Q2 2027 Descartes Systems Group Inc Earnings Call

Speaker #1: Call you required me get assistance. Please press star or 0 for the operator. This call is being recorded on Thursday, September 10, 2026. I would now like to turn the conference over to Scott Pagan.

Speaker #1: Please go ahead.

Speaker #2: Thank you very much. thanks, and good afternoon, everyone. Apologies for the delay in starting; there was a slight technical issue with getting the press release out on the wire.

Speaker #2: Joining me on the call today are Ed Ryan, CEO, and Ed Gardner, CFO, and I trust that everyone has now received a copy of our financial results press release.

Speaker #2: Portions of today's call, other than the 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, trade, tariff, and economic uncertainty on our business and financial condition.

Speaker #2: Descartes' operating performance, financial results, and condition, 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 of revenues and incurrence of expenses, potential acquisitions and acquisition strategy, cost reduction and integration initiatives, potential share purchases under a normal course issuer bid, 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 result, 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" in documents filed and furnished with the SEC, the OSC, and other securities commissions across Canada.

Speaker #2: 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.

Speaker #2: 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 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.

Speaker #2: And with that, let me turn the call over to Ed.

Speaker #3: call. Today we're again recording record quarterly financial results. We're ahead of our plan in Q2, which gives us even more room to make acquisitions, investments in AI, and other investments in our business.

Speaker #3: These are strong results, that I'm looking forward to walking through in more detail. However, first, let me give you a rollback for the call.

Speaker #3: I'll start by hitting some highlights of our last quarter, and I'll provide some comments on some investments we've been making, and then I'll hand it over to Ed Gardner who will go over the Q2, year-to-date financial results in more detail.

Speaker #3: After that, I'll come back and provide an update on how we see the current business environment and how our business was calibrated for Q3.

Speaker #3: And then we'll open it up to the operator to coordinate the Q&A portion of the call. So let's get into Q2. Key metrics we monitor, including revenues, profits, cash flow from operations, operating margins, and returns on our investments.

Speaker #3: For this past quarter, we again had record performance in each of those areas. Total revenues, were at a record $201 million, up 12% from a year ago.

Speaker #3: Record high services revenues were up 13% from a year ago, and our continued focus on generating recurring revenues record net income was up 32% from a year ago, and record income from operations was up 36% from a year ago.

Speaker #3: Record adjusted EBITDA was up 18% from a year ago, our adjusted EBITDA margin is at a record high level of 47%. We generated over $81 million in cash from our operations, up 28% from a year ago.

Speaker #1: Excuse me, ladies and gentlemen, please continue to stand by at your convenience. We'll begin in a moment, Charlie. Thank you. At each of those areas.

Speaker #3: So strong record results across all of our key metrics. At the end of the quarter, we had over $400 million in cash, and we were debt-free with an undrawn $350 million line of credit.

Speaker #3: This was before we completed some acquisitions in August, which I'll talk about shortly. We remain well-capitalized, cash generating, growing, and ready to continue to invest in our business.

Speaker #3: We also have a normal course issuer bid that allows us to purchase up to $8.6 million shares before December of this year. We've made some more purchases since we last reported, and I'll allow Ed Gardner to give you those details.

Speaker #3: But especially in light of how the business performed last quarter, we remain optimistic about Descartes' future. And the normal course issuer bid is a tool we could use to make further purchases.

Speaker #3: I wanted to touch on a few areas that helped our business perform well this quarter. You'll notice some of, them are similar themes to previous quarters.

Speaker #3: The first is grow, global trade intelligence. Global trade intelligence remains one of the larger contributors to our services revenue. We had good growth in the quarter compared to where it was a year ago.

Speaker #3: I think it's helpful to understand what's going on with global trade to understand why we've seen more demand from customers in this part of our business.

Speaker #3: There's three things going on in the world that are making it more challenging to move goods from point A to point B. The first is tariffs are still changing, and they're often changing rapidly.

Speaker #3: There's been lots of active resetting international trade agreements. the setting threatening raising or lowering of tariffs has become a common international tool in the recent trade negotiations.

Speaker #3: Changes have often come with less advance notice than industry has, been used to. It's extremely challenging for businesses involved in international trade to track and manage all of these changes on their own.

Speaker #3: More and more businesses are reliant on global trade management systems powered by the kind of tariff and duty content that Descartes provides. This has been a big demand driver for us.

Speaker #3: Also, businesses have become more active in researching ways to minimize their tariff burden, their cons consulting more and more with trade professionals or using research tools like Descartes' data mine tools to understand what business peers are doing, so it has also influenced demand.

Speaker #3: Further, if you can re if you can't reduce tariffs, there's value in deferring your tariff burden. Leveraging available tariff mechanisms such as foreign trade zones has been another area that has increased customer demand for Descartes.

Speaker #3: The second is customs and export control enforcement has stepped up. Governments in particular in the US have committed additional funding to customs and export control enforcement activities.

Speaker #3: This is in response to the perception that there is a significant noncompliance with pursuing particularly on sanctioned parties and export controls. Sanctioned parties are where a government lists entities or individuals with whom it is illegal to trade.

Speaker #3: These sanctions often come about because of military conflicts, economic disputes, or criminal activities. Trading with the prohibited entity can bring large penalties. For that reason, a key part of global trade compliance programs should include detailed sanction screening for shipments.

But especially in light of how the business performed last quarter, we are optimistic about Descartes' future and the normal course issue. But it is a tool we can use to make further purchases.

Speaker #3: Descartes' sanctioned parties screening business has seen strong demand, and we don't expect increased enforcement to lower that demand. Export compliance is often at the commodity level of the shipment.

I want to touch on four areas that helped this business perform well this quarter. The first is global trade intelligence, which is one of the largest contributors to our services revenue and had strong growth in the quarter compared to where it was a year ago.

That's pretty intuitive. If you think about what's happened over the past year, it's become increasingly challenging and unpredictable to determine how to ship goods from point A to point B.

Speaker #3: Prohibitions or licensing on goods exported from one country to another these requirements can be because of militarily sensitive goods, or dual-use goods, or because of scarce valuable resources in a manufacturing process like semiconductors and chips.

Especially if they need to cross borders.

We've seen strong growth across the four core areas of our business, or of the global change intelligence business.

Speaker #3: Our export compliance solutions, particularly in our OCR solutions, have seen heightened demand as enforcement of these rules has increased. And the third is compliance and audit burden has increased.

The first is tariff and duty content. We believe we have one of the best real-time sources of global tariff and duty information. This past year, there have been huge and frequent swings in the tariffs and duties, particularly from large shipping or importing nations like China and the United States.

As we've said before, if tariffs and duties are changing, that's usually a pretty good sign for this part of our business.

Speaker #3: Hand in hand with the increase in enforcement, the obligation to keep detailed, accurate, and auditable records on all global trade transactions has increased. So, for example, it's not enough to appropriately screen a transaction, but you also need to auditable proof of that screen available in the future for third-party review.

The second is the sanctions party screening business.

Where we continue to be a leader in sanctioned party screening, and we continue to see strong growth here as we help our customers navigate and increasingly complex, sanctioned party environment stemming from the global, uh, the current Global geopolitical landscape.

Speaker #3: The importance of global trade management systems has shifted from transactional execution to systems of record for trade. This is particularly so with increased US focus on transshipments, as a mechanism that is potentially being used to avoid tariffs or sanctions.

Uh, third year of the foreign trade zones, or FTZs. These are facilities where goods can be imported and stored and processed on a tariff-free basis until they're ultimately released from the facility for consumption in the domestic market where the facility or zone is.

Speaker #3: Transshipment is where a, goods are routed through one or other m or more other countries before the final destination. Often to avoid tariffs or sanctions that apply to the original country of origin.

With all the tariff uncertainty for imports in the United States, more and more companies have been pursuing this option for their business.

Speaker #3: Customers are compelled to have accurate and detailed records proving country of origin on shipped goods, something that has increasingly challenging in a complex world of international supply chains and multiple internationally sourced component parts in finished goods.

It has proven to be a particularly lucrative strategy for those who deferred paying. Any of the recent IIPA tariffs that were invalidated by the Supreme Court, by not paying the tariffs, these importers do not now need to go through the delayed process of trying to obtain refunds.

Speaker #3: We have seen good demand from people seeking new or more sophisticated trade management systems with reputable, stable partners that could support future audits. That's been a good demand driver for us as well.

So, stronger growers so far, and with continued uncertainty about the legality and amounts of tariffs, we expect many companies will continue to pursue with our technology leveraged for the operation of the foreign trade zone.

Speaker #3: A rapidly changing tariff environment, increased resources, dedicated towards trade enforcement, and detailed and auditable record requirements extend into the future a much more today.

And the last one, number four, is Datamine. Companies have adopted a myriad of strategies for dealing with tariff uncertainty, whether it's different sourcing strategies, consideration of classification of goods, or even shipping routes. The best companies are doing as much research as they can to help guide their strategies—and that's where Datamine comes in. It's a comprehensive research tool to see how others are dealing with importing challenges. This continues to see good traction and is a strong area of growth.

Speaker #3: With a number of changes that have happened in the trade environment over the past two years, we found that our customers have, are no longer waiting to see what's next.

The second area of growth for us was the e-commerce entries.

Speaker #3: Many have accepted that volatility is the new baseline operating condition. Rather than accepting the stability of a trade role and building the standard operating procedure to address that role, we found that our customers are already focused on building agility and flexibility in redundancy into their supply chains.

Speaker #3: They're preparing themselves to be ready for what they don't know is going to change. That approach has necessitated higher level of investment and executive attention to supply chain and logistics issues that we've seen historically.

We continue to see overall growth in consumers and bracing e-commerce, even with the elimination of the tariff-exempt Type 86 de minimis program. Imports have continued to grow coming into the United States. We have a premier solution for handling e-commerce imports in the United States, using our NetCHB system, with particular strength in high-volume and high-velocity requirements.

For helping key brokers meet the demands of importers, and these volumes are contributing well to our revenue growth.

The third area is fleet performance management and routing.

Speaker #3: We've seen the same trend with shippers booking capacity. More shippers are relying on spot rates and shorter-term capacity contracts. That investment has been supported by one-time tailwind for some in the US, some businesses have received sizable tariff refunds from the previous US Supreme Court decision, invalidating the international emergency economic powers act, tariffs.

We have market-leading solutions to help customers manage their fleets of vehicles. In particular, we have routing and scheduling solutions that help companies figure out the most efficient way to make deliveries and reduce hours and miles driven to do that.

There is always good demand for these solutions. However, the demand increases in periods where fuel costs increase, running your fleet becomes more expensive, and customers look to our solutions to reduce the amount of fuel they're using to make deliveries.

Speaker #3: Again, one-time in nature, however, a stimulus for some supply chain investments. Second area where we've seen good, growth is in our e-commerce entries. We continue to see overall growth in consumers embracing e-commerce, even with the elimination of the tariff-exempt Type 86 de minimis program.

Cost consciousness for fleet owners is even higher, given the inflation that exists in driver wages.

To quantify or qualify to be a driver.

Speaker #3: Imports have continued to grow, accompanying the United States. We had a premier solution for handling e-commerce imports into the US using our net CHP system.

And the final 1 is a transportation management where I'm actually Point uh, macro Point continues to be strong for us. American Point provides real-time visibility to shipments Brokers and shippers. Tell us the loads they want tracked. It's our job to get the tracking information from onboard systems.

Speaker #3: With particular strength and high requirements. We're hoping key brokers meet the demands of importers in these volumes are contributing well to our revenue growth.

Transportation management systems, and using our application or old-fashioned calls to drivers.

Speaker #3: We call this out in Q1, but we again saw strength in Q2. The third area is in transportation management. Macropoint continues to be strong for us.

Speaker #3: Macropoint provides real-time visibility to shipments. Brokers and shippers tell us the loads they want to track. It's our job to get the tracking information from onboard systems, transportation management systems, using our application, or old-fashioned calls to drivers.

Over past quarters, we've enhanced our system to have AI agents that interact with drivers to encourage adoption of our tracking app, helping us reach a segment of the market that was previously difficult to reach at scale. These agents have helped contribute to a higher percentage of shipments tracked on our peers, which in turn drives more people to our network. We've also released some new agents to help brokers manage current workflows on shipments, which I'll speak to further in a few minutes.

Speaker #3: Over past quarters, we've enhanced our system to have AI agents that interact with drivers to encourage adoption of our tracking app. Helping us reach, segment of the market that was previously difficult to reach and scale.

So, this is where the principal contributors to growth are. Uh, we were able to help our customers in a challenging creative environment. We generally saw overall shipment volumes down in the quarter, with the biggest contributor to that decline being the war in Iran. Here's a quick summary by mode of transportation.

Speaker #3: These agents have helped contribute to higher percentage of shipments, tracked than our peers, which in turn drives more people to our network. We're also competitively differentiate differentiated because we are tracking data from both phones and onboard devices.

So, in ocean, the war in Iran effectively closed the strait from us and choked shipping in the region. Shipments of oil, fertilizer, and aluminum were among the most impacted imports to the United States. This disruption has had a volatile impact on rates and shipping, with many

Speaker #3: So we're able to compare those data sets and alert customers to discrepancies that may exist as they consider consider which carriers will use in future.

Speaker #3: One of the particular strengths of our transportation management offering man-management offerings is the combined solution that we can provide. We have full enterprise-grade transportation management systems for shippers and brokers, real-time tracking of a shipment and fraud detection, slash carrier screening with MyCarrier portal.

Avoiding a region because of the security risk and costs of war risk insurance has resulted in longer selling times, reduced schedule reliability, increased fuel usage and costs, increased insurance premiums, and additional congestion at transit hubs.

The fuel cost impact is spread beyond the Middle East, with European fury, silencing 25% wage increases.

Speaker #3: This combination has been well received by the market, especially for brokers who need enhanced carrier screening tools in light of the US Supreme Court decision imposing liability on brokers for reckless selection of unsafe carriers.

Spot rates for Far East airlines continue to be high, causing many shippers to rethink their strategy for balancing contract rates and spot bookings. So, overall, a very challenging ocean shipment market at the moment.

Speaker #3: A good grow-growth driver for us with the potential for further growth, which was a key consideration for our recent investment in Thai, which I'll talk about later.

Next is air cargo, which has seen some mixed impacts. The war in Iran temporarily closed certain airspaces to flights, with some estimating a temporary 20% decrease in available capacity. It also presents an ongoing security risk. Fuel costs and availability have also made it a pricier mode of shipment.

Speaker #3: And the last is a fleet performance slash management and routing. we have to help customers manage their fleets of vehicles and particularly we have routing and scheduling solutions to help companies figure out the most efficient way to make deliveries and reduce hours and miles driven to do that.

However, there have been some positives for those in shipping struggling and economic conditions as volatile. Uh, many have elected to leverage, the ammo to move Goods quickly. And or on short notice it continues to be strengthened uh strengthen the shipment of semiconductors and AI infrastructure, which are more appropriate for the ammo. Given high value weight ratios and time sensitivity.

Speaker #3: There's always good demand for these solutions, however, the demand increases in periods like now where fuel costs increase. running your fleet becomes more expensive and customers look into solutions to reduce the amount of fuel they are using to make deliveries.

Yeah, Thomas continues to thrive and our benefits from that because of short fulfillment cycles. Some inventory restocking strategies have shifted to smaller, more frequent orders, which switches inventory to air.

Promotion.

Speaker #3: Cost-conscious, uh,ness for fleet owners is even higher given the inflation that exists in driver wages. This wage inflation is driven in part by driver shortages and US, new US regulations have made it more difficult to train and qualify to be a driver.

So, overall, despite the volatile impact of geopolitical tensions, our cargo has been relatively strong.

Road transportation—so, fuel and driver costs and driver shortages—are having the biggest impact on us. Domestic trucking.

Speaker #3: This demand in our business was supported by two recent investments. We made at the end of Q1, we combined with IDELIC, IDELIC is an AI-powered driver safety and performance management system.

Smaller carriers are struggling, and it's pushing some capacity out of the market, but not enough to counteract the increase to shipping rates caused by fuel costs. So overall, we saw trucking volumes down 4%.

Year-over-year.

Speaker #3: This was a timely investment as the US courts focused attention on driver safety and liability in accidents. This was our first full quarter with IDELIC and has prepared has paired well with our Ground Cloud solution to provide an excellent tool to enhance safety oversight of our existing private fleet customers.

Is that a review of transportation modes? The general theme is a tough and costly market to ship in. Our customers are increasingly relying on us and technology to deal with this complexity and uncertainty.

A key—there is one of the keys to our customers managing a more complex world. And rising resource costs will be leveraging artificial intelligence technology.

Speaker #3: Then in the last month of Q2, Drive In joined our Descartes team. Latin America, has been a key expansion target for our routing solutions.

Speaker #3: There's a lot of opportunity for growth with our existing solutions portfolio. Plus access to a broad base of delivery information in the region. We're joined by a great team with experience with delivery solutions and high-density urban environments.

Our customers are looking to us to be a leader in AI, to help them plan for and operate in the future. I spoke about this last quarter, but here are some of the reasons they're confident in our success.

We are a critical logistics network relied on by the world. We connect hundreds of thousands of companies.

We solve complex inner enterprise problems for them that they can't solve on their own within their own enterprise.

Speaker #3: Drive In was only here for about three weeks of Q2, but it has meshed well with our team and we're looking forward to great things, to come in Q3 and beyond.

Speaker #3: So overall, these were the items that contributed strong growth and demand in Q2. That performance, we were able to continue to make investments in our business.

We have scaled to process billions of transactions a year. We deliver a reliable and stable solution at scale. We're trusted by our customers. We help them with compliance—a function that is risky to handle solely internally without leveraging a specialist.

We have workflow and domain expertise for complex logistics processes.

Speaker #3: One of our, one of the principal areas of investment continues to be in artificial intelligence technologies. And with that, let's talk about AI. We're investing in AI because it enables automation as supply chains and logistics becomes more and more complex.

We have unique, proprietary data that can deliver fuel—uh, that it can fuel better answers.

Better answers may increase operational efficiencies. We have a long record of investing in new technologies and businesses to enhance our service offering.

Speaker #3: Managing sources of data, physical resources, human resources, payments, tariffs, duties, compliance, sanctions, fuel costs, vessel capacity, warehouses, all these are becoming too complex for humans to manage on their own.

We're financially stable and operate our business for the long term. We have a broad portfolio of solutions that are ideal for those who need integrated logistics workflows and processes.

Speaker #3: And making our investments we have some core beliefs in mind about how AI will change our business over time. Our solutions will be used by AI through APIs and agents more than by users and with browsers.

Of AI technologies for our customers. We've designed our AI agent layer that will accommodate external and Descartes agents accessing the functions and data on the Descartes Global Logistics Network.

Speaker #3: Our solutions will be used to generate outcomes for customers rather than to be licensed for access. Our solutions will be used to identify and prevent potential problems as much as to solve existing problems.

That layer orchestrates agents and the skills they call, and enforces policy. So it says who can do what, whose data and under what approval. It captures audit and observability, so that every action is traceable and explainable. And it manages the economics—the usage, costed attribution, and billing.

Speaker #3: We believe that human oversight of decisions made by technology will still be critical. That the data on our network we will provide critical context to both fuel and human and AI decisions.

Speaker #3: And finally, that our broad solution set will integrate to provide our customers with a single source for unrivaled outcomes. We've been very active in the designing our infrastructure, workflows, and commercial models to adapt to these inevitable changes.

We believe there is lots of value we deliver to our customers using AI agents. I mentioned the MacroPoint engine before; however, we have a whole suite of transportation-managing agents, including calling drivers for location checks, gathering proof of delivery information for billing purposes, arrival and departure confirmation, getting truck rates to help with carrier selection, and getting insurance certificates for carriers.

Speaker #3: We've designed our agent control plane for agents to access our products. We've made it skills from our products available to agents via MCP and the agent control panel.

We have similar agent development and agent development in other pillars, including agents gathering service time information, and fleet management, research, AI, and data mining. We enhanced the 9-party screening to manage false positives, just to name a few.

Speaker #3: we're undertaking comprehensive data growth data graph to bring useful network effect context to decisions and we're designing a uniform workbench entry points for agents and human to access the Descartes Global Logistics Networks skills.

These agents are automating workflow and work. They're designed to automate repetitive tasks that don't need the creativity of a human, and they surface new opportunities for humans to consider new strategies and opportunities.

Speaker #3: We're very busy and tremendously excited by the value we can deliver to our customers using these AI capabilities. Our customers are also asking us for AI that removes work.

Some of the agents are sold to our customers, while others are designed to increase adoption velocity or traffic over the global logistics network. We believe that AI agents, whether they are ours or third-party agents with permission to access our network, will play a big role in future efficient supply chain and logistics operations.

Speaker #3: They're more interested in outcomes than workflows. With that in mind, we're developing and deploying AI agents including agents that classify HS codes, model duty exposure, and sourcing shifts.

Because of that, we anticipate we will continue to increase our level of investment in AI technologies. Some of that will come from increased usage of existing AI tools within our business to build out our AI agent layer.

Speaker #3: Agents that diagnose customs and regulatory filing rejections and suggest remediation. Agents that predict late loads and proactively rebook dock appointments. Agents that rate and book across transportation modes.

Speaker #3: Agents to forecast e-commerce demand, balance stock, and rate shop, sanctioned parties screening triage to clear false positives. Agents that screen for double brokering and identify fraud.

From building and designing new agents, to enhancing the functionality that we have in our existing customer applications, to rapidly accelerating the interoperability of our solutions, to making our network more secure and reliable, and to delivering a better customer experience. However, we also anticipate that our M&A strategy will include detailed consideration of how potential partners will enhance how we're using AI to help our customers.

This task order, we completed the acquisition of Idelic, which brings new AI-powered technologies to our fleet management. Idelic helps our customers with managing the safety of their drivers.

Speaker #3: Agents that dynamically schedule to get delivery routes back on track. And finally, fleet safety coaching. These aren't aspirational. Our customers are seeing real benefits from AI agents already.

Speaker #3: As I've been mentioning previously, our macro point business is actively using agents to call drivers for location checks, gather proof of delivery information for billing purposes, get arrival and departure confirmation, get truck rates to help with carrier selection, and get insurance certificates for carriers.

They have a proprietary database of over 40 billion miles of data and telemetry on hundreds of thousands of historical accidents, which can then be leveraged to identify drivers or practices that may require further training or remediation to prevent future safety issues. That data is something that non-Descartes systems aren't trained on and allows us to provide better safety insights.

Speaker #3: This helps our customers track and book more loads, give AI agents that enable tracking on 26% more loads than they did in Q1. As we deliver more value to customers, we get paid on delivering more outcomes.

...our customers. And we combine with Descartes industry-leading routing, planning, and execution technology. This enables us to deliver a complete, cutting-edge Fleet Performance Management solution that uniquely incorporates driver behavior and safety signals into our robust operational data set.

A big welcome to the Idealic team, and we're excited about what they can do for our Fleet Management customers.

Speaker #3: This has been a real benefit to us in the quarter and all due to AI. AI is an exciting part of our present and future.

Speaker #3: We're planning a comprehensive update on what we're doing with AI at our in-person innovation forum to be held October 6th through the 8th in Chicago.

I provided an overview of our approach with AI technologies in our investments. However, we're preparing a comprehensive description of everything that the car is doing with AI for our in-person Innovation Forum, to be held in Chicago, October 6th through 8th of this year.

Speaker #3: We're planning on showing practical and real examples of how our customers will get value from outcomes leveraging AI. This is a big event. We're attendees can interact with customers, partners, and Descartes real team members.

Speaker #3: a great event to learn from Descartes and others, but also to provide feedback on how we can help deliver more value. We're very excited to host everyone and share how excited we are about our future.

This is a big event we invest in to provide our customers and partners access to our people, our latest developments and plans, and give an opportunity to provide direct feedback on where we are and where we're going. It's been a few years since we've done an in-person event of this scale, so we're very excited to host everyone and share how excited we are about our future. Please see our website for registration details.

Speaker #3: Please see our website for more registration deals. And as details and we look forward to seeing you there. So in summary, strong Q2 with additional AI investments, two acquisitions that impacted Q2 and plans for more investments.

So, in summary, a strong Q1 with additional AI investments and a new acquisition. I'm excited about how the business is performing and the opportunity we have in front of us. So with that, I'll now turn the call over to Ed Gardner to go through the financial results in more detail. Ed.

Speaker #3: I'm excited about how the business is performing and the opportunity we have in front of us. With that, I will turn the call over to Ed Gardner to go through the financial results and more detail.

Speaker #3: Ed?

Speaker #1: Awesome. Thanks, Ed. as Ed mentioned, I'll be walking you through our key financial highlights for the second quarter and year-to-date results. We're pleased to report record quarterly revenues of $201.1 million this quarter.

Speaker #1: An increase of approximately 12% from revenue revenues of $179.8 million in Q2 of last year. Our revenue mix in the quarter continued to be very strong with services revenue increasing over 13% to $188.6 million from $166.8 million last year in the second quarter.

Thanks, Ed. As Ed mentioned, I'll be walking you through our key financial highlights for the first quarter of fiscal 2027. We're pleased to report record quarterly revenues of $193.6 million, an increase of approximately 15% from revenues of $168.7 million in Q1 of last year. Our revenue mix in the quarter continued to be very strong, with services revenue increasing 15% to $180.5 million from $156.6 million last year in the first quarter. Services revenue represents 93% of total revenue this quarter, which is consistent with Q1 last year.

Speaker #1: With services revenue representing 94% of total revenue this quarter. Removing the impact of both the recent acquisitions as well as a positive impact from changes in growth in services revenue from new and existing customers that is our organic growth would have been just north of 9% this quarter when compared to the same quarter last year, which is similar to Q1 of this year.

Growth would have been just over 9% this quarter when compared to the same quarter last year, and this is up from approximately 8% organic growth in Q4.

Speaker #1: Professional services and other revenue, including hardware revenue, came in at 12.4 million or 6% of revenue, slightly down from 12.8 million in Q2 last year, while licensed revenues were minimal, similar to last year.

Professional Services revenue and other revenue, including hardware revenue, came in at $11.5 million, or 6% of revenue, slightly down from $11.8 million in Q1 last year. License revenues were a bit higher this year at $1.6 million versus $3 million last year. Collectively, our Professional Services and other revenue combined with our license revenues was up 8% this year and together remain approximately 7% of our total revenues.

Speaker #1: Collectively, our professional services and other revenue combined with our licensed revenues was approximately 6% of our total revenues. Gross margin came in at 78% of revenue for the second quarter, up from 77% in Q2 of last year.

Gross margin came in at 78% of revenues, up from 76% a year ago. The increase in gross margin for the quarter was primarily due to operating leverage from more organic growth and services revenue.

Speaker #1: The increase in gross margin for the quarter was primarily due to operating leverage from our organic growth and services revenue. Turning our attention to the bottom line, as a result of solid revenue growth, improved gross margin as well as controlled growth in operating expenses adjusted EBITDA came in at a record 94.4 million, just under 47% of revenue, up 18% from adjusted EBITDA of 80.2 million in the same quarter last year.

Turning our attention to the bottom line, as a result of solid revenue growth, improved gross margin, as well as controlled growth in operating expenses, adjusted EBITDA came in at a record $89.8 million in the first quarter, or approximately 46% of revenue, up 20% from adjusted EBITDA of $75.1 million in the first quarter last year.

From a GAAP earnings perspective, net income for the first quarter came in at $48.5 million, up from net income of $36.2 million last year.

Speaker #1: From a gap earnings perspective, net income for the second quarter came in at 50 million, up 32% from last year. With these operating results and strong collections from customers, cash flow generated from operations came in at 81.3 million, or 86% of adjusted EBITDA, up 28% from operating cash flow in the second quarter last year.

Speaker #1: Looking at our operating results for the first half of the year, revenue came in at $394.7 million, an increase of 13% from revenue of $348.6 million in the first six months of last year.

Speaker #1: For that same period, adjusted EBITDA came in at $184.1 million, or 46.6% of revenue, up 19% from last year. Net income for the first half of this year also increased, coming in at 98.5 million, or a dollan a dollar 13 per diluted common share, up from 74.3 million or 85 cents per diluted common share in the first half of last year.

With these operating results and strong collections from customers, cash flow generated from operations came in at 75.184% of adjusted EBITDA, up 40% from operating cash flow in the first quarter last year. Overall, as Ryan mentioned earlier, we're extremely pleased with our operating results in the quarter. If we look at the balance sheet, our cash balances totaled $377 million at the end of April. As I just mentioned, we generated operating cash flow of just over $75 million in the quarter. Offsetting that was approximately $30 million in capital deployed on two tuck-in acquisitions and approximately $21 million on share buybacks under our normal course issuer bid.

As we look ahead, we remain well-capitalized and ready to continue to work on potential M&A activities in our space.

And a couple more points as they relate to the remainder of fiscal 2027.

Speaker #1: So overall, a great second quarter to complete a great first half of the year. If we look at the balance sheet, our cash balance is total of $401 million at the end of July.

Going forward, we expect to continue to see strong operating cash flow conversion, north of 80% of our adjusted EVA, of course, subject to unusual events and quarterly fluctuations, including adjustments related to future earnout payments that exceed our estimates made at the time of an acquisition.

Speaker #1: As I just mentioned, we generated operating operating cash flow of just over $81 million in the quarter, offsetting that was approximately $30 million in capital deployed on the drive and acquisition and approximately $24 million on share buybacks under our normal course issuer bid.

After incurring approximately $2.6 million in capital additions in the first quarter, we expect to incur approximately $4 to $6 million in additional capital expenditures this coming year, mainly related to IT equipment purchases.

After deploying approximately $21 million on share buybacks.

Speaker #1: Also worth noting that since the quarter ended, we spent approximately $220 million on the acquisitions of Thai and extensive and as we look ahead, we still remain well capitalized and ready to capitalize on potential M&A activities in our space.

In Q1 ’27, we also note in our shareholder report that we purchased an additional 196,800 shares during May 1st and June 2nd, and we may see additional purchases under the NCIB program moving forward.

Speaker #1: And a couple more points as it relates to the remainder of fiscal 2027. Going forward, we expect to continue to see strong operating cash flow conversion north of 80% of our adjusted EBITDA, of course subject to unusual events and quarterly fluctuations.

Speaker #1: Including adjustments related to future earn-out payments that exceed our estimates made at the time of an acquisition. After incurring approximately 4.6 million in capital additions in the first half of the year, we expect to incur approximately 2 to 4 million in additional capital expenditures this coming year, mainly related to IT equipment purchases.

After incurring an amortization expense of $17.3 million in Q1 this year, we expect the amortization expense will come in at $53.57 million, subject to foreign exchange changes and any future acquisitions.

We estimate that payments of contingent consideration for earnout arrangements, for the balance of this year, could be up to approximately $9 million, subject to any necessary adjustments resulting from the final internal calculations.

Speaker #1: After deploying approximately 45 million on share buybacks in the first half of the year, we may see additional purchases under the NCIB program moving forward.

Our income tax rate in the first quarter came in within our expected range at approximately 26% of pre-tax income, in line with our blended statutory tax rate of approximately 26.5%.

Speaker #1: After incurring amortization expense of 35.4 million in the first half of this year, we expect amortization expense will come in at 37.5 million for the remainder of fiscal 2027.

Speaker #1: With this figure being subject to ac to adjustment for foreign exchanges and any future acquisitions. We estimate that payments of contingent consideration for earn-out agreements for the balance of this year could be up to approximately $9 million.

Speaker #1: Subject to any necessary adjustments resulting from the final earn-out calculations. Our income tax rate in the first half of the year came in within our expected range at approximately 26% of pre-tax in income.

For the remainder of fiscal 2027, we're expecting the tax rate will be in the range of 25% to 30% of pre-tax income, which means it will be something on either side of our blended statutory tax rate. However, as always, we should add that our tax rate may fluctuate from quarter to quarter from one-time tax items that may arise as we operate internationally across multiple countries. And finally, after incurring stock-based compensation expense of $7 million in the past quarter, we currently expect stock-based compensation to be approximately $24 million for the remainder of fiscal 2027, subject to the vesting of stock options or share units.

Speaker #1: In line with our blended statutory tax rate of approximately 26.5%. For the remainder of fiscal 2027, we're expecting the tax rate will be in the range of 25 to 30% of our pre-tax income, which means it will be something on either side of our blended statutory tax rate.

I'll now turn it back over to Ed and Ryan to wrap up with some closing comments and our baseline calibration for Q2.

Speaker #1: However, as always, we should add that our tax rate may fluctuate from quarter to quarter from one time tax items that may arise as we operate internationally across multiple countries.

As I mentioned earlier, it continues to be a challenging shipping market, in large part because of the Iran war's impact on moving goods and tariffs—that is an ongoing concern.

Speaker #1: And finally, after incurring stock-based compensation expense of 14.8 million in the first half of the year, we currently expect stock compensation to be approximately 15.5 million for the remainder of fiscal 2027, subject to any for forfeiture of stock options or share units.

Expect that to be challenged—challenged throughout our Q2. There are also three new things impacting the market that I thought I should flag.

First is tariff refunds.

Earlier in the year, the Supreme Court invalidated the ITC order that had previously been imposed by the US administration and required the tariffs that have been paid be refunded.

Speaker #1: I'll now turn it back over to Ed Ryan to wrap up with some closing comments and our baseline calibration for Q3.

Speaker #2: Hey, thanks, Ed. it's still a challenge in shipping market international trade flows continue to adjust to a changing tariff landscape. Elevated fuel costs and driver shortages have impacted domestic trucking.

Speaker #2: Continued Middle East unrest has extended sailings, impacted capacity and increased prices. El Niño weather events are creating transportation challenges through historical waterways. There are new restrictions on sailings through the Panama Canal.

Investments, uh, opportunities, uh, for us with U.S. importers.

The second is broker liability.

Speaker #2: And there are port delays causing backups in offloading cargo. Even where the volumes of shipments are down because of the challenging regulatory and trade environment, we've continued to see good demand from our customers to deal with the additional complexity to move goods.

The US Supreme Court has been unusually active in matters that impact shipping recently. They determined that a freight broker may have liability for the negligent selection of unsafe carriers. This makes it very important for freight brokers and others selecting carriers to ensure that they are doing due diligence when hiring trucks to drive loads for them.

Speaker #2: So we still see good demand in the face of pressures on volumes, this is particularly so with lower value shipments which on a country-by-country basis have moved from tariff-free rapid process shipments to full compliance and customs authority review of shipments.

We're able to help our customers with that using our transportation management systems, and more specifically, our MyCarrierPortal solution that performs checks on the suitability of potential carriers.

Speaker #2: On the plus side, we've seen some tailwinds to shipment volumes from increased movement of AI infrastructure equipment. It's likely impacted a strong month of August for ocean shipments.

Separately, we expect that there will be pressure on smaller brokers in the market as they consider the cost of performing audit diligence and increased insurance requirements. So, that's something that may ultimately impact the number of brokers that are in the market going forward.

Speaker #2: August ocean imports into the US were the third highest month, monthly volume ever. We've had a couple of recent acquisitions that also impact how we look at the rest of the year.

Speaker #2: The first was Thai, an excellent complement to our existing transportation management business for freight brokers. Thai is leveraging AI within their broker workflows already, and consistent with our own AI investment goals as a system of record, Thai brings additional broker transaction data to provide context to shipments on the global logistics network.

And the third is new China regulations. There are new regulations from China designed to counteract what they consider to be the improper extraterritorial jurisdiction of other countries' regulations. For international shippers with supply chain operations with ties to China, this could mean needing to navigate a web of conflicting regulations between China and other countries. For example,

Speaker #2: An exciting addition, the complements our existing business drives our AI goals forward and brings a very talented team to Descartes. Shortly after we bought Thai, we made a second investment into extensive, formerly known as 3PL Central.

U.S. regulations against forced labor may prohibit U.S. entities from doing business with certain entities, while a Chinese regulation may prohibit a Chinese organization from complying with the U.S. regulation that China considers to be extraterritorial. So, just flagging an area of increased complexity for our customers going forward, and one that will require even more attention to the importance of global trade.

Compliance Solutions.

Speaker #2: Extensive provides warehouse management solutions to over 1,200 third-party logistics providers, who are often, managing fulfillment on behalf of e-commerce sellers. This fills a gap for us on what we were previously able to offer to 3PLs and is consistent with our approach to WMS, where we focus on e-commerce and high-velocity warehouse movements.

So it's a challenging macro environment for shipping, with new things that come in to make it an even, uh, ever-changing landscape for our customers.

Keep this in mind as we think about how our businesses are financially positioned and calibrated. In our quarterly report, we've provided a comprehensive description of baseline revenues, baseline calibration, and their limitations.

Speaker #2: It also furthers our AI goals by bringing a rich set of omnichannel fulfillment data on over 150 million orders to the global logistics network.

Speaker #2: We'll address this further in the next quarter, but we, it may be worth noting that a small portion of extensive's business sits outside the W the 3PL 3PL WMS core offering, and is an area of the business where we expect some revenue attrition early next fiscal year.

Speaker #2: Our focus is on growing the 3PL WMS portion of the business, and our team is really excited about the opportunities that we'll have as a combined business.

Speaker #2: We've already seen outreach from some of our existing 3PL Descartes customers looking to learn more about extensive to very promising right out of the gate.

Uh as of May 1st 2026 using foreign exchange rates of uh 74 cents to the Canadian dollar. $1.17 is a euro and a dollar 36 to the pound, the estimate that our Baseline revenues for the second quarter of fiscal 2027 were approximately 169 million, our Baseline. Operating expenses were approximately 102 million. We consider this to be our adjusted, uh, our Baseline adjusted Eva to calibration of approximately 66.5 million for the second quarter of fiscal 2027 or approximately 39% of our Baseline revenues. As at May 1st of 2026, we're currently not excuse me.

We're currently operating above our expected adjusted operating margin range of 40% to 45%.

Speaker #2: So if the challenging macro environment for shipping with new things that come in to make it an ever-challenging changing landscape for our customers. Also, two new investments in the first half of the quarter that will partially contribute in Q3.

Speaker #2: So we have limited operating history with either business at this stage. We keep this in mind as we think about how our business is financially positioned and calibrated.

Our margins can vary in any period given such things as revenue mix, foreign exchange movements, and the impact of acquisitions as we integrate them into our business. For now, we're keeping our target range at 40% to 45%. However, we'll monitor how we're performing over the coming quarters to consider when or whether any upward adjustment is appropriate.

Speaker #2: In our quarterly report, we've provided a comprehensive description of baseline revenues baseline calibration and their limitations. As of September 1st, 2026, after the Thai and extensive acquisitions.

These remain uncertain times for our customers. It's a challenge for them to know what they can rely on in this global trade environment.

Speaker #2: And using foreign exchange rates of 72 cents the Canadian dollar, $1.16 to the euro, and $1.35 to the pound, we've estimated that our baseline revenues for the third quarter of fiscal 27 were approximately $181 million.

Our goal is to continue to show our customers and our other stakeholders that one thing they can rely on is Descartes. Thanks to everyone for joining us on the call today. And, as always, we're available to talk to you about our business in whatever manner is most convenient for you. With that, operator, I'll now turn the call over to you for the Q&A portion of the call.

Speaker #2: Our baseline operating expenses were approximately $111.5 million, we consider this to be our baseline adjusted EBITDA calibration of approximately 69.5 million, for the third quarter of fiscal 2027, or approximately $38% of our baseline revenues as at September 1st, 2026.

Thank you, ladies and gentlemen. We will now begin the question and answer session. To ask a question, you may press the star key, followed by the number 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star followed by the number 2. One moment, please, for your first question.

And your first question comes from the line of Dylan Becker with William Blair. Please go ahead.

Speaker #2: We're currently operating above our expected adjusted EBITDA operating margin range of 40 to 45%. Our margin can vary in any period given such things as revenue mix, foreign exchange movements, and the impact of acquisitions as we integrate them into our business.

Hey guys, this is Jackson Boley on for Dylan Becker, you know.

Speaker #2: For now, we're keeping our target range as 40 to 45%, particularly in light of the early stages of integration for Thai and extensive. However, we'll monitor how we're performing over coming quarters to consider when we whether any upward adjustment is appropriate.

Speaker #2: These remain uncertain times for our customers, it's a challenge for them to know what they can rely on in this global trade environment. Our goal is to continue to show our customers and other stakeholders that one thing they can rely on is Descartes.

Ed Ryan. I I think you know what's interesting is, we've got so many different things going on with GE geopoll geopolitics, excuse me. Um, and just changing Supply chains. Overall I mean could you maybe try to contextualize, you know, at what point would that actually turn into a headwind for the card instead of, uh, it really driving interest on the platform. Just anything you could say about, you know, is there a point where the complexity gets too much and, um, you know, it starts to become a headwind for your business.

Speaker #2: 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 convenient for you.

Well, I think it's not so much that the complexity gets to be too much. Most of the complexity helps us, regardless of how much there is—the more there is, it tends to be the more they use our software. Uh, where what we've seen in the past, uh, and you probably...

Speaker #2: And with that, operator, I'll turn the call over to you, to manage the Q&A portion of the call.

Thank you so much that it starts to harm the economy.

Speaker #1: Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad.

You know, we go right along with the economy pretty well. I mean, the economy is down, people are shipping less stuff and, you know, we don't do as well. And you saw that with the tariffs last year. I mean,

Speaker #1: And if you would like to withdraw your question, please press the star followed by the number two. Once again, that would be star one to ask a question.

Speaker #1: With that, your first question comes from the line of Chris Quintero with Morgan Stanley. Please go ahead.

Speaker #3: Hey guys, appreciate you taking the questions here. Maybe first on Thai, really interesting acquisition there. I know you all already have made some acquisition in, in this kind of broker TMS kind of space.

Uh, the US put a whole bunch of terrorists in place, they were, uh, surprising to everyone. No, 1 was going to happen next. There's a lot of uncertainty uh, day-to-day and what was going to happen, and it caused people to freeze. And I, I think with everything that was going on with AI at the time and today, uh, you know, we didn't end up in a recession because

Speaker #3: So curious from your perspective, what about Thai is, is really additive and, and complementary to the rest of the portfolio there?

Speaker #2: we, we think their, their software's, you know, best in class. We think that their AI capabilities are, are far ahead of their competitors. Yeah, obviously they have a, a great growth rate.

There were lots of good things going on in the economy as well, but make no mistake: people aren't shipping stuff as fast as they could have because they weren't sure what to do about these tariffs—tariffs that were now subsequently invalidated, and all for naught, in effect. And when we ended up having to pay these rates, or in theory, no one will end up having to pay them. And, at the same time,

you know, that can cause them to slow down the shipping decisions. And, uh,

Speaker #2: and, we thought they would be a great fit with some of the other tools that we bought in that space in the past, MacroPoint, Algex, my carrier portal, et cetera.

Speaker #2: So, we're looking forward to it. We, we heard great things about them before we bought them, and, and those things appear to be true to us now that we have.

Speaker #2: So we're excited about that.

Speaker #3: thanks guys. And then, maybe if you take a step back and, and look at the overall M&A philosophy, obviously these are some bigger deals and, and what you've done, recently.

Speaker #3: But curious, any, any change around your M&A philosophy and, and what gives you confidence around the integration and, and synergy you can get from these, these bigger, bigger deals here?

Speaker #2: Well, we look we see less people showing up in the deal than, and therefore we see the prices coming down as they have in the public markets.

Speaker #2: They usually the private markets follow, in turn, and we're starting to see that right now. And, I think that played a role in us being able to get these deals done, and I think, probably played a role in some of the future deals you'll see.

Speaker #2: You know, we went through this once before, in '08, '09, '10. And I don't know the times are as bad right now, but the, you know, there's a lack of confidence in software companies right now that's probably helping, us get acquisitions done and arming all public companies and, and therefore private companies in that in that sector.

Speaker #2: for the foreseeable future. So, as one of the guys that's flush with cash, you know, we and, and also believes in our space, we, we look around and say, hey, we think we're gonna be winners in AI.

Speaker #2: What other companies out there do we believe will also be winners in AI, and how can we come together with them at a reasonable price to get things done?

Speaker #2: You know, the an attitude like that and being in a position like that back in '08, '09, '10, we thought really benefited us in the last 10 years.

Speaker #2: You know, as we bought stuff for, for, you know, reasonably price very, very reasonable prices that ended up, you know, being big contributors to our business.

Speaker #2: And, we'd like to see that be repeated again here.

Speaker #3: Excellent. Thanks for the call.

Speaker #2: Mm-hmm. Yeah, thanks, Chris.

Speaker #1: And your next question comes from the line of Dylan Becker with William Blair. Please go ahead.

Speaker #4: Hey gentlemen, appreciate it. A nice job here. Maybe add, I think he kind of di defined Thai as transitioning to a system of action, and you called out a number of interesting agentic use cases.

Speaker #4: But how do you think about kind of the opportunity more broadly to pair your network data with workflows and intelligence to make those decisions actionable?

Speaker #4: How that kind of drives more value for customers, moving to outcome-based pricing, the kind of areas you see that first resonating maybe more broadly, and, and obviously how that kind of supports your conviction in, in aggregate platform differentiation over time?

Speaker #2: All right. You know, we think that we think AI is gonna change everything. and, and that comes from a guy if you've known me for a while, that, that doesn't believe that all the time.

Speaker #2: You know, things like blockchain, you know, people were telling me it's gonna change the world, and we didn't agree. And, and, and we're, open about saying so.

Speaker #2: drones, had to answer that question for, for years. and, AI comes along and we go, hey, I think this is gonna be everything, just like you know, in 1999, if, if you said, you know, w-what's your internet revenue?

Speaker #2: I if I, if I had given you a number, it would've sounded silly five years later when everything was internet revenue. And I believe the same is gonna be true here.

Speaker #2: You know, if we started to try and break out AI revenue, we're talking about AI as if it was some you know, separate thing that was going to happen in the business that, you know, we're we think it's gonna be everything in the business.

Speaker #2: five years from now. we think it's gonna rapidly and, significantly enhance our ability to make our customers' lives easier, more efficient, and, and as a result, help them make more money, and service their customers better.

Speaker #2: And, it's, you know, we're of a belief it's, it's gonna be a, a, a part of everything we do very quickly. And, you know, we're headed there.

Speaker #2: And, we believe we have a great shot because of the days that we have in our network and all the customers we have, and all the functionality that we provide them to put this together and make it work better than it does today in ways that you might not even be able to imagine today.

Speaker #2: As these things start to compound on each other. So, you know, we already have guys around here that are starting to see the future as we're building more things and going, oh my God, if I put this and this and this and this together, this could change everything for our customers.

Speaker #2: And, you know, we're starting to see that, and we're getting excited about it. And, trying to get there as fast as we can. Acquisitions like Thai are all a part of that.

Speaker #4: All right. That's really helpful. Thank you. and then maybe too, you called it out on kind of the tariff dynamic. You're starting to see some customers kind of get those refunds, at the same time, obviously, continues to kind of evolve.

Speaker #4: but I guess just how, yeah, your conversations with customers progressing, how they're thinking about deploying the refunds that they've received into technology capabilities, just maybe kind of netting out some of the puts and takes and, and how they're helping or how they're thinking about navigating kind of the dynamic backdrop.

Speaker #2: we're helping them get it back in a lot of cases. I don't know that we've talked about what they're doing with it. the you know, the, the investments they're making in AI, I mean, the payback is so fast.

Speaker #2: you know, when they're doing something with us, I mean, I'm we're giving them ROIs that are almost immediate, you know, 'cause we charge transaction prices, right?

Speaker #2: So I'm charging you to do something that you would've had to have you know, a person spend an hour doing it, and I'm charging you 25 cents for doing it.

Speaker #2: you know, that's, that's, that's, that's a pretty immediate payback. You don't need to be saving up to do that. and, you know, we think of it more like that.

Speaker #2: I, I, I'm not looking at their refunds like, you know, give that back to me in pract in pract in a lot of cases, they're probably supposed to be giving it back to their customers.

Speaker #2: So, we, we tend to not, talk about that refund other than to help them get it back.

Speaker #1: There was a lot of uncertainty—day to day, people wondered what was going to happen, and it caused many to freeze. I think, with everything going on with AI at the time, and even today, we didn't end up in a recession because there were also many good things happening in the economy.

Speaker #4: Very helpful. Thanks, Ed.

Speaker #2: Mm-hmm.

Speaker #1: And your next question comes from the line of Cole Couzens with Wolf Research. Please go ahead.

Speaker #5: Hey guys. saw the 9% or heard about the 9% services organic growth in the quarter. Can you talk about how much of that is underlying market trends versus share gains?

Speaker #2: I don't know if I have an exact breakdown. I mean, I could tell you that the there's not been a lot of growth in, in truck and air, you know, volumes.

And, uh, at the same time,

Speaker #2: there's been a little bit in ocean. So I would say, we're selling a lot more stuff right now. You know, our sales force is doing really well, and we're, selling a lot more things to customers.

Speaker #2: A lot of it AI kind of related stuff. and, you know, some of it's taking stuff from customers. I, I don't know. I'd have I, if I had to guess, I'd say it's a third of it's, you know, share gains from, from competitors and, and the rest is, probably not so much transaction related, but, but just, selling more of our tools to our customers, which, which may drive more transactions but not necessarily be counting on the industry to have more transactions to get there.

you know that complexity caused them to slow down their shipping decisions and uh, while we were benefiting on the 1 from from tariffs and duties, uh, you know, rate rate provision, we were uh, you know, suffering along with everybody else when the run as many shipments moving around the world. So that's where it hits us and I don't think it's a increased complexity doesn't necessarily hurt us. It just generally keeps helping us no matter how much there is. But um, if it leads to, you know, a depressed economy and it hurts us and everyone else.

Speaker #5: Sure. And then m-maybe looking forward, I know you've talked a lot about how the complexity of the shipping environment is kind of helping you guys, at the moment.

Speaker #5: w how, how do you foresee things playing out through the end of the year and into next year? if there is some sort of de-escalation at any point, or even without it, is there a-any insight into how you expect things to trend,

Got it. I think that makes total sense. Maybe for Ed Gardner—um, you know, you guys have a really good capital position, you have the line of credit, really good cash position. You know, it seems like there's multiple areas you could focus on for investment in the business and capital deployment. I'm just curious how you're thinking about the M&A landscape with the depressed valuations we're seeing as well as, you know, continuing to invest in the platform. Just curious to get any thoughts on how you're thinking about capital deployment going forward this year.

Yeah, I think it's it.

Speaker #2: you're, you're talking about the, the worst? I, I, I.

Speaker #5: Or, or. Just organic growth trends, like, what's the outlook going forward? Does it seem like it's gonna continue to be challenged? Did you exit in a better place?

Speaker #5: just any insight as to.

Speaker #2: I mean, look, we're, we're real happy with 9%. We're thanks. we're, we're happy with 9%. I don't I don't know what the growth rate's gonna be in the future, but, I do know we had two very good quarters a year ago in, in Q3 and Q4, so we're up against a challenge, to provide the same growth rates just because the quarters are really picked up.

Speaker #2: We'll see what we can do here. 9% is expected to lock in 9% for the rest of my life. I would take it right now.

It changes that much from other years. Obviously with the uh with the ability to build more stuff faster with AI that changes the calculus somewhat absolutely. When we're looking at our buy versus build decisions, but the framework remains similar, right, we're still looking for great businesses that uh, have some sort of proprietary unique data and deep domain expertise and very stuffy sticky customer base. Um, so we're looking at Capital allocation now, you know, I think we see the opportunity to to build more build faster, produce more for our customers and that, that changes how we look at some of the Acquisitions. But there's still a lot of great targets out there and uh, I'd say we're very busy and actively engaged looking at them from a value. Maybe just a comment on the valuation side from evaluation perspective. You know, it's it's quite, um, not unusual for the private markets to not necessarily go completely in sync and not necessarily as quickly as the public markets. So as the as the prices come down, it's not necessarily at the same

Speaker #2: that's a great number for us, especially when we're trying to grow 15% even to, to have 9% organic growth in your pockets. great. I hope we can keep that up.

Pace. But but we are certainly seeing uh seeing them come down a bit and uh we remain engaged in a lot of opportunities. Right now, lots of discussions.

Speaker #2: Could it get better? Of course, i-it could. I mean, we've seen it, a couple times. in the last 10 years, you know, around the pandemic, get much better than that even.

Got it. Super helpful. Thanks, guys.

The next question comes from the line of Chris Cantero with Morgan Stanley. Please go ahead.

Speaker #2: you know, I don't wanna count on that. and, you know, it doesn't feel like it's, business has turned it down right now. It feels like it's, it's, it's going quite well.

Speaker #2: So I don't know. You know, will, will that turn around one day? I'm sure it will. but, I don't see it in sight right now, so.

Speaker #2: we're happy about that, and we're trying to continue to, run a good business, a-and not get ahead of ourselves, knowing that, you know, we don't know what's gonna happen a year from now.

Hey, guys, thank you for taking my questions here. Hey, um, I want to ask about the quarter here—you know, third consecutive quarter of organic growth acceleration. Really great to see.

Speaker #5: Okay. Thanks, guys. I'll turn it back.

Speaker #2: you.

Speaker #1: And your next question comes from the line of Stephanie Price with CIBC. Please go ahead.

Speaker #6: Hi. Thank you. congrats on the, the two big deals recently. Just curious, in the current M&A environment, if you're more interested in the growthier, kind of names in the pipeline, or, or opportunities that are maybe a bit cheaper but need to be restructured.

But you all called out some some challenges here, you know, specifically called out Q2. So, um, could you could you help clarify? Like, do you expect some of these challenges that you've highlighted to, to impact the growth rate, or are these really more opportunities for you to leverage your network to address some of these additional complexities? That your customers are seeing? And I, I mean, if, you know us, we're pretty cautious, we probably spend more time telling, uh,

Speaker #6: It sounds like you've got one of each in this quarter, and, and just curious how you're thinking about it here.

Speaker #2: Well, we'll do either. we, we certainly over the years have, have, you know, 15 years ago, we used to do a lot more, fixer-uppers.

investors about the, the risks than we than most companies do in the software space. Uh, but, you know, you're right, things are going well right now, and I I I see a lot of potential for them to continue to go well in the future. Uh, but so, I mean, even in this passport, I mean, this was, this was not, this is a great quarter for us we're, you know, not nervous on uh, Services, that's great.

Speaker #2: we started to buy growthier assets, and, and, and have to pay up for them. but, you know, found a lot of success in doing that.

Uh, and we were doing that in a, in a, in a down freight market.

And so, you know, we're pointing out the fact that for the future quarters, I'm pointing out that, hey, we're selling it down freight market and, uh,

No.

Speaker #2: now in this environment, you know, w-w-we're, we're looking for we're probably first and foremost looking for, for stuff that we think's gonna help us grow and looking to pay, a better price than we may have had to pay a couple years ago because, you know, what's happening in the market.

I— I don't, you know, I don't know what's going to happen exactly either. But, you know, we're doing okay, considering, and we're happy about that. But, you know, it'd be nicer if everything was coming up roses. So, yeah, just knowing us, uh,

Speaker #2: You know, we see what's happening to us 'cause the AI and we see what's happening in the to the rest of the market 'cause AI and I go, "I, I don't I don't believe that, the reaction they're having to us is indicative of what's gonna happen in the long run." I, I think we're gonna benefit from AI, and the bet right now is that us and every other software company on the planet's gonna, gonna suffer from it.

We're always quick to point out that, you know, the risks and stuff and and make sure that we're always doing what we said. We would. Do you see that the number of the way, many of the ways that we produce our numbers, uh, you know, we're pretty conservative. So, uh, I think that's what you're saying.

Speaker #2: And I, I don't know about everyone else, but I think we're in pretty good shape because of it. In fact, I think we're gonna benefit from it significantly.

But obviously, the business is doing pretty well here. Um,

Speaker #2: So we're looking to pick up assets that we think are gonna do the same. And, it'd be nice if they had growth and, it'd be nice if I could pay a reasonable price for them because I don't like we're, we're trading at right now.

Speaker #2: And so I don't wanna have to pay up for someone else. And the fact that, you know, that, that we're trading at a lower multiple than we were historically, helps us in, in making our argument to someone else that, "Hey, your company may not have been worth what you thought it was." And that helps us get a deal done.

As as a follow-up. Uh, really great to kind of hear more of the momentum around your AI and agents. How are you thinking about the go to market motion? As you start to roll some of these Solutions out seems like a lot more software, vendors are starting to pursue more of a forward deployment, engineer type of model to to help sell some of these Solutions into customers. So, I'm curious kind of higher thinking about that on the go to market side.

Speaker #2: High and extensive both. We probably wouldn't have been able to get done. A couple years ago, because the multiples they wanted, we did not believe in.

Speaker #2: And 'cause of what happened in the market in the last year, we were able to, to get a deal done. It's something we thought was fair.

Well, I mean, we think we have a lot of solutions that we can go out and sell to customers, and we are. We're starting to get traction doing that. We have a lot of solutions that improve things for our customers internally, without them really having to sign up for anything new.

Speaker #2: And so we did that.

Uh, you know, if they're paying me to process the shipment, and I have some tool that figures, they need to process a new shipment here because they had a problem with an existing shipment.

Speaker #6: So, so in that kind of environment, you know, would you be willing to take on leverage to continue if you continue seeing compelling M&A opportunities?

And I already have a contract in place to do it. I don't have to sell them anything new.

The agent that we—that I mentioned in this, this uh,

Speaker #6: And what kind of do you have a target leverage ratio that you'd be to?

Speaker #2: I'm sure we'd take on leverage to do it. It would depend on the asset. We'd have to you know, obviously, we have to we have to take on leverage to do it.

Earlier in the prepared comments, uh, I just get more that that agent's job is to get more truckers online. And each trucker I get online is going to pay.

Speaker #2: We have to factor that into the calculations of whether it's worth it. So it has to be something we think's a good deal. but, you know, we were we've always been comfortable going up to three times.

Speaker #2: We've done it a couple times and, and paid it off very quickly. you know, we make a lot of money right now, and we're, we're making 100 million dollars a quarter.

You know, it's going to be able to, uh, help me track a shipment that's going to get me a couple bucks a shipment. And now that he's signed up, every time he gets a shipment, I'm going to be able to track it, so it's the gift that keeps on giving. And, you know, we have agents calling these truck drivers.

Speaker #2: that's, that's a lot of money to spend on acquisitions. So, if we happen to get something big enough that we needed to, to lever up to do it, you know, I, I we would go up to three times to do it.

And you have to call them at the beginning of the call and the beginning of the move. You can't call them with 20 minutes to go on the move and start asking them to download the mobile app. You have to get to them quickly.

and, you know, frankly

Speaker #2: And, we'd probably spend our time paying it off pretty quickly.

Speaker #6: Great. Thank you very much.

Three years ago, we just weren't able to keep up—and at least, not cost effectively. And now, all of a sudden, you know, we can call the guy within minutes of them taking off, picks up a load, and we're calling them right away, going, "Hey, uh..."

Speaker #2: Yeah. Thank you.

Speaker #1: And your next question comes from the line of Lachlan Brown with Rothschild and Company. Please go ahead.

You know, kind of track that load for you. You want to download the app, and I don't have to call you anymore. I was supposed to call you every hour, and if you download this mobile app, I never call you again.

Speaker #7: Hi, guys. thanks for the question.

Speaker #2: Hey, Lachlan.

Speaker #7: I appreciate the recent acquisition, so likely carry low margins, and that 40 to 45 percent range. maybe just w-what impact should we expect these dealers to have on adjusted EBITDA margins?

Uh, and that's a pretty, you know, compelling argument for the truck driver, especially when he knows he's been tracked by MacroPoint in the past. So he's like, it's a known name to him. Uh, and we're the largest in the industry, and you know, that alone has moved our track rates from—

Speaker #7: in the short term, and any color on the duration of the cost energy ramp?

Speaker #2: I, I'm gonna I'm gonna pass this debt, but I would just say that, they don't make as much money as a percentage of revenue as we do, so it's going to take it down.

Speaker #2: I don't know how much more Ed wants to say about that.

87 to 6 months ago to 93 and, and and moving higher percent. Well, that's you know, each 1 of those percentage points is a lot of $2 shipments that uh, that end up producing revenue for us and so that's great. You know, I don't have to do anything. And I'm just I'm just helping our customers and they're paying more and they're happy about it because they're going to track more shipments.

Speaker #8: Yeah. I, I, I look, I think it's, we still don't know exactly where they'll settle. That's something we'll work on as, as we get through the integration.

Speaker #8: But, and there is there's always a bit of work whenever we combine with someone. It's rare that we find someone that's got the same margins as us on day one.

And then finally, you know, there's the stuff internally, right? We, you know, we're able to build stuff faster than the ideas come out. You heard us talk about this whole AI layer where we can, uh,

Speaker #8: But we look to have a path to get there as they scale. And, I, I think they're they'll likely be a, an impact this quarter, but, as you can probably see, as you take a look at the, the calibration, you know, compare one quarter to the next, it's, it's, not a massive impact.

More closely pull people into the network, and in an organized way.

Way, uh, do that, and that saves us money. It saves our customers money, it makes it easier for them to use their network. It makes us, it makes it easier for us to provision services to them that they pay for. And, um,

You know.

Speaker #7: That's helpful. Thanks. and I thought that was an interesting comment made by expediters, recently that AI is contributing, 50% of the growth in US net imports.

I know the market thinks, "Oh, AI is going to harm software companies." I go, I don't know—if I'm a software company, I mean, we have software, but I don't know if I'm quite the software company the way everyone else is. We think of ourselves as more of a, you know, network, data, content.

Speaker #7: you've obviously delivered quite robust organic services growth of 90%, great over the last couple of quarters. So I guess my question is, how much of a tailwind is the AI supply chain been to their GLN network?

Speaker #7: And if so, is there any hints of outlook, on the visibility here?

Speaker #2: Well, you heard me mention in, in my prepared remarks, so enough to get enough to get mentioned. you know, it's I wouldn't go buy in the stock over it.

Provision type of business and uh that means we have a lot of proprietary data that can help customers make good decisions, uh, in the future. And, you know, frankly if you look at our Network, I know where all the shipments are supposed to be over the next month. So that's pretty valuable information when things start getting, uh, uh, messed up or screwed up in the, uh, in the supply chain and just decisions need to be made quickly. That can save a customer a lot of money, and I can use AI to do that because I have all the data and no 1 else does.

Speaker #2: . It's, but it but it's, it's been helpful to our customers and therefore help with us.

And I go, uh, you know, I don't know what people think is going to happen to everyone else, but I'm pretty sure we're going to benefit from that.

Speaker #7: Okay. Thanks for the questions.

We're excited about it. So,

I'll leave it at that.

Speaker #2: Yeah. Thank you.

Excellent. Thanks so much heed.

Speaker #1: And your next question comes from the line of Kevin Krishnaratna with Scotiabank. Please go ahead.

Thank you.

Speaker #8: Hey, there. good evening. Thanks for taking the, the question. thanks for all of that commentary on the, various agentic, solutions. Sounds really interesting. I had a for a two-part question on talent.

And the next question comes from the line of Lachman Brown with Rothschild & Company. Please go ahead.

Speaker #8: y-you know, as you start introducing more and more of these solutions, does that require any change, in the go-to-market, maybe having more, technical sales, sales engineers with AI experience?

Hi Ed, thanks for the question. You mentioned that Q1 came in ahead of plan, noting the robust organic services revenue growth of greater than 9%. Could you just dive into the drivers in the quarter that led to the delivery above your prior expectations?

Speaker #8: Just wondering, you know, a-anything to comment there on customer education, and then second part is, y-you yourself are a company with a wealth of knowledge in logistics and supply chain, expertise.

Speaker #8: That's a hot area. A-and companies are looking to build competencies there, whether that's forward deployed engineering.

Well, yeah, and I covered it pretty well in the beginning of the call's global trade intelligence. Business did very well, and as you might have expected, you know, e-commerce shipment business, um,

Speaker #2: Hey, hey, hey, hey, hold, hold, hold one second. Let's let me just get to the first question and answer. You're gonna I'm, I'm not as fast as you.

TP, what was formerly the 3.86 filing has been booming lately. I mentioned this on previous calls.

you know, we um,

Speaker #2: So, for as far as sales reps go, we're I don't think the sales reps are gonna be out talking about the a all the things that AI does in any kind of technical level.

Speaker #2: I think it's gonna be delivering talking about solutions that the customers might not have imagined were possible because we're using AI. And, I don't need to explain the technology to them.

They just—they weren't really networks. They were software companies that were...

Speaker #2: I never did. and I think, no. Or, or we, we have salespeople that are here a long time. We could go to great lengths to, to make sure we keep our good salespeople.

making these filings. And when they had to do it a different way, their networks fell apart and had, you know, a lot of those customers switch over to us. So we got a lot more market share out of it, and it's been a great business for us in the last, uh,

Speaker #2: and, that means that they're, all experienced in, in understanding logistics and supply chain. I just heard someone one of our sales managers around here saying we win most deals because we know more than the other guys about what our customers do for a living.

Year—and I suspect for a long time to come.

Speaker #2: And that's what we need to know to walk in and explain to a customer, you know, how we're gonna solve a new problem using AI.

Our Fleet Management business has been doing well, as it has for many quarters now. And, uh, our Transportation Management business, led by MacroPoint, has been doing great. You know, in a down market, they were still picking up, uh, a lot of momentum and a lot of new shipments, signing customers in that area that I talked about, which is, you know, that move from...

Speaker #2: And the technology behind it is not a, not it's not gonna be described in any great detail. so that's the answer to the first question.

87% to 93% significant. Uh, it's a lot of money. And uh, even in a down market, we were able to pick up

Speaker #2: Can you ask your second question again?

Speaker #8: Yeah. No. Great. That, that's, that's, that's perfect. And I think related to that then, you've got quite a quite a bit of knowledge and, expertise in supply chain and logistics.

Uh, more revenue than ever. So, uh, all that's, you know, added up to pretty good news for us.

Speaker #8: And so I'm wondering, you know, how you think about talent retention because some of your employees are probably in pretty hot demand. So I'm just curious, if you're seeing any, anything there, anything competitively from, you know, other companies trying to, you know, poach, poach your, employees and just what you're doing around talent retention.

Speaker #2: I mean, we're a pretty good company to work for. I mean, it's been growing and growing and growing for 20 years in a row.

That's helpful. Thanks. Uh I wanted to ask in, in recent months, we've seen a few of the larger Global Logistics players doubled down on their technology Investments and their longer term. Our strategies. Um, I was wondering if you could provide some color on what you're seeing in the mid markets in terms of their pace of AI adoption. You know, how are they responding to these larger players and just any color on what conversations you're having on how they cut can support them?

Speaker #2: So, you know, I'm not saying we won't lose anyone. to another company that's seen as, as good in this space. But I think we're a pretty good company to work for.

As you might expect there, it's very helpful to us, right? You know, uh,

Speaker #2: And, I would I would hope that our, our employees would, would agree with that and, and wanna stay here. you know, you can see we don't have a lot of people for the revenue that we produce.

We help the bigger players in a lot of ways. They're oftentimes our biggest customers, but then the midsize and smaller players have to keep up.

And, uh, while the big players can't build some of the stuff themselves, like the back office systems...

Speaker #2: We manufacture our own software. AI's giving us the ability to manufacture even more of it. We're not laying off anyone 'cause AI. We're just building more and more functionality.

Speaker #2: with the people that we have, so we're giving everyone that we have an opportunity to get involved and learn more. And, become more and more valuable to our company.

Uh, the medium and small time, guys, really can't do that. And they need tools from people like us, that help them keep up. And, uh, you know, I, I would always say to people, you know, customers would say, I want a strategic advantage in, in my, you know, we're using software in my, in my, uh, in my company. And I, I go. Okay, great here. Here's a bunch of stuff you could use to do that, but

Speaker #2: So I hope that makes them wanna stay. I haven't heard otherwise.

Speaker #8: G-gotcha. Appreciate that. Maybe just on, on GTI, you called out, that as a source of strength again. what, what are the, the like, the drivers there if you look into the, the revenue there?

Speaker #8: Is it customers moving into higher-tier packages, es, or, or is it more, net new logos? Just sort of what are the contributions there of that growth?

Speaker #2: Well, lately, I mean, that's, that's what I was going through on the call. and I think I I think I laid it out is, you know, tariffs, changes, and they're changing rapidly.

Bear in mind, this isn't going to last forever, right? Every, you know, it used to be, you know, 7 years ago if you had micro point you had a big selling Advantage, uh, against the broker that didn't. Well, you don't have that Advantage anymore. You have to have it now, right? Everybody has the ability to track a truck and uh, you know, they're on to the next thing now, right? And, uh, you know, that's good for us, right? We can't, you know, kind of keep building tools that help people uh uh, you know, serve as a customer's properly. And when everyone has those tools, it becomes

Speaker #2: That's one of the drivers. Customs and export control enforcement, that's stepped up and, and, and what that causes our customers to have to deal with.

Table stakes to a certain extent, and then we have to go give them new tools to help them make the next advancement. Um, I don't know that we're driven that way by—

Speaker #2: And, and that the audit burden has, increased as they have more enforcement personnel. So those are the three things that really, pushed it out.

Speaker #2: And if you go back and listen to the beginning of the call, I, I laid it out and, and pretty explicit terms.

Big forwarders all the time and we we probably Drive the advancements as much as anyone. Uh, but uh, you know, sometimes people can build it themselves, depends on what we're talking about, you know, if you talking about network service, they they don't and they can't really build it themselves. If you're talking about a back office system, sure they can.

Speaker #8: But are, are there are you are you seeing net new customers, coming on? that may.

Speaker #2: Yeah. Always. And th-there's constantly new customers. Coming on in that, in that business. That's one of the ways we make it money. And, and then existing customers buying access to more information is the other way.

Speaker #2: People rarely will people rarely leave. Rarely leave if that's, the other side of it.

Speaker #8: Thanks, Ed.

Speaker #2: Thank you.

Speaker #1: And your next question comes from the line of John Shao with TD Collin. Please go ahead.

They buy some stuff from us, they buy some stuff from other people and they put it together and they you know, they they they have their whole back office infrastructure soon as they get out to need to communicate with other people. All bets are off, right? They, they have to use a network like ours, they'll never be able to replicate our Network. I think of the big guys, the FedEx is a UPS the dhl's, even the Amazons that like to build a lot of a lot of stuff themselves. Well, they always end up in this situation where like, yeah, sure, but you can't do it with the network, right? The the number of connections. You need to maintain is not feasible. Uh, it's much more cost-effective for someone who's neutral like us to do it for everybody in charge of everyone at a low rate to do it as a result. And that's you know,

Speaker #9: Hey, guys. thanks for taking my question. I just wanted to revisit that 9% service organic growth, which is the same as last quarter. So my understanding is the, the freight environment is still weak, but it did get you know, incrementally more favorable.

Uh, that advantage has been, you know, the case for 25–30 years, and I think with AI it's even going to be more so, right? You know, most of the small AI players that we talk to, they seem to me more like features than companies.

Speaker #9: That should create a bit of growth acceleration there. Just curious, what would the offset is so the organic growth numbers unchanged? Is that FX?

Speaker #10: Well, firstly, not it's not FX because it's.

You know, they're coming to us going. Hey, can I join your network? And I'm like, well, I'm not really you don't have a customer, you know, that's, you know, the customer needs to join the network, but they're using your software and they want to do it, no problem. Uh, but I'm not going to just help you guys, uh, you know, get business by giving you access to our Network. I guess it's not doesn't work that way.

Speaker #2: There's a lot of balls in the air in that question, right? You're, you're in, in the first example, you're comparing Q2 to Q2, and then Q1 to Q1.

So the whole thing is interesting and, you know, I think AI is going to even further separate things, to our advantage. But, um,

Speaker #2: So th-that's, that's you know, I'm comparing to a different quarter when I'm saying what the growth was. And it's a quarter a year ago, so you'd have to think about what was happening in each of those quarters to, to comment on it.

You know, that's how we see the playing field playing out with regard to your question.

Makes sense. I appreciate the call.

Thanks a lot.

Speaker #2: otherwise, I don't know that I agreed that it got a whole lot better for the customers and maybe maybe in one area it got better, but the truck and I could argue it got worse.

And the next question comes from the line of Stephanie Price with CIBC. Please go ahead.

Speaker #2: I don't know that I that I agree with your initial premise.

Speaker #9: Okay. That, that makes sense. And my second question is, the platform hosts a lot of proprietor data. So could you maybe talk about your strategy to monetize that data points?

Speaker #9: And can I say now it's part of your AI strategy?

Hi there. It's Sam Schmidt on for Stephanie Price. Thanks for taking my question. Even though margins have been tracking towards the top end of Descartes' target range for several quarters, how do you think about this going forward? And can you talk a bit about how you're leveraging AI internally and how you're tracking progress on those initiatives? Thank you.

Sure. Uh

Speaker #2: Sure. we, we have all kinds of different data. Some of it's, you know, more, something that customers hold more dear. And we shouldn't release and other stuff is, you know, as long as we anonymize it, we can, we can use it to every customer's benefit.

Speaker #2: but they all have to share their own data, right? So they're all sharing the same thing. And we're not gonna tell someone what one carrier charges for something.

Speaker #2: That type of stuff. Yeah. We're not we're not releasing anything that they, hold near and dear. and, you know, that's, that's, that's combined with a bunch of data that's publicly available data that helps us, as well in, in, in, you know, we're, we've been taking that data and formatting it in ways and used it in ways that are, you know, very helpful to customers.

Just do this in the past where we usually, we usually bought the number, a couple quarters before we we start to move it up, we just see the same here. Um, yeah, the things that can affect it are, you know, the big things are FX and Acquisitions, you know, we're up at a pretty lofty, even to margin now. Uh, we're not going to find many Acquisitions that, that will be a creative to our Egypt. Even to margin. Not that, that's a problem. It's just that

You know, if I buy some company that makes a 25% EBITDA margin, and with plans to increase it,

Uh, that's great for our shareholders as long as they pay the 25% price for it, but it also drags my 46% of the decent-sized company down to 44%. And I don't want to offer it at a number that we're going to miss. And, uh,

Speaker #2: so I, I think you're gonna see us do something like that. And it's not, not that we're gonna, you know, start arguing with customers about, you know, can we release your proprietary information?

Speaker #2: We're gonna be sharing stuff that's anonymized, and as we always have, really. But now with, more capability to help customers more quickly. And remember, the same customer that's sharing his data anonymized is also getting access to everyone else's data anonymized too, to make good decisions as well.

You know, we want to provide consistent answers uh to to to our shareholders. And now if we tell a number, we already are in that range or we beat that range. Then I'm not, you know, apologize too much for beating it. We're only beating it by a point right now anyway. Um, but I don't want to mislead people.

uh,

With regard to AI, in relation to this, yeah, we're seeing...

Uh, we're way more efficient, or let's just say we can produce a lot more stuff with the people we have. And, uh,

Speaker #2: And, I don't think our customers are gonna have a problem with that.

Speaker #9: That's great. Well, that's color. Thank you.

Speaker #2: Thank you.

Speaker #1: And your next question comes from the line of Mark Schappel with Luke Capital Markets. Please go ahead.

Speaker #11: Hi. Thank you for taking my question. Ed, as you build out your, or build out the build out the LSP portfolio through acquisitions like Kind, Extensive, what do you see as maybe the, the biggest remaining product gaps, i-in serving LSPs?

You will see how this plays out, but I, I think right now we're going, uh, you know, well, I see other people laying, you know, uh, employees off use. Hey, I mean you using Ai and now I don't need as many employees. I think we're inclined to go the other way. Right now, I'm saying I'm using Ai and it's producing a lot of productivity, enhancements. And I'm using that to produce more software.

Speaker #11: And then, also, you know, should we expect future M&A to continue to prioritize, LSP-specific solutions versus investing in more capabilities aimed, aimed at, aimed at shippers?

And, you know, we have that luxury because we're in the 45% range or 46% range. Right now, if someone's in the 25% range and competing with us, uh, you know, there is a significant disadvantage, especially if they're trying to do the same thing we are, which is use our profits to buy more companies. Well, if you're making half of my profit, uh, you're not going to be able to do that as effectively as we are, and, um,

Speaker #2: No, I think you're gonna see us do both. I mean, you know, we, we, we service carriers, LSPs, and, and, and big retailers manufacturers that call them shippers.

You know, we're inclined to take the extra right now and produce more software for our customers, and make sure that we continue to be a leader in this space as a result. Uh, and you know, I don't know if that changes in the future—maybe, you know, we'll have to take a look at it over time—but right now, I think we have a lot of good ideas.

Speaker #2: and I think you're gonna see us continue to try and fill out the entire space, right? We're trying to be the, the global leader in logistics and supply chain chain technology.

Speaker #2: And to do that, properly, we think we have to be exactly what we are. So, you know, large global neutral and, and, you know, serving all three of them and building out functionality for all three of them that makes their lives easier.

And you know, more good ideas—and we have time to produce them. So why would I use it to, uh, to cut any costs? I think I'm using it to produce more stuff because I think that stuff's going to produce more revenue for us in the future, and we're excited about that.

Speaker #2: and, you know, I think that's the way you'll see us handle it, I don't know if we h think of it like we have we'd like to, to do more in, in, you know, probably could take the, the, the section I had at the beginning of the call that, that talked about, you know, where we were doing well and that, you know, those are my first choices, combined with the network as to where to expand.

That's good color, thank you. And then maybe one more for me on market share gains in the quarter. Can you comment on how those contributed to organic growth and how you're thinking about opportunities to take share at this point?

Yeah, I mean, you've heard mentioned this in, in, in previous calls. Uh, I, I don't want to get into to maybe competitors and stuff like that, but, but we, you know, certainly in that CMS space and the routing space, you know, some of the things we're, we're the market leader, um,

Speaker #2: But, you know, we'll look at anything that's available in our space and see if we think it'll be a help and, and if we can get a deal done with them.

Speaker #2: you know, we will.

Speaker #11: remarks, you, you called out areas of your business where you saw strength in the quarter, like global trade, visibility, routing. What, what parts of the business saw let's just say less strength in the quarter?

And times have been tough, you know, over the last year for a lot of companies but you know, I have 300, 400 different products uh that to spread it out over. And uh we're not materially harmed even when things got tough. I mean maybe things were tough a year ago and I went, you know, they were tough but we're still making. Yeah, still making it not, you know, 90 million dollars a quarter so it's not

Speaker #2: I don't know anything badly. I don't know. I would just say.

Get ourselves, we're doing okay. Uh, you know, we have competitors out there that, when we take business from them—I mean, they only have one product. I mean, that's their stuff. And a lot of these guys are high flyers that have never seen...

Speaker #9: No, I think you just some of the some of the modes we've talked about where you conti-continue to see a little pressure on, you know, air the airspace is a bit mixed.

Speaker #9: The truck volumes themselves are a bit depressed. You know, i-i-in the face of that, we continue to do well in areas like macro points because we provide a better solution than our competitors.

Speaker #2: But we do better if they were, if they were doing well. Pretty much.

Speaker #9: Yeah. Exactly.

Speaker #11: Thank you.

Speaker #1: And your next question comes from the line of Doug Taylor with National Bank Capital Markets. Please go ahead.

A situation where they were shrinking and all of a sudden they are. And it causes real problems inside the company, the Stock's not worth what it was to to shareholders or Furious and, you know, and the shareholders overpaid to be in the business and their employees Stock's, not worth anything anymore. And uh, they can't believe that, you know, they were worth 2 billion dollars at 1 point. And, uh, all that happened was the growth rate went from 30% down to, you know, almost zero. But everything else, you

It was still fine. But when it went down,

Speaker #10: Hey, guys. This is, Jack Darnell. I'm for Doug. Thanks for taking my question. yeah, I mean, in the prepared remarks you guys noted that you're seeing some good demand, despite the pressure on shipment volumes.

Speaker #10: So I guess it kinda relates back to your last point, but also, if, if volumes recover from here, I guess should we expect that to add another leg of growth on top of the complexity-driven demand?

Speaker #10: Or would that just simply replace some of the current benefit?

Speaker #2: Oh, no. I think if volumes improve, you'll see our, our numbers improve. Our growth rates will go up in, in, in, in all likelihood.

Speaker #10: Okay. And. I guess.

Speaker #2: And we're, we're really. We're really happy we're getting 9% growth in a lackluster, transportation market.

Speaker #10: Okay. Thank you. And, I guess my next one, for whatever you guys can say, just on Kind, Extensive, can you guys give us any maybe framework for the growth profiles?

You know, they had to stop growing, they stopped growing, they stopped having the money to buy more, uh, you know, by by any more stuff. They had to start cutting costs. And usually, the guys that are High, Flyers are not good at cutting costs and, uh, they really struggle to do it. And they just can't imagine and, uh, you know, all those things, add up to help us quite a bit, you know, that whole company gets demoralized when that happens and, you know, fortunately, for us, we're not in a situation where we're facing anything like that. Even when times are tough last year, they weren't that top for us. Most of the business was, was still looking up. And, uh, yeah. I think it's a testament to the thing that, that our guys have built. They, they built, uh, something big that sells a lot of problems and, uh, you know, had the chance to succeed in many areas even when times are tough, we some of our businesses are doing great. So, you know, not everyone has that luxury.

Speaker #10: and then how the valuations for them would compare to, I guess, what you've historically targeted?

Thanks for taking my questions. Thank you.

Speaker #2: Mm-hmm. I'm gonna do that. They're, they're largely in range with our historic targets. So there may be adjusted a little lower for, for the market right now, but, but I didn't say anything else.

Next question comes from the line of Mark Shovel with Luke Capital Markets. Please go ahead.

Speaker #2: We're allowed to say about that.

Speaker #10: Yeah. I, I look, we don't comment on specific details of acquisitions. But as you know, we're, we're just have been disciplined buyers. Can, can we'll, we'll continue to evaluate transactions with the same guiding principles.

Speaker #10: And we're always conscious of the pricing environment we're in, which is more favorable now than it than it was a year ago. So, you know, I think when, when you look at those two businesses, both have a characteristic that we look at and say we can grow those businesses.

Hi. Thank you for taking my question and I was wondering if you just walk us through the key puts and takes uh you observed in the the Eric cargo businesses quarter uh that you referenced in your prepared remarks. And then also uh, with respect to that. Um, you also noted that your trucking business uh, is down about 4% year-over-year and what would that decline translate to in in in your ocean shipping business?

Speaker #10: And there is no acquisition we will do if we look at a business and we think it's gonna shrink as part of our ownership.

Oh, okay. Okay, I got you. All right, so let's talk about the air one first. Uh, you know, the Iran war, especially in the beginning, had a lot of flights.

Speaker #10: That's, that's a key part that we look at. you know, I, I, I think if you were l-looking around, you'd probably hear that, that Kyle is probably a faster grower than Extensive.

Speaker #10: But other than that, any acquisition we look at, it has to be it has to have an attribute that we look at and say as a combined business, we can grow this business.

Speaker #10: And for both, we feel that. That's great, Colin. Thanks for that.

Uh, not not being allowed to fly over Iran and uh or the let's say anywhere over that area. Well, you know, you've got Emirates there, you've got uh I guess at the Han you get several of the biggest air cargo carriers in that region and there's like,

A third of the map that can't fly in that direction, and then they're right there. I mean, they're in Abu Dhabi, and

Speaker #1: All right. And your next question comes from the line of Robert Young with ConocoGenuity. Please go ahead.

Dubai or whatever. Uh, you know, so it's tough for them.

Speaker #12: Hey, thanks. Ed, in the prepared comments, you said AI agents enabled tracking on 26% more loads. Then in Q1, a sequential growth. Is that just AI agents growing 26%?

Uh, and you know, they had a lot of flight cancellations as a result, and they started moving planes around to try and get, you know, that's tough, right? It doesn't happen right away. Any of the passengers that, you know, are expecting to be on one type of flight, and all of a sudden, Netflix is not available anymore.

And the cargo goes along with it. So, uh,

Speaker #12: Or is that overall? I'm trying to understand that 26%. What is that growing?

Speaker #10: It's, it's, it's loads that were tracked as a result of an AI agent helping initiate that load. So the, the, the init the loads initiated by agents, which is still a small percentage of our of our loads, but that grew sequentially 26% quarter from the previous quarter.

You know, that was a headwind for our business. At the same time, you know, some of the stuff that we mentioned in Q2.

You know, people get into these situations, or companies get into situations, and they go, "Oh, there's a lot of cargo system in the middle." Right? Where I could fly it, or I could move it by ocean, depending on what's going on.

Speaker #10: So it's just a, a demonstration of. The agents are having a real impact and, you know, we've, we've seen that improve from last quarter to this quarter.

Speaker #10: It's still a small part of the overall volume in macro points, though.

And I think for a while, people started gravitating towards air in that situation. Because if I was just describing it, the air carriers were in a bit of a pickle.

Speaker #12: Great. Great. Okay. And then second, the capacity for integration of these large acquisitions. They both overlap a bit with existing functions and you said you had financial capacity.

The ocean carriers were in a much worse pickle. They're like, we have to avoid that entire region. Okay, great. Well, the option then is to go around the Cape, you know, South Africa, to keep porting. Well, that's 10 more days. And, uh,

You know, then they started charging more for the stuff, and then they, you know, if you're the chipper, you're thinking, well, geez, the air...

Speaker #12: but what about the operational capacity in the M&A team? Is there, does that need to grow, or have you got everything you have, is everything in place?

The air shipment is usually way more expensive, and now it's not that much more expensive because the ocean carrier is charging a lot of money.

Speaker #12: And I'll pass on.

Speaker #10: Yeah. We've, we've been building our team to be able to, to do this kind of thing for years. the, the beauty of our business, both, both these businesses sit within you know, there's some common attributes, but sit with different different let's call it business leaders internal internally that have been with the help make sure that they integrate.

And so, uh, you know, that ended up being a little bit of a harm to Ocean carriage. And, and, uh, but also, you know, took some capacity out of the ocean space and, and, uh, helped them raise prices. So maybe they didn't suffer as much, uh, and the air carriers were able to pick up some business, which is great for that.

Speaker #10: even when you look at the driving acquisition from, from July as well. So we're comfortable with being able to digest them. you know, if we did 10 at the same time, it might get a different answer from me.

Uh, truck side, uh, probably to answer your question.

Speaker #10: But, we feel good about where we are now. And, and we've been we've been making sure for a long time we've got a team that's, that's able to handle more at one time and, we're feeling good about it.

Uh, that 4% down, it probably doesn't translate to much in the year-end spaces. Mostly, it's probably related to domestic shipping. I'd be guessing if I told you, but if I had to guess, I'd say something like half a percent.

Not nothing big.

Yeah. And just to clarify and that that we were talking about the the truck Market in the US, not the not the day cart.

Truck market or transportation management business.

Speaker #12: Well, if, if you continue at the current pace, you could be at 10 by the end of the fiscal year. And so is that something that's possible?

Great. Thank you.

Speaker #10: I would say anything's possible. You know, it's, it's, it's, it's not necessarily that easy.

And the next question comes from the line of Kevin Krishna Ratner with Scotia Bank. Please go ahead.

Speaker #2: It is possible.

Speaker #10: Yeah.

Speaker #12: Okay.

Hey, guys, this is Richard on for Kevin. Thanks for taking my questions.

Speaker #2: One of my one of my favorite passwords is anything's is possible. So yes. yeah. Anyway. We, we, we take we, we certainly, you know, we'd love to see it be that way.

Speaker #10: It'd be a good problem to have.

Speaker #1: Thank you. And I'm sure. No further questions at this time. I would like to hand it back to Ed Ryan for closing remarks.

Uh, so Amazon, they launched, uh, Amazon's Supply Chain Services. Um, earlier in May um, I was wondering, does this uh, more fragmentation and multi-carrier complexity drive, more demand for your Solutions, or do you see any risk of potentially displacing parts of uh, your value chain?

Speaker #2: Hey, thanks, everyone, for your time this afternoon. hopefully, we'll get a chance to see most of you as we make the rounds this quarter.

No, I mean they're a big customer of ours and, uh, we don't compete with any, you know, forwarders or Fletching.

Speaker #2: And, look forward to reporting back in December on Q3. Have a great night.

Uh, we don't—we purposely don't do anything to compete with it. We're—we're...

We're trying to help them and, uh, and, and, uh, you know, we've seen over the years, we've had competitors many times say that they're going to do something that their customers do, as a freight forwarder does, and they—a 3PL does—and they get killed for it. And, uh, we've very aggressively stayed out of that, trying to remain neutral, and we're trying to help them all.

Uh, and uh, Amazon's a big customer of ours, and we do business with just about every freight forwarder in the world. So,

um,

Yeah, that to me is Amazon getting into this business. We are going to do a lot of stuff with them. I suspect we'll end up doing more.

You know, because we, we do a lot, especially with the bigger Freight forwarders and we tend to get big relationships with them and, uh, we'll see how they, how, how they get into it. You know, do they buy someone, uh, along the way that that, that often times, uh, helps them get going? It's all that with Uber, you know, and Uber when they started with like, oh, we're going to do all this stuff ourselves and then

The industry.

And you know, here we are today, four or five years later, and they're one of our biggest customers.

if you'd listen to them,

Seven or eight years ago, you would have thought they would never do business with someone like us, ever. And of course, they would. The reason they do is because there are certain things we do better, faster, and cheaper than they'll ever do. So,

They would be smart to do it with us, and, uh,

I think you'll see the same with Amazon.

Okay. Um, and can you also unpack a little more about what is driving some of this strong GTI growth? So, how much of the growth is from new customer wins versus existing customers accessing more databases versus prices? I don't—

No, it's not pricey stuff. Pricing is largely the same.

I don't know if I know the exact breakdown, but it's customers saying, "I need more information."

I need more countries. I need more commodities, uh, and I want to search more stuff, and, uh, that's largely—they're doing that because the terrorists are coming in.

Uh, you know, tariff changes are coming in. As I would always say before—we actually joked about it today before the call.

If they never changed, we'd be selling a book, and because they change every day, we're selling access to a database.

and um,

You know, when Trump comes in with his 'diaper move' and changes everything, I mean, people tend to go into that database a lot more and start looking around and going, "What do I do about this?"

And how do I plan to, uh,

To save myself money, and you know, that's how it goes for us. You know, sometimes our new customers—a lot of times they're existing customers that are buying access to more of the database. You know, we sell it in chunks to them, by country, by commodity.

And so they buy more and, you know, we give them access to more so that they can make better decisions.

That's helpful. Thanks for taking my questions.

Thank you.

The next question comes from the line of Jen Shah with T. Please go ahead.

Hey guys, thanks for taking my question. I understand GTI has been a strong growth driver, this quarter and earlier this year. A key investor concern is your customer might use AI to replicate the same GTI database. So, do you think this quarter's growth effectively de-risks that concern?

Yeah, I I didn't have a concern about them in the first place. Uh, you know, uh, we we heard that and said, uh,

I don't think the people that are saying they understand how this works. And I went over it in the last call and some of the detail.

Uh, but you know, uh,

We have a massive amount of data that we have to collect, and it's from all different countries. It's not that easy—even to train an AI agent to do it. If you look at the way that we've done it, it is using AI strategies that we built ourselves over the last 15 years.

Uh, you know, maybe Office health tools would help us do it today, but it doesn't matter. We built them already.

Uh, and I thought we grabbed the data, then we have to put the data into, uh, a database in a similar format for everyone. We have to make Belgium look the same as the Netherlands, look the same as Japan, etc., and that's hard.

Then we have to build ways to disperse it to the customers, and you know, you could just say, "Here's the data," but it's much more convenient for them if we say, "Oh, here it is in the Oracle format, so you can just throw it right into your database over there seven times a day." Right? And that's the whole set of things. Uh, and then you have, uh, you know, maybe one of the more compelling arguments, which is...

um,

We don't charge that much because we do it for everyone. The price per customer is pretty cheap, so there's no 1 customer, that's like, oh for the 50,000, I pay you a year. I'm going to do this myself. Well that that math doesn't work. I mean you're not going to be able to do it better for us, it's cheaper than us. Uh, and even close. And I if you if you uh

If I could just give you a little—like Amazon uses this, trust me. If they could replicate it themselves, they would. Anything they've ever been able to replicate themselves with us, they do. Uh, this is not one of them; it's just not feasible.

and finally,

You know, if you get it wrong, it's a real pain in the neck to get your money back.

and if you got it wrong, because

Uh, you built your own AI system. The government's not going to like that answer. They want to hear that you were trying to do it properly. And, "How do I build my own AI tool and it was wrong?" It's not...

compelling argument.

And you know, it's not a compelling argument with the Tire stuff, and it's really a bad argument with the sanctioned party stuff.

It's just too much to overcome, and if someone—if my best friend—told me that he was going to do that, I would say, don't do that. You're wasting your time. You go with someone with the card. It's going to be better, faster, cheaper, and you'll—you should go focus on your core business, not on—

Building your own tariff tables is not going to be worth it.

Got it. That's a great caller. Thanks, I'll pass it along.

Thank you.

And the next question comes from the line of Robert Young with Canaccord Genuity. Please go ahead.

Hi, good evening. Um, a couple of questions on the AI agent layer you're highlighting—I'm trying to understand.

Um, one, um, how an external party would access—that, is that like a model context protocol to use through like one of the, like CLAW or something like that? Or is it something that you're setting up specifically for your larger customers to access your data?

Oh, it's heavy weights for our customers. Yeah, sorry. Yeah, it is, it is, uh, wait for our tools and our customers to say, "I want some information out here." Uh,

Uh, it's it's a set of protocols that you would use to make calls to the to, uh, to our AI tools to disperse data to you quickly and efficiently for use in an application for use.

You know, to answer customers, who might be on a, uh, an automated phone call or, uh, uh, coming into your website. You might have got a quickly call us and I give you an answer that spits right out to your customer in a Split Second.

Uh, and you pay for that.

Right? And you said that you put a policy in place.

That determines what these parties can assess, how they access your audience. So there's a monetization strategy. That sounds like a, like a foundation for monetization. So, is there any additional detail you can provide around that?

Well, think of it like this: our network has these tools. They're just going to get a whole lot better, with a hell of a lot more stuff you can request from them.

Our networks already, does this conceptually, uh, and it lets you get access to, you know, a bunch of things. The ability to get tracking messages, the ability to make a booking, to get a booking confirmation back to get it to make a filing, uh, to a government, uh, to get a filing confirmation so that your plane can take off. Uh, imagine if I had a thousand more things to that, that I can serve up to people, and they each cost 25 cents or whatever.

Uh, that's how we imagine it working.

Okay, and then last question. You said that there were some strategies to increase adoption and velocity on the GLN with this layer, maybe bring new customers into that work. It feels, though, like you've got most of the large customers.

And so I'm just curious what types of strategies uh how how it's getting getting them to do more getting them to do more with us right? I mean you know AI is going to bring and we we see this easy for us to see because we do business with all of them. It's going to bring you opportunity for them to better service their customers and charge them more.

And, you know, hand in hand with that—same for us, I go—our customers could be providing much more information to their customers about what's going on in their shipments, and get more money from doing it.

Uh, and because they're saving them money and finding them more efficient ways to operate. And, you know, as a guy that serves that up — and I may be charging $0.25 for giving this out — they may be charged $10,

Right? And the C and their customer goes, wow, that was really worth it. And I go, wow, I made a lot of money at 25 cents. And our customer goes—

Uh, what we have, I just made $925 on this idea that kind of Descartes gave me.

And they go like, I think we're going to see more and more of this all over the place. Uh, and because of our network, I think we're in a very, very good position to do it.

And we're excited about that.

Okay, great. Same questions.

Hey, thank you, everyone. Have a great day.

And I'm showing no further questions at this time. I would like to turn it back to Ed Ryan for closing remarks.

Hey, thanks, everyone, for your time today. And, uh,

We look forward to reporting back to you in September. We appreciate your time today, and we'll talk to you soon.

Thank you. And, ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

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