Welcome to the Descartes quarterly results call. My name is Elaine and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Scott Pagan. Scott you may begin.

Thanks and good morning everyone. Joining me on the call today is Ed Ryan, CEO and Allan Brett, CFO. I trust that everyone has received a copy of our financial results press release that was issued earlier today. Portions of today's call other than historical performance include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the Safe Harbor provisions of those laws. These forward-looking statements include statements related to 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 and expensing of specific revenues and expenses, potential acquisitions and acquisition strategy, cost reduction and integration initiatives and other matters that may constitute forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of Descartes to differ materially from the anticipated results, performance or achievements implied by such forward-looking statements. These factors are outlined in the press release and in the section entitled "certain factors that may affect future results" and documents filed and furnished with the SEC, the OSC and other securities commissions across Canada including our Management's Discussion and Analysis filed today. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. You are cautioned that such information may not be appropriate for other purposes. We do not 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 statements is based, except as required by law. And with that, let me turn the call over to Ed.

Great, thanks, Scott, and good morning everybody and thanks for joining the call. We had another great quarter here and we were looking forward to taking you through the details even in the face of what we knew would be some pretty hefty FX headwinds we continue to grow the business. We’re doing this by both adding new customers to the global logistics network and expanding what we do with existing customers. We remain well calibrated and well capitalized and we’re optimistic about our future. So welcome to the call, we genuinely appreciate the opportunity to update you on our business and give you some insight into what's coming next. On the call I will start by talking about some of the financial highlights in the past quarter and some updates on our business, I will then hand it over to Allan who will talk to our financial results in more detail and I will finish up the call by talking about our business calibration and the landscape we see in front of us. So let’s start by going over some of the financial highlights for the last quarter. As you guys know we pride ourselves on operating a strong and consistent business regardless of the FX environment. Our primary focus is on growing adjusted EBITDA and this quarter we were up 17% on last year with a $14.2 million EBITDA number for the quarter. The FX environment had a modest negative impact on adjusted EBITDA using last quarter’s FX rates that would have been about $14.4 million and it would have been approximately $14.6 million using FX rates from Q1 of last year, meaning year-over-year growth on a constant currency basis would have been 21%. Similar to last quarter, the FX impact on revenues was again much higher. Our…

Thanks, Ed. As Ed mentioned, I’m going to take you through the financial results for the first quarter. As Ed previously mentioned, we recorded record quarterly revenues of $44.4 million this quarter up approximately 9% from $40.8 million in the first quarter last year. Once again this revenue growth was achieved despite significant continued negative foreign exchange movements against us, as a result of a stronger U.S. dollar. That was compared to most other currencies we do business in. As a result of these FX changes, on a sequential basis, our revenues were negatively impacted by approximately $1.2 million this quarter when compared to the fourth quarter of this last year and more significantly revenues were negatively impacted by $3.8 million compared to the first quarter of last year. As a result excluding the impact of foreign exchange revenues would have been up about 3% sequentially and approximately 18% when compared to the first quarter last year. Continue to the previous trends, license revenue continued to be only 6% of our total revenue with license revenues coming in at $2.7 million in the first quarter, down slightly from $2.8 million in both the first quarter of last year as well as the sequential quarter. Gross margin continued to be very strong at 70% of revenue for the quarter, up from 68% in the same quarter last year and also up from 69% in the sequential quarter. Higher network revenues as well as stronger gross margins from recently acquired businesses have contributed positively to the improved gross margins. We continued revenue growth, strong cost control and leverage from our recent acquisitions, we also continued to see solid adjusted EBITDA growth of 17% to adjusted EBITDA of $14.2 million or 32.0% of revenue and this compares to $12.1 million or 29.7% of…

Great, thanks Allan. So let’s start with calibration for Q2. Similar to previous quarters we don’t provide guidance, but we use our baseline calibration as a key metric relating to the ongoing health and strength of our business. While we typically provide calibration at the first day of the quarter, given the impact of the current volatile FX environment can have on a quarter we provided calibration using FX rate set as of May 25, 2015. Our calibration for Q2 assumes exchange rates of an CAD 0.81, €1.10 to the U.S. dollar and GBP 1.55 to the U.S. dollar. As of May 25, 2015 for Q2 we have $42.4 million in visible recurring contracted revenues otherwise our baseline revenues we had $31.6 million in baseline operating expenses, this gives us a baseline calibration at $10.8 million for adjusted EBITDA for Q2, so that’s calibration. Second point I would like to make is that we’re very well-capitalized, as Allan mentioned we have a healthy business that’s well calibrated, we also have a healthy balance sheet and access to capital of $128.5 million in cash at the end of the quarter and we also have $77 million undrawn acquisition line of credit. We have a strong acquisition pipeline and with this capital capacity there is still number of acquisition opportunities to expand the geographic reach, functional capabilities, trade data and content, or community of participants on our network. It’s been a quite start of the year on this front but remember as we stated, we’re not in a rush to deploy capital on deals that don’t meet our stringent acquisition criteria. We're looking for businesses not only process leverage or supply logistics data or content but also businesses that fit culturally with our team at Descartes and have the right financial profile.…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Brian Essex of Morgan Stanley. Please go ahead.

Hi, good morning and thank you for taking the question.

How are you Brian?

Pretty good, thanks. One of the things you commented on, which I thought was a little bit interesting, was the commentary that you made around new entrants looking to disintermediate freight forwarders. I was wondering if you could put a little context around that, in terms of what is the bull and bear case around that? How do these vendors think that they can disintermediate the freight forwarders? And then what gives you confidence that that won't occur?

I’ve been listening to it go on for 15 years, right, as soon as the dotcom day started that was not just in our business, but in every business people were coming and saying, I’m going to disintermediate the middleman. And I think in a lot of businesses that worked because what the middlemen did was not much. In this case freight forwarder think of them as like a travel agent for cargo. But moving cargo is pretty darn complicated and thinking that you’re going to do with the software package is probably not going to replace any of the complex processes to manage freight. We’ve focused on these guys and focused on helping them automate to be competitive in the new environment and they changed their game over the years from processing paperwork to automating transactions and Descartes helps them do that. I don’t think it’s going to happen I think that anyone that does is usually quickly proven wrong. There are way more businesses that have gone out of business trying to do this than exist today and there is nothing that’s occurring today that’s any more of a rapid pace. In fact it probably slowdown over the years as people realize there is better places to attack. But you still have software companies going out there going directly to the shipper and trying to say hey cut the freight forwarder out. And we just don’t agree with that philosophy and made a nice business around helping them meaning freight forwarders and customs house brokers automate transactions so that they can be more competitive with their customers.

Okay. Well that's helpful. Maybe as follow-up on the backhaul opportunity that you highlighted, how are you approaching that? Is that kind of like building a network within your customer base? Are you effectively going to become like a U-Ship for the industry?

No, we usually do within a customer, so customers using our routing or TM solutions or both and we are then showing them hey, while we’re here let’s add all the places your trucks need to go today to this problem. Because they’ll typically come to us and say here is all my orders that need to get delivered to my customers tomorrow and then we’re going – we are saying back to them is that all the truck places you need to go today or are there other things that have to happen, are people delivering to you. How are they delivering to you? So we started asking them all these questions and then say well let’s put all of that information into our routing or TM package or both and let’s use that information to help you make better decisions about where to move your trucks all day. It may not just be the customer site, it may also be as I mentioned in the initial comments it may be back to pick up from suppliers that may have charged you $500 to make that move to them from their DC to your DC when in fact you have an empty truck driving right by it and you should go pick that up and save yourself 500 bucks. Your trucks going to be making that move anyway, and increasingly we are going into our customers and saying hey this is now an opportunity and it can save you a lot of money.

Okay, very helpful. Thank you.

Great. Thanks Brian.

Thank you. And our next question comes from Matt Pfau from William Blair. Please go ahead.

Hey, Matt.

Hey guys, thanks for taking my question. Ed, I wanted to touch a little bit on your acquisition comments. I think it was maybe last December, when you guys last made an acquisition, and I understand you want to stick to your process, but what are you seeing out there? I guess what has been the hold-up? Is it more finding companies that sort of fit with your strategic plan or has valuation been more of an issue?

Same thing as always - first of all the market for it is still the same, there is lot’s of companies for sale, more than normal and same as it’s been for the last year or two. I always say slow and steady wins the race. Company take that mentality and [expended] [ph] out to acquisitions. We are pretty careful, we try to be pretty prudent about buying stuff and yes that could be a pricing issue, it could be a cultural fit issue, it could be how do we get an agreement that we can live with and somebody that we’re trying to buy can live with as well. And we feel no pressure to invest the money because we have to we feel the pressure to invest the money to make good decisions for our shareholders that we could be proud of for the long run. I think you’ll still see us continue to be inquisitive. Nothing’s changed in our philosophy about this and I think if you look over a longer period of time you’ll see that we’ll continue to be as inquisitive as we’ve ever been.

Got it. Then, I wanted to touch on the new SAP partnership a little bit. Maybe you could give us some details on how this differs from what customers would currently be doing, as far as integrating your two products. And then is there an opportunity for similar partnerships with an Oracle or some other ERP provider?

Yes, I think so. What customers have historically done with us, with SAP is buy trade data information from us for use in SAP’s Global Trade Management system. And in fact both SAP and Oracle have been doing that for sometime now. As we have developed better and better stronger relationships with them, and SAP in particular we started focusing on you should be using our network to make your transportation management tools more effective as well. These guys sign up and sell their transportation management solution to customers but there’s a final execution step when that customer is using their transportation management system, which is to actually execute a shipment with the carrier. And that process - if you just buy the product off-the-shelf it’s fairly manual process today. People end up making phone calls or sending emails at the end of it. With the agreement that we just signed up with them, it’s an integration agreement - we are putting those two systems together so that when you buy their transportation management system you can turn our network on immediately and get access to your 500 or 1000 carriers that you’re doing business with and completely automate the execution portion of that shipment and we think it’s a great opportunity for us. We think it’s a great opportunity for SAP to deliver more value to their customers and we’re both very excited about it you will see more to come on this in the coming weeks. Oracle, we’re having similar discussions with, although it hasn’t gone as far as SAP probably just because we’ve been talking to SAP longer than we been talking to Oracle, I think they are very interested in the same subject. They were obviously at our user group as well, and saw, with great interest some of the things that we were talking about. So we are hopeful to one day do business with them, as well.

Got it. Thanks for taking my questions guys.

Thanks, Matt.

Thank you and our next question comes from Richard Davis from Canaccord Genuity. Please go ahead.

Hi, Ed. It's DJ. How are you?

Hi, DJ. How are you doing?

I am doing great. So maybe you can update us on what's happening in terms of the timing around the regulatory backdrop around export filing requirements, and maybe parse that into kind of what's happening in North America versus maybe what could happen in Europe?

Yes. US, Canada, EU, all now plans to do it U.S. is probably making the first moves in that area but I suspect Canada will come shortly behind it and EU as well, if you think of the progression of this, it went from carrier filings then to forwarder filings, the U.S. went with forwarder filings. Canada is just rolling up forwarder filings right now I think they announced they are mandatory in the truck space as of July 10. Penalties start a year from that date. EU is on the same track and we expect them to do it at some point in the near future as well. And then export filings are coming right behind that EU, and U.S. all recently announced plans to do export filings and I suspect in the coming years, you are going to see that rollout and I think it’s great news for our business, because if we do your import filings, we’re a very good choice to do your export filings, it’s same general data sets that are being passed back and forth and we like our chances with our existing customer base to do that and as you become more and more dominant around the world we like our chances to pickup new customers and do that as well.

Yes. And then maybe just one follow-up on the numbers. Gross margins at nearly 70% were as high as we've seen them. Was there anything one-time in nature about the quarter, or are we getting to the point of scale where 70% becomes realistic?

It’s a little above – as we’ve discussed a bunch of times in the past our core network gets more and more profitable every day as we add transactions to it and that certainly a overriding drag upwards on the numbers. If there is a one-time thing in here I don't quite know that it’s one time because it’s been going on for couple of quarters now, but as the FX rates decrease against the U.S. dollar because we recognize in U.S. dollars represent our numbers in U.S. dollars that drags our revenue down, but as you’ve seen it doesn’t really impacted our EBITDA significantly. So that also contributes to making our profit margins go up. That part of it’s probably not as real or sustainable as the first thing I mentioned overall our network just get keep getting more profitable as we add more transactions.

Yes, got it. Okay, thanks, guys.

Thank you.

Thank you. And our next question comes from Michael Urlocker from GMP Securities. Please go ahead.

Good morning and thank you for taking my question. Ed, I wonder if you could just describe a little more about the new element of the partnership with SAP. In particular, what's the timeline for the deliverable and what do the end-users get out of this further integration of the networks?

We’ve been working on it already, we just signed the agreement we could go right before user conference. Our teams were already working on it prior to that to connect our network to their transportation management system. What the end-user gets is no need for integration work to make it happen if you are using SAPs TM with a couple simple configurations on our network and in your transportation management system you'll be able to turn on carrier connectivity or governmental connectivity into your transportation management system will speed up the time which you can implement, make it easier to get connected to all these trading partners that you need interact with.

And then, how long do you think it takes for this to be done?

It’s pretty well done - the actual work almost done right now. What we are waiting for is the customers to come right, so it’s educating the SAP sales force this is a capability that they have, is it something they should sell. We’ve spent most of our time with the product management function and the development function in the last couple of months as we are getting this ready and now we’ve got to go out to the presale and sales guys and educate them as to what the possibilities are now that this capability exist. They’ve got [how many] 5000 or more sales reps around the world, we got a lot of work to do to get them all to know about it and that has to happen one by one and with each new sale that we make that guy knows, hopefully he tells his friends and we start to get a bunch of traction.

Okay. Thank you. That makes sense. And then I guess my next question is a little bit more broad and I can understand if possibly this isn't the right forum to open up a broad discussion. But when we look at other value-add services that might make sense to be part of, let's call it the network offering of Descartes, customs data is a new one, and many times in the past year you've said, and other things we’d like to add. I just kind of I'm curious off the top of my head, when people do international shipments, I would think insurance is a big part of that and pricing the insurance on cargo or the fleet, et cetera. Is there an opportunity for involving some kind of insurance pricing information system into your catalog? Or is that kind of way off the map, in terms of what would be a useful incremental service?

I don’t know what’s the next thing you’ll see us do it certainly something we’ve thought about doing not every shipments gets insured, most customers self-insure their stuff so it’s more an opportunity to small and medium size shippers that that are moving cargo. It’s something we are aware off and have taken a look at this probably a bit of work to be done before we put that at the top of the list.

Okay, so there might be better ideas at the top of the list. Do you want to elaborate on those?

Well, given our competitors listen to this call probably should not I mean I’ve spoken about it in general.

Sure.

We’re right in the data content space is hot for us, the customs filing space is hot for us, and retail omni channel and home delivery are hot for us. And I think we’re going to do acquisitions, you would see us focus on those type of spaces.

Okay excellent. Thank you.

By the way, I should mention, you talked about insurance. We do bond work, which is an insurance policy that our customers are using to protect against any fines they get with the government. It’s probably not the shipment insurance that you’re talking about but we are in the insurance business in that we put bonds together for our customers and have for the last 10 or 12 years.

Okay thank you. That makes sense. I appreciate it.

Thanks Mike.

Thank you. And our next question comes from Paul Steep from Scotia Capital. Please go ahead.

Great thanks. Six months in post Airclic, can you maybe give us some early reaction and impressions from clients with regard to Airclic, and how the sales force has been interacting with them, in terms of some pilots and some feedback on that front?

Yes, I mean it’s gone very well. And our customers are really excited about as they realize what we now have I mean you may have seen some of this user group already. As our customers are learning what we have in Airclic they are getting very excited because sometimes they have fairly complex sophisticated delivery processes and they love to be able to handle that in a handheld tool that can interact directly with the routing package. So as we put our routing tools, route planner and on demand together with Airclic functionality it gives much broader solutions set to - makes a much broader solution set available to our customers, in a way that they can configure the tool to do what they want versus having to do custom development. And I think it’s very exciting to them. If you were down at the user group and you probably did hear some comments like this. It was one of the more exciting topics at user group, where you heard a lot of customers saying oh wow, I could do that? Like I probably should do that. How do I do that? How do I get engaged with you to bring that to the table? So that’s exciting for us, it creates a real opportunity for our business and maybe even more so for our customers to save money and improve their delivery service to their customers.

Great. Then, the second one from me this morning - the Customs Info - we lapped the one-year anniversary at this point. Obviously it's an area you look to add more to the network. How do you think about how it's gone so far, and where you maybe take it from here to take it to the next level? Obviously it helped in the SAP relationship, as well?

Yes, it’s going very well on a number of fronts one as you said it helped solidify and expand our relationship with SAP and Oracle by the way and that was great. The way they were growing before we acquire them has continued afterward, so that’s good news for us its kind of what we were anticipating and as our customers learn what we’re capable doing with Customs Info, it’s an opportunity for them to improve their processes and be able to understand tariff and duty information at the time of shipment which is why we bought the thing. Our sales reps are learning that and are educating our customers on it and our customers are learning that and then they are making decisions to buy and that’s all been very helpful to us and we are certainly very excited about.

Fantastic thanks guys.

Thank you, Paul.

Thank you. And our next question comes from Paul Treiber from RBC Capital Markets. Please go ahead.

Thanks very much.

Hi, Paul.

Hey, Ed. In regard to some of the recent acquisitions like Airclic, e-customs, Pendant, would you say they're fully integrated and optimized from an expense point of view? And then are you happy with their margin profile right now, or is there more room for improvement?

Well, Customs Info was already kind of a very profitable company when we bought it. So we were trying to do much of their margin profile as they grow it, Airclic was not and we’ve made some move right out of the gate to make it more profitable and now we are looking forward to kind of grow into that demonstrating ability to grow its revenue and keep costs in check so that it can make the kind of profit margins that were custom to. I think its well on its way to do that. I'm actually quite pleased how it’s going. We've been joking internally it's looking like one of our better ones in terms of ideas, just listening to our customers say what they want and looking at the profit margins that it’s making now that we’ve had it for a couple of months. It’s on its way and we’re excited about that.

Okay, good to hear. In regard to – changing gears to M&A, in the last six months have you lost any acquisitions? Have you seen any acquisitions go to someone else solely on the basis of higher valuations?

I don’t know about in the last six months, we’ve certainly seen in the last couple of years. As we’ve said we are prudent investors, we don’t spend more than we think we should on something, and someone wants more that we think it's worth, we let them typically go to somebody else. There is couple of expectations to that, Customs Info, we paid more than we’re normally comfort for, but we thought it was for good reason, it was a business that was growing rapidly at all recurring revenue and highly profitable and we don’t see those three things very often in acquisition targets. But most of the times we're buying what we consider to be an average business, we’re looking to pay in a certain EBITDA multiple range and if it breaks too far outside of that, we’re willing to watch it go. I can’t think of any specific examples in the last couple of months where that happened, but I’m sure they are out there, maybe with stuff that were little less interested in. But nothing we’re competing directly for what we thought we lost it in the past few months.

And maybe another way to ask the same question is, in the last six months, maybe 12 months, did deals that you've seen in the space get done, have you seen quite a dispersion in terms of the valuations? Some being above what you may pay, but then also a number of them being below, but you passed them for other reasons?

Well, we’ve seen lots of talk about is there a PE bubble in tech. Right? Or PE firms that invest, I'm sure they hear that too. And I think what we’ve seen in the past couple of six months or so is PE firms that we thought we’re spending frivolously in the past have started to rein that in a bit. And it’s starting to slowdown right, they are probably coming back to the levels where we are and in my mind they should probably be below our levels because we are already in this business, right. If they are trying to make an investment into it for the first time they probably should be willing to pay us much as we can, because I’m not going to find the same synergies that we do in running the business and we're starting to see that slow down, and see signs of that at least, where PE firms are being more cautious. I don’t know what’s going to happen in the near future, but if it continues I think when they get back to what I’d consider normal a bit. If it pops back up again I guess we’ll be dealing with what we’ve been dealing with for the last couple of years, which is private equity firms that are willing to pay more than they probably should for businesses.

One more from me. There has been some ongoing transportation strikes in Germany. Has that had any impact on your business, or created any sort of disruption in shipping beyond Germany in Europe?

I mean that not really, I mean the big one was the U.S. West Coast port strike a month or two ago, which had a minimal impact on us and it just slowed things down for a little bit on a network, but fairly visible EBITDAs and the Germany issues on our network.

Great. I'll pass it on. Thank you for taking my questions.

Great. Thanks Paul.

Thank you. And our next question comes from Stephanie Price from CIBC. Please go ahead.

Good morning.

Hey Stephanie, how are you doing?

Good. Ed, in your prepared remarks, you talked a bit about R&D spending and investing in organic initiatives. Can you give us that a high-level some of those major initiatives, and what you're investing in these days?

Sure, sure so it’s the fast growing areas of our business, right? Customs compliance so that’s a very natural one for us. We have – lots of countries that are putting standards in place and we have to be ready for our customers the day the country is already, so we spend a lot of money stay on top of those initiatives. In the omni-channel retail space we continue to add enhancement as our customers come out with good ideas for us about how to help us route them more efficiently and effectively to the customers and we continue to add a lot of functionality there. There is integration work, and I think that in two areas you see Airclic getting integrated into our route planning tools. So the customers can use it straight out of the box and our forwarder, broker, back office enterprise systems we own a bunch of them and we are trying to integrate them together with one common front-end interface for our customers make it more convenient for them to use the system with field personal that aren’t necessarily in front of computer everyday. The guys that are banging bills of lading out that work for freight forwarder typically want to be in front of them, it’s going to sound funny, but they want to be in front of a green screen or a Windows-based application where they can go very quickly because that’s how they get paid. They get paid to enter bills of lading and process shipments rapidly and it’s just not as easy to do that in a web-interface. But if you are out in the field and you’re a sales rep and you’re a custom support rep and you are out in a field office for a freight forwarder you just need to see someone’s shipments are doing in the system, it’s very convenient to have a web-based tool. Training costs go down, accessibility goes up and we spent a lot of time integrating those things together so that we can bring one common front-end web-based interface to our customers. So those are things obviously we have almost 300 people in R&D and we do a lot of things, but those are some of the larger initiatives.

Great, thanks. And then, on the trade data opportunity, could you talk a bit about what you'd like to add to that offering, and whether you can roll that out organically, or if we should expect acquisitions in that area as well?

With every acquisition, we always look and say, can we do this ourselves? That's how that issue comes up. I think there's absolutely other areas you'll see us go into. We’re already in tariff and duty collection and dissemination. We're into denied parties screening. I think you’ll see other areas in that space and probably things that we would acquire our way into, as we look around our network say what other information the customers like to have at their finger tips while they are processing shipments on our network.

Great. Thank you.

Thank you, Stephanie. End of Q&A

Thank you. We have no further questions at this time. I will now turn the call over to Scott Pagan for closing remarks.

Great, guys thanks for your time. We look forward to updating you next quarter on our results and thanks for your time this morning.