Descartes Uniting Business in Commerce

Transcription

1 Descartes Uniting Business in Commerce December 2015 : DSGX : DSG

2 Safe Harbor Certain statements made today and in this presentation including, but not limited to, statements addressing economic uncertainty; investment in areas of Descartes business with high strategic value and growth potential; our future operating performance; software-as-a-service business model; strategy, market opportunity and vision; Descartes position and opportunity to lead its industry with its business model; solution functionality and benefits derived therefrom; network penetration; ability to complete acquisitions and contribution of completed acquisitions to Descartes operations; anticipated churn in revenues; and competition constitute forward-looking information for the purposes of applicable securities laws ( forward-looking statements ). These forward-looking statements are subject to risks, uncertainties and assumptions that may cause future results to differ materially from those expected. Factors that may cause such differences include, but are not limited to, departures of key customers; the ability to attract and retain key personnel and transition when key personnel depart; variances in our revenues from quarter to quarter; Descartes ability to integrate acquired companies and personnel; fluctuations in fuel prices or shipment volumes; fluctuations in international currency exchange rates; exposure to greater than anticipated tax liabilities; changes in electronic customs filing regulations; the factors discussed under the headings Risk Factors or Certain Factors That May Affect Future Results in documents filed with applicable securities commissions and the documents incorporated by reference into such documents. If any of such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price of our common shares could decline, perhaps materially. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. You are cautioned that such information may not be appropriate for other purposes. Except as required by law, we do not 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. 2

3 Investment Highlights World s Largest Multi-Modal and Neutral Logistics Network Cloud-Based Software Applications and Data Content Automating and Optimizing the $ 4 Trillion Logistics Market Strong Market Position with Significant Competitive Barriers Disciplined M&A Strategy Highly-Experienced Management Team Proven Record of Financial Success 3

4 Descartes: A History of Strong and Profitable Growth Founded in 1981 in Waterloo, Canada Compelling combination of network, software applications and data content Disciplined M&A strategy with 31 acquisitions since April 2006 Highly-recurring subscription/transaction/services revenue Revenue ($US MM) 46 FY06 Adj. EBITDA ($US MM) (1) 171 FY15 52 Focused on profitable operating growth (1) Adjusted EBITDA is the net income excluding interest income, interest expense, income tax expense (recovery), depreciation, amortization, stock-based compensation, acquisition related expenses and restructuring expenses including executive departure expenses. See further details of our use of Non-GAAP financial information on the last page of this presentation. 7 FY06 FY15 The Descartes Systems Group Inc. is a publicly traded company. Nasdaq:DSGX TSX: DSG 4

5 Global Logistics Is Highly Complex $ 4 Trillion Global Logistics Market (1) Numerous constituents Limited visibility and control Multi-modal Resource-intensive Cross-border regulations (1) Market Data estimate per MarketInsight (CompaniesandMarkets.com). Global Logistics Market report, published on 30 May,

6 The Foundation: Descartes Global Logistics Network Air Carriers Ground Carriers Ports & Terminals Ocean Carriers Rail Carriers Cargo Bookings Booking Confirmation Bills of Lading Delivery Status Updates Customs & Security Filings Trade Data Forwarders / Non-Vessel Operating Common Carriers Regulatory Agencies Customs Brokers Retailers Business Service Providers Manufacturers & Distributors 13,000+ Customers worldwide 4.5 billion+ messages processed/year 30 million+ routes managed/year 6

7 Broad Array of Logistics Management Solutions Routing, Mobile & Telematics Subscription or license based on # of vehicles Transportation Management Subscription and per transaction fee based on number of shipments Customs & Regulatory Compliance Subscription and per transaction fee based on number of regulatory filings Forwarder & Broker Enterprise Solutions Subscription based on number of seats Trade Content Subscription based on number of countries and type of trade content Descartes Global Logistics Network Subscription and per transaction fee based on business documents 7

8 Industry Leading Customers Air Ocean Truck Intermediaries Retailers Manufacturers Distributers 8

9 Customer Case Studies Leverages Descartes Advanced Home Delivery solution for: Real-time delivery appointment scheduling Route optimization and execution Mobile resource management solutions Leverages many Descartes solutions across multiple DHL operating groups: Global Forwarding DHL Express (Parcels) Logistics and supply chain management Descartes solutions help American Airlines meet a growing number of logistic challenges across the globe: Numerous countryspecific customs and security filings Manage messaging for AA cargo Manage cargo booking systems on AAcargo.com 9

10 Why We Win Global Multimodal Neutral Network Pure play logistics technology provider with compelling combination of network, applications and data content 10

11 Growth Drivers and Opportunities Cloud Enables Increasing Automation Network offers operational excellence and higher precision through cloud integration and automation Global Security and Compliance Increasing Heightened regulatory compliance requirements and scrutiny of global trade will create favorable tailwinds Growth in Omni- Channel Retail Brick-and-mortar retailers are trying to respond to threat of Amazon, Google, ebay Mobility Enables Realtime Optimization Plan vs. Actual now possible in real-time, with the ability to influence delivery schedules on the fly Content/Data Monetization Customs Info and MK Data acquisitions illustrative of the opportunity to combine trade data content with logistics data on the GLN Large Consolidation Opportunity The logistics and supply chain markets remain fragmented and ripe for consolidation 11

12 Disciplined and Strategic M&A Approach Acquired July 2015 for $80.2MM Acquired July 2015 for $11.2MM Acquired November 2015 for $29.5MM High-growth, premium denied party screening trade data business with recurring subscription revenue Strategic value in combining denied party screening trade data and solutions with the existing network of trade flow Leading provider of mobile solutions for carton-level tracking Adds a community of specialty retail customers and associated logistics service providers with pool distribution capabilities Automates logistics and supply chain processes for e- commerce shippers Adds a large community of small-to-medium sized businesses with supporting ERP and shipping technology partners Immediate synergies achieved by leveraging Global Logistics Network with the valuable denied party screening trade data assets Strengthened Descartes Routing, Mobile, and Telematics platform with deep cross docking, mobility, and carton-level status tracking solutions Extends the reach of the Global Logistics Network to drive more logistics messaging and application adoption 12

13 Highly-Experienced Management Team J. Scott Pagan President & Chief Operating Officer Years at Descartes: 15 Edward J. Ryan Chief Executive Officer Years at Descartes: 15 Allan Brett Chief Financial Officer Years at Aastra: 18 Ed Gardner Executive Vice President Corporate Development Years at Descartes: 10 Raimond Diederik Executive Vice President Information Services Years at Descartes: 17 Kenneth Wood Executive Vice President Product Management Years at Descartes: 14 Chris Jones Executive Vice President Marketing and Services Years at Descartes: 10 Michael Verhoeve General Counsel 11 Years Experience as a General Counsel 13

14 Financial Overview The Descartes Systems Group Inc. is a publicly traded company. Nasdaq:DSGX TSX: DSG

15 Financial Highlights for FY15 Strong Revenue Growth Highly-Recurring Services Revenue Strong Adjusted EBITDA Margins Significant Operating Cash Flow Diversified Revenue 13% 93% 30% 95% of Adjusted EBITDA 10,000+ Customers, 160+ Countries The Descartes Systems Group Inc. is a publicly traded company. Nasdaq:DSGX TSX: DSG 15

16 Quarterly Operating Results Summary of Unaudited Results (US$ millions) % Q3 Q2 Q3 FY16 FY16 Q/Q FY15 % YoY Revenue $47.4 $45.2 5% $ % Service Revenue $45.5 $42.8 6% $ % Service as a % of Rev. 96% 95% 91% Gross Margin 72% 70% 68% Net Income $5.2 $5.1 2% $4.2 24% Adjusted EBITDA $15.8 $14.6 8% $ % Adjusted EBITDA as a % of Rev. 33% 32% 31% Operating Cash Flow $13.4 $12.8 5% $ % EBITDA to Operating CF Conversion 85% 88% 91% 16

17 Year-to-Date Operating Results Summary of Unaudited Results (US$ millions) 9M 9M % FY16 FY15 Revenue $137.0 $ % Service Revenue $130.0 $ % Service as a % of Rev. 95% 93% Gross Margin 71% 68% Net Income $15.2 $ % Adjusted EBITDA $44.6 $ % Adjusted EBITDA as a % of Rev. 33% 30% Operating Cash Flow $38.0 $36.4 4% EBITDA to Operating CF Conversion 85% 96% 17

18 Strong Revenue Growth $US MM FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 18

19 Strong Adjusted EBITDA Growth $US MM FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 19

20 Strong Conversion of Adjusted EBITDA to Operating Cash Flow $US MM FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 20

21 High and Expanding Margins Adjusted EBITDA Margin Operating Cash Flow 29% 30% 28% 29% 28% 22% FY 2010 FY 2014 FY15 FY 2010 FY 2014 FY15 21

22 Capital Structure October 31, 2015 Fully diluted shares outstanding 76.3 million common shares Follow-on equity offering closed on July 2, million $US Cash and investments $US 56 million Acquisition line of credit $US 77 million undrawn 22

23 Baseline Calibration Figures per Qtr Baseline Actual Q4 15 Revenue Adj. EBITDA Adj. EBITDA Margin $41.8 $ % $44.3 $ % Actual % of Baseline 106% 134% Q1 16 Revenue Adj. EBITDA Adj. EBITDA Margin $42.0 $ % $44.4 $ % 106% 135% Q2 16 Revenue Adj. EBITDA Adj. EBITDA Margin $42.4 $ % $45.2 $ % 107% 135% Q3 16 Revenue Adj. EBITDA Adj. EBITDA Margin $45.0 $ % $47.4 $ % 105% 126% Q4 Nov 25, 2015 Revenue Adj. EBITDA Adj. EBITDA Margin $45.5 $ % Baseline revenues = visible, contracted and recurring revenues at the beginning of each quarter. Baseline revenues is not a revenues projection as it excludes sales concluded in the period Baseline Adjusted EBITDA = Baseline revenue less operating expenses (excluding interest income, interest expense, income tax expense, depreciation, amortization, stock-based compensation, restructuring expenses, acquisition related expenses and executive departure expenses) 23

24 Investment Highlights World s Largest Multi-Modal and Neutral Logistics Network Cloud-Based Software Applications and Data Content Automating and Optimizing the $ 4 Trillion Logistics Market Strong Market Position with Significant Competitive Barriers Disciplined M&A Strategy Highly-Experienced Management Team Proven Record of Financial Success 24

25 Reconciliation of Non-GAAP Financial Measures - Adjusted EBITDA and Adjusted EBITDA per Diluted Share We prepare and release quarterly unaudited and annual audited financial statements prepared in accordance with GAAP. We also disclose and discuss certain non-gaap financial information, used to evaluate our performance, in this and other earnings releases and investor conference calls as a complement to results provided in accordance with GAAP. We believe that current shareholders and potential investors in our company use non-gaap financial measures, such as Adjusted EBITDA and Adjusted EBITDA per diluted share, in making investment decisions about our company and measuring our operational results. The term Adjusted EBITDA refers to a financial measure that we define as earnings before interest, taxes, depreciation, amortization, stock-based compensation (for which we include related fees and taxes) and other charges (for which we include executive departure charges, restructuring charges and acquisition-related expenses). Adjusted EBITDA per diluted share divides Adjusted EBITDA by the number of diluted shares used in calculating the GAAP diluted earnings per share, or diluted EPS, measure. Management considers acquisition-related and restructuring activities to be outside the scope of Descartes ongoing operations and the related expenses are not used by management to measure operations. Accordingly, these expenses are excluded from Adjusted EBITDA, which we reference to both measure our operations and as a basis of comparison of our operations from period-to-period. Management believes that investors and financial analysts measure our business on the same basis, and we are providing the Adjusted EBITDA financial metric to assist in this evaluation and to provide a higher level of transparency into how we measure our own business. However, Adjusted EBITDA is a non-gaap financial measure and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA should not be construed as a substitute for net income determined in accordance with GAAP or other non-gaap measures that may be used by other companies, such as EBITDA. The use of Adjusted EBITDA does have limitations. In particular, we have completed eleven acquisitions since the beginning of fiscal 2014, and may complete additional acquisitions in the future that will result in acquisition-related expenses and restructuring charges. As these acquisition-related expenses and restructuring charges may continue as we pursue our consolidation strategy, some investors may consider these charges and expenses as a recurring part of operations rather than non-recurring charges and expenses that are not part of operations. The table below reconciles Adjusted EBITDA and Adjusted EBITDA per diluted share to net income and diluted earnings per share, respectively, reported in our unaudited Consolidated Statements of Operations for Q3FY16, Q2FY16, Q1FY16, Q4FY15 and Q3FY15, which we believe are the most directly comparable GAAP measures. (US dollars in millions) Q3 FY16 Q2 FY16 Q1 FY16 Q4 FY15 For more information on the reconciliation of Non-GAAP financial measures please refer to our press release dated December3, 2015: Q3 FY15 Net income, as reported on Consolidated Statements of Operations Adjustments to reconcile to Adjusted EBITDA: Interest expense Interest income - (0.1) (0.1) (0.1) (0.1) Income tax expense Depreciation expense Amortization of intangible assets Stock-based compensation and related taxes Acquisition-related expenses Restructuring charges Adjusted EBITDA Weighted average diluted shares outstanding (thousands) 76,421 76,396 76,344 76,303 76,190 Diluted earnings per share Adjusted EBITDA per diluted share