Descartes Closes Two Acquisitions and Reports Steady Results

Descartes DSG reported solid fourth-quarter results, with revenue and adjusted EBITDA margin that matched our expectations. Management noted improving macroeconomic factors within the shipping industry paired with a strong demand environment, even with increasing tone of caution from customers entering the next fiscal year. Management announced its acquisitions of Supply Vision, a ship management solutions provider and GroundCloud, a final-mile carrier solutions provider, which is the firm’s largest acquisition to date. With expected acquisition integration efforts as well as persistent currency headwinds, management provided a conservative outlook and maintained the 40% to 45% adjusted EBITDA margin outlook for the fiscal year. We view current obstacles as transitory and expect the improving shipping industry to act as a tailwind for results in the near-term. We hold our long-term view that Descartes is well-positioned to address the heightening complexity of global transportation networks, especially as the firm’s portfolio expands.

After fine-tuning our model for results, we are raising our fair value estimate to $68 (CAD 93) per share, from $67 (CAD 91) previously and see shares as slightly overvalued.

Fourth-quarter revenue increased 11% year over year as reported to $125 million, compared with FactSet consensus of $124 million. We are impressed with the firm’s growth despite currency headwinds, noting that revenue would have been $3 million higher with neutral exchange rates. Services revenue grew 14% year over year to $113 million, driven by an ongoing mix-shift toward recurring services, signaling strengthening long-term customer retention. Professional services decreased 4% year over year to $10 million, due to lower hardware sales and less implementation services required for solutions. E-commerce and related delivery solutions continued to shine in the quarter, supported by a modest seasonal bump.