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

Thanks, and good afternoon, everyone. Joining me remotely on the call today are Ed Ryan, CEO; and Allan Brett, CFO. And I trust that everyone has received a copy of our final 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 our assessment of the current and future impact of the COVID-19 pandemic on our business and financial commission, Descartes' operating performance, financial results and condition, Descartes' gross margins and any growth in those gross margins, cash flow and use of cash, business outlook, baseline revenues, baseline operating expenses and baseline calibration, anticipated and potential revenue losses and gains, anticipated recognition and expensing of specific revenues and expenses, potential acquisitions and acquisition strategy, cost reduction and integration initiatives and other matters that may constitute forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of Descartes to differ materially from the anticipated results, performance or achievements implied by such forward-looking statements. These factors are outlined in the press release and in the section entitled certain factors that may affect future results in documents filed and furnished with the 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're cautioned 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 is required by law. And with that, let me turn the call over to Ed.

Great. Thanks, Scott, and welcome everyone to the call. Similar to past calls, each of Scott, Allan and I are in remote locations. So please excuse any brief pauses before we answer your questions later in the call. We've got some great end of year financial results that I'm excited to walk you through. But let's start with a roadmap for this call. First of all, start with some comments about our performance over the past quarter and year, some of the things about our business that we believe have helped us to be successful. I'll then hand it over to Allan who will go over Q4 and full fiscal year financial results in detail. I'll come back and provide some perspective on how our business is calibrated as we look at the first quarter that we're already a month into and provide some insight into some factors that we think will help us this fiscal year. And finally, we'll open it up to the operator to coordinate the Q&A portion of the call. Well, we've had another great quarter and fiscal year especially considering the challenges the business has had to rise up to and meet over the past 12 months, our plans are always set on growing adjusted EBITDA 10% to 15% per year, for Q4, we grew adjusted EBITDA 20% over Q4 a year ago, and our adjusted EBITDA for the full year grew 16% over last year. We did that with record revenues, record services revenues, record income from operations, record cash flow from operations and record adjusted EBITDA. We had cash from operations that was over 90% of our adjusted EBITDA by the metrics we focus on our results were very good. The right words for me to be using here are we and our…

Okay. Thanks, Ed. As indicated, I'm going to walk you through our financial highlights are for our fourth quarter and year ended January 31. We are pleased to report record quarterly revenues of 93.4 million this quarter. That's an increase of 11% from revenues of 84.2 million in Q4 of last year. Our revenue mix in the quarter continued to be very strong, with services revenue increasing 12% to 82.7 million, or 89% of total revenue in the fourth quarter, compared to 73.7 million or 88% of revenue in the same quarter of last year. Continuing with the long standing trend to decrease the emphasis on one time revenue, licensed revenues came in at 1.4 million or just over 1% of revenue in quarter down from 2.5 million or 2% of revenue in q4 last year, while professional services and other revenue came in at 9.3 million, or 10% of revenue, up nicely from 8.0 million or 10% of revenue in Q4 last year. For the year revenue came in at 348.7 million up 7% from revenue of 325.8 million in the previous year. Our revenue mix for the year remained fairly consistent with roughly 89% services revenue, 1.5% license revenue and approximately 9.5% of revenue from professional services. Gross Margin for the fourth quarter increased to 75% of revenue for the quarter, up from gross margin of just over 73% in the fourth quarter last year. For the year gross margin was very consistent with the previous year at 74%. Operating expenses in the fourth quarter and for the year ended January 31 increased primarily related to the impact of recent acquisitions. While those increases were partially offset by several items, including the impact of restructuring efforts that we completed earlier in the year, from cost efficiencies gained as…

Hey, great. Thanks, Allan. Talked earlier about some of the advantages of how Descartes is structured. This structure gives us a solid base for planning for the future. We've just gone through our planning cycle for fiscal 2022. I wanted to remind you of some of the principles we use in planning and executing in our business principles that are the same as in past years. We plan for our business to grow adjusted EBITDA 10% to 15% annually. We plan to grow through a combination of organic growth and acquisitions. When we over perform, we expect to reinvest that over performance back into our business. We focus on recurring revenues and establishing relationships with customers for life. And we thrive on operating a predictable business that allows us forward visibility to our revenues and investment paybacks. With these principles, we calibrated our business for the upcoming financial year. In our quarterly report that Scott mentioned that we filed today, we've provided a comprehensive description of baseline revenues, baseline calibration and their limitations. Typically we calibrate as of February 1, being the beginning of our fiscal year. This year, however, we're calibrating as of February 26, being the date of the QuestaWeb acquisition. So as of February 26 and using foreign exchange rates of $0.79 to the Canadian dollar, $1.21 to the Euro and $1.39 to the pound, we estimate that our baseline revenues for the first quarter of 2022 are approximately 86.8 million and our baseline operating expenses are approximately 56 million. We consider this to be our baseline calibration of approximately 30.8 million for the first quarter of 2022 or approximately 35% of our baseline revenues as at February 26, 2021. We've indicated previously that the target adjusted EBITDA operating margin range for our business is 35% to…

Thank you. [Operator Instructions] And our first question comes from Paul Steep from Scotia Capital.

Could you just elaborate a little bit about what your expectations maybe around customs and compliance in terms of the uplift that you're sort of expecting out of the shoots on that Brexit this year? And then I've got one quick follow up clarification.

Yes, I mean, we're early days yet in Brexit, we know we've signed up a good portion of market, we think we're the market leader in that business right now. There's still an informed compliance phase which means that the government is not finding anyone yet for not making these filings, I think they have announced that they have six months to get in compliance. So we think it's going to be good for our business. We think it's going to be somewhat impactful to our business, not a point right now where we're going to start guessing about just how much but hopefully in the next two quarters, we'll have a lot more [foreign] [ph] perspective on that, let's say.

Fair enough. And then, just the clarifications are, just one little thing in the MD&A here about, you've always called that sort of a 4% to 6% range on the annual recurring revenues in terms of potential attrition, you change the last bit of the wording thing, you thought it might be, a hair higher or somehow higher than historic. I'm assuming that just relates to concern around the pandemic, or there's nothing else there. Just want to clarify.

Yes. I wouldn't read too much into that. I mean your right and probably did change that, because of the pandemic and maybe some of this uncertainty that's created, but not really seen a bit of material change to it at the moment. So we'll see what happens in the future. But, at the same time, we have a lot of things going our way. So whatever happens with attrition, I expect that we would, if it was higher than normal, we would be making up for with some of the higher growth that we're seeing right now.

And I guess the other thing, did also call it as you call, the actually open for the last couple quarters, you had actually seen an up tick in volume due to the pandemic, maybe just where you've seen that up tick? And I'll pass it along?

Yes. I mean, we certainly are -- data content businesses are booming right now, as governments around the world, changed a whole bunch of tariff rates, because of the pandemic, they basically made a whole broad range of products, tariff and duty free for some period of time. That means more and more companies need access to our database, to figure out how to properly classify their goods to take advantage of those reduced rates or eliminated rates. Our ecommerce business has done very well, you probably heard us say that in the past, but the pandemic drove a whole bunch of people online. And because of our exposure to ecommerce, not only directly serving small and medium sized etailers, but also doing deliveries for a lot of the delivery service agents that are delivering these packages to the home. It's been a real tailwind for us and seemed like it was a big step function up and continues to this day. So we're pretty happy about that.

And the next question comes from Paul Treiber from RBC Capital Markets.

Thanks very much and good afternoon. I just wanted to follow up in the last question, just in terms of the outlook going forward for organic growth. I mean, as you think through reopening, what do you say obviously, there'll be big tailwinds, I think the volumes, but how do you think about those areas that you saw a strong up tick, amidst lock downs? How do you think, particularly in ecommerce, how do you see those businesses progressing as we get through the reopening?

I think ecommerce is going to remain strong. I think we have some business areas that are up for the long run, like ecommerce. We're also seeing some of the businesses that we saw suffer in the pandemic, like air cargo start to come back now. I would say, our cargo is not all the way back but it's certainly the volumes have picked up considerably. We're probably -- we're like 5% to 10% down versus the 25%, we've solved down six to eight months ago. And more planes are going back in sky, people are starting to travel more and governments are subsidizing cargo only flights. And vaccines are being distributed around the world largely on planes that's all been helpful in the airline business in the recovery and helpful to us as they're recovering. And there's a bunch of other areas in our business that remain in a bit of a boom. So we'll see what happens in the coming months. But we think we got a lot of things going in our direction.

And looking at the baseline, I guess the delta between baseline and actuals over the last couple quarters, it has widened out. What do you think has been the reason for that? And then do you anticipate that trend continuing into Q1 and beyond?

Yes. Our organic growth rates are certainly picking up steam right now. We're happy about that. Yes, the things I mentioned in the beginning of the call. There's a lot of things going in our direction right now and our customers need help dealing with this and the pandemic probably highlighted that to them and as you might see in the broader technology market push them towards technology to solve those problems. And we were a logical candidate to do that. I would always say this, quite simply to someone who's not in our business, but just kind of a friend or something that wants to understand what's going on is that, the whole world just figured out that they need to be able to manage their shipments electronically from their home on a phone or a laptop. And that plays into our hand, that's what we do for people. And there were days, just a couple years ago, when people, we can do this manually, we can pick up the phone and call these carriers manage these shipments in other ways, we don't have to use technology to do that. All of a sudden, the pandemic hits, everyone gets at home and everyone goes up, that's out the window, you have to do this electronically. And because that's our business, we were beneficiary there.

Just one more for me. You mentioned in the acquisition, pricing environment, multiples are increasingly but you're still finding value. Can you just speak to that purchase multiple on QuestaWeb, how it compares to other acquisitions that you've done in the past?

Because it's a competitive situation, I can't get into naming the actual multiples, but maybe a little more than we would have paid a couple years ago for a business like this. But as you've seen us do with a lot of businesses where we're kind of forced to pay up a little bit or maybe get out of our normal range. With QuestaWeb, we saw high quality business with a lot of opportunity to grow. And I thought we got a good deal on it, at the end of the day. When prices go up and we're very cost conscious, or we have our calculators out on every deal trying to figure out how are we going to get our money back for our shareholders? One of the ways you could do that is just to buy higher quality assets, say, if I'm going to be forced to pay a higher price for something, that's fine, let me get something that's high quality. And because of our amount of time that we've all been doing this and the amount of time that our, tenure employees have been around looking at companies and assets in our space, we think we're better positioned than a lot of our competitors to find the right assets, the ones that are going to grow. And if we're forced to pay a little more for them, at least for buying an asset that we think is going to be worth it in the long run.

And the next question comes from Matt Pfau from William Blair.

First, I'd wanted you just drill into the organic growth acceleration a bit more. And maybe you've already hit on this a little bit. But what products specifically are you expecting to drive that acceleration? And you sort of wondering is that acceleration, how dependent is it upon, economic recovery versus just sort of other tailwinds that you're seeing in your business that maybe aren't as dependent upon a recovery?

Yes, I'm not specifically thinking about the recovery in this process. Although I think that will help. We're certainly seeing a big up tick in our customs and security, filing business because of Brexit. I think that's going to continue as Brexit continues to roll out. We are seeing our trade compliance that I just mentioned a little earlier with showing up in the data content businesses that we have, as people want more access to tariff and duty information, so they could save money. They're turning to us, as a provider of choice to do that and that's been great for us. And a bunch of our network businesses, ecommerce and some of the other beneficiaries of ecommerce, like moves in the trucking space, macro point, things like that have, really moved up? And I think we'll continue to -- that the comment I made to Paul earlier about people needing to manage shipments electronically now that other employees have to work from home. I think that's here to stay. And I think that really plays into your hand. And this is not only behind some of the growth you've seen in the past couple quarters, but behind what you might see in the future.

Got it. That makes sense. And then one, do you ask about the commentary on EBITDA margins. And I appreciate that, depending upon what type and size of acquisitions you make. It could have an impact on that. But excluding acquisitions, I guess why would you expect margins to potentially go down throughout the year, are you planning on doing a bunch of hiring or a certain organic investments to drive that just maybe help better understand the commentary around the margins?

Well, you've known us for a while. We're pretty conservative. We would always choose to under promise and over deliver. And we think we're in pretty good shape to do these things, but there's a lot of turmoil going on in the market right now. A lot of our expenses have changed. In the past year, you saw we were conservative and operating the business last year and cutting our costs to line up with some of the reductions we saw in the pandemic. And we understand that some of those costs may come back, that'll be certainly one of the issues that goes on. As you mentioned and I kind of mentioned in my prepared comments, we may be choosing to invest in some areas in our business where we see opportunities for growth, as we see our organic growth rates growing and more intense focus on logistics is probably puts an opportunity in front of us to invest more in our business and take advantage of that in the long run. And we look at that as a conservative approach to things even though we're spending money to do that. We see an opportunity that we know is going to work, that's when you see us kind of pounce and that can happen again. But I think overall, this is probably just -- our conservative nature is such until we're positive that's going to happen, you're not going to see us move things.

And the next question comes from Deepak Kaushal from Stifel GMP.

I've got a couple. At first, the top one question was, it sounds like you described it as a pretty niche market in the U.S. But having growth opportunities, can you talk a little bit about where you can see the growth for that and what the non-U.S. opportunities for that business might look like and how you get there?

Well, remember, its companies from all over the world that take advantage of these Foreign Trade Zones in the U.S. And if you're going to buy a global solution, you need to be able to handle that if your company uses Foreign Trade Zones, you need to have a solution for that, to handle that. And we see -- as we have it, a lot of our acquisitions, I always say we're buying our next door neighbor's property with every acquisition. We have a lot of investments in the forwarder broker space, you see us doing the containers deal, the ship trap deal, these things are all related. And people that buy those pieces of functionality or back office forwarder system, back office brokerage system, container solutions also need to handle in a lot of cases Free Trade Zones. And we wanted to make sure that we had the solutions that the customers want. I mean, we think of ourselves as buying and building to an end state in the logistics, technology space. And we thought Free Trade Zones was a big part of that. And we saw QuestaWeb, come up for sale. I mentioned, there's not many companies out there that handle this well. And we saw them come up for sale, we thought we should go get that because that's what our customers want.

Is it something that you can export to other countries or regions around the world?

Well, this concept doesn't exist exactly in other countries in the world. There are a lot of foreign companies, though that also operate Free Trade Zones in United States. So we might be selling it overseas maybe more effectively than the smaller QuestaWeb did on their own, because we have a broader footprint of salespeople out on the street. But as you pointed out, it's a U.S.-focused set of functionality, but bought by people all over the world that we might have more access to. So yes, if you understood my -- the intricacies of my answer.

My notes there on the [indiscernible]. I just want to follow up on something you mentioned around attrition. You talked about improving your enhanced quality to reduce attrition. And, in general, there could be some sort of vendor consolidation, accelerate plus COVID kind of going on in tech for a while. Do you see this as a return opportunity for you guys because it's hard to see, major big players that could be preferred consolidators as a supplier versus big carton what you guys offer to the table. How should we think of that in terms of…?

No. We think of it as an opportunity. I'm quite sure it's going to be an opportunity for us. That doesn't mean that we don't have to -- part of being in the lead all the time is being able to look over your shoulder and go, who might catch me here? And how? And what am I going to do to prevent that from happening? And we are not going to spend a ton of time looking over our shoulder, but we certainly are aware of where we are in the market and where we might need to improve to make sure that we're always the best in every area that we operate. And as we get bigger, we want to make sure that our brand is continually known as someone that is, you know, providing the best service for the best price in the market and part of that's delivering the best functionality and being on top of that. So, well, I answer your question, I see it as a big opportunity for us. And certainly, I think that the fact that we're getting bigger, makes it easier for bigger companies to do business with us. But at the same time, I want to be mindful of the fact that, I got to have good functionality for them, whether or not going to want to do everything with me, so little of both.

And when we think of your partner's, like [indiscernible], remember this a couple of years ago was a big opportunity transportation manager, what's kind of the status of those partnerships and how big of a role are they play in the coming years?

Bigger than ever, I mean, we're growing probably bigger than ever and growing faster than ever. There have been great partnerships for us. We continue to expand with them. They continue to get more and more traction with their transportation management solutions and the global trade management solutions. And every time they do that, they're using the global logistics network. So that's been great for us and hopefully great for them and their customers as well.

And the next question comes from Raimo Lenschow from Barclays.

Hey, this is Frank on for Raimo. Thanks for taking my question. I have one of your conversations with customers. It may still be early days here. But as we continue to reopen and as more vaccines get distributed, has there been any sort of inflection yet in these conversations with customers compared to prior quarters when there is no vaccine approved yet and reopenings in far more distant?

I don't know if that's specifically changed things for us and if it has, I haven't really seen that yet. I mean, we continue to sell very effectively, in this pandemic. I'm having that's one of the big surprises to me in this pandemic is that, in the early days of it that we were selling as effectively, as we were prior to the pandemic. And another surprise, to me in the last couple of quarters is that we've sold more stuff than we've ever sold before, coming into -- high to this pandemic in the last six months or so, as companies have decided to buy, more and more logistics functionality to deal with these problems, I think it's probably largely the world just found out because of this pandemic, logistics is a little more important than they thought it was. And that puts pressure on our customers to perform, it gives them a lot of opportunity. And they need technology to help them do it. And we've been a beneficiary of that. And our sales guys, even though they haven't been able to travel to see customers in a year, I've been selling more than ever. And that's been great news for us. I think it's going to be good news to come.

And then, one more if I can in the acquisition, this builds in a bit of a pattern on acquiring into some growth areas like compliance and ecommerce. How should we think about M&A going forward considering that? When you're in the market, is there a bit more of a focus on growth areas specifically? Are you really looking for the right asset regardless?

I mean, we look at anything. Over the last 20 years, you've seen us buy stuff that's shrinking the day, we bought it, you've seen us buy stuff that's not profitable the day we bought it. But in the last five or six years and I kind of touched on this earlier in the call as prices have gone up, we've thought as relatively cheap, guys, we thought, hey, you know, do I want to overpay for something that's got some issues or want to pay for something that's in a very good position? Well, if I'm going to be forced overpay, I'd like to overpay for something that's growing rapidly and well positioned. Because I think in those circumstances, when I get the right company, like a MacroPoint, I go, I don't think I'm going to care about the purchase price, I'm going to laugh about the purchase price 10 years ago, even though the day I bought it, it seemed very expensive. And, we went out and got that that company and here we are a couple years later and we're going to use that purchase price would be a bargain in today's market. And I think that's driven us towards, as you said that the higher growth areas, it's part of it. It's also easier for us to buy these things that are growing that there's less problems and the problems that they have are the ones that were best prepared to deal with. They go, hey, I've got this great product, I want to get it out to all these people, but I don't know those people and we go. Well, I do. And so if I buy your company, we have a couple 100 salespeople out there that know those customers, we can go out and attack them more aggressively than you might have been able to do on your own just as an example. And that makes the acquisition worth more to us than most other players in the market, certainly, then to a private equity firm who isn't going to bring anything else to the table out of the money.

And the next question comes from Justin Long from Stephens.

Congrats on the quarter. And I wanted to circle back to organic growth. Clearly there's been an acceleration. But I was wondering if you could put some more numbers around it, just based on the way you calculate organic growth? Can you speak to the acceleration that you saw in the fiscal fourth quarter? And then going forward, coming out of this pandemic, you gave a lot of reasons why you think organic growth can accelerate. But I think you've historically talked about this 3% to 6% growth range. Has the framework changed? And if so, what do you think that could look like the next few years?

Well, yes, I think we're above that right now this quarter above that 3% to 6% range. You heard me talk about the growth in the EBITDA margins in that range. So as being conservative about making future predictions about it, but we think we see it's up right now. We see a lot of runway for that to continue. I don't know where it's going to go yet. But we like the way we're positioned. That's kind of what I was highlighting on the call. We certainly can feel it right now that it's as good as we've seen it in a long time, if not ever. And I'm hopeful that continues. But I don't know that for sure. I wouldn't make future predictions about it until I'm sure so I'll leave it at that.

Okay. And I wanted to circle back, secondly, to the penetration of your customer base. Could you just speak high level where you see the most opportunity on that front? Whether that's a specific customer base, if that's a specific set of products? Where do you see the most opportunity to increase that penetration rate?

Well, we see across a whole bunch of different products that we have where and you can see it in almost every acquisition we do I mean, these acquisitions are, to an uninformed observer, it might seem like they're all over the place. They're not. These are things that, I always think of this as like the bottom of the Amazon page, people that bought this should also buy this and this and this. And when we're buying companies, that's what we're thinking about. We're thinking of, well, if I bought, product A, B, and C from Descartes, wouldn't I love to have product D over here, we should make that part of our portfolio? Who's the best guy in that space? How do I get into selling to that company, because we think we can take advantage of that. And we think that's something our customers want us to do and we better position them to operate their business. And the pandemic may have accelerated some of that, as more and more people realize that technology is an increasingly important part of solving logistics and supply chain problems. And that's played right into our hands. And I think that's behind some of the organic growth that you've mentioned in the past and behind some of the excitement you are hearing in our voices today about the future.

Next question comes from Scott Group of Wolfe Research.

Ed, when you talk about service quality, I wonder, are there opportunities to maybe get some additional pricing? And then, if organic growth is accelerating, does that change how you think about the 10% to 15% for EBITDA, growth?

We always operate our business to 10% to 15%. I hope to come back 10 years from now, and we'll still be 15% You see we beat that number all the time. We're trying to be conservative when we say to people. Sorry, could you repeat the first part of the question? I was in the second part.

Yes, you were talking earlier about service quality and I'm wondering if you see opportunities on the pricing side?

That's not a place we normally go. I mean, one of the questions earlier mentioned, the concept of cross selling and selling more stuff to existing customers, our cross selling numbers continue to rise every quarter want that to continue to be the case, we're constantly buying companies to actually drive that cross selling. And when we're doing that we want them to see us as very reasonable guys to deal with. So, we have tried to keep our prices consistent and when we have a customer, we're about not get them to spend more money by getting them to buy charging them, more per drink, but get them to spend more money because they like the solution and they want to roll it out further and it benefits their business. And as a result, they end up buying more stuff from us. And we've chosen the latter every time and will continue to, we want to be seen in this market where we're selling, FedEx or DHL, the 20th, and 21st and 22nd products, and we have a big complex relationship with them. We don't want them ever thinking that we're unreasonable people because we jack the prices up just because we could. And so we'll take that goodwill and use it to get them to buy more products instead of getting a few more cents out of them per transaction.

Okay, makes sense. And just lastly, all of this port congestion that we're seeing these delays on the ocean, is that good for you, bad for you, no impact?

Listen, that stuff's all going to move when there's congestion. That's generally good news. I means there's a lot of demand for our customers. And that means our customers are doing well. And that means that we're probably going to do well too, because we charge them by the transaction. So that's good for us. Otherwise, the actual congestion itself doesn't mean a whole lot.

And that concludes our question-and-answer session. I'll turn the call back over for final remarks.

Great. Thanks to everyone. We look forward to reporting back to you on Q1 in May and otherwise, have a great day. Thanks.

Thank you, ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.