Descartes Earnings: Software Good, Transaction Volumes OK, and Margins Strong

Descartes reported solid results for its fiscal third quarter, including upside to revenue and adjusted EBITDA relative to what we anticipated. Transaction volumes held up reasonably well, while software subscription revenue was resilient. However, margins were a highlight and received a boost from recent restructuring actions. Management remains excited about the acquisition environment, which we continue to believe will begin to bolster growth in the coming quarters. Management was once again prudently cautious on its outlook given the environment, but noted a variety of positive indicators such as good Black Friday announcements. Our opinion that the continued evolution of the supply chain toward more complexity and exogenous shocks benefits Descartes and helps attract more customers to its network remains unchanged. Based on good results, we modestly increased our near-term estimates for growth and margins. As a result, we are raising our fair value estimate to $76 (CAD 103) per share, from $74 (CAD 101) previously, and view the shares as fairly valued.