Descartes Reports Fiscal 2011 Second Quarter Financial Results

Record quarterly revenues and operating performance driven by 35% year-over-year increase in revenues

Descartes Systems Group, a federated global logistics network, announced financial results for its fiscal 2011 second quarter (Q2FY11) ended July 31, 2010. All financial results referenced are in United States (US) currency and, unless otherwise indicated, are determined in accordance with US Generally Accepted Accounting Principles (GAAP).

Q2FY11 Financial Results
As described in more detail below, key financial highlights for Descartes in Q2FY11 included:

• Revenues of $25.2M, up 35% from $18.6M in the second quarter of last fiscal year (Q2FY10) and up 18% from $21.3M in the previous quarter (Q1FY11), fuelled in part by recently-completed acquisitions;
• Services revenues of $23.9M, up 40% from $17.1M in Q2FY10 and up 18% from $20.2M in Q1FY11. Services revenues comprised 95% of total revenues for the quarter;
• Gross margin of 66%, compared to 68% in Q2FY10 and 65% in Q1FY11;
• Net income of $2.0M, up from $0.8M in Q2FY10 and $0.2M in Q1FY11;
• Earnings per share on a diluted basis of $0.03 compared to $0.02 in Q2FY10 and $0.00 in Q1FY11;
• Days-sales-outstanding (DSO) for Q2FY11 were 57 days, compared to 48 days in Q2FY10 and 68 days in Q1FY11;
• Adjusted EBITDA of $6.6 M, up 27% from $5.2M in Q2FY10 and up 25% from $5.3M in Q1FY11. Adjusted EBITDA as a percentage of revenues was 26% this quarter, compared to 28% in Q2FY10 before Descartes' acquisition of Zemblaz NV ("Porthus"), and 25% in Q1FY11; and
• Adjusted EBITDA per diluted share for Q2FY11 was $0.11, compared to $0.10 in Q2FY10 and $0.08 in Q1FY11.

Adjusted EBITDA and Adjusted EBITDA per diluted share are non-GAAP financial measures provided as a complement to financial results presented in accordance with GAAP. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization (for which we include amortization of intangible assets, deferred compensation, stock-based compensation and related taxes), acquisition-related expenses and restructuring charges. These items are considered by management to be outside Descartes' ongoing operational results. We define Adjusted EBITDA per diluted share as Adjusted EBITDA divided by the number of diluted shares used to calculate the GAAP measure of earnings per share. A reconciliation of Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and earnings per share determined in accordance with GAAP, respectively, is provided later in this release.

The following table summarizes Descartes' results in the categories specified below over the past 5 fiscal quarters (unaudited, dollar amounts in millions):

*Net income was positively impacted by income tax recoveries of $0.1 M and $11.0 M in Q2FY11 and Q4FY10, respectively. Net income was negatively impacted by income tax expenses of $0.7M, $1.8M and $2.0M in Q1FY11, Q3FY10 and Q2FY10, respectively. Net income in Q4FY10 was also impacted by $3.0M in non-cash stock-based compensation expense, as further described in our audited annual consolidated financial statements for fiscal 2010, compared to $0.3M, $0.3M, $0.2M and $0.1M in Q2FY11, Q1FY11, Q3FY10 and Q2FY10, respectively.

Total revenues of $25.2M in Q2FY11 were comprised of $23.9M (95%) in services revenues and $1.3M (5%) in license revenues. Q2FY11 services revenues were up 40% from $17.1M in Q2FY10 and up 18% from $20.2M in Q1FY11.

Based on the location of Descartes' customers, the geographic distribution of revenues was as follows:

• $11.3M of revenues (45%) were generated in the US;
• $5.1M (20%) in Europe, Middle East and Africa ("EMEA"), excluding Belgium;
• $4.5M (18%) in Belgium;
• $3.2M (13%) in Canada;
• $0.9M (3%) in the Asia Pacific region; and
• $0.2M (1%) in the Americas, excluding the US and Canada.

Year-to-Date Financial Results
As described in more detail below, key financial highlights for Descartes six-month period ended July 31, 2010 (1HFY11) included:

• Revenues of $46.5M, up 29% from $36.0M in the same period a year ago (1HFY10);
• Services revenues of $44.1M, up 30% from $33.9 M in 1HFY10. Services revenues comprised 95% of total revenues for 1HFY11;
• Gross margin of 66%, compared to 69% in 1HFY10;
• Net income of $2.2M, compared to $3.0M in 1HFY10;
• Earnings per share on a diluted basis of $0.04 compared to $0.06 in 1HFY10;
• Adjusted EBITDA of $11.9M, up 20% from $9.9M in 1HFY10. Adjusted EBITDA as a percentage of revenues was 26% in 1HFY11, compared to 28% in 1HFY10, before the Porthus acquisition; and
• Adjusted EBITDA per share on a diluted basis for 1HFY11 was $0.19, compared to $0.18 in 1HFY10.

The following table summarizes Descartes' results in the categories specified below over 1HFY11 and 1HFY10 (unaudited, dollar amounts in millions):

*Net income was negatively impacted by income tax expenses of $0.6M and $1.6M in 1HFY11 and 1HFY10, respectively.

"Our focus is on helping customers deploy quickly, and the rapid successes they've achieved have contributed to our own financial results outpacing our internal plans," said Art Mesher, Descartes' CEO. "We're on-course strategically and look forward to the opportunities that lie ahead for Descartes. Our federated network, encompassing logistics business infrastructure, is inherent to global commerce. Our customers and United by Design partners continue to help us grow our GLN and strengthen our position as a leading SaaS provider of logistics solutions."

Q2FY11 Acquisitions
On June 16, 2010, Descartes acquired privately-held, Belgian-based, Routing International NV ("Routing International"), a leading developer and distributor of optimized route planning solutions. Routing International's flagship solution suite, WinRoute, and dedicated consultants help enterprises of all sizes and across industries to optimize distribution planning to improve the productivity and performance of their operations. To complete the acquisition, net of cash received, Descartes paid approximately EUR 3.4M (approximately $4.2M at the time of the transaction).

The fair value of trade accounts receivable acquired from Routing International was $1.3M. Descartes' results of operations for Q2FY11 included $0.4M in revenues and less than $0.1M in net income from Routing International.

Cash Position at July 31, 2010
As at July 31, 2010, Descartes had $58.5M in cash comprised entirely of cash and cash equivalents. The largest uses of cash in the first half of 2011 was cash used to complete the acquisitions of Porthus (March 2010, approximately $34.6M), 882976 Ontario Inc. ("Imanet", April 2010, approximately $5.8M) and Routing International (June 2010, approximately $3.2M). On January 31, 2010, we had $94.6M in cash and cash equivalents and short-term investments.

"Descartes continues to drive excellent operating performance with a record level of quarterly revenues, clearly confirming the success of the company's strategic focus. Our consolidation strategy, combined with our market position and operational execution, has delivered operating growth in our business," said Stephanie Ratza, CFO at Descartes.

The table set forth below provides a summary of cash flows for Q2FY11 and 1HFY11 in millions of dollars: Q2FY11 1HFY11 Cash provided by operating activities 6.0 8.1 Additions to capital assets (0.4) (0.8) Proceeds from the sale of investment in affiliate 0.5 0.5 Business acquisitions and acquisition-related costs, net of cash acquired (3.3) (43.8) Issuance of common shares - 0.2 Repayment of financial liabilities (0.2) (0.3) Effect of foreign exchange rate on cash, cash equivalents and short-term investments (0.2) - Net change in cash, cash equivalents and short-term investments 2.4 (36.1) Cash, cash equivalents and short-term investments, beginning of period 56.1 94.6 Cash, cash equivalents and short-term investments, end of period 58.5 58.5

Conference Call
Members of Descartes' executive management team are scheduled to host a conference call to discuss the company's financial results and business prospects at 8:00 a.m. EDT on Thursday, September 9th. Designated numbers are (888) 812-2278 for North America or (706) 679-7397 for International. The company simultaneously has scheduled an audio web cast on the Descartes Web site at www.descartes.com/company/investors. Phone conference dial-in or web cast log-in is required approximately 10 minutes beforehand.

Replays of the conference call will be available in two formats and accessible for 24 hours after the call's completion by dialing (800) 642-1687 for North America or (706) 645-9291 for International and using passcode number 91468858. An archived replay of the web cast will be available at www.descartes.com/company/investors.

About Descartes
Descartes is making the world a better place by enabling global organizations with logistics-intensive businesses to save money by improving the productivity and performance of their operations. Underlying Descartes' offerings is Descartes' federated network, the GLN, one of the world's most extensive multi-transportation-mode business application networks. Descartes' regulatory & trade compliance, supply chain execution and mobile resource management solutions provide messaging services between logistics trading partners, shipment management services to help manage third party carriers, global customs filing and compliance services to meet regulatory requirements and private fleet management services for organizations of all sizes. The hosted, transactional and packaged solutions deliver repeatable, measurable results and fast time-to-value. Descartes has over 6,800 customers including ground carriers, airlines, ocean carriers, freight forwarders, third-party providers of logistics services customs house brokers, freight payment agencies, manufacturers, retailers, distributors, mobile services providers and regulatory agencies. The company has more than 650 employees and is based in Waterloo, Ontario, with operations in Amsterdam, Atlanta, Brussels, Copenhagen, Eindhoven, Gent, Lier, Namestovo, Paris, Pittsburgh, Ottawa, Madrid, Montreal, Miami, Washington DC, Silver Spring, Stockholm, Suzhou, Shanghai, Tokyo, Toronto, and Zilina. For more information, visit www.descartes.com.

SOURCE: Descartes Systems Group