Descartes Earnings: The Firm Performs Well With a Pulse on the Changing Industry; FVE Up 6% to $72

Descartes DSG reported strong first-quarter results, with revenue and adjusted EBITDA coming in above our estimates. Management noted continued normalization of the shipping industry toward its prepandemic state, as United States container imports increase, port delays lessen, and the freight spot price decreases. We were also pleased to hear integration efforts following the recent acquisitions of both Localz and GroundCloud are underway. With integration efforts and persistent currency headwinds expected to weigh on near-term results, management provided a prudent outlook and maintained its 40%-45% adjusted EBITDA margin outlook for the fiscal year. We view headwinds as transitory and hold our long-term view that Descartes is well-positioned to address the heightening complexity of global transportation networks. With this, we are raising our fair value estimate to $72 (CAD 98) per share, from $68 (CAD 91) previously, and view the shares as slightly overvalued.

First-quarter revenue increased 21% year over year as reported to $137 million, compared with FactSet consensus of $133 million. Growth was bolstered by GroundCloud revenue, partially offset by $2 million in currency headwinds. Services revenue increased 21% year over year to $124 million, driven by an ongoing mix-shift toward recurring services, signaling strengthening long-term customer retention. Professional services grew 2% year over year to $12 million, as hardware sales and implementation services become a smaller component of the business. E-commerce and related delivery solutions performed well in the quarter, providing strong volumes that contributed to organic revenue growth.