers more, but it's the same for the acquisitions. I think there was a time a year or two ago when they had elevated expectations of their worth that maybe weren't realistic over time.

Ed Ryan: Same thing I'm seeing in the larger businesses, but and we take a look at all those larger businesses as well when they come up for sale. But there's some dynamics going on where we're not as happy with sometimes with those where they combination by a private equity firm of a bunch of businesses that we already looked at. We thought, you know, we didn't bid on the first time, so we thought they may have ever paid for them in the first place.

Ed Ryan: And now we're being asked to pay more for them going forward and that's often frustrating to us. And frankly, we don't always disagree with what they put together and end up in a situation where we'll look at a bigger business, but we're not always as interested.

Stephanie Price: There, thank you very much. Hey, thank you, Stephanie.

Raimo Lenschow: Your next question comes from RIMO Landscho of Barclays. Your line is already open. Hey, perfect. Thank you. Two quick questions. And then, Ellen, if you think about free cash flow or operating cash flow, this quarter was the one number that came in slightly below where the rest of the hormones was really, really strong. Can you kind of speak to, kind of, to put some takes there and probably seasonality? Thank you. Congrats for me as well.

Raimo Lenschow: Hey, RIMO. Yeah, so, no, I don't think you're overthinking it. I think you're exactly right. Trucks tend to follow some of the other modes, in particular, ocean and air that tend to drive a lot of truck lines. So we were encouraged, and I mentioned it for briefly in the opening remarks, that ocean volume was very, very strong at the end of the quarter. And I am optimistic that that's going to flow into truck lines in the coming months.

Raimo Lenschow: That's normally what happens, and I hope you see that. I think you're spot on, on your questionable cash flow. So as we mentioned in the prepared comments, we had a little unusual event this quarter, which we've been mentioning for the last couple of quarters would happen. On our larger Erno payments that we had, we made a couple payments in the quarter, those payments turned out to be larger than the initial estimates we made at the time of the acquisition, and US gap rules require us to take any of those additional payments that we made above and beyond the additional estimates and put those through cash flow from operations.

Raimo Lenschow: So there are a hit, a 25.0 million hit to cash flow from operations. If you exclude that for the quarter, our cash flow is just a notch under 60 million, our cash, our adjusted cash flow from operations, about 85% of our, of our adjusted EBITDA, and that's right in the range of what we'd expect. Typically we expect anywhere from 80% to 90% of our adjusted EBITDA to become operating cash flow with that one adjustment, which is a very unique item.

Raimo Lenschow: We're right in that middle of that range. So hopefully, that explains it's a very unique one-time item. Should not, should not hit us to this expense in the quarters going forward. Okay, make total sense. Congrats. Thank you.

Operator: There are no further questions at this time.

Ed Ryan: I would hand over the call to add Ryan for closing remarks. Please go ahead. Hey, great. Thanks everyone for your time this evening.

Ed Ryan: We look forward to reporting back to you on our Q3 results in December and otherwise have a great evening.

Operator: Ladies and gentlemen, this concludes today's conference call.

Operator: Thank you for your participation and you may now disconnect.