Good afternoon, ladies and gentlemen, and welcome to The Descartes Systems Group Quarterly Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, September 3, 2025, and I would now like to turn the conference over to Mr. Scott Pagan. Thank you. Please go ahead.

Thanks, and good afternoon, everyone. Joining me in person on the call today are Ed Ryan, CEO; Allan Brett, CFO; and Ed Gardner, EVP, Corporate Development. 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 our assessment of the current and future impact of geopolitical trade tariff and economic uncertainty on our business and financial condition, 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 revenues and expenses, potential acquisitions and acquisition strategy, cost reduction and integration initiatives and other matters that may constitute forward-looking information. 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 Securities and Exchange Commission, the Ontario Securities Commission 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 required by law. And with that, let me turn the call over to Ed.

Thanks, Scott, and welcome, everyone, to the call. Today, we're reporting record quarterly revenues and adjusted EBITDA after a period when we recalibrated our business. We're edging ahead of our plans and are already focused on the second half of the fiscal year. We're excited to go over these results with you and give you some of our perspective on the current challenging business environment for our customers. But first, let me give you a road map for the call. I'll start by hitting some highlights of last quarter and some aspects of how our business performed. I'll then hand it over to Allan, who will go over the Q2 financial results in more detail. After that, I'll come back and provide an update on how we see the current business environment, and how our business was calibrated for Q3, and we'll then open it up to the operator to coordinate the Q&A portion of the call. So let's start with the second quarter that ended on July 31. Key metrics we monitor include revenues, profits, cash flow from operations, operating margins and returns on our investment. For the past quarter, we had a very good performance in each of those areas. Total revenues were at a record high, $179.8 million, up 10% from a year ago and 7% from last quarter. Record high services revenues were up 14% from a year ago with our continued focus on generating recurring revenues. Record high net income was up 10% from a year ago. Record high income from operations was up 5% from a year ago. And record high adjusted EBITDA was up 14% from a year ago. Our adjusted EBITDA margin was up 2 points from a year ago to 45%. We generated $63 million of cash from our operations, even…

Okay. Thanks, Ed. As indicated, I'm going to take you through our financial highlights for our second quarter, which ended July 31. We are pleased to report record quarterly revenue of $179.8 million this quarter, an increase of 10% from revenue of $163.4 million in Q2 last year. Revenue from the acquisitions completed in the back half of last year as well as the acquisition of 3GTMS completed earlier in the first quarter of this year contributed nicely to our revenue this quarter. While revenue growth from new and existing customers once again also contributed to our revenue growth in the quarter, including growth in our global trade intelligence, customs and regulatory compliance as well as our transportation management solutions, as Ed mentioned earlier. Our revenue mix continue to be very strong, with services revenue coming in at $166.8 million or 93% of total revenue, up 14% from services revenue of $146.2 million or 89% of total revenue in Q2 last year. License revenues were again minor, at less than 1% of revenue in the quarter. While professional services and other revenue came in at $12.8 million, down from $15.8 million in Q2 last year. Note that for us, other revenue includes hardware revenue. And last year, in the second quarter, we had an unusually high revenue -- hardware revenue in our GroundCloud business as a result of an AI-focused hardware replenishment cycle, and this accounts for the majority of the drop of this revenue category year-over-year. We should also mention that there was a positive impact on revenue of approximately $2 million from foreign exchange this quarter as the U.S. dollar was weaker against the British Pound, the Euro and the Canadian dollar this quarter when compared to the same period last year. Excluding the impact of our recent…

Great. Thanks, Allan. As I said earlier, analyst the last quarter, these are challenging business conditions for our customers. Just some of those most recent changes include new reciprocal tariff frameworks between the U.S. and various countries, new baseline reciprocal tariffs of 15% on many other countries and 90-day reciprocal tariff truce between China and the U.S. that expires in November. Loan on tariffs increased to 50%, pending court challenges to the legality of tariffs, de minimis tariff-free U.S. import exceptions have been eliminated, various countries and coastal authorities have suspended parcel and postal deliveries to the United States as they understand the new tariff collection intermittence regime, and heightened tensions and conflicts in the Ukraine and the Middle East and corresponding sanctions to go along with. So far, the economy has shown a degree of resilience. However, as we enter the second half of the year and the holiday volume period, it's uncertainty -- there's uncertainty as to the impact of new tariffs on pricing and inflation and even more on the consumer buying reaction to increases in pricing. This buying reaction will have a big impact on general economic activity and shipping related to inventory replenishment in 2026. So an important period upcoming with the economic and tariff uncertainties. As I mentioned last quarter, change is better than uncertainty for our customers. Our business thrives on helping customers adapt to changes and manage complexity. However, uncertainty puts our customers in a position where they don't know what decision to make or whether they make -- should make any decision at all. Uncertainty can impact the shipping market and so can deadlines for tariff changes regardless of whether the deadlines are ultimately adhere to. We've seen broad tariff change deadlines in early April and July, most recent tariff delay…

[Operator Instructions] And your first question comes from the line of Dylan Becker from William Blair.

This is Jackson Bogli on for Dylan Becker I was wondering about the transactional side of the business. How do you think about the recovery there? And how that shape of the recovery evolves now that we've kind of moved past the peak uncertainty. I know it's still out there, but how does that recovery look like on the transactional component and especially considering the impact of de minimis going away as well?

Well, de minimus side, we've done quite well. Actually, we thought there was some risk there for us 6 months ago and it turned out to be a great opportunity for us. So we're happy about that. On the tariff -- or excuse me, on the tariffs impact on our network. We saw pretty good results this quarter. So that's in large part because those volumes start to tick up as there was some certainty about what is going to happen all the way through early August. Now we've hit that August 9 date, and you would think that's created more certainty, excuse me, but then a federal appeals court judge said that -- he invalidated the tariffs and the Trump administration comes back and says, we'll find a way around that. And it's probably going to end up with the Supreme Court. And my gut is it's probably they're going to be able to -- they're going to continue to give the President the ability to handle the tariff regime as he sees fit, but we'll see. I agree with you that there's less uncertainty than there was a month or 2 ago, but still plenty left. I think that we're cautious.

Great. That's helpful. And then maybe going back to that network piece and thinking about your AI positioning and how well positioned you are to use that. What does the opportunity look like to lean into the data across this network? And maybe to drive more operational decisioning and performance? And maybe also, what you think monetization could look like over time as you continue building out your AI capabilities?

Sure. There's a lot of unknowns in what you asked there, but we do believe we're in a very attractive position in this regard and that we process a large number of the world's shipments. And what that means is we know where a large number of the world shipments are supposed to be days, weeks and months from now. And the fact that that's in our network, combined with IoT devices out there that continue to collect more and more information about what's going on out in the field. And then AI gives you the ability to source through it very quickly and make good decisions considering everything you know right now. We think the guy that has the network that has the record of what's supposed to happen is in a very good position, to help make modifications to those shipments, which would enable our customers to operate more efficiently. If something goes wrong on every shipment, it's really about what do you do about it? And to the extent we can use IoT and AI to figure out if something went wrong and what we're going to do about it quickly, puts us in a very good position as the guy that's already managing the shipment to take advantage of that better than anybody else. So we're excited about that in the long run.

And your next question comes from the line of Chris Quintero from Morgan Stanley.

Wanted to ask on organic services growth. Is there any way you can kind of contextualize the impact from that record shipping volumes in the quarter? And what were maybe some of the softer areas that detracted from that and were a drag on organic growth?

Yes. So we obviously estimate all these numbers and we're breaking down estimated organic growth. I think as Ed indicated in the prepared comments, we had some good strength in our Global Trade Intelligence solutions. We had good strength in regulatory compliance solutions as well as in transportation management solutions. So those areas were certainly strong for us. We had some -- the volumes themselves as much as they came back a little bit, we're still not at -- we're still in depressed levels of transactional volumes. So certain other transactional services continue to limp along a little bit, flattish or even down slightly. But those are the areas of strength that we had, those areas that we mentioned earlier.

Got it. That's super helpful. And then I was wondering if you could update us on the restructuring and kind of how that's progressed versus your expectations so far? And how you're thinking about that in context with your 10% to 15% EBITDA kind of growth targets?

Yes. As we said last quarter when we came out, we started, we made some plans. We saw a change in some businesses -- business product revenues, et cetera. And so we said we've made some changes, we've implemented those plans for the most part. We're fundamentally complete on the restructuring plan. It's worked out pretty much as we expected. There are savings of approximately $2 million in the quarter. There will be some additional savings as we get to a full quarter of run rate of savings from those changes. If we look back, we think we're -- unfortunate decisions but decisions that had to be made given the weakness in transaction volumes that we are experiencing. So for the most part, complete the restructuring, and that's the kind of metrics as far as numbers.

Our next question comes from the line of Stephanie Price from CIBC.

Last quarter, you mentioned that you weren't seeing customers tripping their minimums on transaction revenue. Just wondering if that's still the case and what customers are kind of thinking about here and talking about in the current environment?

Yes. Thanks, Stephanie. No, I mean we -- the numbers tick up, especially in the network this quarter. So we're not having all those discussions about people not hitting their minimums. I think most of our customers are looking for help to figure out what to do about all the changes that are coming out. And then you can see our tariff businesses and some of our disability businesses are doing very well as a result, and we had record sales in our subscription area this quarter. And I think that's in large part due to people going. All right. I know some -- I have a little more certainty, but certainly, it's still not enough, and what can they buy from us to help them figure out how to better manage through that. And the good news for us is even the network struggled a couple of quarters ago and now it's getting a little better, but the subscription sales held up through all of that at a very high level because of what I just discussed there. People need more information to deal with the complexity and change just being thrown at them. And we're in an enviable position where we have a lot of other tools that can help them deal with that.

That makes sense. And then in your prepared remarks, you mentioned fraud prevention as a growth area. Just curious about the size of that fraud prevention business today and whether it's an area of potential future M&A.

It's not a gigantic business. It's a little less than 1% of our business. It is an area that's growing nicely, as we pick it up and we have a whole lot more customers to bring it to. And it happens to be a hot topic right now. We're seeing it grow nicely, but still relative to the overall size of our business. It's still relatively small. As for acquisitions in that space. Maybe, let's see how this one goes, but it's looking all right so far.

And your next question comes from the line of Paul Treiber from RBC Capital Market.

A question for you, Ed. Just what was the biggest surprise of the quarter compared to when you gave or you reported the last quarter. And then what are you looking to hear or see going forward that will give you more confidence in the underlying environment?

I'm sorry, this is going to be a very simplistic answer, but the pleasant surprise was that the networks picked back up. And what I'd like to see is that continue. And I know that's probably a vast oversimplification of it, but that is the biggest issue going on for us right now. What customers didn't know what was going to happen next. They bought a lot of subscription services from us to figure out how they might handle those things and stop shipping stuff. And then when they got a little more certainty, they started shipping more stuff and that -- we were paid by the shipment. So 30% of our business was -- not a whole lot we could do about it other than help our customers figure out what to do. And that turned around this quarter, as you can see in our numbers, and it performed very well. And what I'd like to see is I continue to answer your question, whether or not, I don't know. They've definitely got more certainty the other day, the night. At least we know what's going to happen. And might that make people ship more stuff maybe. Then appeals court judge throws a little more uncertainty in it and says, hey, I'm not sure Trump's allow to do this. And I don't know that I buy that, and I suspect that's either going to be overturned by the Supreme Court or even if it's not, Trump administration is going to come up with five other ways to do the same thing. So what I -- what we're looking for is a little more certainty out of people. I think most of our customers say, I don't really care what the tariffs are. I just want to know what they are and then my competitors are going to have to pay them too, and we'll get going again and see what the consumer thinks of these new higher prices.

One of the things you mentioned as a pickup in services -- sorry, subscriptions. The -- I imagine a portion of that is related to the GTI business. Do you have a sense for how sustainable that uplift is? And do you expect that sort of [indiscernible] of doing business is taking into account tariffs much more than companies have done in the past and using tools like your GTI to help manage it.

Yes. That's playing a role in it for sure. I think once they buy additional countries and additional commodities from us, which is how the amount they pay goes up and is what's happened in most cases during this, let's say, last year of high tariff increases. I think they probably will turn those things off or probably keep themselves -- probably going to end up being measuring kind of recurring revenue stream for us. And then you had the whole de minimis thing that we were wondering 6, 8 months ago, if that was going to go well for us. And I think we've been pleasantly surprised that it went great for us. We were always a big provider. The customers started to say, hey, you know what, I'm just going to pay tariffs. I have friendly consumers that are willing to buy this, whether this -- charge of court is $3 or $3.50. I don't care, and I'll just pay the tariffs. And that put them in a situation where they had to do millions and millions of Type 1 and Type 11 filings, and we were prepared for that because of the number of filings we already manage. And fortunately, for us, our competitors were not, and that shifted a lot of traffic or way for good, which is nice.

And your next question comes from the line of Kevin Krishnaratne from Scotiabank.

It's nice to see the continued strength in MacroPoint. I know you're doing well there even and despite seeing declines in trucking. Can you remind us, what's driving that strength? Are you winning share? There's other competitors like FourKites' Project44 maybe there's others. Are you winning share from them, the pricing? Just sort of talk about what's driving the strength there?

Largely winning market share from our competitors in the past year. You can see the transportation volumes are relatively flat in the truck space, maybe even down in some months and some quarters. And yet we continue to go up every month, and continue with a relatively high growth rate, considering that the market's otherwise flat. We have an ability and I spent a lot of time and effort on an ability to track every trucker that's out there, and we continue to spend most of our time and energy looking at the MacroPoint business that way. That's because we're and our lifetime network operators, we understand the network effect. You have to have 2 people that want to talk to each other. And you have to be able to talk to both of them to get them communicating with each other. And we spend our time and energy on that. And I think some of our competitors spend a lot of time and energy building software that their customers told them to build that is of very little use if you can't get in touch with the trucker to track a shipment. And I think that's worked out very well for us in the MacroPoint business. We have track rates approaching 90% and our competitors are nowhere close.

Yes. Makes sense. The second question, good to see the sort of stability here, the 4% services growth, the transaction elements helped there. On the software side, you're positive on what's to come there. I know there's a lot of uncertainty, but at some point, I think customers might have no choice but to eventually buy and deal with the uncertainty. So is there any sort of underlying metrics that you're looking at, whether that's pipeline, demo activity, conversations with customers that you can kind of point to that's sort of maybe a leading indicator to what could be coming at some point?

Thanks and I think we're going to know pretty soon. You're going to see it in the volumes. I mean, if they think there's enough certainty and they're going to -- okay, here is the new tariff rates, they're probably going to stay in effect, let me ship stuff without thinking about changing the tariffs. That's going to be great news for us if they pause again or something new happens in the coming days that causes them to pause again, that would be bad news for us. The subscription side continues to sell at a pretty rapid clip. We're pretty happy with that side of the business. It's just 30% that ends up in decreased booking, decreased -- both delaying, decreased status messages, decreased custom fillings if there's uncertainty where they think maybe I shouldn't ship now. Or increases to all those areas if they think that you know what, I know what the tariff rate is going to be the same rate my competitors are paying, let's just ship the stuff, pass it on to consumers and see how they react. That would be the last thing, how the consumers react to this over time. Now that we're probably not going to know it's not going to be the day in time when we know, hey, this is over. We're going to have to watch for several months here and say, as the consumers get some item that is 15% more than it used to be, do they still buy it. And if they do, I think we're fine and if they don't, I think we're not just us, but everyone is headed towards a recession, I don't know how far it goes.

Your next question comes from the line of Lachlan Brown from Rothschild & Co. Redburn.

The Finale acquisition, could you talk to us about the competitive bidding process? And how should we think about the relative multiples that you're paying for acquisitions in this environment when compared to prior year's. And maybe just not -- maybe more talk -- more broadly talk to the strategic rationale and how it complements -- diving to help complement Sellercloud?

Yes. I mean it's inventory management and to a lesser extent, warehouse management in that space. It's a good complement to Sellercloud, that's why we bought it. There was some competition for it. But I'd say across all the deals we're doing now, there's less competition. There's less private equity firms showing up in things. A good friend of mine in the private equity business told me long ago. We were either buying or we're selling, we are never doing both at the same time. And I think right now, they are all selling. They have investors that are clamoring principles, that are clamoring to get some of their money back and see if those multiples that they have on their books are actually accurate because they just keep telling them every time that they go up and up and up and that's not always true. And as I think a lot of their principles are saying, hey, let's get some returns here before I give you more money. And we're seeing signs of that in the market. They're selling assets versus buying assets that means they're putting more up for sale, whether we buy it or not immaterial. They put more up for sale, because there's only so many dollars available for everyone to buy companies with, the more companies that are for sale, the less people and companies that are looking at are in the market. And that's helpful for us. 3, 4 years ago, it was us versus 2 private equity firms in every deal we were looking at, now it's us versus maybe a private equity firm maybe a strategic something like that, but some of them where we go, hey, we actually might be the guy that can make the most of this acquisition. We want to pay the most for it because the other people that used to shop and what we thought made bad decisions are no longer there. And so we're trying to take advantage of that as best we can. You see us doing more deals now probably than ever so. That's good. I don't think we would have gotten a Finale deal a few years ago when somebody else would have overpaid for it.

Interesting. That's very clear. And maybe another M&A question. I mean AI was mentioned at the start of the call. So do you see acquiring AI-native technologies as a potential part of the AI strategy? Or are you comfortable with capturing this organically through investing internally.

I mean we always buy stuff, if we think it's -- if it has customers and profits and growing and things that our customers want. We usually -- while we always consider, should we build something ourselves, we -- usually that decision comes down to, I think we'd be better off buying a profitable company that we think is going to be the winner in that particular space. I see a lot of AI functionality in our space right now that looks to me like features on products that we have, and those would be potential acquisition candidates. You said make it, I don't think we're going to -- you're going to see us buying any native or pure-play AI tools that could be sold to other industries, we are focused on logistics and supply chain, don't really want to get out of that anytime soon. I'd also add that a lot of this AI stuff is -- and you see these startups come out fast. A lot of it is pretty easy to do. So when we see in the idea, whereas 5 years ago, we'd say now, I don't know that it's worthy for us to code that new idea into our system, we should buy a company to do it and merge them in. We can go further faster that way. I would say, more frequently now, we are looking at some AI functionality ingoing, we can do that, too. And it's not going to be that hard and it's just a feature in a system like we have, and we should do that ourselves. So we'll see what happens, but I wouldn't be surprised if it was a little bit of both.

And your next question comes from the line of John Shao from National Bank.

On AI, some investors ask about the risk of Descartes been disrupted by start-up using AI to develop similar software, potentially take the market share. So from your perspective, what are some of the entry barriers to reduce that risk.

Well, our network connectivity that connects to all these people, you can say you're going to do that with AI. Still got to create all the connections. And those connections change so quickly and the mechanism they used have changed so quickly. By the time you done, you'll have to start all over again and we don't. And that's a pretty big barrier to entry. There's all these governments that we file to that we have certifications and tools that handle every little thing that make it hard for people to compete. You think about someone they want to compete with our network, we can't walk in and say, I can connect to these 5 trucking companies. That's not good enough. You need to be able to connect to everyone that we connect to. Or I have all this tariff data, but I have it from 20 countries, but I have got it from 140 countries, who do you think the customers want to buy this stuff from? I do customs filingl, and I do it in 3 countries, great, you know what, my vendor does it in 100 countries. So I want to do it with them because it's just easier. I don't feel like signing up with 50 of you to get the same job done. And those types of things are the barriers to entry to us. And it's not like I just mentioned one there, I can actually go in on and on and on about it too, by the way. So there's a lot of barriers to entry, and they start to build off pretty quick. And you might be able to convince my mom, you could do this quickly, but you're probably not going to convince our customers that you can do it pretty…

Got it. So maybe just want to revisit one of the earlier topics, so my understanding is there has been a rebound in freight volume this quarter, which is a tailwind for you guys, but your service organic growth is flat quarter-over-quarter. I'm just curious what the offset is.

We were concerned that it was going to be going down. And the fact that it's 4% again this quarter and looking pretty good as something that we felt was pretty good for our business under the circumstances. So I'm not disappointed in any way. And the numbers say you put a spin on it that made it sound like it's not good and someone has been working here for most of their life. I think what just happened was pretty good.

Okay. Sounds good. Definitely good to see the stabilization out there.

And your last question comes from the line of Robert Young from Canaccord.

Another de minimis question, if I could. I'm just trying to understand if the -- I guess, customers are swapping a Type 86 for a Type 1, Type 2 or Type 11. Is that a wash, is it better than you expected? Or is this now a bigger business than it would have been under the previous de minimis? I'm just trying to understand that.

It was a wash to start in that the customer said, hey, I just paid the same way, but instead of making a Type 86 filling, you'll make these gigantic Type 1 or Type 11 fillings, mostly Type 1, by the way. With millions of records in it. Then the really good news happened for us, which was on top of that, our competitors struggled to process those transaction files with millions of transactions in it. We had a lot of experience doing this because we've been doing with the likes of DHL and FedEx and UPS for a long time that have very large transactions in Type 1 and Type 11 filings. And our systems have the scale and scope to be able to deal with it, and our competitors did not. And they had a bunch of their largest customers come to us and say, I need to switch, and I need to switch now. Show me, you can do this. We did a data filings for them and they went let's switch now. In fact, several of them talk about like, let's switch over a couple of weeks. And after day 1, they called and said, we're going to switch everything to you tomorrow.

Okay. And then the second question, maybe just a continuation of the volumes question. You said truck volumes were up quarter-over-quarter. You said the network was up. I'm just trying to understand. I think you noted something about seasonality. Is that just holiday season build? Or is it -- I mean maybe you could just parse that out a little better just to understand if that's something that might continue to grow during the back half of the year.

Truck volume hasn't grown. We just had growth in truck volumes because we continue to pick up business from our competitors in the MacroPoint space. Otherwise, Christmas season is upon us that is different meaning each of the modes of transportation. But in ocean right now, you're seeing the Christmas deliveries getting ordered and with the intention to get everything in, in October or maybe early November. So we're going to know pretty soon here if the volumes continue. Still that limiting trip to China renegotiation, I don't know where that's going to go. I think our customers don't either. So they're probably going to try and sneak as much stuff in as they can before it happens. And in truck and aero, it's a little lighter, but same kind of things to go on there.

Thank you. There are no further questions at this time. I will now hand the call back to Ed Ryan for any closing remarks.

Great. Thanks very much. I appreciate everyone's time tonight, and we will look forward to reporting back to you in 3 months with the Q3 results. Have a great night.

And this concludes today's call. Thank you for participating. You may all disconnect.